Bankless - Arbitrum Launches! Founders Steven Goldfeder & Harry Kalodner (SotN 9/7)

Episode Date: September 8, 2021

On August 31, 2021, Arbitrum went live on mainnet! This means it’s available to migrate funds and begin using the many DeFi apps that have already launched on the Layer 2 Rollup scaling solution. Harry Kalodner and Steven Goldfeder return to State of the Nation to discuss what this means for the crypto space. Gas Markets, onboarding directly to Layer 2, the user experience, and the march towards decentralization are all themes. Layer 2 Summer is still intact! ------ 🚀 SUBSCRIBE TO NEWSLETTER: https://newsletter.banklesshq.com/  🎙️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/  🎖 CLAIM YOUR BADGE: https://newsletter.banklesshq.com/p/-guide-2-using-the-bankless-badge  ------ BANKLESS SPONSOR TOOLS: 💰 GEMINI | FIAT & CRYPTO EXCHANGE https://bankless.cc/go-gemini  🔀 BALANCER | EXCHANGE & POOL ASSETS https://bankless.cc/balancer  👻 AAVE | LEND & BORROW ASSETS https://bankless.cc/aave  🦄 UNISWAP | DECENTRALIZED FUNDING http://bankless.cc/uniswap  ------- 📣 SoRare | Collect and Play! https://bankless.cc/SoRare  ------ Topics Covered: 0:00 Intro 8:00 Harry Kalodner & Steven Goldfeder 10:05 Arbitrum Shipped! 12:35 Prep… and then LAUNCH 18:35 The User Experience 25:05 Gas and Adoption 38:19 10x Data Capacity & Reddit 44:09 We Want Layer 2 to Win 49:42 How Arbitrum Attracts Liquidity 53:18 Decentralization and Values 1:01:00 Composability 1:04:30 Onboarding and NFTs 1:08:06 Mainnet and ETH 2 1:16:08 What’s Exciting 1:19:05 Closing & Disclaimers ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://newsletter.banklesshq.com/p/bankless-disclosures 

Hey, Bankless Nation, welcome to another episode of State of the Nation. We have Arbitrum back on. Why do we have Arbitrum on? Well, it's because they shipped. They shipped a layer two. It's here. It's available. A bunch of new exchanges on it. Uniswop, sushi swap, balance. I was told layer two is never going to ship. Hey, it's shipped, David. It's here. We just talked to them. So we've pre-recorded this episode, given holidays and given schedules in advance. And we are releasing it to you on YouTube now, also on the podcast. But David, why don't we talk about what we talked about? First of all, who'd we have on?

We had as Stephen Goldfetter and Harry Kaladner, the CEO and C-T-O of Arbitrum, the guys leading the Arbitrum team into actual main net, along with a whole host of brains behind them as well. And these guys really understand the deep core principles of roll-ups and layer twos. And that's why everyone gets really excited about Arbitrum and why we were super excited to get them back on the show to update us with Arbitrum now that they are live, now that they are actually live. So we asked a number of different questions.

Focused a lot on scalability and like the gas markets and how they are the same or different than Ethereum and how they also adapt and evolve over time. Those are some of the biggest lessons I've had about learning about like L2 gas markets and how it's going to look like in the future. Well, as a number of other questions as well. I think the reason this is also a really important question is because, you know, right now there's this question in the market, at least,

whether another layer one is going to supersede Ethereum or whether a layer ones are just competitive with layer twos, right? There's kind of this question. And we asked these questions of Arbitrum, hey, like, how are you going to attract liquidity? How are you going to solve composability problems? How are you competing with other layer ones that are competing maybe against the Ethereum ecosystem?

They had some great answers. One thing was cool, and we'll have to do sometime, David, is like, they have Reddit on board, dude. I still feel like this is such an underreported story. Like Reddit, 450 million users, right? What are the largest social media sites in the world? I'm a daily user of Reddit. Someone should report on this.

Someone should report on this. Who should do that? Well, Reddit should come on is what should happen. But apart from that, I mean, they picked Arbitrum is the bottom line. And the reason they picked it, we kind of got into it. Anyway, we talked about that. I think the bottom line here is they've cut the tape. You can go through.

you can access the theme park. You have many of the defy apps you know and love. Others are coming soon. So like Ave compound, these are coming in the future. He said defy in days. Another cool takeaway for me, David, is post-merge, right? There's still more exciting things to look forward to on Ethereum. The next big milestone will be data sharding.

Guess what data sharding does? Massively decreases the cost of all roll-ups, right? That's something we got into, too. So some neat discoveries in this conversation. I think you as the listener through watching this and through listening to this will be better positioned to make a decision on which of these solutions are going to win into the future. So we are going to get right to that conversation. But before we do, I got to ask the question. I ask every single state of the nation, David.

And that's what is the state of the nation today, sir? Ryan, we are migrating. We are migrating on our way to the arbitram layer two. There is liquidity getting onboarded. And then as soon as other applications that I'm a frequent user of like compound and Ave come online to Arbitrum, I'm going over there, man. Like that's, yeah, I'm going to live now. I'm moving.

I'm moving from Seattle, Seattle, San Diego, and I'm moving from Ethereum to Arbitrum. We are migrating. Yeah, absolutely we are. Guys also wanted to do a shout out to So Rare. So Rare is a fantastic fantasy sports NFT game that you can play. You can trade, you can collect, you can play fantasy sports with your friends. These guys are building on a roll-up to you on top of Ethereum. This is the largest NFT Ethereum sports game that exists, absolutely massive in Europe as well.

So in the U.S. we call it soccer, but of course our European listeners will be calling it football. And go check them out. Go get involved in what they're doing. Go collect, go trade. We'll include a link in the show notes. You can also go to so rare.com. that's S-O-R-A-R-E dot com. We all know exactly how just absolutely fanatic fantasy players are about their sports teams.

And we also know that Ethereum is the new epicenter of culture. And now Ethereum is eating up all of the fantasy culture by making them tradable, fun, NFD games on Ethereum. So that just makes a Screams product and market fit to me. Yeah, absolutely, guys. A few other things going on in the bankless community. So one is we just released our conversation with, a former CFTC commissioner.

So if you haven't caught that, this is Brian Quintez. He just resigned from his position as commissioner at the CFTC. So he gives us some candid thoughts, some of his personal thoughts. We just dropped that podcast yesterday. So on Monday,

so go check that out. And in the future, David, we've got a big podcast coming out with Kathy Wood from Arc Investments. We're recording that this Friday. You'll get to hear it next Monday. I am super stoked about that conversation. and Chris Berninski's going to be there too.

I don't think anyone's ever done a Chris Berninski plus Kathy Wood combo, but bankless is about to do it. Right. Yeah, no, that conversation, I just expect to blow people's brains and hopefully mine as well. So looking forward to recording that later in the week. Also, right on your podcast feed right now is the third episode of Layer Zero with none other than Justin Drake. And I'm just going to leave that there because the conversation is so odd. Enough said.

Like Justin Drake's in your podcast feed. So like, go listen to it right after you're done listening. to this. Don't work, don't play, don't talk to your partner, just listen to Bankless. That's what we do, right? All right, guys, we are going to get to the guests in just a minute, but before we do, we want to thank the sponsors that made this episode possible. Bankless is proud to be supported by Uniswap. Uniswap is a new paradigm in asset exchange infrastructure. Instead of a cumbersome order book system where trades are matched with other humans, Uniswap is an autonomous piece of software on Ethereum, which is what Ryan and I call a money robot.

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This mountain of capital is looking for labor. Do you have something of value to contribute to the Uniswap Dow? No matter how big or small your idea is, you can apply for a UniGrant at Unigrants.org and help steer Uniswap in the direction that you think it should go. That's exactly what we did to get Uniswap to be a sponsor for bankless, and you can do the same for your project. Thank you Uniswap for sponsoring bankless. Balancer is a powerful platform for flexible automated market makers. Typical AMMs just have two tokens inside of one liquidity pool, which can lead to fractured liquidity across the many pairs in Defi. With Balancer, you can access the full

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for asset management and decentralized exchange. dive into the balancer pools at app. balancer.fI Bankless Nation, we are super excited to have the arbitram team back on bankless post launch. They said they were going to launch in summer of 2021. And launch they did. It is still summer 2021.

