Balal: The Future of Decentralized Trading15th Oct 2023 | Sunway University | ETHKL 2023

okay our speaker is coming from ZK X I believe his name is balal I hope I'm pronouncing that right all right have you passed them your slides as well okay let me just check it for you uh there's a clicker over here let me just get these slides set up I should have it okay oh yeah okay okay just click the clicker and then let me know if it works yep all right Ladi let's give a warm Round of Applause for our next speaker Mr balal from zkx be sharing about decentralized trading enjoy the button little button there or do you want to take it out you can hold it yeah [Music] second yeah just hold it nearer to your mouth yeah okay there we go hello good morning morning good morning there's no there's no the Starbucks is closed I came in this morning I was like I need a coffee and there's no coffee so I'm not myself at the moment not kind of half zombie at the moment anyways good morning good morning good morning thank you so much uh for allowing me to speak thank you to to the organizers and uh yeah my name is Bal your pronunciation was Perfect by the way I'm one of the co-founders of ZK uh we're essentially based in Asia but I'm actually from the UK so uh thank you all for coming here as well I want to actually say congratulations for choosing to come to eth KL uh there's some straight up ogs uh these guys are really experienced and speaking from a lot of experience and a lot of knowledge and uh what I really like here is there's a lot of uh young people here as well who are I think students and new to the space which is amazing to see and I really hope that uh more Malaysians continue to innovate and and bring more uh outstanding projects into the space so who knows like maybe Malaysia could be another hub for crypto in Asia uh I think it has the potential so do you know why I like to come to these kinds of events as opposed to the commercial ones uh the reason is that the emphasis that uh is on these conferences is mostly on decentralization and uh as opposed to the very commercial blockchain uh events that happen around the world um uh what we see there is that those are actually dominated by CI projects like the big CX exchanges and when I walk around those uh those conferences I think what are you guys doing here because actually uh the entire point of blockchain is to be uh permissionless uh um uh trustless and decentralized but what those CI projects have done is actually have done the exact opposite of what we are trying to do which is they've made the technology permissioned uh trusted and centralized and that's kind of weird right but actually why is that you have to think very carefully why is that is that situation and to be honest I blame us like developers because what has actually happened over the last five years is that we the builders have hyped up our technology so much but it wasn't actually delivering the real use case or the real uh problem uh the solution to the problem and so it wasn't ready for the big time but it went popular suddenly and we've had so many disasters in the meantime so what we actually built in The Last 5 Years generally was slow unreliable hard to use and very expensive like the guy just mentioned he was like playing around and he spent 414 eth on just on gas fees that's ridiculous and so what has actually happened is that uh because of our hype that we generated everyone retail people even a couple years ago they followed the hype and they wanted to do something and so they had to find a shortcut to get it done no one's going to spend 440 eth on gas fees so what's the other way use a CeX right uh to use a centralized protocol and uh unfortunately the result was things like FTX and Celsius and a thousand other scammy defi projects of rug poers and uh all this people just like their projects died or they got rugged or whatever so the result now is now when you tell your friend your friends and family that you work in say crypto or web 3 they probably think you're crazy and uh my mom thinks I'm I'm a scammer and uh she may have thought that already even before I got into crypto who knows but actually the the intention is actually that we the real people who are here still in the barrel Market when it's horrible like horrible time but actually we are here to fix things which is cool and uh we want to repair our images our industry's image with real Innovation with radical Innovation to the point that we actually build real products and products that solve real problems which is actually people don't really think about this they always create problems and they create Solutions in our industry they don't actually look at existing problems in real life so um we want to create protocols that change the game that sweep the legs out of these uh centralized projects completely destroy them so I'm here to basically share our story of how how we're trying to reinvent decentralized trading and every every Dex has its place by the way I don't think of these guys as comp competition we all have our space we all have our different users but before I come to that I want to share a few concerns uh that I have about our industry um so take everything I say in the next 10 minutes with a pinch of salt I might be talking complete nonsense uh do your own research don't believe me at all because everyone in crypto is always selling something they're Shilling something right uh and they're always telling a story and more often than not uh that story is wrong because the projects which were really popular say five years ago are not popular anymore so those guys telling stories five years ago were actually wrong uh it doesn't mean they're a scammer but it's just that they were kind of building up hype for their own project and that's this idea of building a hype