Bankless - Bridging Rollups, Sidechains, and Ethereum | Hop Protocol

Episode Date: October 24, 2021

Bankless Nation, meet Chris Whinfrey, CEO and Founder of Hop Protocol. Hop is a liquidity protocol that allows users to transfer assets across different Layer 2's and Rollups, currently supporting Ethereum Mainnet, Polygon, xDai, Optimism, and Arbitrum. Removing the bottlenecks of returning to the L1 is a massive step forward in making Ethereum a modular, scaled ecosystem. Hop has contracts on Layer 1 and Layer 2s, with Hop tokens accounting for the exchanged liquidity across platforms. With an emphasis on Hop's technical capabilities and user experience, we the project from top to bottom and the implications of what composability can do for DeFi. ***** 📣 POOLTOGETHER | DEFI LOTTERY https://bankless.cc/PoolTogether  ***** 🚀 SUBSCRIBE TO NEWSLETTER: https://newsletter.banklesshq.com/  🎙️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/  ------ BANKLESS SPONSOR TOOLS: ⚖️ ARBITRUM | SCALING ETHEREUM https://bankless.cc/Arbitrum  🍵 MATCHA | DECENTRALIZED EXCHANGE AGGREGATOR https://bankless.cc/Matcha  🔐 LEDGER | SECURE YOUR ASSETS https://bankless.cc/Ledger  🧙‍♀️ ALCHEMIX | SELF-PAYING LOANS http://bankless.cc/Alchemix  ------ Topics Covered: 0:00 Intro 4:00 Chris Whinfrey of Hop Protocol 7:28 What Does it Mean To Hop? 15:03 Accounting for Assets 21:35 Bank Runs & Incentives 26:00 Non-EVM Chains 29:34 Providing Liquidity & Yield 36:20 Faster, Cheaper, Stronger 40:19 Hop’s Organization & Roadmap 43:20 Other Interests… NFTs & DAOs 46:02 Closing & Disclaimers ------ Resources: Chris on Twitter: https://twitter.com/WhinfreyChris?s=20  Hop Links - Twitter: https://twitter.com/HopProtocol?s=20  - Discord: https://discord.gg/PwCF88emV4  - Exchange: https://hop.exchange/  ----- 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 the Meet the Nation. Today, we are exploring Hop Protocol with CEO and founder Chris Winfrey. Hop Protocol is a cross-l-2 cross-chain liquidity protocol, allowing you to hop from 1L2 to another L2 to another L2 without having to go through the bottlenecks of the L1. So the way that this works is that hop has contracts on the L1. It also has contracts on all the L2s and it also has these other hop tokens that are accounting tools and using all of these collections of technologies as well as actual USCC or USET or ETH liquidity on all the L2s. It allows users to hop around all the L2s without having to touch the L1.

So we go into the details about how this works, the technical technical capabilities of the hop protocol, what it's like for a user. we asked the question, what can Hop go from L1 to L1? Can it go and can it also go from L2 of an L1 to a different L2 of a different L1? And then we also ask about the organization of Hop Protocol, how it came to be, what is future roadmaps are. And so overall, a pretty, I think, thorough in depth and the efficient conversation of Hop Protocol. So I hope you guys enjoy this conversation and learn all about Hop Protocol.

There's links in the show notes with linking to their Discord and tell. or if they have one, and Twitter. So if you want to join the Hoppy community, you can go ahead and click those links there. So let's go ahead and get right into it. But first, a moment to talk about some of these fantastic sponsors that make this show possible. Arbitrum is an Ethereum scaling solution that's going to completely change how we use defy and NFTs. And now it's live and has over 100 projects deployed.