Guys, Stephen Harry, congrats on the launch. Thanks so much for joining us. Thank you. Thank you so much for having us. Yeah, we told you, DFI summer. And, you know, we got in. It's still summer. so we got in there. It's still summer. So how are you guys feeling like post-launch? I mean,

it was launch week as we're recording this and launches don't always go well. How did this one go? Shockingly well. The biggest barrier to launch, and this is like a funny insider story, is we were planning on actually opening to users a couple hours earlier. And then Amazon had a significant outage. And there were a few of our things running, like, there were a few, like, our, like, our block explorer was like running, our indexer was running on there. And that went down. And we were like, oh, my God, we need to solve this. And we're like, should we just launch anyway? And then they were like, well, he didn't tell you on 3 p.m. So no, we'll just.

Do you know, I wasn't sure, like, so at what point in time did you guys commit to launching in August? In early August, is that when you committed? There was some commitment I saw on the arbitrage from Twitter. And I was like biting my nails. I was like, oh, okay, it's getting toward the end of August. Are they going to be able to do it? You know, it's August 30th, no launch. Are they going to be able to do it?

But you guys pulled it in, it pulled it out of the hat, man. You just launched right at the last day and got this thing out there. Yeah, it was early August that we committed to doing that. And it was clear to us that we would get there. And, yeah, ultimately, you know, we chose on the last day of August. But we were, you know, we were somewhat clear about that. I think we said in the post late August. and Ed give a talk at smart contact day and said,

you should assume August 31st unless you, unless we say it earlier. So we tried to at least set the expectations right there, but then it's also on a Tuesday. And we previously done launches on a Friday and then like, you know, you're going to the weekends. So like, all right, let's do it on a Tuesday this time. In case, you know, in case there's some delays,

we're not like stealing people's weekends. So yeah, so things went fabulously smoothly and so far so good. You know, usage has been going up. A lot of value has been coming into the system. And I think overall, the user sentiment from what we can tell has been pretty good. So we're super excited. This is the beginning, not the end, right? So there's a lot more goodies to come. But, you know, this was definitely a very important milestone for us. Just so we can, go ahead, Harry. Oh, the user feedback has

just been, it's been so much fun, like reading about people having, like, good experiences using it. Like, you know, just like, you know, it was so easy to use. people are definitely still at the stage of being shocked about that, which is pretty funny, given that that's been our, like, our, like, core focus. But to see that, you know, we actually pulled it off, it's pretty great. And we should say,

sorry, we should say that we have a new bridge UI coming next week. That's the one completely got that our bridge kind of looks like is from 1995. I can confirm that it's not from 1995. I mean, that's okay, though. I mean, people have used curve. Have you guys seen the curve?

Oh, yeah. Interface? I mean, I don't know what decade that's from, maybe the 1980s. But yeah, we're used to these things in, in Defi. And as long as it works. Yeah, I think people have been very, you have only gotten positive feedback on things working.

And ultimately, that's what we're trying to do, give users fast transactions, cost savings, and really try to port the ecosystem. So excited that people are using it and building on it. So we have a ton of questions that we want to get through, kind of a grab bag of just a bunch of different topics. But before we get there, I want to just ground our listener with some context. So can we talk about the, you know, the leading weeks and months that have come up to the actual launch? What was the rollout plan? Like, what have you guys been doing in the last

few months to really prepare for this launch date? Yeah, great question. So part of it was like social community and part of it was technical, of course, and diligence. So, you know, there was a lot going into getting ready to do our, there was a lot getting into, going into getting ready to see our mainnet developer, our main developer launch in May and a lot of, you know, getting the tech ready and making sure it was at a point of stability that we were ready for that. Then there was a lot of community organization and just giving people time, you know, we committed to a fair launch in which different teams would have enough time to, to launch.

Because the thing about defy and, you know, smart contracts in general, specifically defi is it's all about the composability and the interaction and having a system where sort of one app goes alive at a time is it's it's not that useful it's problematic because so many apps have dependencies and others we really wanted to give you know everyone the ability to set up as much as they could beforehand and of course we can't wait for everyone but we tried to do that and then you know we did you know some internal auditing some external auditing during during this time really to get you know more diligence and confidence and It's additional feature requests.

We try to, you know, limit new features coming in, but there's always some feature creep and like, oh, we got to do that before we go out the door. So a bunch of that for sure. But definitely, so it's part technical, part social coordination and just giving people the ability to launch and really trying to be fair and putting everyone in the same footing. So we all know these systems build themselves from the bottom up, right? And so we need that initial like bootstrapping flywheel phase to get launched.

And I think all the users are like biting at the chomp or chomping, excuse me, chomping at the bit to get into Arbitrum. But of course, the things actually had to be there. So you guys needed to have some sort of like, you know, quiet period to allow the developers to get this. So, you know, the Arbitrum native defy flywheel going. So when it comes to actually launching, on a technical level, what does that mean? When we are like cutting the tape for the Arbitrum theme park, what is actually like different in the code that allows this to be launched? What is the launch? Yeah, I mean, it was basically, well, it was two buttons.

What colors were they? A big red button, the big green one? Because, you know, essentially the only the only difference in our system kind of over the past two months basically has been the white list and we put in place basically that kind of had developer teams coming in. And so kind of we had had the, you know, the, you know, it was really removing a feature was all we needed was, was the launch process since it was, we started without a white list because we had our test that and we put this in place for main net so that we could kind of move a little slowly, as, as kind of, you know, get, uh, get daps onboarded and kind of like help teams understand what they were doing. And then we just had to cut that back out.

So I understand, guys, there's some training wheels right now on the system as well, like some governors. What sort of governors are on the system currently and why are they there? Yeah. So right now, there is a limit on the max transaction capacity in the system. That's one one one main limitation that we have. And the reason for that is really to just make sure the system stabilizes and watch it before and watch it stabilize before. for sort of, you know, we really, really up usage and give us also some time to continue to improve and, you know, reduce, you know, improve performance

and as time goes on. But those constraints were designed such that, based on our projections of usage, no one will hit. And indeed, we're nowhere, or we're maybe 50x away from there. So we have in the capacity we're seeing today. So we have significant capacity until those, any of those constraints are hit. They're just sort of an upper bound to stop some bot from trying to do something that,

you know, a bit too crazy right now. But average usage, I think, won't go anywhere near there. But, you know, the thing that we've committed to is, and the other part of this is, we still do maintain upgradability controls in the system. And indeed, I don't know, there are two scenarios in which we use them, one in which we plan to, one in which we don't plan to. The first one is to increase performance over time and increase scaling over time. We'll have, I'll be some alpha here, we'll have an update going going alive quite soon that will reduce fee costs.

You know, we do a nice cost and fee reduction. So that's the type of upgrade we plan on doing. And then there's a type of upgrade which we don't plan on doing, which would be to respond to any security incident. But of course, we feel like we need to have that upgradeability in place for the time being until the system fully gets more, more, you know, running under, a runway under its belt. And, yeah, basically, we try to be very, very open and honest about that. And so the two things is we call our Arbitron 1 now in May net beta phase, and we're committed to only, it will stay in beta until the system is fully decentralized. So that's commitment number one from us.

And, you know, we want everyone to know exactly the state of the system. We think it's really, really at a great place. But ultimately, the goal is full decentralization for sure. And we will commit to calling it a big. until we're there and we're confident that we'll get there over the coming months. So, Stephen, I want to give people a sense for what it's like to kind of enter the Arbitrum theme park, right? And so they're in the main net Ethereum theme park right now. And now there's this sub theme park called Arbitrum that has just, you know, cut the tape. And so

users can enter. And they enter through this token bridge. And you basically enter by moving some of your assets from Ethereum Mainnet to Arbitrum. And you do it primarily through this bridge. Now we talked about in our past conversation, there will be all sorts of other bridges in the future, all sorts of other ways to get into the theme park. But this is the main bridge, maybe the most decentralized bridge to and from Ethereum.