is actually part of crypto trading as well so um often you if we've heard the the idea that there's a narrative around crypto trading it means that some people came up with some crazy wild idea with their friends and like yo let's do this and they created everyone everyone got excited about this thing and everyone's following and every go it go viral and everyone start buying it suddenly and most recently for example just a few months ago there was meme coins like why the hell would you buy a meme coin did anyone buy Pepe by the way no one bought Pepe no some of you must have done you're lying you're afraid of her you're ashamed of it right exactly so like people like hyped in right yo Pepe just buy it why I don't know like just buy it and right now it's friends Tech are you guys on Friends Tech by the way is just mentioned just now on stage you're all liars you're all I know you're all Deens all of you Deens never reveal their real uh what they're doing right anyways who knows what's coming next nobody really knows just watch out for the next narrative and jump in maybe jump out I don't know do whatever you want to do but here's my three radical predictions for 2024 okay first off first off there's no bull run and anyone who tells you this is a bullshitter and I honestly think if you trade irresponsibly uh you going to wreck yourself the second prediction is I think Autobook dexes will overtake amm and Unis swap over time will slowly die it's it's great I like un swap they're nice people but over time I think it will die third prediction is ZK Bridges which you might not know about at the moment I'll explain a little bit later I think they'll overtake or replace or be re reinvigorate uh bridging uh for cross chain swaps and I think if you continue all the billions of dollars of loss to be honest most of it is because of these crappy Bridges so I think they have to die I want them to die actually I hate them so let's go for the for the first thing first off there's no bull run coming right now and here's why this is why what the hell is this okay now what I actually think is Bitcoin which is like the leader right of our industry it's the original cryptocurrency it's facing a very serious problem so as you know bitcoin's primary primary selling point is a it's a uh currency which is nonan No One controls it and cannot be devalued by anyone especially a central bank anywhere however with interest rates Rising its main enemy which is the US dollar is becoming more attractive to hold and it's actually appreciating in value which is quite for a lot of young people they can't believe this is actually going because all the story you've heard about the US dollar it's depreciating which is the story of why you should buy Bitcoin right because US dollar is going to be worthless in the future but just keep in mind that this story about devaluation of dollar is because uh it's being told again story narrative it's being told by some people investors don't actually keep US dollars in the bank account or under their bed they invest it into assets into property and commodities and in a last few years those have hugely gone up in value and so this an indicator on this graph uh called rstar which is actually a Rough Guide of how far the uh risk-free rates uh are expected to be above inflation on average so basically the higher the number this the number on the left the the more returns people get from their dollars because interest rates are high and inflation is low now look at the graph uh when did bit Bitcoin come out by the way 2009 right 2009 look at the graph the huge dip 2009 it means Bitcoin was something uh attractive with dollars were not attractive anymore we've be living through the cycle for the last 10 years and now where are we gone up it's suddenly gone up in the last few months literally so dollar is now very attractive and things like say crypto is not that attractive anymore who are the people with the money old people right people in 40s and 50s and 60s do they really truly believe in crypto and Bitcoin the way that say people in their 20s do not really so all this uh talk of institutional money and things like that uh I don't know I I really don't know I don't I don't really believe in it right now I don't think so because the money is actually better invested for much lower risk and you still get a really good return in all these other Commodities and even if you just hold dollars it's appreciating so the thing about this is that um the the higher the um uh this is a problem for Bitcoin for a couple of reasons first of because it means that people are less likely to want to hold Bitcoin if they can return if they can get a positive return on their dollars and it also makes makes it more difficult for Bitcoin to attract new users so in addition the bitcoin's uh fee model is not sustainable in the in the long term because as the emissions fall with every harving you there's a harving coming up in like spring next year it means that more and more of the security budget needs to be paid with fees and right now fees are negligible pretty much so either in the future the Bitcoin has to generate a lot more fees or it has to be a lot higher in price so right now they're negligible the fees are negligible but the the rewards which is the fr the new Bitcoin is like $25 million a day but that's going to be half the next year so what's going to happen uh so I've seen actually an estimate that in the long term that for the fees to replace the block rewards Bitcoin actually needs to be trading at $750,000 per Bitcoin so you know there's that guy last year who made or early this month early this year you made a BET right for a million dollars the Bitcoin will hit $1 million or you know that kind of thing that guy I can't remember his name so these billionaires these whales