Putting the Decentralization in DeFi: Addressing the Critical Problem of Data in Crypto l KBW2024

let's get the first slide hello um I'm Hugo fillian uh co-founder and CEO of a blockchain called Flair uh and today I'd like to talk to you a little bit about uh data in blockchain and why it's not as good as it should be so we term flare as a third generation blockchain what does this mean well in the beginning there was Bitcoin uh and other non-smart contract platforms and they allow users to perform very simple transactions such as payments and escros importantly and the reason why we're all here is they allow that to happen without a middleman and without censorship then came ethereum and the plethora of other smart contract platforms they add logic to these transactions in the form of virtual machines letting people do slightly more complex transactions and now comes flare the only third generation blockchain letting people build logic using a virtual machine but integrating data natively to the chain so why does the evolution of blockchain from first to third generation necessitate data we'll come on to that now in a second generation blockchain like ethereum or salana or any of those there's not actually that much you can do with the logic that it offers can do payment transactions and escros but really the most credible product the thing that has been built solely using the logic of those chains uh is really Unis swap style amms so a smart contract blockchain with no data really can't be used for that much and that's why we've seen oracles come around data is needed for the rest of the defi ecosystem that exists today and it's needed for everything we want to do in the future it's needed for real world assets bridging interoperability it's definitely needed for AI it's needed for gaming prediction markets Etc you get the picture data Powers almost all of the current and definitely all of the future use cases in blockchain so a blockchain can do that natively can give full security and decentralization to most everything anyone wants to build so a little bit about today's Oracle you might say that we already have data but not quite in the way you may think and not true to the principles of what blockchain of how blockchain was founded data Powers almost all current and future use cases but we pay almost no attention to its safety decentralization and usability let me give you an illustrative example of how today's oracles work you have a chain where people have built daps but that chain doesn't provide data so they need to get it from somewhere someone builds a system external to the chain let's call them for argument sake block link they and their friends set up some computers that aren't part of the chain nodes let's say there are nine of these computers in total and dap one needs the USD Korean one price and dap two needs the ethereum USD price well out of those nine nodes three of those nodes might decide to provide a price feed for USD Korean one and four might provide to might provide the price feed for USD eth well firstly nine offchain entities is not many and this is an example but in reality it's only 31 which is still very few secondly what is security uring these offchain entities in reality that isn't clear there's no well defined Economic Security for almost all of the oracles out there who are these entities well for many price feeds that's also not clear and lastly if you're a developer you're faced with the uncomfortable situation where a popular price feed may have many contributors but the price feed you need may have very few in today's oracles across the two most popular oracles chain link and pith the worst supported Oracle has only five data providers and this unnecessarily complicates the development experience limits experimentation and massively reduces the probability that we will uncover future use cases that are valuable to us as an industry so to summarize Data before flare oracles are applications that are external to the chain like chain link or pith they have minimal security guarantees they're often not very transparent try to figure out what is securing your chain link nodes that is quite a challenge there's really almost no information publicly available about that so they aren't really decentralized today's oracles have limited data are expensive to use and because each feed has a variable level of security they create a complex developer experience this leaves today's defi using poor data services with a trust-based security model this is just like trafi but unlike trafi where there's regulation to ensure that your def funds are safe against Bad Oracle signals there's nothing in our industry that regulates that and so today's oracles are securing around $40 billion worth of value with very limited security after governments today's oracles are by far the biggest risk to our industry so we've covered perhaps the stormy clouds before flare now let's move on to something a bit more sunny flare has two core data protocols that are built into the network we call building this into the network enshrining for pricing we have the flare time series Oracle it can deliver up to a th000 types of price feed and it updates every single block which is roughly about 1.8 seconds every one of Flair's minimum of 100 validators contributes to each price feed so this means that there's no more complex developer experience trying to figure out the risk of each feed for data from other blockchains and from the web we have the flare data connector this proves events from connected blockchains like whether a user deposited an amount of tokens in a bridging smart contract so that those tokens can be used on flare or on another connected chain it also Al proves events from web 2 apis like the number of states won by a US presidential candidate going to that you know that example goes nicely with prediction markets and these Protocols are operated directly by the network validators that is they are enshrined into the network and they are secured by the stake of the network taken together these two protocols can facilitate the V majority of datadriven current and future use cases so I previously showed the structure of today's Oracles in a little example now let's show the structure of flares on flare all validators contribute to all data currently around 67% of flr Flair's native token is either Stak or delegated to the validators all data in each Oracle has has the same security guarantees and that is really nice for developer experience and I hope you agree that this is a much more convincing and secure model than that provided by today's oracles so to sum up flare flare is the only layer one within shrined oracles it operates the evm for smart contracts this is the most adopted virtual machine in blockchain this means that developers can easily build daps on flare with their data