So you transfer your ETH or you transfer your ERC20. And then once you're on the other side, basically, you in Metamask or something, you just switch around your network. So rather than Mainnet, you switch your metamask. mask wallet or your browser wallet to read from the Arbacheum mainnet. And in this new theme park, we've got like many of the same rides. I was scrolling through this earlier. And I mean,

these are all of our friends, our DeFi friends, right? We've got Uniswop, sushi swap balancer. They are all deployed there. I think many more are coming Avey. I'm not sure if they're deployed there, but I'm looking forward to when they are. Except in this theme park with all all of these similar friends, everything's cheaper, right? So it used to cost $80 to use the Eutaswap ride. And in Arbitrum, how much does it cost? Maybe like $10 or something now, $5, something like that? Can you give us a sense for what the typical user experiences on the other side in terms of like fee savings and the rides that are available to them? Yeah. I mean, I think right now things are running at around, yeah, 10% of the cost.

cost of Ethereum, roughly speaking. I think that we're working on some optimizations in the pipeline that will get that down even more. But obviously, that's still a pretty nice improvement over using Ethereum using the base layer today. So we wanted to sort of, you know, not not hold things up just to make things more perfect. In terms of applications, it's, there's a lot live already. There's a lot more coming. No matter, and there's a lot of awesome teams working on this, no matter how, there's always like, you know, some last minute things that need to be done. So we were hoping that as many as possible people would be live, you know, when we went live. There are a lot of people who are going to be coming, you know, who are going to be coming

live over the next week or two as they kind of finish up their development process and fully ship. I'd say in terms of users, the most sort of, you know, the prices being cheaper are huge. But the other thing that's just so massive is the faster confirmation time. is just that feeling of being able to click a button and getting the result of your transaction kind of within seconds as opposed to sort of what people are used to on main net, which is massively better with 1559,

but still takes some time. And so that's the other kind of big angle there. One question I have is I like to parse apart the differences between the Ethereum gas markets, of which we're all used to. We generally all know things, utilities like gas now,

or going into EtherScan and seeing like that loading bar, which is an estimation. And, you know, we're all used to seeing gas right. We're all generally familiar with the gas markets on Ethereum and how that impacts gas price. Can you guys compare and contrast like gas markets on Arbitrum and how they might be the same or different with how people are used to transacting on Ethereum? And like, for example, like, how does the actual $10 for a unoswap transfer? How does that number actually emerge? Like, how is that number decided?

Yeah, absolutely. So most of the, you know, the costs are split up kind of in using the system into a variety of different categories. But actually, right, most of the costs are actually the costs that are being paid in Ethereum fees. As a roll-up, every trans, every arbitram transaction gets posted to Ethereum. It's kind of only the data of the transaction, of course, not the execution. But we are paying, you know, and I don't, I'm not going to remember the exact number, but I think our sequencer has spent like 20. three eth already in gas fees on L1. Does it make a transaction every single Ethereum block, or how does that happen?

Yeah, so it batches things up. So it will collect some number of arbitram transactions. And currently, kind of once every six minutes-ish, it'll post onto it. It'll post kind of a whole batch of transactions onto Ethereum. And, you know, there's kind of an interesting kind of factor here, which is sort of the security model. be really clear on this. Until it's posted to Ethereum, you're still to some degree trusting the sequencer, but then six minutes later, or well, within six minutes, because it's posting, you know, whenever the next one is, now you're at basically full Ethereum security. And the upside

of that is you get super fast confirmations and know exactly what the result of your transaction will be almost immediately. Do you kind of see that in the user interface when you're making transactions, like the state of a confirmation in how secure it is and how it evolves? So we're still working on figuring out a way that we can display that. There's a problem which is basically right now all of our effort has gone to how do we make Arbitrum fit into existing Ethereum tooling. We haven't had the pull to let's say have metamask change. it's UI to reflect these things, which, you know, I think, you know, the hope is definitely

that, you know, we will, you know, get there sooner rather than later. So for now, it's relatively hard and we try to communicate it and write about it. And for your average user who's transacting in small value, it doesn't really matter. For kind of, you know, for people like liquidity providers and for people like, you know, especially for a number of teams we're working on who are going to be providing these fast bridges for moving liquidity back and forth. Those are the teams that we've kind of like talked through a lot, kind of these various sort of security model questions, since they're the ones especially who kind of would take, who will kind of be most kind of deep into that and, you know, take a lot of the risk on

and make decisions about what they want to do there. Do you know, big picture. So, Harry, you said arbitram so far as maybe burnt like, you know, or 25th or so. And like, I wonder how long it will be. showing the ultrasound dot money leaderboard, the Heathburn leaderboard, I wonder how long it'll be until most of these leaderboard candidates are actually layer twos, right? I mean, because this is what we're talking about. This is the scalability roadmap for not just arbitraim, but all of Ethereum.

You might like start your entire life as a user on a layer two and live there the entire time, but, you know, settle ultimately on top of Ethereum Mainnet. I'm curious what you guys think. How long do you think that will be before some layer two, maybe Arbitrum starts to rise up the charts in this burn leaderboard? That's a great question. I would say definitely before the end of the year. Wow.

Wow. In the all-time leaderboard? Well, I mean, this is, this is 24 hours here. Oh, 24 hours. Okay. So they could do a 24-hour leaderboard. Not the all-time. Give us some time to catch up.

Catch up to the NFTs. They're going pretty fast. I think within a 24-hour period of time, there will be L-2s who are by far the biggest gas guzzlers, particularly as like a bunch of, you know, the NFT action migrates onto layer twos as, you know, I think a lot of people are excited for. Oh, yeah, interesting.

All of these apps that we see burning a lot of, ether, they probably have the incentives to move on to layer two's the most, which would just like, you know, take all of their eth burning, A, reduce it by putting it on an L2, but then also have it under the L2 umbrella of Eith burning. Oh, that's interesting. Absolutely. And like, you know, just like, you know, quick glance, a number of those, you know, a number of those burners are already launched on, on Arbitrum. And then we'll have to have like the second level leaderboard, is like, okay, so Arbiton's burning all this Ethan, who's actually responsible in running all this Ethan Arbitrums? Then you might see a leaderboard that looks at it.

Yeah, we're definitely going to have nested leaderboards here. I want to go back and finish the conversation about how gas fees are actually determined on Arbitrum. On Ethereum, it's just a function of like how much blocks-based demand. How is in, you know, obviously more demand makes, you know, the gas fees go up. How, does that work one-to-one with Arbitrum or are there any other details that we need to talk about? Yeah, sorry. I guess we ended up getting a little off topic. Yeah, no, it was all good.

It was all good combo. Yeah, so basically, kind of I started by saying kind of the mean component right now is L1 costs, because basically the system is not congested. There's plenty of capacity in L2. We're nowhere near sort of the limit of how much the L2 can do. But there's always going to be this sort of base costs that isn't, you know, even if one person is using the system, that that person is going to have to pay for their costs in layer one. The thing that could happen, and, you know, will happen at some point as it does on every chain.

But certainly we're nowhere close to yet is congestion in layer two, is the kind of the actual L2 capacity hitting its limit. And at that point, basically, there will be sort of similar to, similar to Ethereum. And we took a lot of inspiration from 1559, a gas market that kind of where it will, you know, the people who are, you know, the people who value the block space most will be the ones who, who get it. Which, you know, we'd love to have room for everybody. We hope we can stay ahead of the curve in terms of expanding our capacity.

But if we don't, that's what'll happen. So when you guys deploy a transaction to the Ethereum main chain every six minutes, sometimes the Ethereum main chain is extremely congested. So that actually could turn into an expensive operation to deploy those transactions every six minutes. How are those fees paid and how are the size of Ethereum L1 fees related to the users who are paying gas fees on arbitram. Are those two things connected?