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has and stay tuned as more apps come online. And if you don't have a ledger hardware wallet, what are you even waiting for? Go to ledger.com, grab a ledger, download ledger live, and get all of your defy apps all in one space. Hey, Bankless Nation, today we are here with Chris Winfrey, the co-founder and CEO of Hop Protocol, which is one of the emerging inter-L2 interchain liquidity protocols that allow you to hop from one chain to another chain without having to go through some of the frictions of actually using the codified gateway between these two things. So, Chris, welcome to the Meet the Nation. Hey, David.

Really excited to be on the show. So let's start at the very, very beginning. Where did Hot Protocol come about? And what was kind of the initial inception idea? Yeah. So our team was originally working on a contract-based account called Ethereum. And so we started that about a couple years ago and kind of saw an opportunity to really streamlined the UX on Ethereum.

And we felt like we made a bunch of good improvements. But ultimately, when we started, it cost about 30 cents to deploy this contract-based account for users. And by the time DeFi took off and really drove those gas prices up, then it was over $200. And so we had to push this cost over to users. And then just for them to get started, it had this just huge barrier of entry. So we started looking for ways to kind of get our users onto layer two.

and started connecting Ethereum with different layer twos, but we were still seeing that users weren't really saving gas. They were kind of moving to layer two, making a few transactions, and then coming back to layer one. And just those bridge costs were more than if they just use something like uniswap on layer one. So we realized, like, okay, if Ethereum has a future, we really need our users to get onto layer two and to stay on layer two. And just to be layer two native citizens,

they never touched layer one where they would have to deploy this contract-based account. And so we started kind of iterating on different ideas, put out a white paper and a demo of hot protocol and eith research. And that started to get some traction. You know, at the time, you know, Vitalik was starting to talk about, you know, a roll-up-centric roadmack for Ethereum. And we kind of realized that, okay, maybe this has the opportunity to be core Ethereum infrastructure where we need a way to kind of connect these different roll-ups and layer

twos and just decided to go all in and focus on hop protocol. So one of the design philosophies that I think you articulated is that it's great if Ethereum has all of these layer twos and you can do all these things on the layer twos. But if we have all these layer twos, then people, we would imagine people would be, they would be going between all these layer twos and going back to the layer one to go to a different layer two kind of almost defeats the purpose of having a layer two at all, right? If you still have to funnel through the choke point of high gas fees, low block space environment of the layer one.

So the idea of hop is just increasing the experience of what, like exactly what you said, which I really enjoyed, which was being a layer two citizen. And so if you can just hop around all the layer twos, you actually completely remove that constraint of the high gas feeds bottleneck that everyone has to go through by touching the Ethereum L1. Anything you want to add to that? That's exactly right. Yeah. Okay, so let's see, how does it actually work on a technical level? What does it mean to hop from one layer to another? Maybe we can start with like, what does it feel like from the user perspective? what's that feel like?

And then technically, how does that operate on the back end? Sure. So from a user perspective, we just exposed this very, you know, it's a uniswap-like interface. It feels like you're using a cross-layer or cross-chain AMM, where you can just kind of deposit assets in one end. And then after some time, you'll get assets at the other end. So you can transfer assets in about the time it takes for the source chain to reach finality, which is about five to ten minutes. The source chain.

That is the chain that you are leaving, or is that the chain that you are going towards? The chain that you're leaving. Okay. So that's basically the user experience and something that we've been very careful to not introduce a second transaction and just make that,

try to abstract kind of this underlying technology from the user, make it as smooth as possible. So when you say it's like a UNISOP style interface. When I go to Uniswap, I have two tokens that I select. I have, you know, I have Ether and I want USC. Actually, it's almost always the inverse. I have USC and I want Ether. If for you guys, is it, I am on Arbitrum and I want to be on optimism? Is that, so we just swap out the tokens and instead replace it with destinations? Yeah, that's exactly right. You'll select an asset and then a network that you're coming from and then a network that you're

you're going to. Okay. And then can you also swap exchange tokens in the meantime, or is that just a completely different feature? Not right now, but it's definitely something that we're talking about addressing in the future. Okay. All right. So very cool. So I have a bunch of USC or ether on 1L2, and then I want it to go to a different L2. How is this actually facilitated on a technical level? Sure. So there's a few layers to hop. And so the very, very core layer, is basically this way to scalably send messages from one roll up to the next. And so the way this works is each scaling solution already has a message bridge with layer one Ethereum.