have an incentive because they they have a lot of Bitcoin they want Bitcoin to go up for this reason maybe they saw this calculation already before me I don't know so if Bitcoin is unable to generate enough bees uh at the high enough price um then it may become unprofitable to bit to mine Bitcoin and that would lead to the decline in the security of Bitcoin which makes it vulnerable attack which makes it maybe trash who knows it's scary Okay so what does that mean for we're at eth conference right so why am I talking about this uh what does it mean for the future of crypto so basically uh we will maybe we were write about the government printing infl uh printing money which caused inflation but it's wrong to immediately translate that to the story that the price of Bitcoin will will go up because it's ultrasound money or whatever it is so it could be that Bitcoin will underperform other assets in the coming years or maybe I'm wrong who knows so basically if this rstar number go goes up even more it means Bitcoin is even less attractive so keep a eye on this number if it drops down again maybe Bitcoin is a lot more attractive so this is like a really interesting uh graph to look at so if Bitcoin doesn't uh May succeed in the long term but just keep in mind it may not as well so basically Bitcoin drives the entire crypto industry it means it brings in liquidity it brings in users uh as overflow into things like eth and other ecosystems so I my prediction is basically for 2024 for no longer than 2024 just for next year I think crypto will be a niche asset class um in the short term and I think it's only really suitable for high-risk speculators who are a little bit crazy and wild like you guys and most people in the world are not high-risk speculators think about your friends and family man they don't play with their money they don't sell a house and buy some crazy meme coin they don't do this this is this is weird so people who say also that technology is the answer like L2 Rolla or account abstraction or it's going to going to bring on like a 100 million people into crypto they they're nuds because they're looking at this from the technology angle and not the human angle or even the macro picture so there is actually a way that Etc can flip BTC and get out of the uh isolate yourself from from Bitcoin and that's by ethereum Builders building like remember what I said at the beginning building products with real world usage so this year is a year of infrastructure I'm really impressed by what people have built in the infrastructure level but at the the uh uh the application Level I don't really see much Innovation yet and if someone is building something right now it's going to take a year for adoption so I still don't believe the bull run is here that's my that's my that's my opinion probably I might be lying who knows don't believe me all right now my next prediction by the what time is it how much time have I used up already it's at the end of my talk that's it how how much more how much more I'm really bad at timekeeping okay okay just send me email keep going going yeah this is good stuff right okay the second thing is uh aut books I think most people you probably use Unis Swap and other amm so order books I think will overtake amm uh in 2024 so uh do you guys know exactly what order book is basically uh amm is like let's say you sell bananas and you sell pears and you sell apples so amm means you go to the market square and you put all of your apples into a big pile all the Traders come and put their apples and bananas into these different piles and then the customers come and buy from that from that pile and the price depending on how many bananas and apples there are compared to each other the price can can go up and down so that's what a amm is it's a little bit of a weird concept imagine doing that for real life it will be a little bit weird the normal way is that if you are selling something then you want to do a trade with someone and you kind of like either he gives you an offer or you give him a price right that's the normal way that we think about when we buying and selling something so that's what orderbook is basically it means like when I have say one apple and he has two bananas we we he would say no no no no I'll give you like less or more or whatever we do a negotiation so order book is basically uh people are throwing in like offers and people are trying to take offers as well it's called makers and takers so that's what this aut book is basically that's the natural way that that we think as humans how to trade so uh a CeX on the other hand is kind of like you want to make a trade like you like hey I want to buy some bananas they're like okay give us two pairs so you give them two pairs and like they're like oh we got you a banana don't worry and you're like wait you got my banana and my pairs like yeah yeah we got it we got it so like and CX that's the thing about self cussy you don't actually own anything they own everything actually so uh again CX is a natural way to trade if you imagine going to Super market and giving them money and not taking home your shopping that's what a CX is it's weird so like again order books is like the most natural way that we we think about of how to trade it's it's normal now what's the good things about uh amm like unisoft for example first off it's a it's naturally decentralizing uh by default because it's permissionless anyone can open up like a a pool and like of bananas or apples or whatever and start start trading I maybe encourage my friends to put in money as well so you can spring up an uh liquidity pool and it creates uh a medium for exchange of value immediately without needing permission from anyone which is beautiful it's really nice concept so you can to potentially token tokenize anything