Yeah, a little indirectly, but yes, I should say there's a caveat to my every six minutes thing, which is if the sequencer is smart enough that if it sees a spike in gas prices, it will wait a little longer to post its next batch to see if the price goes down, which we added in after we ended up paying for some very expensive batches. And EIP-159 helps with that, right? are you guys like actually tapping into EIP-1559 as a gas oracle? Yeah, we were absolutely using it. We're going to be using it more for kind of to improve the L2 gas oracle.

We're already using it for the sequencer itself. But it's helped. And if you look at the graph, it helps a lot. But we still had a day where the base fee was at like 2000, Gway for a little bit there. So it's massively smoothed it out, but it's still kind of bumpy. Okay. Okay. There are so many things to talk about and like we're going down all these little micro rabbit holes all at once.

But let's go back to the question of how does a gas fee for an L1 deployment connect to a user paid fee for just a normal uniswap transaction on Arbitrum? Absolutely. So kind of the general idea is there's kind of these various components and kind of there's a view that the Arbitram chain has of the Ethereum gas price that it sort of, you know, tries to regularly update. and then it uses that when evaluating the costs. So it's not sort of exactly one to one. We see come in essentially, for example, how much call data was your transaction. From that, we can infer how much did the sequencer have to pay to post your transaction in terms of the call data. And from that, we can then kind of figure out how much we should charge you. There's a kind of an interesting little, and I'll go down, you know, this is a bit of a nerdy technical digression,

but it's kind of interesting. We can't actually use the price, the gas price on the chain when the sequence or batch is posted in order to charge you. That doesn't work. And there's a very simple reason for that actually, which is that you're getting your finality very quickly. We have to be able to tell you exactly how much your transaction costs within seconds, but it's not going to actually be posted for minutes.

And so we have to essentially make our kind of best approximation guess as to how much it'll cost you. and then sort of apply it when you actually make the transaction. And the way we kind of deal with that is we basically cost average a little bit. And so we have it set up so that on average, kind of the costs will be fully paid. You might pay a little more or a little less than the sequencer did when it posted your transaction. But on average, you'll be kind of better off because it'll sort of regulate how much you might need to pay. And this is all made relatively much easier in the fact that you guys use ether to pay for gas on arbitram.

And then also ether is needed to pay for gas on Ethereum. So that efficiency is there. Oh, absolutely. Yeah. I mean, essentially, so you're, and we're collecting fees in L2. We're not collecting fees in L1. Right. So the fee, the portion of the, the fees you pay when you make an arbitram transaction are

kind of split up. And only a portion of them goes to the sequencer. That's kind of to pay for the sequencer's costs. Those kind of accumulate to the sequencer in layer two. You know, as kind of, you know, and we'll show up as, you know, liquidity in the system, essentially. And then kind of our plan there, although we haven't actually done it for the first time yet, but our plan there is then basically to automate the sequencer, basically, withdrawing periodically. So once a day, it withdraws all the fees that it's collected in L2 back to L1. And then a week later,

it will be able to sort of roll that into the funds it uses to pay for posting users transactions. Okay, just a few more questions on this thread. So when the arbitram L2 makes a transaction to Ethereum, it costs money. When there are more users on arbitram and there are more people to spread that L1 transaction cost across, does that actually reduce the cost on a per user basis if there are more users? Yeah. So there's kind of there's there's flat, there's fixed costs and there's variable costs, right?

So the call data of your transaction is a fixed cost. So that, you know, there's some number of bytes of data that are kind of that describe your transaction. That's fixed. There's also kind of, sorry, that's kind of very, that's based on your transaction. There are also other costs which are kind of flat per batch and fairly significant costs. And so we have kind of this extra, and basically the way we're handling that is that that's divided over kind of all of the users who have transactions in their batch. And that's just overhead.

So the more users we have, the more we can just sort of divide that over the users until it becomes completely negligible. So there'll be some savings. there is sort of this whole component which kind of won't be reduced because it is just you specifically, but it will definitely go down. So keeping on this whole gas market conversation, can you guys, I like to think of things visually. So I'm thinking of a loading bar with like optimum or excuse me, arbitram somewhere on the, you know, full saturation of the maximum capacity that it could ever have. Where is it on that spectrum from a zero to 100 level?

Like where is it when in terms of like its actual ceiling of a throughput? Is that like 20% maximum capacity, 40% maximum capacity? I know you guys have it throttled at the very genesis. Like is that even the right frame of mind and where is it? Yeah. Wait. So just to sorry, just to clarify, there's like there's three numbers here. There's like how much we're how much we're actually getting right now, what the limit is right now or and what like the theoretical max limit is.

Which of those where you. All of them. I want all of them. Yeah. I also want all of them. Yeah, yeah. So I think, you know, so in terms of, you know, the, the, you know, to start with, you know, the actual theoretical limit, we don't even know. We know what, like, our, we know where our current version of our software maxes out.

And it maxes out around, I think, I think we could, we could theoretically if we wanted to, if we were not really too concerned about state float. run probably with about 10x the capacity with the software today, and that's without sort of a whole bunch of pipelines of optimizations that we have planned over the next kind of months that will significantly improve there. 10x the capacity, what's that in reference to? Yeah, so that's like our Arbitrome doesn't use, has kind of its own type of gas that we call Arb gas, just to distinguish it between from regular Ethereum gas. And is it ever magic.

Yeah. similar idea but yeah and so that's kind of the main thing that we think about in terms of scaling and that kind of you know encompasses you know the computation and the state costs and kind of the way we have it configured right now because we wanted to be relatively conservative is to target handling about an Ethereum's worth of traffic so right now Harry it's about an Ethereum's worth of traffic and you're saying maybe the maximum is about 10x that so it'd be 10x current day Ethereum's traffic. And that's in terms of kind of, you know, so there's a lot of, you know, that 10X would be

kind of, there's a lot of considerations here. There's like how expensive and hard do we want to make it to run a node? The more we increase that limit, the harder it is to run a node. And there's sort of a, you know, an open discussion here and a set of tradeoffs as to, you know, on one extreme side, you have Ethereum where it's like, you know, we should be able to run on Raspberry Pies. On the other side, and I wish I had a better example than this, but I'll just use this example. On the other side, we have EOS with the 21 master nodes and data centers. We're targeting, you know, somewhere in between those two, I think more on the Ethereum side than the EOS side.

But that's kind of, you know, where one chunk of wiggle room is. And the other chunk is just, I think there's a massive amount of sort of optimizing we have planned. And that that chunk, by the way, is sort of the 10x. That's the 10X. Like if we wanted to become EOS, we could do 10X today. We don't want that. The other side is basically optimizations. This is our initial, there's so many different things we want, we have on our list

of to-does that will decrease capacity and decrease costs. And we've had to aggressively slash the to-do list in order to ship something, which I think is an important lesson for anybody trying to ship. You can't have everything. And I think, you know, one of the, one of the kind of ways we're going to be able to take advantage of the fact that we're kind of in the short term retaining this upgrade ability is in being able to provide these improvements. Oh, and I should just say just to finish out the rest of that question,

in terms of actual capacity, I think right now, I think we peaked at around 5%. And that was kind of at the peak when it was kind of everybody jumping in. So, you know, even with kind of the targeted one Ethereum worth of capacity right now, I think that we have kind of a pretty good amount of headroom before kind of users need to think about congestion. One last question on capacity, right? this is all for Arbitrum 1, which is one of possibly many different arbitrams. We talked about this in our June conversation that in the future, there might not just be

arbitram, like there'll be Arbitrum 2 and Arbitrum 3 and all of these different Arbitrum universes. Is that for every universe, another potentially 10x, if you decided to grow like EOS? or are we talking, or am I not speaking, like, am I not phrasing that correctly? So I think you're phrasing exactly right. And the thing is, so there are two different things that play here. There's the question of, there's one way to think about this is imagine that like the entire Ethereum, all it was doing was like supporting arbitrage and traffic, like that. Everything was on L2 and all, like, the Ethereum's entire capacity was like our return traffic.