So this basically allows contracts on Ethereum to call contracts on layer two and contracts on layer two to call contracts on Ethereum. When you say a message bridge, that is just like the bridge, right? Like when I say when I want to get my money from from L1 to Arbitrum or L1 to optimism, I use the bridge. Is this a, that's the same bridge as the message bridge or is that a different piece of infrastructure? So we call that the native token bridge. And the native token bridges are also built on top of this core message bridge. And so if you imagine the message bridge allows contracts to call each other, then what the native bridge is going to do is it's going to allow you to lock up USC on layer one.

And then that's going to send a message to admit USC for you on layer two. And then on the inverse, if you burn USC on layer two, then it will send a message down to layer one to release that USC on layer one. The caveat is that for optimistic roll-ups, the message from layer two to layer one takes a full week for it to be executed on layer one. And this allows time for the challenge game to play out in order to make sure everything is secure. And then with ZK rollups, the message can only propagate as fast as that ZK roll-up checkpoints. And so a ZK. Rolp checkpoint is pretty expensive. So sometimes it will happen every half an hour, sometimes it will happen every six hours,

depending on how scaled up that roll-up is. But even exiting a ZK. Roll-up can still be slow depending on the scale. Okay. And that's an important point to drive home. Like even in our fastest roll-ups that we have, have ZK roll-ups, it's still a 30-minute wait time, which, I mean, I get frustrated when I have to wait five minutes for my transactions to clear on Ethereum. So, like, from a user UX experience, like,

30 minutes is going to be even more frustrating, even if they get used to it. Like, we can still iterate on this. And again, that's the fastest time to go from a layer two to a layer one. And so, like, with optimistic roll-ups, which are both optimism and arbitrum, it takes upwards of seven days. And so if you want to use these bridge, I'm pretty sure correct me if I'm wrong, but going from the L1 to arbitrauma optimism, it's more or less instantaneous, but getting back out takes seven days for optimistic roll-up.

So there's a huge U-X problem here, almost no matter what. Exactly right, yeah. And so we have these message bridges that we can leverage. And so you can imagine if we want to talk from one roll-up, roll-up A to roll-up B, then the naive approach would be, okay, send a message down to layer one, and then send that message back up to,

or two at the destination. And then we kind of have this communication link. Right. Where you bounce off the layer one to go off to a different destination. Yeah. And so the problem with that is that this creates this huge bottleneck with layer one. So, you know, if we imagine that our layer two environments are way more scalable, we have lots and lots of messages.

And if each of those messages needs to propagate one by one through layer one Ethereum, then it just creates this bottleneck. It's expensive and it just doesn't really get us to scalability we want. So the core innovation behind Hop is that we will aggregate many messages on the source chain, the chain that you're leaving. And then we will periodically commit those. And so when we commit them, we aggregate all those messages into this really compact data structure. I'm sure you guys have talked about Merkel trees.

And you basically just have a single hash that represents all of this data. And then we can propagate that hash through layer one that represents you know, thousands of messages onto the destination layer two, and then we can unpack it at the destination. And then that kind of creates this scalable roll-up to roll-up messaging protocol. Okay. So that is like the settling up between two layers, right? And so maybe there's just a bunch of USC that flows from one L-2 to another L-2.

That's not settled. A bunch of things happen. Maybe a bunch of things more happen. Maybe a bunch of things more happen. And like the analogy here is kind of like a bar tab that everyone uses. And people usually typically use the bar tab analogy to talk about a payment channel, which I think Hop Protocol might be, but we'll talk about that. And then so what you're saying is like you, Hot Protocol allows for a bunch of economic activity to happen. A lot of a lot of people going to the bar and asking for a drink without actually a transaction settling to Visa, the Visa Network.