coming directly from flare and secured by the network the chain is optimized for data are oracles are fast data is cheaper on flare and using data is more developer friendly because you don't have to choose don't have to assess the risk of each feed but I hear the question what about reaking what about igen layer well enshrining data services is greatly preferable to building them with reaking and let's discuss a little bit why so some people have proposed securing oracles through reaking how does reaking work in brief it allows people to stake ethereum to validators on ethereum using a liquid staking protocol by this mechanism the Staker receives back from the staking protocol a derivative token that represents a claim on the staking position financially that position looks like eth plus earnings from the validator minus any slashing events and slashing events is what is key here the Staker then takes that derivative token the liquid stake teeth and Stakes it against an actively validated service this might be an oracle it might be a bridge it might be some other form of service within this model the Stak liquid staking token can then again be staked to a second AVS and then using the same mechanism a third and so on and so on so that's an introduction slides a bit buggered um so that's an introduction to reaking and what's happening with avss so what's happening here in the economics sense well the initial liquid state eth is a portfolio position that represents eth earnings from the validator and slashing risk that comes from validation this asset is then used to secure an AVS service this mechanism of reaking transfers the risk of slashing in one service in this case validation directly to an unrelated service the AVS and hence at any time the value of the asset securing the AVS can reduce I.E it can deeg from the assumed value under the eventuality of a dpeg this potentially can lead to unpredictable behavior in the AVS due to overleveraging for example the economic security of a service no longer matches or exceeds the downstream value relying on that service an oracle securing 10 billion of value May suddenly have far less than 10 billion securing it so Services operated by avss essentially have an inferior type of asset securing them relative to enshrining which uses a layer one asset so then let's what is the second layer of restating I've already restak in one restating protocol now I've got my token back through a liquid reaking uh protocol and I want to restake again so what happens at the next stage here the problem from the last slide is compounded it's quite simple as we get further along in the rehypothecation of the asset I.E the liquid St restak token from avs1 is now used to secure avs2 but AVS one also has slashing risk so abs2 is transferred both the slashing risk from ethereum but also the slashing risk of avs1 thus the assets securing a vs2 is now an inferior type of asset both to the asset securing avs1 and to the asset securing ethereum or in Contra point an enshrined L1 service so to come on to enshrinement it's really very simple why is this an a better and clearer economic model compare this to the enshrine services on flare compare the avss to theine services on flare consisting of at this moment validators and the two data oracles all flare is available as stake to those Services either directly or through a liquid staking protocol if slashing is enabled there is no slashing risk to the services as a whole only directly to the validators on flp there is no risk to the enshrined services that some Upstream service can affect their operation by impairing their state capital because the enshrined services on flare enjoy the full security of using the unre hypothecated L1 token for safety as these enshrined Services provide utility and the adoption grows so the value of the stake securing them should grow with it this is unlike in an AVS where the securing value is not related to the protocol it's related to ethereum importantly and pra importantly practically every type of service that can be secured by an AVS can instead be enshrined so now back to flare we've covered how flare is an L1 evm chain with enshrined data protocols oracles and now we come on to the next thing that we're building to improve both the develop and user experience you can build daps on flare that use data from the enshrined oracles and harness trusted execution environments for complex and data heavy compute needs to us this is very exciting but why so what's the problem what's the problem we're dealing with everyone is used to very high quality applications on web too like Instagram X or apple music these applications require huge amounts of data and are very compute rich but blockchains aren't capable of handling this amount of data or this amount of compute for instance to store just one gigabyte of data on ethereum would cost you $60 million and on salana it would cost you $1 million by contrast to secure this in a te using Google Cloud it cost 27 cents so this means that daps built on blockchains are incredibly basic and they don't meet the expectations of the vast majority of potential users ultimately this limits what can be built and is a massive barrier to adoption just two examples complete the picture here with a centralized exchange like binance or any of the other exchanges there are fee tiers for how much you trade this is impossible to compute on chain it is impossible to keep a track and compute a particular users's trading on Unis Swap and to do that on chain and this is why Unis swap doesn't have Fe tiers like its competition in the CeX World another example openc with its nfts only acquires five data points from the blockchain this is not the kind of user experience that the vast majority of people in the world are looking for it's only Us in this room that tolerate it so te trusted execution environments can solve a problem but what are they a te is a secure Enclave within a CPU you use one every day in your Apple iPhone for face ID they enable trustless tamper proof and confidential computation this is referred to as verifiable compute I.E knowing the inputs the output given can be verified for correctness this is an incredibly useful quality for blockchain dabs so how does integrating tees give users feature Rich dabs whilst not reverting to web 2 trust assumptions well in web 2 a user relies on the application provider for the program Integrity you can think of program Integrity as being the rules of the application for instance on X or Facebook that when you log in your account will still exist you trust that the provider will not give all of your private information to anyone that asks it this is program integrity you also trust that application and that application's owners for compute Integrity you can think of that as being the expected outcome of using the application I.