So then what could we get? And well, then there are two. So the constraints that Harry gave you is what we're comfortable running in a single in a single roll-up, what we, performance-wise, sync-wise, because even if you could do like tens of thousands of transactions per second, you wouldn't want those in one roll-up because then the cost of running the infrastructure that in the state growth would be unmanageable. But when you, so you could use, you know, so the Ethereum traffic, you wouldn't use it all for one roll-up, but you could have multiple deploy deployments of roll-ups, each which get the security

of Ethereum because they know, they're roll-ups and they put posted data on Ethereum. And each one of them has this level of capacity independently. So there is some fixed band, fixed limit based on, you know, the amount of data you can post to Ethereum. But like even this 10x number is nowhere near that. So we have like, you know, way, way, way, you know, a ton of room to run multiple roll-ups. And indeed, we're seeing like the first instance of this. Right now it's on test net, but Reddit's running an arbitram roll-up on test net. And that's going to be a completely separate, completely separate roll-up. Right. And these two things, they'll each have. have the same capacity.

And they'll just be completely separate. And you can do a third and a fourth and a fifth two if you wanted to. They won't compose with each other, but they'll all be roll-ups and compose with everything in their in their ecosystem. Steven, since you brought it up, I got to ask right now. Any spoilers you can give us with what Reddit's up to? Because they posted that they were selecting Arbitum, which is absolutely huge news. They did so because they said they wanted a decentralized and open solution, which is like

Bravo Reddit for actually like figuring this out. Any hints you can give us on what those guys are up to? So I, you know, I think we've been working them for a long time and they have a really, really fantastic team, like an incredible team. And I think they have a lot, you know, a lot of really good things to come. And I know they're just starting on TestNet and they're, and they have, I think, some really good plans coming. But I don't want to, I don't want to, the truth is, you know, on the one hand, like we coordinate them on technically. I don't definitely don't know all their plans and what they're planning on doing on their roll-up chain. And I know I think I don't want to speak for them, unfortunately, on that.

But I would say that, you know, we're very excited to work with them. And, you know, we're coordinating closely with them. They're really a fantastic team. And I think we'll see excellent things come out of that team because, number one, they have, like, a world-class team. And number two, like, they get it, right? This is Reddit, but they get that they want to be an Ethereum. They want to use a roll-up. And, you know, they understand the trade-offs.

and they're really just a really, really incredibly impressive team. Well, I think the entire community is excited. So you've got to tell them to stop by bankless and tell us more about it sometime. I'll let them know. One last question on the dynamics of the scalability side of Arbitrium, and then we can go on to other subjects. Say you're in a maximally successful version of an Arbitrum roll-up, you guys are hitting the max capacity on the blocks based.

the fee market emerges, fees start to get collected on the layer two, and there's a lot of economic energy. Could in theory you increase the frequency that you deploy a transaction to Ethereum? Maybe you go from six minutes down to three minutes. Is this a parameter that can be adjusted? And what are the properties that would make that a rational choice to tinker with that number? Absolutely. I mean, and again, to get like, you know, to throw this like slightly technical, the sequencer has a target for how much gas it'll spend per batch. And currently, you know, if it doesn't hit that target after six minutes, or it might be seven minutes, it posts a batch because it doesn't want to keep, you know, it doesn't want to kind of keep

it in this sort of less than fully secure state for very long. If it hits that target sooner, it'll just post its batch, you know, immediately. So we could, we could easily get into the point where, you know, I think as usage picks up, you know, it'll start to be, you know, it'll be every three minutes, then every two minutes, you know, at some point, we're going to get down to every block or every other block potentially. And we could do every block now, but then you'd have the opposite part of this problem because there's not that much usage right now. It's the few transactions in that block would pay the entire overheads. And that's the needle you want to thread here. That's why we're doing this six-minute thing now because it gets, you know, enough transactions at current volume

to make the overhead, you know, relatively low and not, you know, you don't pay most of that in your transaction. Because remember, we're posting data to Ethereum, and there's a minimal, you know, we have, we have significant overhead on the batch side, but even if you just think about like, you know, 21,000 gas, the minimal, you know, Ethereum, you know, based, you know, the Ethereum minimum, like, if there was only one transaction we were posting every block, then your transaction would now have an overhead of that, of that price. So obviously, users don't want that. So we think six minutes, he still gives you, you know, a pretty quick finality, but that will only go down.

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Let's have this conversation because I want to be real with you guys for a minute, right? So bankless has a dog in this fight. Here we go. Here's what I mean, okay? We want layer two to win, right? Because we want the most bankless, most decentralized financial system to win, right? But we do not want Binance chain to take all the quote unquote defy from the ecosystem. I know you guys don't want to disparage Binance chain or anybody else that those aren't your words.

There are words. Like legitimately, we want Layer 2 to win. We want the Ethereum ecosystem to thrive. We think decentralization matters. The ability to run your own node in Ethereum is important. But here's the problem. Ethereum is kind of a victim of its own success. right? So particularly in bull markets, no one complains about this during bear markets,

but in bull markets. We're in an NFT mania. You know, gas fees, you know, 200 guay, 300 guay. It's expensive to do things on Ethereum because everyone wants to do it at the exact same time. Okay. So now we have layer two that has been long, long promised. And now it's actually here. You guys have built it. You guys have shipped it. We've got real apps. That's awesome. Now I want to have a conversation about how layer two wins, how specifically Arbitrum wins against the more high throughput, centralized. Values compromised. Values compromised, we would say, ETH killers that are out there, right? And so like nothing against them.

This is not a fixed pie. I think their success will also breed, Ethereum success will also breed, like, layer two success. So I don't want to couch this as like a, you know, fixed pie kind of zero sum game because it's not. Everybody does end up winning. But what we hope wins is decentralized values. And I think layer two represents that. You guys have taken the time. It's freaking hard. I mean, how long have you guys been working on this? Six years, something like that? It's hard to get to where you, you've gotten today. But now we're here. Now I want to have a conversation about how Arbitrum wins, how Layer 2 wins. And here's what you guys need.

So let's talk about liquidity first. All right. So all of these other layer one chains right now, they have these massive liquidity programs going on. Okay. So they are paying users to come to their theme park, right? It's very easy, right? Like, here's our theme park.

We've got these rides and everyone who enters gets 20 bucks, right? That's going to attract crowds. All right. So we've got maybe that problem first. How does arbitram attract the liquidity that it needs? it doesn't have a liquidity incentivization program now. I don't know if it will in the future.

I don't know if you can comment on that. But let's dice apart this liquidity question first. Stephen, what do you think? So I remember when I came on last time, I told you, well, I don't want to be saying any specifics, but I know that there are some application layer teams that are planning of doing liquidity mining. And a bunch of those have actually gone live already.

I know sushi swaps doing liquidity mining on Arbitrum. I know Dodo is doing a big liquidity mining program. I think swappers doing one. And there are probably more of those the ones that I'm aware of over the past few days and there are more to come that I'm aware of as well. So I think the application level liquidity programs are important. That's what we have on Ethereum as well, you know, different projects when liquidity mining on Ethereum, of course. And so I do think we can kind of compete there for sure. We've seen liquidity,

you know, pour into the system and we know that there's a lot, a lot more of these programs to come. you know, we, I think we're actually very, very happy with the trajectory of liquidity coming into the system. It's been super fast. And, but like, you know, we wanted to happen gradually. So it's gradually, you know, I guess, you know, $50 million in three days is, is fast enough for us right now. And I think it will ramp up over time, particularly with these programs. And in terms of, like, the more general, though, the values, I think are what are important. And that's why we're doing this. You know, we could have just not done this and clone the Ethereum and just change a few parameters and boom, you have, you know, hey, we can call AWS a blockchain if you wanted to

and you have a really great question. But that's not what we believe in. And I think ultimately the values will win, but I think it also has to do with the default leadership a lot, right? Because a user coming in, coming in that doesn't have a background. This is day one for them in crypto. They don't really understand the difference. And they do understand those fees, right? So they see, I'm paying a low fee here, a high fee here, and they don't understand the fees. But the people that, like, are actually building this vision and or have been in crypto a little longer. So the, you know, the project leaders and the builders, most of them do understand this. And, you know, the thing we know about Ethereum is that the community is stronger than any we've been a part of ever in any.