the bad thing is that actually you need to supply liquidity first before you can trade and that's weird because maybe you don't want to put everything into your pile maybe you just want to do a little bit you want to keep most of it but in uh with this it means you put everything into a pile and the bad thing about that is it creates a Honeypot for other people to attack and steal your pile of bananas which out in the open so it's kind of like a little bit scary and it happens all the time the lp uh like amms get drained a lot a lot so that's a bad thing another bad thing is uh there's something called Perman impermanent loss impermanent loss is basically when the price of my bananas goes up or down there's a moment of inefficiency when say other piles of bananas maybe may be trading higher or lower so the people who one of like Traders they can like buy and sell between the bananas and I'm kind of losing out a little bit in the meantime it's called impermanent loss it's kind of a guarantee with amm that if you have volatile pricing there's inefficiency there essentially and you as a seller will will lose out and if you pull out if I suddenly like get panicked and I pull out my bananas I I lost money actually as AO as opposed to an aut book so another problem is that you can't algorithmically train uh trade on a on an amm that's bad so I actually think in the future because of this problem with the price volatility and efficiency in the future amm will be like just on stable coins like swaps usdc for usdt or whatever maybe that's what Unis swap will be in the future amm will be around but a books will take over and the reason is that with uh aut books it requires a lot less liquidity to actually start uh to actually trade on a aut book it's much better for for liquidity providers and bothering is the natural way that of how we want to want to trade as well even it's the traditional way that's been done for like you know 100 200 years and the the killer feature is that when essentially you um you trade first on an order book and then you supply liquidity so it's like you you don't have to like throw out all your liquidity out you you say I want to buy this can I buy it and like yeah sure okay now we exchange the money right that's a normal way so essentially liquidity follows the the the trade so especially when you supply throw in a a limit order um then essentially you're you're kind of supplying liquidity but you don't actually do it until the trade actually gets complete so why do I think that all these new order book uh dexes will actually be dominate quite simply they were too expensive before and we couldn't Implement all the features of U of A real order book uh in a decentralized fashion which is why 90% of all order books all trading is done 95% maybe more is done on CeX because CeX is fast it's cheap and uh simple to use and building an order book on chain before was really really difficult and it couldn't be done basically so now it can why because the tech is ready remember I mentioned 2023 is a year of infrastructure so all these like cool L2 uh rollups uh all this Innovation means gas Fe is a lot lower it's a lot faster ZK rollups means that finality is really quick so you can start thinking what can I build with this Tech aut book man build a aut book a really good one and plus also also the next point was actually about the multi-chain thing that if you have your money sitting there and you want to buy another token on another Network right now bridging was a was a big was a was a big problem with ZK again you have interoperability it takes away all the complexity all the problems of previous Autobook models and now we can build really really good autobooks so I think uh as long as the UI is really good I think it will take over that's my prediction right my third prediction how much time do I have sir I need at least 25 minutes is that okay it can't give you 25 minutes just about five minutes you can slowly wrap up y yeah I'll do a quick summary this is the most boring part but actually uh there's two kinds of bridges in the world all right um so here's the thing with bridging use a bridge to take your assets from one network and put it into another right that's what you do okay I got like some eth I got to move it from eth mainnet to arbitrum why because I want to do something some whatever it is okay so you do this briding thing so a lot of people most bridging happens on cxs they do this like you know Tron like this weird freaking Network called Tron it's huge because they do bridging from uh from CX to CX I don't know why like USD on Tron is like number two it's like huge volume like very profitable uh protocol I don't know why but it is everyone uses Tron anyways there's two kinds of bridging uh the first one is a trusted Bridge so this is a CX uh in the bottom left basically you trust the middle guy so uh equivalent uh analogy is let's say I got to send a package I got to send my phone to my friend at the other side of town but and he and I'm going to sell it to him and he's going to send no it's not my friend some random guy 100 for 100 bucks right but then I'm like okay uh okay I guess I'll send it right so I send it there I'm like I hope the money comes through like I'm waiting is the money coming through like I don't know I don't know like it's scary right so what do you do you have a trusted intermediat like the delivery guy right he won't exchange give him the phone until he got the money back you got to trust the delivery guy is a real guy is going to is going to come through what if he disappears right like it's like a typical CX that's that's what essentially trusted uh this essentially this architecture here is is basically like an exchange so the um okay good wait I'm looking at the wrong thing yeah good okay so basic we saying