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SotN#11 - BUILDING w/ Raul Jordan (Eth2 Testnet Broke? L2 will Save Us! Pro-o-o-tocol Sink!)
01:19:30
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- [07:49]
A
One.
- [07:52]
B
Hey, everyone. Welcome to State of the Nation. This is episode 11th, our 11th episode of State of the Nation. David, how are you doing today?
- [08:01]
A
I'm doing just fantastic. I stepped away for a whole four days and it, it cost me in my ability to understand what the hell's going on.
- [08:10]
B
But, you know, four days is like probably four weeks at least. Like in the real world.
- [08:15]
A
Yeah, yeah. It's an insane amount of time. But I've spent most of yesterday trying to get back on track and I think. I think I'm there. I didn't think I'm there.
- [08:22]
B
Awesome, man. Well, I'm excited. We've got some great topics. We've got a very special guest, Raul Jordan. He is from the Prismatic Labs team and we are going to introduce him in just a minute. But if you're not familiar with State of the Nation, what we do every single episode is we broadcast this live on Tuesdays now. So Tuesdays at 10:00am Eastern Time, we're pushing this live. You can ask questions in the comments, but we have some prepared content that we talk about. What we really try to do is talk about what's happening to all of the big picture stuff that is going on in crypto, going on in the bankless nation. We try to drop some insights and action items every single episode. So you are constantly leveling up, like using the events that have gone on the previous week to level up. So every Tuesday we drop this on YouTube. We also release it on our podcast stream on Wednesdays. So if audio is more your jam. You want to catch this while you're going for a jog, whatever. Catch it on Wednesdays that way as well. David, before we dive in, we should talk about our fantastic sponsors. You want to start with Gods Unchained?
- [09:31]
A
Yeah, Gods Unchained. I love having Gods Unchained as a sponsor. So for those of you guys that have played Magic the Gathering or Yu Gi oh or Pokemon or Hearthstone Gauze, Unchained is a game just like that. It's a trading card game where you kind of duel with another person and some hopefully your cards are better than theirs. But the interesting thing about Gods Unchained is that the cards are digital tokens on Ethereum. And so the Magic the Gathering game is great because you can play in real life with physical cards that you own yourself kind of in the same way that you own cash. And then you can play right across from another person. Hearthstone from Blizzard is also great because you can play on your computer and you can play anywhere in the world. And because it's on your computer, there are some extra cool mechanics that you just can't have in real life. Except you don't own your cards and and so like Blizzard has complete control over your cards. If you lose your account, you lose all your cards. Gauze Unchained is like the best of both worlds where your cards are tokens on Ethereum and so you actually own your assets. Right. Like no one can take your Gauze and chain cards away from you. But you can also play on a computer with these cool like awesome graphics and these cool awesome game mechanics because of how it's a digital game. So you can check them out at Gods Unchained. And you can also play against me every weekend or so I usually play on the weekends.
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B
Play against you. Mistake. Are you like really good at this?
- [10:56]
A
I could be better.
- [10:57]
B
All right, well then I might take advantage of that. Also want to tell you about sponsor number two. So AAVE is a long term supporter of Bankless. Just a fantastic protocol. AAVE is a lending and borrowing protocol deployed on Ethereum. Some weeks I feel like I can't even keep up with everything these guys are putting out and everything these guys are doing they might be competing for like the team that ships the most, the Defi protocol team that ships the most because they're just crushing it. Last yesterday actually I saw aave not only last week or the week before they passed the 1 billion locked mark, but they actually became the number one DeFi protocol in terms of total locked value. So I'm looking at the Defi pulse charts right now and they are number one, number one, 1.44 billion locked in AAVE. Now I think the bankless nation might have a portion of that and they're just ahead of maker who's at $1.43 billion. So if you're new to AAVE, what can you do with it? You can deposit DAI in the protocol or other Ethereum based assets that you have like ETH or other ERC 20s and it returns interest on top of that deposit. You can also borrow against it. And AAVE has fixed rate loans. They're also rolling out Avonomics. You can take a look at, go to aave.com and see what Auvonomics is all about. They also have uncollateralized lending that they are deploying and developing. We wrote an article about this in Bankless and recently actually yesterday they just rolled out a way to start onboarding Fiat, at least in the uk, directly into the AAVE protocol. So this team's doing a lot in. It's a protocol. If you're new to Defi, it's very easy to use. You should definitely check it out. Go to aave.com to do that. All right, those are sponsors. David, we should get to our main topic today. Oh, actually before that, just some quick announcements. Antonio from DYDX, he's doing AMA with us on Thursday at 2:00pm Eastern. So catch that here live on the Bankless YouTube channel. We'll also be releasing a testnet guide for the. We'll talk about how to say this in a minute, but the Midasha testnet, which is the newest Eth2 testnet. So that's something else you can check out on the podcast. We had an episode with Haseeb yesterday which was just absolutely incredible. And we've got an episode from Framework Ventures tomorrow that we're recording will come live on Monday. So always lots going on in the Bankless nation, Bankless community. The way to keep up with that is subscribe to the newsletter@bankless.substack.com all right, let's get to topic one and this is all about the dasha testnet and we're going to beam Raoul Jordan in here who is from the Prismatic Labs team. So Prismatic, if you're not familiar with them, they've developed an Eth2 client that is live on the testnet called Prism. Raoul is going to help us understand what the testnet is and everything that's been going on because last week, as I understand, it was a pretty active week in Eth 2.0 testnet territory. Raoul, if you can hear me, how are you doing today, sir?
- [14:28]
C
Hey, Ryan and David, doing great.
- [14:30]
D
Thank you for the invite and yeah,
- [14:32]
C
excited to dive into this episode.
- [14:34]
B
Awesome. Let's do first things first. How do you pronounce it? Is it the Madala testnet? Is it the Madasha testnet? Is it something else? How do we pronounce this thing? Raul, you're the expert.
- [14:48]
C
Yeah, so this is going to be controversial, but you know, in Argentina they say medalla. But in the rest of the Spanish speaking world, two Ls amount to a Y sound. So you call it medalla. So to stick to the origin story, I'm going to call it medaja and we'll just go from there.
- [15:06]
A
I've always learned that two L's is a Y. And when I saw Mariano Conti pronounce it Midasha, I was like, is this not Spanish? Like I thought, I thought I knew what Spanish was. And turns out, turns out my inclination was right.
- [15:18]
B
Yeah, turns out all right. So can we start here? Raul? So what is this testnet, the Midasha testnet? Like why do we have it? Why, you know, how far is this like the last test. Net? Can you give us some context for what it is?
- [15:38]
C
So people have been waiting obviously a super long time for proof of stake. Everything that we've had up to this point has mostly been either like glorified webnets or like smaller experiments that people we have yet to. We have not yet created basically a large scale testnet in which the public can participate at the same scale as mainnet. So you know, we want, we want to have everything the same as it would look with real money, but using money. Testnet, Ether. Right. So the medicine testnet is basically a culmination of years of work and creating a public kind of large scale, multi client testnet. That means that there are multiple implementations of Ethereum 2.0, not just our teams, but also there are five teams that are currently on the testnet. So that's a really remarkable milestone. Most other blockchain projects typically have either one, just one canonical implementation. We'll chat more about why having five is important here. But that's what the testnet is and it's had tremendous participation from the community. It's pretty much entirely by the community, not the Theorem foundation nor the client. Teams own a large stake in the testnet.