But it's super, super strong the Ethereum community. And, yeah, definitely the, you know, the strongest community in crypto. I'm probably going to upset a lot of people by saying that Bitcoin Maxi's now watch. I guess they're, but we think it's an incredibly strong community. And the values really, really shine through. And it's a philosophical movement. And ultimately, though, there have to be the thought leaders that not like our dictators on these values, but kind of are in the sense that they won't compromise and won't go to other places.

And number two is really education, explaining what these values are, what we're doing here, and what the risks are. And hey, if we, if we, you know, call AWS a blockchain, we're back to where we started, and we haven't really accomplished anything. So I think that that's going, and the good thing is that there are so many people that have these values, and it's such a strong community, and we see those playing out, and that's what we're playing into. But ultimately, I think, you know, the thought leaders have a very, very important educational mission here. And by the liquidity, I think, you know, the incentives on arbitrum, I think we'll have already,

we've already seen some and they'll continue to compete with, I think, other chains. And again, we've just been impressed by the adoption. We're only three days old and it's been pretty... You know what people tell me, sort of the skeptics tell us, is like users don't care about decentralization, right? And I want to your take on that. And that may be true for a subset of users or even for many users, right? And they do definitely care about gas fees.

And I understand that. But I also think there are different classes of users. When people say users, who are they talking about, right? So Reddit is a user, for example. And that's why it was so fantastic to see Reddit make the choice that it did, but also state the reasons it did. If people haven't seen that Reddit post, we'll include a link in the show notes so you can look at why they selected arbitram.

And it was decentralization. It was decentralized values. So I'm curious your take on this. The noise of liquidity, right? Anyone can incent, I guess, liquidity by like pushing a token out there and giving people free money and then, you know, traffic will come. But are you seeing that builders, that class of users, are preferring decentralization? Is that a thesis that's going to hold true?

Or do you think Reddit is kind of a one-off? Yeah, what do you think, Stephen? I think it holds true. I think not to name other chains, but you mentioned one. A lot of the projects that we see on other chains are more derivative of what happens on Ethereum. A lot of the users that are builders are really, most of the innovation that we see happens on Ethereum.

And that's important because you really want that. You want the innovator's product because often, you know, we've seen this so many times. Someone copied something and, oh, they didn't get that critical fix and it's buggy and dangerous to use because they miss something. kind of important. So I do think, yeah, that class of users is absolutely on Ethereum and basically almost exclusively on Ethereum. And the other way I like to frame this whole thing, and this is something I've been saying for a long time, the way I view Arbitrum is basically a common denominator. So there are those users that care about security and, you know, we're among those and decentralization.

And there are those users that care about costs. And you can, you know, Arbitrim is a place, you know, in my opinion, where all those users can come together and say, we're not, you know, we don't have the cost of BSC, right? We're not, we're not, or, uh, or whatever. We don't have, you know, the cost of a side chain, but it's much, much lower than Ethereum and it's affordable. And the cost will go down over time. That's number one. But we do maintain that, you know, the security derived from Ethereum. So it's a common denominator. And why is the common denominator important? Why do I care where you go? Why do I care to be in the same place? And that's because the magic in this ecosystem, the magic in DFI is really about composability.

And we're much, much, much better off if there's, you know, concentrated liquidity and the defy apps are in one location. So, hey, I might say, you know, I don't really care. I can just run my own chain. I'll fall that secure. And that's good enough for me. And the fees will be super cheap. But I actually want to be with you also in the same chain. So, and you have users with different values. And that's where the common denominator comes to pour. And we think, you know, we've hit a sweet spot where we can make those who are fee sensitive happening. and make those who are security-sensitive happy and also, of course, invite and be a part of the Ethereum community

as we do this. One thing that I really enjoy about the Ethereum community, and Stephen, you touched on this, is that the values of alike technologies will attract a certain set of users, right? And these are the users that do care to run their own nodes and do care about decentralization. Yet, scaling those values of the whole entire world

is probably not going to happen. people want to not experience Ethereum and have Ethereum and all of us L2's B in the background. And so for those people, in my mind, they are going to respond to incentives. And you talked about the liquidity mining incentives of all of the apps on Arbitrum. And that's going to work out decently well. But we are going up against Avalanche, which has a $180 million war chest for liquidity mining incentives. And then Phantom just rolled out a $300 million war chest for the same sort of incentives, right? And we all know people will respond to incentives.

This is David naming names, not you guys, by the way. David is David's naming names here. These are just facts. These are war chests that they have to incentivize users, right? And they have these war chests because they have their own native token, which establishes their own treasury. So my question, you guys is like, are you guys going to have like a native token to establish some sort of treasury

to do some yield farming? Like is this? Or what about all these yield farming opportunities that we have on L2s? Is this something that you guys have in your? your roadmap? So right now what we've launched is we've launched with with fees, but what I can say is the fee revenue is such that, you know, paid and Eath, of course, but it's such that it's designed not only to, you know, reimburse us and keep the company going, but also, also enough to, you know, share with validators that we've discussed very openly and we have some good validators coming on

board that will be getting that fee revenue. And I personally think that if, you know, if, If the fee revenue grows to a point where I think it's going to grow, that we'll have significant war chest as well to share with people in the ecosystem. So I don't know exactly, obviously, we focus very, very much on the tech, and that's where we started right now. We put out a product, and we're happy with the adoption of, but, and, you know, we have to watch how these fees collect over time. But one thing which I can tell you, which we don't plan to do is we don't plan to just say, all right, you know, this is our fee revenue. We plan on reinvesting that in the ecosystem. And our projections are that, you know, over time, this will be significant.

And it will give us an edge. So I don't know, you know, we haven't committed to any exact mechanism or exact process of how that's going to work. But I think we're very, very sensitive to it for sure. And but ultimately, Arbitrum is a community. project. And when we say it's fully decentralized, we mean that, you know, that, you know, that's not to say that we obviously don't benefit from it and we won't be, um, we won't be taking a few revenue from it, but it won't be exclusively by any chance by any point. And we will,

I think, have significant resources to reinvest the ecosystem. I think resources, you know, as significant as some of those numbers that you, that you mentioned or more. So, um, right now, we're not really feeling the pressure to do that only because liquidity is flowing in. There's a lot of excitement. People are sort of, you know, checking out the theme park, walking around, looking at the rides, going on them. But, you know, there may come a point where, where, where, like you said, incentives, talk to people. And I think we will have a good way, you know, we're thinking a lot about that right now. And, and I don't think that we'll be left in the cold. I think it's already impressive, like just a few days in, you're already over, you know,

50 million in liquidity. So, I mean, the liquidity may, flow without incentives, you know? I guess if you have the right product, then you shouldn't need to pay people to use your theme park. Although it does help sometimes. We're also getting out like an ecosystem fund. These are other things that we're that we're, you know, so there are many mechanics of how you can distribute, you know, some of them goes to, obviously there's a difference whether it goes to developers, the end users. There are a lot of internal things which we're considering. And basically, you know, the bottom line is one thing, which is how do we reinvest in our community, given the way the system is set up,

how do we reinvest resources in arbitration and in arbitration community? Because ultimately, that's our goal. Let me ask another related question, just still on the topic of, you know, how does layer two win? And this is a question with respect to composability. Okay. So I think if you're a high throughput chain that makes some decentralization sacrifices, namely you don't provide the ability for a regular user to run a node that's not validating or that's not like validating blocks, then you can have higher throughput in your, you know, like your single chain instance and maybe there's less a need for composability, right? So if you could do a 10x or 100x inside of your main chain

by sacrificing decentralization, and you can provide composability, right? That's what's competing against Ethereum and all of these layer twos, which kind of fracture some of the liquidity. So if I go bridge from Mainnet to Ethereum right now, I have access to Uniswap in the Arbituram Theme Park, and I have access to sushi swap.