But then periodically, you do settle up. And the assets do actually flow from like the R. Trum contract on the layer one to the optimism contract also on the layer one and allows the actual roll-ups to settle up with each other based off of hops sort of like off-chain transaction ledger that it has. Is this all correct? Yeah, yeah. And so I wouldn't, we have very, a lot of similarities to payment channels. And, you know, specifically that we make a bunch of payments and then we do this kind of batch settlement, but then, but then like structurally it turns out a little different. But that's where the similarities end. Yeah. Okay. Exactly. So how does Hop protocol

actually like account for the net of all of the assets that are transferred cross chain? So, so that's kind of this next layer. And so hop has this intermediary asset that we call H tokens. And so it depends on what assets being bridged, but it could be like HUSDC, H-E, and so just like- Are these just like Hop-IOUs? Exactly. And actually, you know, you can think of basically every token on layer two as an IOU because, you know, even with the native bridge, you're locking up an asset on layer one

and minting something on layer two. And so basically this is Hopps version of that that lives alongside the native token version. We call that the canonical asset. So like canonical USDC, that's going to be the one that's used in AVE, a uniswap, et cetera. And so the reason we introduce our own intermediary asset, these H tokens, is because we need to build this special functionality into them, that we can't build into the canonical assets.

And so specifically, when you deposit into the layer one hot bridge contract, you'll mint an H token. So if you deposit USDC, you'll mint to HUSDC on layer two. And that functions just the same as the native bridge. But the difference is that when you burn HUSDC or another H token on layer two, we have a role called the bonder that can mint HUSDC at another destination for you. Because hot protocol needs, it needs, what's the right word? It needs its self-sovereignty. It needs its own ability to manage its own currency to account for the differences between the currencies across

of different L2s, right? Exactly right. Yeah. Okay. So, like, wait, so is it, so I have USDC on Ethereum, and I deposit it into Arbitrum, and then I get U.S.DC on Arbitrum. But like you said, that's actually an IOU. So it's actually Arbitrum USDC that is an IOU of USDC on the main Ethereum chain.

And then when you mint a hop U.S.C, aren't you actually minting H-Arbitrum USDC? So it's H-A-USDC? because you are making an IOU for arbitram USC, which is making an IOU for USC on the main chain. Is that right? Yeah, the naming gets a little confusing, but I would think of it as, you know, the canonical USDC is kind of an IOU,

a promise to be able to claim USC from the native token bridge contract on layer one, whereas HUSDC is a promise to claim layer one USC in the Hopbridge contract on layer one. Okay. Okay, okay. Hotbridge contract on layer one. Is the hot bridge contract on layer one also part of the arbitrum or optimism? Is that separate? It's separate and then it will also be connected to arbitram optimism, polygon and X. Okay. So it's like it's more, not rather than stacking on top, it's more in parallel. Okay. Okay, cool. And so, so that's kind of how the, yeah, that's how the H tokens exist. And then in terms of, you know, transporting an H token. And from one roll-up to the next, the user basically burns an age token, specifies the destination, and then we have a bonder. And so the bonder is able to fully verify these roll-ups in the time it takes for layer one finality.

And so with roll-ups, you kind of have two finalities. You have kind of like off-chain finality, which you can determine pretty fast in five to ten minutes, because you can actually, you know, look at the chain of transactions and compute the state and make sure that you're correct. But you can't do that on-chain because you can't run all those transactions. Otherwise, we wouldn't be scaling Ethereum. And so that's why it takes a week for kind of on-chain finality. But the bonder, they're fully verifying things in real time. They see the event H-tokens were burned.