- [16:54]
B
Gotcha. All right, so some events went down last week, right? So this testnet has been live for a couple of weeks, maybe a few weeks maybe. But last week was a particularly active week. Can you tell us what happened?
- [17:09]
C
Yeah. So, you know, as it is a test, you know, the goal of it is to find bugs before we go live with real money. So we want to make sure that, you know, if something breaks, it breaks right now and not when real ether is at stake. So what happened was we had probably one of the worst case scenarios that could have happened and what occurred was most of our nodes went down which were running a significant portion of the network all at the same time. So what that means is that most validators that were running those nodes stopped validating and the testnet basically didn't have enough participation to basically what we call finalize, which means that a super majority of validators voted their eth and the chance moving affected. So what this means is people start losing and start basically bleeding money really quickly. There's a lot of stuff that's happening in the network, like nodes can't sync. All of this was distilled to a single catalyst that discovered a series of other bugs that led us to the state in which it was. So to give a high level overview, what occurred was that people typically have this. Essentially, we want nodes to be synchronized with respect to their clock. So we want nodes across the world to have some sense of time that is somewhat consistent. As long as your clock is within around a few seconds, then you should be able to participate just fine as a validator. What we were doing, however, was we were basically adjusting the user's clock if it was off. Nice thing to do. So, for example, like, hey, you know, if your clock is off, we're gonna check with some cloud servers, such as cloudflare and others, and if your clock is off by a little bit, we're gonna adjust it. So it's just a nice thing to do for people, you know, it's, it's totally not necessary. However, this proved to be the downfall because, you know, when the time servers went crazy, one of the time servers
- [19:10]
D
was saying that people's clocks were off by four hours. So this means that people were creating blocks from the future and everyone else was rejecting those. So, you know, and it's totally unnecessary. Like people always ask like, oh, that means E2 relies on a single point of failure, which, no, it's not. That was our flawed assumption that we were making. So that wasn't it. You know, that wasn't the end of the problem. So what happened after that was, you know, the problem stopped. So the time servers fixed themselves and everyone, everything was fine. But in the process, we were desperate to push out a fix that basically didn't force users to change their clock. And in doing this, we actually pushed out a critical bug, so we made things worse. So what happened with that fix that we did? Basically we told everyone, hey, restart your nodes and upgrade to the latest version. The latest version was broken so nobody could sync. And then all of our nodes were crazy. So what happens in this case is, you know, a big portion of the network is down. You know, nobody can really sync to the chain head. And when we, when we actually fix the problem, we told everyone, hey, the problem is ready. It's. The issue is fixed. Hey, restart. So what happens then if you tell everyone, hey, restart your node. Everyone is syncing with the chain at the same time. So it's really hard to find somebody that is already synced. So what this means is that, you know, you're like, you're basically like finding a needle in a haystack of really bad nodes and like, hey, I want to sync the blockchain, but nobody, everyone else is trying to do the same thing.
- [20:45]
B
Wow.
- [20:46]
D
So it's a really hard situation to get out of because, you know, you need somebody synced and those were really rare.
- [20:52]
C
So, you know, the whole incident lasted probably around three or four days. And throughout this entire time, it became, you know, people were losing a lot of money, people were upset. And that's not all. I think the biggest thing that happened from the incident was. Remember how I told you guys that people's clocks were off by four hours?
- [21:10]
A
Yeah.
- [21:11]
C
So they were creating, they were creating blocks from the future. So here's what happened. So it was 4pm central and your node was saying it was 8pm Right. So if you do a double. If you do a double block proposal that is conflicting or you do a double vote. So basically that's something you're not supposed to do. It's. It's counted as malicious.
- [21:29]
B
That's a slash of it.
- [21:31]
C
That's a really bad thing.
- [21:32]
D
Yeah, it's called the slashing.
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C
So essentially, you know, at 4:00pm you created a block at 8:00pm, which was invalid, and then by the time 8:00pm was reached, you already, you know, people saw that you already created a block at 8pm, so was slashed. Like, literally everyone was attempted to be slashed. Like every single node that was participating during that bug was going to get slashed. Fortunately, our client ships with slashing protection. So if you're running a node normally, we keep track of the things that you've done before, so you won't get slashed. So a lot of people got saved by this, but a lot of others didn't, such as those that were running on ephemeral cloud instances or stuff like that. It was like a mass slashing event. So all these things went, wow, it's a lot.
- [22:17]
B
Right. In one way, it's good that all of these things went wrong that were in testnet. And you said. Just a couple of clarifications. You said were getting upset, they were losing lots of money. We're talking about losing Monopoly. Yeah, Monopoly. E. This is not real money. But still, it's disconcerting. One other, I guess, point of clarification, you said, you said, Raul, that like we went down and things went down. It was only the Prism validator that had the original bug and the original issue. Right. Which was, you know, again, we have a multi, you know, client testnet, but Prism was about how many in terms of total percentage of validators. It was A pretty large percentage, right?
- [23:00]
C
Yeah, I would say that it's probably around 60 or 70% at the time.
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B
Okay.
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C
And it's validators. And in terms of nodes, it was around 65% of the network, which is very. It's extremely imbalanced.
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B
Right. And I mean, to your credit, I think that's because you guys have made onboarding super easy, you know, maybe relative to some other approaches. And you guys put your. Put your name out there. But that is why we have multiple clients here, right? So that if we have a fatal flaw in one, we have the others to fall back on. Another maybe misconception people have been hearing is that the Midasha test net died. Did it actually die? Like, did consensus stop? Did the chain stop going?
- [23:42]
C
No, totally not. The only reason the chain will die are a few scenarios, right? It's like if every single node and validator goes down for a very long time and literally nobody is synced to the chain head and you cannot find a single good peer. Everyone thinks different things and maybe, yeah, the chain can die if there's like a total takeover of the chain. So if it takes over a huge amount of the eth and basically turns into a glorified database, then you lose all reliance on the blockchain. So, no, the chain didn't die. The chain worked exactly as it's supposed to work, which is great. So that's what we call liveness. So liveness is the property that, you know, even if there's a lot of issues going on, the change should still be able to go on and recover eventually. The problem with this is that. Sorry. The problem with this is that, you know, we need around 66% validators to be online and doing things correctly. And after all these issues happened, people grew frustrated. You know, people maybe turned down their notes. Like, we didn't reach that number for a long time. So the chain was still in a bad state and we had to rally the troops and get everyone who was running validators to make sure they're online and doing their job. And that was a really great experiment.
- [24:47]
B
Yeah, so it didn't die, but to be clear, it wasn't finalizing, is that correct? It wasn't moving forward at all. Like, if it was live, it wouldn't die, but that would mean you couldn't get transactions done, you couldn't deposit into off air or something like that.
- [25:00]
C
Yeah, the chain was. Blocks were still being produced. The chain was moving.
- [25:03]
D
Yeah, definitely.
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C
What it means, though, is that basically not enough validators were voting on the Chain head correctly. So people were losing money and were consistently losing money, but blocks were still being produced.
- [25:16]
B
Gotcha.
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A
So let's talk about what if this had happened in a live environment? Because testnets are testnets and live mainnets are live mainnets and these are different things. In this testnet world, there's less incentive for people to fix the problem because it's a test net, there's less at stake. If this were a real scenario with actually phase zero was up and running like, I think we would have seen some different dynamics, right? Because you could have seen people like moving from one client to another. You could have seen people like maybe react sooner. So how did the fact that this was a test net play into how people responded to this incident?