But I don't have. all the trading pairs that I would on Mainnet. I have, you know, less liquidity. So my slippage costs are going to be higher for that sort of trade. Can you talk to us about that? Is that going to be a chink in the armor, do you think, for layer two's? And how does Arbitrum and the other layer twos solve for this composability, splintered liquidity type issue? Yeah, it's a, it's a great question. There's a lot of really awesome projects right now. that are working on composability. There's, there's, there's, like, I keep learning about new ones.

Like, there's a few, like, you know, the few that, like, I've seen for the longest are, our Connect's top and seller who've been working on kind of these sorts of problems for a long time. And then there's kind of more and more. There's this weird thing where the blockchain space is really weird because everybody got super used to composability, to sort of synchronous composability. And started thinking that, like, that's, like, the only way to do things well, but the entire rest of the web is asynchronous. It's like a very

foreign thing. And there's all sorts of ways people have figured out to kind of build in these environments where you can't just, you know, in one go, interact with every single application with a sort of global lock so that nobody else can touch it while you are. This is really sort of an area where there's sort of all sorts of kind of techniques. And so a lot of sort of what's being built on the blockchain space in order to be able to handle these kind of multiple parallel chains is taking advantage of computer science concepts that have been around for a long time, kind of just generally dealing with asynchronity. So I'm pretty confident that kind of where it matters, there are going to be sort of nice, you know, nice products in place that basically sort of are able

to hide the annoyances, which are currently very visible to the degree that if a user doesn't want to sort of deeply care about what application and chain that they adapt that they're using is running on, they won't really need to care. There'll be some like, you know, some increase in fees maybe, you know, as they, you know, a slight, which will be relatively small just for the cost of liquidity, but it will be sort of relatively in the background. You guys, it happened to be in talks with any major exchanges about just getting assets off of exchanges straight onto the L2. Can you update on that front? Yes. So, since we spoke, last, I think. We've announced OKX is doing that and also who will be. We'll be doing that directly.

And we are in contact with a bunch of others as well. But those are the only two that have publicly committed to do that already. And they haven't gone live just yet, but I expect those to go live relatively soon. And what about, okay, so everyone is participating in this NFT mania going on right now. So we all know OpenC. Is there, are you guys talking with any NFT platforms? maybe OpenC themselves about putting their platform on to Arbitrum? Yes, we are in contact with different NFT platforms. And the thing about NFTs, at least, you know, I'm curious, your thoughts, at least the way I see it, is if Defi, it's a lot about bridging the existing projects,

and part of that is because, you know, they use fungible assets so you can take assets and just bridge them en masse. With NFTs, it's more about like, you know, no one's taking crypto punks and say, oh, that's move these all over. That's not the way these work. They're not, you know, it's, I can move my pump to, to Arbitram if I want to, but the project doesn't move en masse. But I do think that, so it's really about new creators, right?

And we see this every day and really NFT now. Like, every day there's another amazing project. So it's about getting new creators onto Arbitrum, you know, new artists and issuing NFTs and arbitram. We're seeing some of that now. We'll have. Hang on. I really just want to emphasize that point.

Just to parse it out. So listeners don't skip over that. What you're talking about is like, great, like people in theory can move their crypto punks over to Arbitrum. But if you own a crypto punk, like, you might be okay with just paying the gas fees on the L1, right? There's a decent chance that that's true. There's cheaper NFTs that are just maybe priced at an eth or lower. But you're saying that like it actually just makes more sense for some of these newer

NFT projects to just issue and deploy natively on Opt Arbitrum first so that you don't actually have to move each individual unit over there. Exactly. I think that's, you know, for the platforms to come, that's when it makes sense. It's not to support the straggling punk or penguin or something, whatever, someone moved over. It's really to support the native assets that live there. And, hey, you know, people might go over the bridge the other way too. So there might be an asset that's native to arbitrium and someone moves it over to Ethereum Mainnet.

But I think really we'll see the communities there. So whereas in Defi, it's more about existing projects, you know, existing well-known projects moving over. I think in NFT, it's more about watching the creativity and the art that happens on Arbitrum and then the NFT platforms I expect to come once once there's a community of NFTs there. Just to double check on this. When you said issue NFTs native to Arbitrum, when you issue an NFT on Arbitrum, it is also native to Ethereum, correct?

As in there is no like formal like ongoing link between the NFT and Arbitrum, right? Like you can take it and deploy it and send it over to Ethereum and then as just as sovereign as any other NFT that was initially deployed to Ethereum, correct? Yes, we have a bridge. The bridging and arbitram is, is, is, the bridging and arbitram is, um, gets inherits, this is we're talking earlier about. There could be many bridges, but the bridge that we talk about is the protocol air bridge that has the, um, the roll up security property.

So, um, you can go back and forth in the bridge and, uh, it derives security of Ethereum because, because, uh, the bridge is secure. This is kind of back to that, you know, um, uh, you know, um, uh, suburbs and city sort of metaphor, right? So like if you're starting out with your NFT project, you might start in the suburbs where things are cheaper, right? But when you really make it, then maybe you move to Manhattan.

Maybe you move to main net, right? So does this paint the picture of a world where the highest value sort of assets and transactions might be on main net, right? But then we have like maybe lower value transactions on Arbitrum and other layer twos. And then maybe in kind of side chain world, we have transactions that just don't really require

much economic security at all. Is that kind of how you see this evolve with any asset, whether it's an NFT or whether it's defy token, C or C20 type assets? Interesting question. I don't know. I would really expect over time

that kind of main net will be mostly settling L2s, that there won't really be sort of, like a whole large economic ecosystem on main net sort of independently from kind of bridging from, you know, interchain bridging protocols and L2s. I would expect the more likely scenario to me is that like, let's say, we have no plans for this right now, but I thinking long term, that there is an arbitram chain that is just NFT projects, that like if you're going to do an NFT project, chances are you to play on the arbitrum chain. There's another one, which is kind of mostly defy. Most NFTs are, you know, not high enough value.

that you're going to want to pull them into the defy ecosystem. But the ones that are sort of relatively high value where maybe you want to like collateralize alone using your NFT, you might actually do the sort of transfer over to not to move it back to main net, but move it, well, first to main net and then back and then down to deposit into the the defy chain. Yeah, interesting. It's going to be very interesting to see how that evolves. I guess the like one challenge is there are so many NFTs right now on main net, right?

And so some of them won't be high value enough to even do anything with to move. Or would you ever move a crypto punk from one chain to another is kind of a question. And I'm talking quite long term here. I'm not talking like, you know, next, you know, this is more of essentially as as L2's increase, fees on main net are likely to increase, essentially because what you could do on mainnet for your given transaction fee, I can do 10 times as much. if I'm on an L2. So I'm going to be willing to pay 10 times more than you are in order to get the same utility,

which will kind of eventually sort of, you know, be a heavy incentive to migrate onto L2s as sort of the amount of, you know, usage of the entire ecosystem increases. Another, I guess, longer term question a little bit, short to medium term, maybe, is when layer two, excuse me, when ETH2 fully arrives, does that give Arbitrum any additional? wins. Yeah, absolutely. We're really excited. I'd say we're not yet holding our breaths, because I think it's still going to take a little while to really get sort of fully there. But when it does, it's going to be a huge benefit. What are the benefits? Yeah. So, so kind of, and it's funny, there's, EF2 is in these phases. There's phase zero,

which we already did. I guess there's sort of an extra half phase now with the merge, which is exciting for a whole host of reasons, although maybe probably not directly. useful to arbitram. And then there's phase one, which is data sharding, where we have kind of this sharded blockchain, and you can't yet do anything with those shards. They just hold data, except what do roll-ups need? They need to be able to post data. And so these things are like almost, you know, are basically made for roll-ups, since they're not useful for 99% of what happens on Ethereum, other than for kind of use, other than four roll-ups. And so, And so once that occurs, the L1 costs, which are kind of by far the biggest component of arbitrum today, will most likely go way down.