E that when you do something you get the same expected result every time for instance that when you send someone $100 from your bank account $1,000 is not sent in web 2 for both of these cases program and compute Integrity you the user have no control over either you can be banned from using Instagram or X without any recourse this is program Integrity your search results on Google May deviate markedly from dayto day for the same query this is compute Integrity but by combining flare and verifiable offchain compute we can build daps where the program Integrity that is the rules of the application are embedded in the blockchain and the compute whilst taken offchain into a trusted execution environment is verifiably correct according to the rules of the app embedded on the Chain so this means that an X an Instagram a shopping application or anything else can be built where you have certainty over the continued existence of your account and how the data you're passing to that application is processed you can build or use web2 applications but with blockchain guarantees and this is why we're very excited about tees but of course these applications need data and in order to ensure the Integrity of that application then the data sourced must be sourced in a decentralized way and the the only real solution to that today is flare so I've made a big pitch as to how we can get to adoption data and compute but let's take a step back and ask what are the next steps that we're working on well flare is a layer one evm based blockchain that enshrines data services to provide developers a safe and easy substrate for building daps we're bringing in verifiable offchain compute through tees so that developers can build experiences for users that are better than those available in web 2 better because they merge the rich experience of web 2 with blockchain guarantees what are our immediate next steps first we've developed the data services on flare our next major project is to get those data services available across as many ch that need it safely so that everyone across the space can harness Flare's enshrined data model and have more security over how those deps are operating our partners at flare labs are using Flair's enshrined data services to launch a bridge that couldn't exist without these services for the highest value non-smart contract tokens in the space Bitcoin and xrp the bridge is trustless and works through overcollateralization this unlocks the value of Bitcoin and xrp on flare and potentially through our Bridge Partners into other ecosystems and excitingly in November we're launching our first hackathon with Google Cloud around verifiable offchain compute using trusted execution environments we're looking forward to seeing the first versions of feature Rich user friendly applications being launched on Flair so just a little bit about Flair's ecosystem uh it's growing fast backed by a dedicated set of currently around 150 Partners across various sectors from defi to infrastructure to wallets we've been joined by some of the world's leading infrastructure providers including Google Cloud figment anchor competing within they're all competing within Flair's independent valid dat set they don't get special privileges but these entities boost the network credibility its stability and maintain service around the world security is a top priority for our ecosystem we collaborate with immuni Safeguard our applications and end users we've implemented proactive risk management with Hyper native and collaborated with elliptic for chain analytics to retain compliance in turn these in Integrations support our institution grade custo custodians fire blocks and hex trust our recent integ integration with layer Z V2 along with Partnerships with Stargate and polyhedra brings bridging to flare and potentially the opportunity to bring our data to the other networks and they bring usdt usdc and ethereum to the so on flare defi is currently growing very fast a community approved emissions program to incentivize people to build in flare to bring their value to Flare's defi is Distributing over 500 million flare tokens to users of our trading platform lending protocols and staking Solutions with the upcoming F assets bridges that is the bridges for xrp in Bitcoin flare is poised to have an EXC 2024 we've just reached a million addresses and our onchain transactions and ecosystem tvl are climbing fast so to sum up flare is the first third generation blockchain it does what Bitcoin did with uh transactions what ethereum did with adding logic to those transactions and it adds data into the mix through enshrining the data protocols on the Chain it steps Beyond just being able to build applications and allows developers to build applications with data sourced directly and securely from the chain it brings the ability for developers to build data and compute Rich applications that users will love flare is connected 75 chains and 50,000 daps through its partnership with Stargate and ler zv2 its onchain ecosystem and tvl is growing rapidly is secured with institutional Partners such as Google Cloud figment a41 in Korea and others I hope you can come and use flare and thank you for your time