- [25:56]
D
Yeah, I think speaking of that, there's a few key action items that came out of this that I think are really important and critical for the client team. So like you said, the main thing is being able to switch software implementations if there's a problem that that is not easy at the moment and it's not well documented. Whereas in mainnet that'll be one of the main things that is marketed and documented to people.
- [26:18]
B
So and by that you mean in an emergency situation, if I had to move from prison to lighthouse, I should have a very easy way to migrate and move quickly, right?
- [26:28]
D
That's right. That's right. It should be super easy. It should be easy to find how to do so, and it should be
- [26:34]
A
that doesn't require downloading a whole entire new chain, right? You can use your old chain data to port over into a new client. Is that correct?
- [26:43]
C
Yeah, good question.
- [26:44]
D
So I think that might be a little bit hard to do for us right now because the different client teams chain data in different ways. But at the very least, you know, it shouldn't take too long to sync. What's more important is that you can do it safely so that you can switch your validators and you know, you won't get slashed or do anything. Nothing crazy will happen. So that's one action item that came out of this. The other action item that came out is basically, you know, having better responses and better external communications. That's something we can learn a lot from the Eth1 core developers. So a big mistake that we made was tell everyone, hey node, when everyone is in the crisis mode and what happens is nobody can sync to the chain because everyone is syncing with each other. So that's another thing to do. Overall, really a ton of things that happened. Moreover, we discovered a lot More issues. And a lot of client teams discovered other issues and how they, how they assume, like their assumptions that their code makes, in times of the chain being crazy. So, for example, when there's a lot of forks going on, like CPU and RAM goes up like crazy. Right? You're using like 8 gigabytes. Some teams were using like 12 gigabytes of RAM. And that's not reasonable. You know, it's like. Because a lot of the software was written with the assumption that everything is great, but when the chain is in a really crazy state, you know, we need. You need to fix those things. And overall, we pushed out more improvements in that week than I think we've done in the last six months, which is excellent. Every team has done so as well. And I think they're a lot more robust from that situation. Yeah, it's, it's been, It's. It was a really great learning experience.
- [28:16]
A
So I think one question that everyone has, myself included, is how does this impact the rollout of Phase Zero? And there seems to be some ambiguity here because, like, the chain didn't. Chain didn't die. Chain's still up and running, but there was a. Also like a quote unquote, critical bug. So has there been any sort of consensus among the client teams as to how this actually impacts the launch of Phase Zero?
- [28:37]
D
Sure. So there hasn't been like a particular discussion about the timeline. We. We particularly recommend that the timeline should still be on track. The chain is actually better than before. It is, it is, it is. Now we have like 78% patients, so it's stronger than ever. And we managed to recover from this and do it in a really, in a really great way and fix a lot of problems. We recommend the timeline still remains the same. I believe there's basically like the ticker since the launch of the testnet for three months. So that's like three months in which we should release. Yeah. There are likely discussions about we should do a lot more Genesis tests or do a lot more, maybe private tests on the side, staging environments and such. But overall, no official statement. What's currently being worked on is having a timeline for a checklist for E2 launch. So basically we have a list of big things that need to be done by everyone before we can say, okay, let's launch, and that will help the community a lot to figure out how that's going to happen instead of speculating on dates. Right. So if you see that, you know, we're filling out maybe two checkboxes every week and there's like there's like 20 checkboxes and that can give you a good idea of what's going on. So that's going to happen and that's being worked on. I think people will receive it well.
- [29:56]
B
I tend to think that the thought in most people's mind is there's a hope maybe that we finish this in Q4. That's the hope. And we get phase zero launch in Q4. But there's the expectation that it could bleed into next year as well into the first quarter, at least next year. But I don't think many people are thinking that, you know, this, this would ship as, as late as Q2. Is that about right in your mind, like without giving specific dates, does that feel.
- [30:30]
D
Absolutely, absolutely. We're in a very different place than we were like a long time ago when we're shipping discussions were happening. Like, yeah, there are like pretty much no, there are pretty much no outstanding features like from anyone at this point. A lot of things are just like, make sure that standards are met, make sure that we can switch between clients, like improving improvements and such user experience. So yeah, definitely. I think that unless something goes quickly wrong and like the testnet dies and every testnet afterward dies until Q2, then that would suck. But no, honestly, like, you know, there are a lot of last minute things that need to be finished for the users and the stakers to be safe. So that's kind of where we are right now.
- [31:15]
B
All right, well, Raul, it's been a pleasure. You know, one question for me, David might have another, but one question for me is how can Thankless Nation help? We are incented to get the Madasha testnet fully vetted and fully tested so that we can have phase zero and start moving to proof of stake. How can the nation help here?
- [31:39]
D
Yeah, totally. We'd love for you guys to just join the testnet. I mean it's open, it's public, anyone can try it out. And basically by node or validator, you're contributing to helping us ship this thing faster and safer. So, you know, if you run into any crazy issues or unexpected bugs, you can tell us and you know, we might, you might have found something very important before we go live with real money. So you can use, you can use, you can go to our Docs portal, so you can go to docs.frylabs.network. you can go to the e2 launchpad. Maybe you guys can link that in the chat or you know, for your listeners.
- [32:18]
B
You know what we're doing, Raoul? No, One's seen this yet, but we're actually pushing out a bankless guide for getting on the Midasha testnet that we think is super comprehensive and that's actually happening today. I've got a document in front of me that is a guide to get started on the Midasha testnet written by some folks that you probably know. Raoul at Consensys who developed the Launchpad. So walks you through it, I think in a pretty easy way, easy to understand manner at least. Like I would say this is probably intermediate to advanced technical proficiency. It's not going to be like as easy as getting a metamask while it working, but it's still doable for someone like myself, for instance. And it takes you through getting hardware set up to. Let's see, choosing a client like you were saying, Prism is one, there are some others. And installing the Eth1 node, which I guess is a requirement to getting some Goerli. Is Goerli the actual. What is that? Is that the monopoly money?
- [33:27]
D
Yeah, that's like the eth1 test supposed to be similar to the eth1 mainnet.
- [33:31]
B
Okay. And then heading to the launchpad and actually getting started. So hopefully this will be another one of the ways you can quickly get going on the Midasha testnet. Raoul, is there anything else you'd leave us with?
- [33:45]
D
Yeah, yeah, definitely. Yeah. I sent you guys a link to our docs portal so we recommend people to run on that and your listeners can check that out and maybe you can cross check your instructions with that. So yeah, that'll be good.
- [33:59]
B
Very good. Well, thanks so much for joining us and best of luck to and your team. You guys have been putting. I'm sure last week was probably a week without much sleep, but yeah, thanks so much for putting all the time in. We're, we're definitely supportive of everything that's going on and very excited.
- [34:18]
D
Cool. Thank you guys so much. Really appreciate it.
- [34:21]
B
Awesome. Take care.
- [34:22]
A
Cheers.
- [34:22]
D
Great. Take care, guys.
- [34:25]
B
Yeah, David, I think, I mean it all sounds really promising. At what point in time are you going to spin up something unless you have. I don't know if you have. But at what point in time are you going to spin up a node on the Midasha testnet?