And at that point, basically the only cost, the cost in the system will be basically just sort of the standard blockchain costs of how much, you know, what's our gas limit, you know, how much congestion is there as opposed to worrying kind of about this other cost component being a major factor. Can you estimate, is that going to cut like theoretical arbitram fees and like in half or maybe like cut it like maybe it's one tenth? Like what's the ballpark range that we're looking at? So for the layer one part, yeah, I mean, probably somewhere between one one hundredth and one tenth, I would guess they're going to be, you know, 64. I think last I checked, although they've moved this around a bit. But I think last I checked, it was going to be either 16 or 64 shards that it. iterating on the design a bit there, each one with sort of a huge amount of data throughput compared to Ethereum today.

And no one else other than roll-ups are going to be able to make use of this until phase two when execution is added. And so it'll be sort of, you know, it's going to be a roll-up world, basically. Basically, yeah. And then all of the gas savings that you guys have just are passed on to the user, right? So now the users have to pay less fees. Exactly. And the really cool part is users will just get that win that, you know, arbitrum will, you know, and this is another kind of, you know, another short term reason that maintaining upgradeability is really important. Because when ETH II comes out, we're going to want to be able to make sort of, you know, an alteration to the layer one system that will actually let us use this massively cheaper path. And then all the entire arbitram ecosystem will just one day see, you know, all of their fees go away now.

That's amazing. I don't think people know that, by the way. Not many people. And how far, I know you guys aren't on the ETH two team, so it's almost unfair to ask, but just ballparked, what do you think? Is this like a year away? Is it more?

Is it less? I don't know. I think I will try to guess. I know it's good. All I can say is, yeah, you know, just echoing what Harry says. From our perspective, it can't constitute enough.

And people, people miss that because I even like you know talk of like investors they some people like have this thought like that were that roll-ups are just a band-aid until he two comes and like it couldn't be anything like different like more different you look at Vitalik he has his post about a roll-up centric Ethereum that's not like a roll-up centric eth-1 that's a roll-up centric Ethereum like ETH too for sure yeah we we can't wait for it to come soon enough but I think our guess is as good as anyone else's before before we get to that I mean I think the thing that personally I'm really excited about is the merge and and

move away from proof and stake because one of one of the questions I sometimes get in in when I'm interviewing people who are not sort of too deeply in the space they're like oh so arbitram doesn't have to use is you know is really green then because it doesn't have to use proof of work and it's like not yet not exactly and then how do you explain how do you even have that conversation have you ever had to try to have that conversation you get into explaining yeah well I mean the great thing to say and the thing you know the thing that like you know, as, you know, as sort of, you know, the Ethereum community can, can and does say is like, we're not there yet, but it's the plan. It's always been the plan. It's not easy. So a huge amount

of work has gone into it. But, you know, proof of work has always been a stopgap measure until proof of stake was figured out. And I think that, you know, is very satisfying. Because the thing people are really worried about is not like, okay, is it going to still take, you know, some number of, you know, years or whatever. I mean, I don't think it is, but like, you know, it's like, is this like, you know, just like permanently like this, or is there kind of, you know, a, you know,

a better system in the future, which so clearly is. So question to both of you as we come down to the close of this show. What are you personally excited about to see get deployed on optimism, or excuse me, arbitram? Stephen, you want to check that first? Yeah. I'm just personally excited. about really, really the entire, you know, it's not one, it's really, it's really everything.

But I mean my dad specifically is, there was a time, if you would have asked me a year ago, I would have said, you know, the thing that I'm, that terrifies me most about roleups getting adoption is that you can't do this one app at a time. It just doesn't work because then that app's in a desert and, you know, its users lose out and they can't do all these cool things that other app on Ethereum can do. And so it was like a very hard coordination problem. So for me, it's really about having a full functional D-Fi ecosystem, and we're so close right now, and we'll probably be there within a week or so based on, you know, projection I have brought, and that means you have lending, dexes, options, derivatives, all on arbitrum. And that's the point where any, any project can

say, I can deploy an arbitrage room today. I don't need a wait. I don't need to say, well, I just need A, B, and C, and D to move. So I'm really excited about just the full ecosystem. And, you know, we're almost there. We did a lot of waiting to sort of, for a lot of people to get ready. Not everyone went live on day one. Today's, what is it, day four, I guess. But I think by day 15, we'll have pretty much, you know, I'm not going to say we'll have every single project or multiple in each category, but I think we'll have the entire DFI ecosystem covered within days. And that to me is incredibly exciting. And that's not, you know, that's step one. I'm also excited about NFTs, having a lot of good conversation with gaming.

But like, what I'm personally most excited about is just the full DFI ecosystem, because that's where composability is so magical. And a year ago, I think nobody had any idea that you could basically do this coordination, just get everyone to move like, you know, or to redeploy en masse. And that's incredible, incredible to see play out because it's against everything we thought was possible a year ago. I would say for me, it's kind of seeing applications that wouldn't have been possible on Ethereum. And I know we, I think we already have sort of our, you know, I'm not sure if the a lot. I think some, at least somewhat, you know, for instance, perpetual protocols, which just,

you know, are more expensive. Retail defy that's, that's, you know, just hasn't had access. And, you know, and, you know, those are even sort of the least exciting of like the new things to come because those are the ones I can think of. It's such a good answer. I'm going to be honest. How are you killed that on that one? I'm going to get in a day when I see something new launch and I'm like, oh my God, that's possible? Yeah. What have we done?

Yeah. Absolutely. Well, thank you so much for a conversation today, guys. I guess maybe last question. You recently had a pretty monster raised. So congrats on that, $120 million. Also, it sounds like you guys are hiring. So what are you going to do with that $120 million?

Are you hiring some folks? Any shoutouts you want to give? Yeah, that is what we're doing with the $120 million. It's basically full hiring. So we're fully remote. So we have very, very minimal overhead. And that's going to basically go to investing in people and investing in research and development.

Because basically, you know, this gets to, you know, we've covered a few things around this, which what our scalability is now, what we'll get to eventually. And the answer is, you know, we think Arbiterra is a good answer to a lot of the scalability problems today. But we think there's still a long way to go because adoption is not going down. We're going up into the right. And that's going to continue going that way. And so we have to think about, hey, not only how do we scale for the next six months

and how do we scale for the next year, but how do we move past that and have fundamental increases and capacity increases over five years and 10 years as well. Because, you know, we believe, and we believe this for a while. Look back 10 years ago, I was already talking about, you know, blockchains back then. So we think that's where the adoption is going. And therefore, it really will give us the ability to invest in, in people and build cross-functional teams that are improving arbitraim today, but also have like big bet visions, and that's about course scalability. It's also about like tooling and

compatibility because, you know, we're fully EVM compatible and it's great. And that's allowing us to really be the best solution for those that are, you know, that are in the Ethereum community today. But then we also ask ourselves, what about the user that comes to Arbitron tomorrow? Can we make their experience even smoother? Can we get them extra tooling and do things maybe that, you know, add affordances that would be harder to do on layer one? And, you know, this is something which we're thinking about a lot, because as we grow and grow and grow, the community of developers, you know, we need to tap into, you know, much broader communities and to give people the ability to afflimate onto Ethereum and more smoothly and easier, I think is really, really exciting.

So, but in one word, it's hiring. That's what we'll be doing with that. And we, I don't think we're, you know, we're not looking, it's a lot of money. We're not looking to build, you know, an army. We're looking to build a nice size team of, you know, some of the best minds in the world. So we'll be paying, you know, we'll be, you know, compensating very competitively for really, really strong engineers and researchers. And you get to work with us. you guys have it uh arbitram team harry stephen thank you so much for joining us i like the sound

of defy in days really looking forward to doing more with arbitram in the future thank you so much for having us thank you absolutely guys uh well looks like layer two summer is here it's bleeding into fall a little bit i think this is a layer two year is this years from now it's just it's layer two from now on i mean this is kind of the roadmap for ethereum so we'll be having a lot more conversations layer two, of course, guys. Go check it out. Go try it out for yourself. We'll include some links in the show note. I think we're actually releasing a guide on bankless pretty soon to Arbitrum. I'm not sure if that's next week or the week after, but we'll have that as a resource for you on the bankless newsletter. If you're not subscribed to the bankless newsletter, newsletter.com. Also,

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