H-U-S-C was burned. And then they have collateral locked up at the destination. and they'll use that collateral to mint HUSDC for the user at the destination. So now, you know, imagine they facilitate a bunch of these transfers. They've locked up a bunch of collateral, and they can't unlock that collateral until they receive proof that HUSDC was burned at the source because we want to make sure that the hot bridge contract remains fully collateralized. And so that's where the message bridge comes in, the hot message bridge.

So, you know, after many people have transferred, we aggregate those into our compact data structure. And that, you know, we propagate this. We call it a transfer route or a message route, you know, through layer one to the destination. Once that reaches the destination, then the bonder can settle up and their collateral is unlocked. So that's kind of how you can move an H token from one place to the next pretty immediately. And then the settlement process happens over time. Okay, so in my mind, the H tokens are like this shadow token, the shadow that like follows the actual real token, but it has the self-sovereignty that Hop Protocol needs in order to move like at the speed of light. And so the way that Hop Protocol allows for like this like near instantaneous transfer of, you know, asset to, from asset to change to change to chain is that you guys actually have the actual assets on all of the change, on, on, on.

all the chains. And so somebody on chain A can go to chain B because Hot Protocol actually has the USDC on both sides. And then the age tokens are that communication accounting tool that because Hot Protocol, the Hot Protocol contract on the L1, it can manipulate the destination of the tokens as it sees fit, unlike it how that's not true for USDC or Ether. And so it can manipulate the balances on all the other chains to account for the transferring of USC or any other token across all the chains. Is that right? Yeah. And this is all done completely trustlessly. It's all fully collateralized. It basically is completely relies on the security of Ethereum and the different scaly solutions that you're using. Well, we like that word trustlessly. What happens,

how does what happens if like all for some reason everyone is on Arbitrum and they want to go to a different L2? So I like Arbitrum I'm just using Arbitrum just because everyone everyone is on layer 2A

and then all for some reason there's an economic event that means everyone needs to go to a different layer 2 layer 2 B and all of the liquidity flees out of layer 2A how does how do and then and then therefore everyone who's left on layer 2 is stuck because you guys

HOP protocol has lost of all this available assets because everyone has used up all the bandwidth. How does H protocol redistribute to account for like different bandwidth requirements across all the layer twos? So actually to take a step back, so we have this H-HUSDC and this is kind of like the second layer, but the H tokens aren't what the users want. They are using these actual canonical tokens. And so that's kind of like the third layer of hop. So at the core, we have this message bridge, and then we have the second layer, this intermediary asset.

And then at the third layer, we have AMMs. So we have an AMM between the canonical asset and the H token. And so when a user is bridging from Arbitram to Optimism, they'll swap USDC to HUSDC. That HUSTC is burned. And then the bonder will mint HUSTC at the destination. And then that's automatically swapped out into USC and ends up in the user's wallet from user perspective. it's just one one transaction for the whole flow. And so these AMMs actually play an important role in terms of like balancing across the chains as well.

So if we see a huge flow from say Arbitrum to optimism, then, you know, it will cause the USC on Arbitrum to start trading at a discount. And then the USDC on optimism to start trading at a premium. And this actually incentivizes folks to rebalance these chains with large settlement transactions through layer one. So they can kind of redistribute the assets across the chains and then profit off that based on the arbitrage opportunities that the AMS present. Right. Very clever. That definitely seems like the right place for economic incentives. How are these AMMs constructed?

Are they more like a curve where the actual shape of the AMM is differentiated or is it more like, you know, Unoswap v3 where you can have concentrated liquidity. So it's more like curve, a stable swap. They are like kind assets. You know, there shouldn't be any reason for, you know, USC and HUSDC to diverge because ultimately you can claim either one on layer one for layer one USC. And same with, you know, Ethan, A.