- [34:37]
A
I'm going. I'm thinking about getting an actual like desktop computer and when that happens, that's when I will start running running nodes and I think like. Right. You know, running a node has never really interested me because it seems like a big pain in the butt and I Always had like a laptop, but also running for some reason running multiple clients sounds interesting to me. For some reason running two rather than running zero. And I think that's coming out of like an incentive to make sure to be like a gatekeeper of the network. Right. To be, to be a guard of the network. Because, you know, if you're running, you're running, run node, you're doing a job. But if you're running, if everyone is running two nodes, then Ethereum will literally never, ever die because you have such strong redundancy. And so I'm interested in that.
- [35:20]
B
Yeah. So for me, it's not something necessarily that I would natively geek out with. Like I geek out of things, you know, but, you know, it's not something natively that I would be super excited about. But I do feel like it's almost. There's, there's somewhat of like it's, it's a patriotic duty.
- [35:37]
A
There's some patriotism. Yep, absolutely right.
- [35:39]
B
It's just like, like. Oh, you know, if you're, if you're a citizen of the Ethereum nation, like you run a node, right?
- [35:46]
A
Yeah.
- [35:47]
B
Like, it's kind of like the, the bitcoiner challenge, like Pierre Richard's challenge of like shut up and show me the node you run and run the numbers. Right? Yeah. It's not going to be for everyone, but I think that this is an opportunity to start from scratch. Right. And do that. So at some point I will certainly start running a node as well. In the testnet.
- [36:10]
A
Yeah. And I actually came into Ethereum via mining, right?
- [36:15]
B
That's right.
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A
I had mining computers like sky scattered around my house and it felt very cool because it was a literal manifestation of the Ethereum blockchain, like in my house, like putting out heat. Right. And like that felt cool. Like I felt like I am part of this thing. Like I. There's this, there's this like surreal metaphysical like network nation community, like blockchain existing just in the ether, somewhere in the, in the Internet. And like a piece of it is in my house. And that felt, that felt cool.
- [36:45]
B
And what you're doing, which is super cool, it's not so much true on the Testnet, but what you're doing with running your own mining gear is you're actually minting money for this new nation. Right. How crazy is that? So I will also certainly get much more excited when this is live eth at stake and seeing a validator, seeing the node that you're running, actually minting some of the eth that you've deposited. I anticipate that's going to be like a crazy cool feeling. So I'm very excited. So, Bankless Nation, maybe it's within your patriotic duty to help with the Midasha testnet. Run your node, get in early, figure out how to do it. We'll publish the Bankless guide. We'll also publish Raoul's link to the Prism docs. You can just see how complex or easy it is. See if it's for you. David, we should talk about our second round of sponsors as well. Do you want to start with Ampleforth?
- [37:42]
A
Ampleforth, king of the rebasing mechanism. We've heard a lot about rebasing from a bunch of different tokens that are now integrating it. And Ampleforth was the original rebasing token. Right. And so Ampleforth is a rebasing monetary experiment. So it's very similar to Bitcoin in the sense that it's non dilutive, but instead when there's demand for Bitcoin, the price goes up because there's an extreme inflexibility of supply. Ampleforth is the opposite where there is extreme flexibility in supply but inflexibility in the price. Right. And so if you buy 1% of all Ample tokens, you are assured to have 1% of all Ampleforth tokens in the future. But what you don't know is how many tokens that will be because the token supply goes up and down. And so every 24 hours there is a rebasing mechanism that will add or remove amples from your wallet in order to track $2019. Right. So super interesting mechanism. We've seen a lot of new alternative projects also start to experiment with this rebasing mechanism. They have a liquidity mining incentive program where you can add ample and ether to the uniswap pool and then stake that token that you get when you do that to the geyser. And you'll receive extra amples for adding liquidity to the network. So you can check them out@ampleforth.org you
- [39:08]
B
know what else they've added, David? I don't know if you've looked at this, but they've actually added to their geyser Muniswap, which is new automated market maker from 1 inch. So there's some additional eligible pools that I saw them add recently. Also want to tell you about our second sponsor of this set which is polymarket. So polymarket Polymarker is a way to bet on your beliefs. It is a prediction market. So it's an information markets platform. And what Polymarket is doing is making it really easy to use your crypto assets to bet on things. If you've ever used prediction markets like Augur, for instance, or like Omen Gas fees are high. It's difficult to use. The user interface isn't amazing because it's all kind of on chain. What polymarket does is it makes the user interface really easy, but still allows you to use your crypto to bet on events. You can bet on current events, like who will win the 2020 U.S. presidential election. You can also bet on crypto comes as well. So we talked about phase zero launching. Will it launch before the end, before the end of 2020, or will it bleed into 2021? Well, you can make a bet and see if that's true as well. Bet on your beliefs with polymarket at Poly Market and you'll find out all about that. Also, use the code Bankless. If you email them at hellooly Market with the code Bankless, they will cover all of your early gas fees and give you their newest features. So early access to their unreleased polymarket features. So make sure you do that as well.
- [40:52]
A
David, I don't think there could be a better year to launch a prediction market. Right.
- [40:56]
B
Right.
- [40:57]
A
2020, there's so much uncertainty. We need. We need prediction markets. So. Well, perhaps it's also your patriotic duty to go and help and make prediction markets more accurate, because the more people use these things, the more accurate they become. At least that's.
- [41:11]
B
They become oracles. They become oracles. Very cool. Yeah. All right, David, let's talk about our second topic today, which is Layer two. So Eth. Gas fees, man. It's been a running topic on Bankless since really we started because gas fees are not really going down. They've gone down a little bit recently. But everyone's asking the question of when scale. When scale. Have you read the article that Nick Carter put out this week? He just published it yesterday, so I'm not sure if you had a chance to read that yet.
- [41:43]
A
I have not, no. That's one of the things I've not yet caught up on.
- [41:46]
B
Okay, so put that in your queue because it's really good, really interesting. So we had Nick on the podcast a few weeks back. I'm not sure what episode that was, but we'll try to include it in the show notes. And one of the topics, among many that we talked about was the topic of economic density, particularly transaction density. You remember this, David, when we talked about this, I feel like Nick kind of wrote an article with some of the ideas he presented in that Bankless podcast that have been germinating. And it's basically the idea that even on something like Ethereum, because block space is scarce, what's going to happen inevitably is that those that are willing to pay the highest price for the gas for the block space on Ethereum are going to be the economically dense transactions. So I'm willing to spend $20 on gas if I'm making $1,000, but I'm not willing to spend $20 on gas if I'm making $10. I would be losing money in that transaction. So the idea is that this all because block space is scarce, this all consolidates so that even something like Ethereum, the main chain consolidates to only the most economically dense transactions. And those tend by the way, to be money types of transactions or in a speculative fervor. It's something like farming yams, right?
- [43:17]
A
And this is talked about this with Haseeb on our last podcast, right, where he gave us the model of like Defi, there might, there likely will be the defi shard, which will be like the Manhattan of crypto, which it's expensive to live in Manhattan, it's costly, rent is high, food is high. And, and that's because that there's just a lot of reward for living there and it pushes a lot of people out. And that's why like not everyone lives in Manhattan.
- [43:41]
B
And so he makes this statement, David, I want to see if you agree with this. I've got it highlighted. So he says all of this, everything we just talked about is sobering for some Ethereums because it's punctured some of the more expansive visions of what Ethereum could be like the world computer, other things, at least in its present form, with high fees, the most economically dense transactions come to occupy block space to the exclusion of all else. So do you agree with that statement, David? What's your take?