that both sides of the network need to trust the the midal party in this case so the other uh case is that um uh this is obious limitations here but when you see when you have um essentially uh uh you have two other kinds of two other kinds of bridges one is the optimistic bridge and one is the um external valid set bridge on the right hand side so on the one on the right hand side is very similar to the one on the left hand side but the only difference is you have like a a multi like a like a committee of people who approve something so one person cannot be trusted but maybe a group of them can but again this is often also exploited to the point to to the tune of billions of dollars it's like a multi Sig essentially if you can steal the multisig you can like approve transactions that don't exist and things like that and then you have a third type which optimistic Bridges uh this is similar to optimistic rollups but essentially it relies on Ford window to resolve any dispute uh about the vality validity of actually what happened and the key thing here is you you basically want to find out with any of these Bridges whether it's trusted or trustless what is the situation happening over there like I want to know like is he does he actually have a 100 bucks my 100 bucks is he actually going to send it to me and he's Wonder wondering the same thing about me what if I send him a brick you know like is he actually going to send a phone this is in the cross chain and multichain world this is the biggest problem in the world like what's happening on the other other network have no idea so this is is what we call uh the that the protocol the the middle thing in the middle whatever it is has to coordinate this change of state across the different networks like what uh what it is what's moving how much it is whatever all that kind of stuff and it's a big deal because if you mess it up you can like ruin so many different things the other model which I I think you'll start using quite soon is um essentially a trustless bridge so the most secure is called a state validating bridge this is basically in where in like in real time say Network a network B Network B receives the state from Network a validates it and independently doesn't need anyone else whatsoever checks that the n network is valid and and it's sticking to the rule of the of the transaction it's very very secure don't need anyone else to check I can it's like I can like jump over to the other side of the world and like check you got the money good I'm going to jump back it's like it's like magic like that basically but the problem here is that the other kind of situation uh of actually implementing this is that it's too expensive because uh people have tried to build this and the solution they came up with was this one consensus verifying and this is actually valid on Cosmos so IBC protocol which you may have heard of is on Cosmos and because Cosmos is a very cheap gas uh gas fee um you can run this kind of thing this is way you want run a it's called a light mode uh a light node when you run a a client it's like I got a friend sitting with the other guy on the other side of town and I was like dude did the guy have 100 bucks he's like yeah he had got 100 bucks I'm like cool thank you okay I'll send the phone then it's like that and and the other guy got his friend here with me he was like does I have the phone yeah he has the phone okay then we both know we're talking to our friends on the other side so we know it's so so good that's the analogy of what IBC and cons verifying is thing is again even this you can't build on ethereum is too expensive because ethereum is is not only very very high gas fee but also has a very large validator set and also the public key stake distribution is very burdensome it's pain in the butt so what's the solution ZK bridge and why ZK because ZK proofs are very small this is the beautiful thing about ZK and any technology where it makes something smaller is always going to lead to Innovation so ziki Bridge basically has the same idea of having a buddy on that on the on the you know on the other network and I'm I call him but uh it's a very small and cheap uh essentially gas fee so it makes it uh instead of having being very expensive in terms of computation uh after you've made it proof the proof is Tiny and it's it's guaranteed as well unbreakable at the moment as well so both the networks can talk to each other as long as you can create and validate the the the proof on each one so not every single Network supports this kind of this method but more are so for example salana we try to build zkx try to build one on salana we couldn't do it it wouldn't work technically so like okay we we skipped it and we waited so that's me yeah I didn't show anything about myself no one knows who what zkx is right can I have like you can give a few sentences to describe zkx okay we have we're crazy right we have this crazy wild idea to build a decentralized self- custodial version of a CX basically something with even better ux even better security uh completely uh like very powerful functionality and it's so good it's so good that you don't need to use a CX anymore so that's our Challenge and we're going to go live in about 2 months time roughly so we' be building on stealth for the last like one year and now we're like kind of confident we kind of can't believe we actually did it and we're a little bit scared right now as well as to what's going to happen so anyways we're very excited so z.com uh take a look and about two months you'll hear a lot of noise about us hopefully thank you so much awesome excellent presentation let's give him a big round of applause thank you very much balal we really appreciate it and definitely go and check out his uh project coming up soon in two months time zkx um