And all the other assets that we support. So, yeah, right now we're using the stable swap construction. Hey guys, I hope you're enjoying this conversation with Chris about Hop Protocol thus far. Coming up in the second half of the show, we go into more details about the technical details of the Hot Protocol, as well as the future roadmap. And also just a more casual conversation about what Chris thinks about the current state of Defi and where we are overall going. And also talk about yield and how Hop can offer just a sustainable source of yield for all

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Can Hopbridge non-E-V-M chains? It can, yes. And so we haven't supported them yet. It would just be a matter of re-implementing our, layer two bridge contract for whatever the scaling solutions. But, you know, we do plan on supporting Starkware and ZK Sync and other ZK roll-ups. And then eventually we'd like to support like disjointed layer ones as well. But that's kind of a different problem set than what we're addressing right now. Okay. So it seems to be that any roll-up EVM or not that settles

to Ethereum, that seems like a relatively surmountable obstacle because there's only one canonical hop contract on one canonical Ethereum L1. That seems like a task that can be overcome. Getting from 1L1 to a different L1, or an L2 on 1L1 to a different L2 on a different L1, that seems like a taller task because now there has to be two different hop contracts on two different different L1s. Is that, is that, is that on something here? Yeah, that's exactly right. Can you describe how that how that problem works? Yeah. So it's a very different problem set. It's something that, that, you know, we wouldn't use the core, the core technology behind hop for this. We would kind of develop something new. And so this would probably involve

some new validator set to basically attest that, okay, you know, tokens, each tokens were burned at the, you know, some disjoined layer one. And we can release the token on layer one Ethereum or on, or emit H tokens on an Ethereum L2. And so this validator set, you know, won't share the same security as Ethereum. It will be as secure as that validator set. It'll be like a multi-sig valetator set of sorts. Yeah.

But that's kind of, you know, the best that you can do. Yeah. Right. Listeners will be reminded of our episode with that, Vroom Christensen, who had a lot to say about security assumptions across layer ones using multi-sigs. Yeah. Okay.

So can one is, who can provide liquidity in Hop right now? Is that like a closed environment? And then what's the long-term game plan for that? Yeah. So we think of there's two types of liquidity in Hop. And we call this pastive liquidity and active liquidity. And so passive liquidity is basically liquidity in the AMMs. You just kind of set it.

You have very low risk of impermanent loss. And you can just kind of earn trading fees and then maybe stake it if there's liquidity mining. And then we have active liquidity. And this is the bonder process. It's a lot more like running an E2 validator where you kind of set up your server. You have some process that's constantly listening for events and making transactions. And so right now the bridges are set up. just one bonder per bridge.

And so the worst a bonder can do is be offline. And when the bonder's offline, the transaction will still propagate as fast as the exit time of the source roll-up. So the roll-up that you're starting on. So even though there's just like one party that's doing this right now, they're not taking custody of funds. They're not presenting additional risk. They can just be unavailable, basically.

And in the next version of hop, we're going to support multiple bonders per an asset. And then after that, we're going to have a completely decentralized bonder network. And so what's really cool about when we get to that point where we have this decentralized bonder network or even multiple bonders is that it becomes a one of end trust model. And this is just for being available. You know, right now it's trustless in terms of custodianship. But then in terms of like, you know, is your asset going to move, you know, very, very fast or is it going to kind of move at the slower pace, you know, that that is still now one of one of one. Which is, you know, you know, you just need one honest bonder to for it to go through.

Very cool. Do you have any sort of like metrics that you've been able to discover over the last few weeks or so or actually months now that our protocol has been alive for a while about like the level of yield that liquidity providers are getting from this? So it fluctuates a lot. We just launched our Eithbridge last week, you know, on like a daily basis. Some people were making, you know, 15 plus percent on E. I would suspect that. 15 percent in a day? No, no, no, sorry.

Oh, yearly compounded. Okay. Yeah. I just want to say, like, hey, hang on, just take all my heath. Yeah. But, yeah, based on a very, like, short window. And so I would expect that to be competed down. But so far, you know, the yields have been good.