- [44:08]
A
Yeah, I, I agree with this because like the Ethereum is the values that have kind of been baked into Ethereum is trying to be like as equitable and inclusive at as possible, right? But at the end of the day, there are things that get included in the blockchain and things that don't get that things get excluded. And unfortunately, if you don't have the capital to pay your way into the blockchain, you get excluded. And so at some point, like we can all like love our kitties and rainbows and unicorns, but some people aren't going to be able to play. And that's just a fact of life. Right. People with more capital tend to be able to play longer than others. And so I think like it's. We are starting to now realize that like, you know, the, the main L1 chain of Ethereum might be closer to a whale chain that we need than we originally thought, which is sad, but we also have solutions for this, so it's okay.
- [45:01]
B
Well that's what I want to talk about because so I agree with I probably the central thrust of Nick's article that hey, Ethereums have to come to accept and maybe this is sobering that higher economically dense transactions are going to reign supreme on the main chain. And he also said this, which I probably agree with a little bit less. Vitalik buterin once stated reference to Bitcoin that the Internet of Money should not cost 5 cents a transaction. It's safe to say his attitude to fees and that of Ethereum's more broadly has moderated with time. I'm not so sure that that is true because. And here's the reason why that might be true of Bitcoin. I think it kind of is true. But Ethereum has a slew of, apart from Eth 2.0 scalability, a slew of layer 2 solutions that are coming right now and that are fixing this kind of problem. Right. So it's basically the Internet of Money more broadly. It's not just Ethereum main chain. It's also something that you can do in a layer two, like a loop ring, for instance, or an OMG network or something like that. I'm not sure I agree with that statement because I don't think Vitalik, the reason Ethereum is embarking on this entire scalability thing is because the Internet of money shouldn't cost 5 cents a transaction. Bitcoin might be more limited in that it's got lightning and kind of nothing else. It's scales with crypto banks really right now. But Ethereum has never been okay with that and that's why scalability exists.
- [46:37]
A
Yeah, I think Nick Carter's bitcoiner hat came out when he wrote that sentence because I think he's missing the nuance of the optionality that Ethereum has with how to scale that Bitcoin does not have. Like Bitcoin has the ability to scale with lightning and that has not worked out at all. And, and that, and that's about it. That's about as. As many options as Bitcoin has. And, and then the other option is to scale with crypto banks. What, what Nick may be missing Here is the fact that you know Ethereum, if you, if you are a person who has, you know, $30 on Ethereum, you're a very low capital individual that doesn't have, you don't have much capital on Ethereum and you are at point A and you're trying to get to point B. If that, if getting from A to b costs you 5 cents and it didn't actually end up touching the L1 blockchain, like that's cool, we're cool with this. Like you got your goals achieved and like it didn't happen on the L1, but you still got your goals achieved like that. That's where like, I think Vitalik and Nick Carter are differing here. Where Nick Carter thinks is baking into that sentence a commitment to use the L1 and things like CK roll ups or like side chains like Omisego or Starkware, like you don't touch the L1 but you still achieve your goal. And importantly, you still get all the insurance, the assurances of the L1 present. Like the, the L1 security is still present in these types of transactions.
- [48:04]
B
Absolutely, yeah. And you made there that Lightning network is, is not working. Right. It's not to say technically it doesn't work, it's just it hasn't hit product market fit at all yet. And like there's evidence of that. I feel like, you know, God bless bitcoiners, but they've been trying to meme the year of lightning since like 2016. Yeah, right. It's like next year is the year of lightning. Next year's the, this year was going to be the year of lightning. It is number 22 in terms of like, if you look compared to some of the defi protocols and other layer twos on Ethereum, we've got loop ring that's ahead of it now. Right. Which is just one isolated Ethereum layer 2 solution in terms of usage, which you can really like. Usage capital, amount, capital deposited. That's the true usage of an application. So it hasn't hit product market fit, it hasn't worked. And to be fair, a slew of Ethereum layer 2 experiments haven't worked either. They've been hyped and then dormant. Raiden comes to mind, for instance. But the beauty of Ethereum is it's like optionality, it's like a science lab. You can run hundreds of different experiments concurrently. Whereas Bitcoin has kind of put all of its eggs in the lightning basket. There's really not much else.
- [49:23]
A
Well, no, it put all of its eggs in the L1 basket. And it locked down L1 expressivity to reduce, reduce, reduce. And then all of a sudden that reduces any, all of your optionality. And so like they basically have now two options. One's Lightning Network and the other one is crypto banks, which, I mean, if that's what you want, okay, that's fine. Yes, I think it has been interesting to note, like if we were having this conversation with like a bitcoiner, they would, they would like a year ago they would say like, you know, no one can actually know the supply of Lightning Network because it's private. And that was like their deniabilities, like you don't know how much like defi poles Lightning Network, like defi poles doesn't know how much Bitcoin is in the Lightning Network because the channels are private. I don't hear, I don't hear those arguments anymore because everyone knows it doesn't matter. Still no one's using it. And so by proxy we know there's not that much there.
- [50:14]
B
Absolutely, yeah. So let's talk about, I guess the positive of this because to be fair, Ethereum has been saying layer two is coming forever, right? Do you remember the OMG hype? You're a child of 2017? You remember the OMG hype of 2017?
- [50:27]
A
I was part of the OMG hype, yeah. Were you? Yeah, I was.
- [50:30]
B
You had the skateboard.
- [50:33]
A
I didn't have the skateboard, but I definitely had the tokens, that's for sure.
- [50:36]
B
Okay. All right, so you had the tokens, right? And I'll assume that you bought some too. They weren't just gift airdropped to you.
- [50:41]
A
I was not there. That actually I came around right after that airdrop.
- [50:45]
B
Okay, but layer two is actually starting to happen, right? It's not like this utopia of everything works in layer two yet, but it's starting to happen. So Loop Ring, like we mentioned, is an exchange. Here it is. It's fully built on ZK rollups In layer two, it's secured essentially by the Ethereum blockchain. You can use it today. So this is a fully fledged exchange. In fact, Defi dad just published a fantastic three reasons you should be trading Loop Ring Dex video to bankless YouTube yesterday. So check that out and go through it. That's a flavor of what? Layer two is basically one transaction to kind of deposit your ass to set up your account. It's about $12 in gas right now. Right. But once you get past that, you can do trades basically secured by Ethereum for like a couple of cents a transaction. You can even send things from one Loop Ring wallet to another. Again, secured Ethereum for a couple of cents, not 5 cents. The Internet of money, it's like less than a cent for many of these transactions on Loop Ring. So that's one example of it already being here. There are some others too, we should talk about. David.
- [51:55]
A
Yeah, actually, before we talk about the others, I do want to talk about why this is so cool in a way that I don't hear many people talking about. Right. And so one of the bearish things about all these different L2 solutions is that they break composability. Right? And so like now if you're on Loop ring, it's harder for you to interact with something that's on starkware or, or even the main chain for that matter. And maybe you like want to trade on loopring, but your value's on the main chain. And like when you buy your ether on Coinbase, you have to go through the main chain to get to loop ring. Now, L2s like Loopring or like DYDX, we're about to talk about and their L2 with Starkware, they all have incentives to build on ramps right into their L2, right? And so instead of everyone going and getting an on ramp right onto the main chain, you can on ramp right into the L2. And again, you don't actually ever touch the L1, but you still get the settlement assurances of the L1. And now instead of just like all these capital on ramps going into the main chain, we have all these additional capital on ramps going into their respective L2s, which can then also go right into the L1 if necessary. But I think we're about to see not only an explanation explosion of L2s, but an explosion of on ramps directly onto these L2s, because each individual, because of the lack of composability, there's more incentive for all of these L2s to actually build out their own on ramps.
- [53:21]
B
Now that's super cool. I didn't quite put that a fiat on ramp together with that. But that is a missing part of the puzzle. So to I guess maybe connect some dots to what David is talking about. So this is dydx. They are a, an exchange specializing in synthetics and options and that sort of thing. Just sort of the BitMEX of DeFi, if you will, deployed on the main net. Now, what they're going to be moving to is their entire kind of trading engine, including perpetuals and options, are going to be moving to a StarkX layer by the end of this year. So again, we're just talking a few months away and what you're saying, David, is so dydx, they started on mainchain, now they are migrating to a layer two that's secured by mainchain. And all they essentially have to do to become as powerful as a Bitmex or like a Coinbase or something like that is connect in Fiat on ramp
- [54:20]
A
essentially somehow, somewhere, whether that's through wire or. I mean wire would be a great choice. Like every. Now every L2 has their own incentive to make it easier for you to just go straight into the L2 and then people can find out that they're using Ethereum without even knowing what Ethereum is like. That's where that line comes from.
- [54:38]
B
Right. And so they can own their own assets essentially, that they don't have to give up custody to a Bitmex, they own their own assets and they can see the trading activity on a public chain. So it's not like a black box. Right. So it's a much more bank alternative. I also read this DC investor put this out, which is super cool, is the idea of Diversify. They've been a sponsor as well, but Diversify is another exchange that has built on layer 2. DYDX are both running on separate. They're going to be running on separate roll ups, but they're going to create interoperability between them. So another incentive in addition to adding Fiat Gateways to these Layer twos is actually to start having the Layer two talk to one another themselves where it makes sense.
- [55:24]
A
Right, Absolutely. And I'm just so excited to get Antonio into the bankless AMA on Thursday because I have so many questions of this nature to talk to him about. That's going to be really, really enlightening as to some of the details going on here.
- [55:40]
B
Yeah, another thing that came out, so I do feel like maybe it's not the year of lightning, maybe it's the year of Ethereum. Layer 2. It's all starting right. This stuff's, you know, that we're talking about. OMG didn't ship anything in 2017, to be honest. I thought it was like, I thought it was dead.
- [55:57]
A
I thought it was dead.
- [55:59]
B
So I thought it was dead. And it just came out this week with a really fascinating kind of use case that's live in production. This is their PR about. I think the tweet sums it up a little bit better, but basically OMG is a Layer two, it's built on plasma. So not optimistic Roll ups. If you don't know what that means, don't worry about it. But it is still secured by the Ethereum network in the same way that loop ring was now Bitfinex. So they are the originators of the most popular Stablecoin by far. USDT Tether Stablecoin. They are now connecting directly, not to, not to, directly to OMG Networks layer 2 right. Where they can get transactions and settlement for like fractions of a penny. Whereas on Ethereum right now. Wow, I should pull up the gas station here.
- [56:55]
A
It's bad, right?
- [56:56]
B
Yeah.
- [56:57]
A
This is what they've always been up there. The fact that actually Uniswap has trumped them is relatively new. But Tether has also always been guzzling the most gas on Ethereum for four years, for years now. And like a large and that's just now starting to be like defi transactions which means that like they, some of, some of that tether is going to have to remain on L1. But a lot of this is just simple ERC20 token transfers which are costing traders between 5 and $20 depending on gas fees to send. You know their tether just exchange arbitrage. Just exchange arbitrage trash. There's no reason why that needs to be on the L1.
- [57:32]
B
It's costing that, it's costing Bitfinex the company that basically and this is a 30 day period of time. So Tether, Bitfinex tether traders, anyone who does settlement with Tether on Ethereum they're paying close to 6 million a month for that. Right. So I mean what is that? Almost 70 million annualized per year.
- [57:55]
A
Right.
- [57:56]
B
That's a pretty steep line item.
- [57:57]
A
Right. And it's only going to go higher as Defi expands and expands.
- [58:02]
B
Right. So what I love about this is it's an example of like the market doesn't always fix things but sometimes the market does fix things. If you're spending 6 million a month on tether gas fees, it doesn't make sense to spend that when you've got something like the OMG network and it's the market working to you remove lower economic density transactions. Nick Carter is right. From the Ethereum main chain to the layer twos and it's starting to happen. And as that activity happens, the layer twos become more incentive to actually build. Not to build just to pump a coin like OMG coin, but to build because there's real value and real cash flows associated with becoming like the king of the layer twos. Right, Right.
- [58:48]
A
And this is the perhaps the end of this conversation goes back to, like, the bankless vision, right? Because this is how we retain banklessness, right? Like, if we can't scale on layer twos, then you therefore scale on centralized exchanges. And so every time we see a layer two, a layer two crop up to solve an an L1 problem that retains the trust, minimization and settlement assurances of the Ethereum L1, that is the bankless nation, like, spreading into new fields, right? Like, that is the bankless thesis, like, growing. And so anytime we have this, like, L2 growth and adoption story, what I hear is a removal of the need of centralized intermediaries. That's what I see.
- [59:30]
B
Yeah, absolutely. And you know, the other thing I see is it's sort of an interesting. I guess when we were talking to Haseeb, you asked him a really pointed question on the podcast earlier this week. You asked him, hey, if we have layer twos, why do we need eth killer chains, other main nets, essentially? And he had an answer for it. I'm not necessarily persuaded by it, because what I see is something like, omg, could be hugely bullish for the eth killers. Bearish, excuse me, and bullish for Ethereum. Because what it means is the eth killers aren't really competing with Ethereum mainnet. They're competing with all of these layer twos that are evolving super fast. Number one, they're already integrated natively with Ethereum and they already have security figured out. Like, they don't even pay for it. Ethereum pays for it, essentially, right? So it's like outsourced security that's pretty hard to compete with. And what we're seeing is even chains that Haseeb mentioned, like, near. What's near doing? It's building a bridge. Like last week, it's building a bridge to Ethereum because it has to. Because it has to compete with the other layer twos to get some of that economic activity on its own chain or it fails. So we'll see how that evolves. But I think it's probably pretty bullish Ethereum.
- [60:54]
A
So I think there's going to be a very strong blurring of the lines between what is an Ethereum L2 and what is a eth killer that then builds a bridge because they're. They're starting to become, like, closer and closer, the same thing. And I can. I can like, rattle off like five or six different eth killers, right? And I think there's going to be this. This game theory between them is like, who's going to defect first? And Start to rebrand and, and reorganize themselves as like an Ethereum bridge sidechain. Like L2. Like, right? Like if. If near near builds a bridge to Ethereum, well then it's like basically Ethereum's L2, right? In a sense. And like perhaps you in it, if you use the near perspective, you could call near the L1 and Ethereum the L2 on like just by reorienting how you perceive things. Because, like, if you want to take the near perspective, well, then near is the L1 and Ethereum's the L2. But let's be real here. Like, which one's bigger? Like, which one's the real L1 here?
- [61:49]
B
But what, but you're right there. The game theory is what near is trying to do, right, is they're trying to pull all of that economic activity from Ethereum back to near and essentially, I guess, leave sort of Ethereum a skeleton chain, essentially, and become the main chain, right? So like the side chain wants to betray its master and like do a Sith Lord thing where it's just like it becomes the master ultimately.
- [62:17]
A
Like the value of Nier, I don't think will ever be able to be larger than like exactly how much value it produces for users. And again, like, then we have to compare near to all the other L2s out there. And like, it's really just like, it's Ethereum's game, dude. And it's all we. It always has been. Like, we've always done this.
- [62:37]
B
Yeah, well, yeah, I mean, I'm just. I come away from that getting more bullish about Ethereum. But you know, who knows? I could be wrong on that. We'll see. But let's talk about another Thesis of the Bankless Nation. This is our third topic and then we'll turn it over quickly for if anyone has any questions who's watching this live. And that is David. The Protocol Sync Thesis. It feels like every week we see more evidence that the Protocol Sync Thesis is directionally correct. And I feel like last week, like I couldn't even keep up with. We used to almost catalog like a back and forth of Twitter. You'd be like, hey, is this Protocol Sync Thesis? Ryan? Like last week I couldn't even keep up with it because there's so many things that were happening. Maybe. Do you want to talk about the Protocol Sync Thesis? Just a quick recap and then like, talk about what's going on.
- [63:27]
A
Yeah, quick recap. The Protocol Sync Thesis. When we. When I say a sink, I want you to think of like a basin, right, where things tend to fall down to the bottom. And in this basin are different protocols. And there are, are according to the protocol sync thesis, there are different characteristics or qualities that make things fall down to the bottom of the protocol sync. And those characteristics are the things that we are in crypto to begin with, right? Like trust, minimization, censorship, resistance, you know, decentralization, you know, sovereignty would be one. And so these protocols that have more of these characteristics fall down to the bottom the of the protocol sync. And that's because they act as really good infrastructure. Things that are dense, that are dense because of their trust minimization, because of their credible neutrality, because of their decentralization, they become dense and they become very stable foundations to build on top of. Like Bitcoin is a great example of something that's really, really dense in the protocol sync because you have assurances that Bitcoin is never going to change. You have assurances that it's always going to get keep on producing blocks. And therefore as a, perhaps an entrepreneur you feel stable in building your business on top of Bitcoin. And Ethereum is the same thing. And not only is Ethereum the same thing, but there are Ethereum protocols that are the same thing. Like everyone is basically built on top of Uniswap at this point, right? Like Uniswap is one of perhaps the densest protocol on top of Ethereum and now everyone's building on top of it, right? And we can also layer in like MakerDAO compound A, they have different like respective amounts of density in the protocol sync thesis. And then as people build on top of them, they become more dense, they literally become heavier and they fall down lower into the protocol sync. And so the concept of the protocol sync thesis, the main predictive quality of this thesis is that centralized companies will never ever be able to have as much density as a, a protocol on Ethereum. And they will ultimately come to build their own products on top of protocols that are dense in the same way that like we are all like Google, Apple, Facebook, like whatever, like they are all, are all building on top of the Internet. The Internet is also really dense. The Internet is at the bottom of the protocol sync. And so like companies can build on top of this like stable dependable infrastructure because of how like no one owns it, no one's rent seeking. It's like it's going to exist into the future. And so therefore it becomes infrastructure for everybody else.
- [65:57]
B
It's the most credibly neutral, it says the most credibly neutral protocols will win, basically. Right. And it's cool because it's kind of the thesis for why crypto can be successful, like Bitcoin and Ethereum, so why defi protocols are successful. And what I love about protocol sync is, as you said, David, it does have these predictive qualities. Basically, you can use the framework to roundabout make predictions. So this is a podcast that we put out in May 18, and it was based on a post that I wrote in February based on some talks that you gave at Ethereal in April, which just talked about the protocol sync. And it made this prediction. It made the prediction that crypto exchanges will start adding defi protocols to them again, because defi protocols have more density. So they sink to the bottom of the protocol sync, right? They're more credibly neutral. And what we're seeing is every single week, this happens more and more and more. So what we saw this week, for instance, is this was big Binance, right? So like the actual, I think we made in the podcast, David, was this. Any major exchange like a Coinbase or a Binance would incorporate the DAI savings rate by the end of 2020. That's what Binance just did here. So what they're doing is they're launching Defi staking with dai. So you can deposit your dai. You have to give custody to them, of course, because it's Binance, it's a crypto bank. And what they're doing, if you read the fine print, let's see here, what they're doing is they're actually depositing that dai, or they have the ability to deposit that DAI into compound staking. Compound staking is backed by the DAI savings rate, Right? So again, DAI and Maker has more density, so it sinks to the bottom. And then Compound is built on top, and then exchanges are built on top of both of those. And all of it's built on top of Ethereum, the most dense protocol of them all, essentially. Right. So that's what they're doing here, which is essentially our prediction.
- [68:10]
A
Right. And what's really important here is, like, it's actually pretty cool that they just explicitly say where that die is going, which is important. But also, like, they could have just said, you know, you get 12% and like, you just give it to us and then you get 12%. And in the background, they could submit it to Compound. In the background, they don't have to tell anyone. They don't have to tell anyone. And. And I hope that they take a cut because they're a business, they are they totally are. They totally are.
- [68:37]
B
And like that's why they're able to give 12%. Right. The DAI savings rate is only like it's zero right now or something close to that.
- [68:43]
A
Right. Well, so I don't think the DAI savings rate's actually integrated here. I think it's only Compound, like the die savings rate.
- [68:48]
B
Compound is. Compound is built and incorporates the die savings rate though.
- [68:52]
A
Does it?
- [68:53]
B
Yes.
- [68:54]
A
Okay. Interesting.
- [68:55]
B
Yep.
- [68:55]
A
Okay. Anyways, so Binance takes a cut as a profit seeking like venture, which is why they're doing this. And this is good for the users because then you get centralized exchange, UI ux, if that's what you're into. And then you also get assured like some amount of insurance. Right? Because like if Compound blows up, like Binance is on the hook, right? And like Binance has paid debts before for things that they've lost. And so like you, it maybe you enjoy like 12% in compound, but you don't like that, that contract risk which is real. And so then you can go to Binance and give them a percentage cut of what the interest rate is because you know that if Compound blows up, Binance will pay back the DAI that it owes you. I'm a big fan of this. Like take it.
- [69:40]
B
What's cool. So, so some people, some people were upset at Binance doing this. They basically said, look, it's another crypto bank, like taking a. Basically centralizing a, you know, something like dai, the DAI savings rate. Right. I don't think that's true. And the reason is because of the protocol sync, essentially DAI and Compound are below Binance. Anyone can tap into it. Right? Binance is trying as hard as it can to add its value, add that additional like whatever 10% or so that it can give by doing other things within finance. But Coinbase can add the same to its platform. And essentially what Binance becomes is kind of like an onboarding layer to the world. To defi it is the thing that becomes commodities. Not defi it is putting more total locked value into Compound and into Maker and into Ethereum essentially, not the other way around. So that layer becomes the commodity and essentially the fat DeFi protocol thesis, or protocol sync as we kind of call it, that becomes the thing that accrues value. At least that's the idea, that's the thesis. So I love this. I don't hate it. I love it because they're building on top of it and they're not able to usurp it. And everyone has access to it. Any bank in the world has access to these protocols and so do you as a self sovereign individual on the bankless journey. This is pretty exciting. That was the only thing, David. So like Huobi is a major knocking them down exchange.
- [71:13]
A
Knocking them down.
- [71:14]
B
Right. What are they doing? They this week are launching a defi alliance to merge the east and the West. Who's part of this alliance? Compound maker dydx. I don't know, man. I didn't even look at it. That looks like a finger.
- [71:30]
A
They're playing cat's cradle. It's a metaphor, I guess, for dip for the east and west, like playing with you or whatever.
- [71:36]
B
Is that it? Okay, all right, so that's what they're doing. I don't understand the image, but they're also incorporating AAVE directly into the Huobi wallet. So again, AAVE is kind of a defi protocol, more credibly neutral than these others. And they're just incorporating it, right? Perfect sync, man.
- [71:55]
A
And this is just the beginning, man. Look, we're starting with the crypto native companies, right? We're starting with Binance, Coinbase, Huobi, like, But you know, PayPal is going to integrate Bitcoin and Ethereum like in the next like 12 months probably. Like we know, we know this is coming and then they're going to come do it and then, and then it's just your actual crypto banks are actually going to be doing this, right? Like we're starting, we're starting with a low hanging fruit, but then it's just going to become like, you know, your Wells Fargo, like deposit your cash into like defi with Wells Fargo, get 7%. Like that's, that's coming.
- [72:26]
B
Yeah.
- [72:27]
A
And pretty soon, not this year, not next year, but like it's coming, it's coming, right?
- [72:32]
B
I mean Bitcoin is the original sort of fat protocol that sunk to the bottom and now entire banks are built on top of it. Right? All of these banks are built on top of it. So it is coming. And what's going to happen, it seems like, is there's going to be a gradual swapping out of the base layer, the base settlement layer for fiat based traditional systems with crypto based systems. And why is that good? Why do we care? Well, we're just replacing one with another. Well, this base system is Internet native, it's programmable, it's digital, and it belongs to the people. The rules can't be changed, right? Like there's no, you know, you know, like people are so sick of politicians these days, David, because, and those in power because they act like the rules don't apply to them. Right. Like they do something against the law and they'll just get some attorney that gets them off the hook or they'll bribe someone or they know someone in power. Right. This is Epstein. This is everything that's going on today. The laws always apply to everyone equally in crypto systems. If you're using Ethereum, if you're using Bitcoin, the laws apply to you equally.
- [73:44]
A
There's no subjectivity in cryptography.
- [73:48]
B
Exactly. There's no subjectivity. There's no special person who gets to bend the rules or skirt around them. And that's why it's a more credibly neutral money system for the world that belongs to the people. It's still like, I mean, it's not fair. Right. Not everyone gets. If you have more capital, there's advantages to that. But it is credibly neutral. The rules apply to everyone equally. There's no cantillion insiders, as you know, Nick Carter might use the phrase. So yeah, that's why this is important.
- [74:17]
A
That's why it's important. And like. Yeah, and this is how cryptography sneaks in and pulls the rug on like the whole world, right?
- [74:26]
B
Yeah.
- [74:26]
A
Like all of a sudden like every, everyone answers to cryptography equally and turns out like, oh, all the value has flowed away from like this, this pen and paper accounting system of the nation state into this like cryptography cryptographically secured. Like a Internet protocol that like is one single protocol and it starts with a protocol sync thesis.
- [74:46]
B
Absolutely. Very cool, man. We covered a lot. We went through testnets, modasha layer two into protocol sync. Anything else, David, we should cover?
- [74:55]
A
Yeah, you guys in the YouTube comments, if you have any further last questions, any last topics you want to hear from like now is the time. I don't. I currently see some chatter that's. That's pretty cool. Glad to see see some, some chit chat, but I do not yet see any. Any questions.
- [75:09]
B
And so there's some in bankless discord. David. I just flipped to it. One is about AAVE's new license. Did you see this yesterday? It's another thing.
- [75:17]
A
Yeah, I did see this announcement. Apparently it's a really big deal, but I didn't understand it too much.
- [75:22]
B
Yeah, it's. It seems to me it's basically like you were saying right earlier about the Layer 2 and the Fiat on ramp. So this gives AAVE away. Aave the entity, not the protocol. Of course, the protocol is not owned by any individuals. But the entity, the AAVE company, has the ability now to onboard users directly to AAVE using their own Fiat on ramp in the uk. They have the same sort of licenses that Coinbase or other exchanges have in the uk. So it's a big step, I think, for continuing to onboard folks into. Into Defi. And it's interesting that Defi protocols themselves, or at least the teams behind them, are becoming big enough to actually that they're all incentivized to get more people into Defi. This is like the DEFI flywheel effect. So it's exciting. I mean some people are worried that this could introduce some sort of AML KYC right into kind of the mix. Is AAVE going to cozy up with regulators and banks? So that's an outstanding question in general, it's an outstanding question to me of which of these DEFI protocols become a bit more like banks over time and which preserve maximal credible neutrality, like a Uniswap, for instance. But overall I think it's good for the space. It's a good step in that direction.
- [76:47]
A
Absolutely. Leon on YouTube says, asking about AAVE moving over to L2 or excuse me, to Ethereum 2.0, is there an ETH1 point? If there is an ETH 1.0 ave loan, does that translate over to ETH 2.0 seamlessly or does it have to be paid on eth1 first? I'm pretty sure you're going to have to pay it off on Eth1 first because the Aave protocol on Ethereum 2.0 will be different than the AAVE protocol on Ethereum 2.0 or vice versa.
- [77:17]
B
I do think that's the case. Right. If you want to transfer early, however, at some point in time, like after eth like 1.5. Right. There's a couple of phases to this on the roadmap. There's the plan to just forklift everything eth1 and just move it over to eth2.
- [77:34]
A
I think as far as I understand, as an execution environment, but not account balances. Account balances have to move over like manually, like through the bridge. Right. I don't think we're going to be be able to carbon copy account balances. We can carbon copy like the execution environment, which means like people can use the AAVE protocol with the assets that they have migrated over. That's. That's how I understand it.
- [78:00]
B
That would be a good follow up. The good news here is, I guess, well, you know, not the good news, but don't worry about that now. Yeah, like, don't even worry about it so much.
- [78:09]
A
Like every. There are much smarter people who are solving these problems.
- [78:12]
B
Don't worry about it. And it's just a long time away. You know what I mean? It's like when E2 comes out, it's going to come out in phase zero, right? And there it's going to be a long way from using off, too. So just, you know, stay tuned with things to bank lists and other channels and you'll figure it out before that.
- [78:27]
A
Those are all the questions.
- [78:29]
B
All right, man. It's been State of The Nation Episode 11 David 11, it's been great. Thanks a lot, man.
- [78:34]
A
All right, let's wrap this up. Thanks, everyone, for tuning in. Make sure you subscribe to the YouTube channel so that you guys get notifications as to when we go live. Live. We do this every Tuesday morning, 7:00am Pacific Time, 10:00am Eastern Time, whatever that time is for you if you're in Europe and Asia. So make sure you stay tuned for this. And then again, it gets dropped as a podcast on the next day on Wednesday. But if you're watching the video, you get to look at the screenshots, look at the data, look at the graphs, look at our faces. So it's much more rewarding if you come to come to the YouTube.
- [79:08]
B
Yeah, much more rewarding, absolutely. All right, so risks and disclaimers, guys. Everything we talk about, all the defi protocols we talk about are risky. Eth is risky, Bitcoin risky. You could lose what you put into these defi protocols. But we're glad you're with us on the bankless journey. Thanks so much for hanging in there, sticking with the Bankless YouTube channel. State of the Nation, episode 11.