And yeah, you can also earn, you know, stable coin yields. And again, there's very low risk of impermanent loss. So I don't think there's many opportunities to earn the kind of yields that Hop LPs are earning, at least for each. Right. extrapolating this out into what me and Anthony Sazano call, the nexus of Ethereum, where there's many, many L2s and there's many, many economic actors hopping between all these L2s. This is going to be like a kind of like Ethereum's like economic heat, where all the transferring around is causing a bunch of just like fees and yield to occur. Do you have any like long-term

thoughts about how L2 transfers will impact yield in DFI? That's a good question. I mean, I think, you know, ultimately we'll just keep attracting capital. And I said we, I mean Ethereum until, you know, yields start to make more sense for the risk that people are taking. And so right now, yields are very high. Risk is very high. As, you know, Ethereum becomes more mature and HOP becomes more mature.

and, you know, urine becomes more mature. Like all these different yield producing protocols, I would expect yield to kind of settle into more in line with the traditional finance ecosystem. Is urine something that can be a liquidity provider for HOP? So we have talked about, so back to like active liquidity and passive liquidity. So with the one, passive liquidity is much cheaper than active liquidity. There's lower barriers to entry. You don't have to run the server process.

And there's a lot of folks that are just mercenaries will throw yield. You know, it's very, very competitive. And ultimately with the passive liquidity, you need those pools. Because if you don't have the actual asset for people to bridge into, then, you know, they can't bridge. There's no way to kind of eliminate that type of liquidity. But this bonder liquidity, it, it, it, is essentially collateral. And so right now the bonder uses the same asset that's being bridged.

But ultimately we could, or we plan to move to a future where the bonder could kind of hold a basket of assets. Those could be yield-bearing assets or, you know, they could be ETH. They could be, you know, whatever basket of assets the bonder wants to hold. And they just use that as collateral while earning yield on it for bridging assets across hop. And that's where I think we'll will get some big improvements in capital efficiency. Very cool. How are fees determined in HOP? So right now the bonders sets a fee, and then the AMMs take a 0.04% fee, so four basis points.

And then, you know, once we get to the multi-bonder model, then the bonders will basically compete for lowest fees, and then that will kind of drive them down to a minimum. do you kind of think that over the long term, over the many years, that fees will kind of just collapse to the absolute minimum while also speed between L2s kind of increases? Is that the outcome for this? Yeah, HOP definitely scales up a lot better than it scales down. So, you know, basically the larger amount of assets that we're transferring for each of these settlements through layer one, then the cheaper we can get fees. So right now, where I'm at, at the bonder charges 0.18%, so 18 basis points.

Pretty soon we're going to be, you know, we just scaled up the eth liquidity. We're going to do the same with USC. We're going to be able to drop that to nine basis points. And ultimately, I think we can get it to, you know, around four basis points or lower for the bonder fees. You know, that seems to fit into the model of L2s that I've come to understand, where the more users and the more assets and the more economic activity that's happening on these L2s, the actual cheaper the fees actually are because they're amortized across all the users. And so not only is this true of the actual L2s themselves, but this is also true of hop,

as in the bridges between these L2s. Can you just riff on that for a second? Do you think like this L2 environment is just going to become faster, cheaper, stronger as more and more people just adopt it? Absolutely. Like even for myself, you know, I've been using DFI on layer one. I just rebalance a bunch of positions. And I just realized, what am I doing on layer one?

I'm just losing a huge part of my yield to transaction fees. Layer two is here today. And so, yeah, I really think that soon here, it will be very much, much more rare, especially for users that aren't dealing with, you know, anyone who's not dealing with like hundreds of thousands of dollars is going to be on layer two and just stay on layer two because layer one is just too expensive. It makes a ton of sense. Are there any significant differences between how Hop is constructed versus how Connects is constructed that are worth talking about?

Sure. So there's a few different bridge models. So we already talked about hop. We develop this technology. And so right now we're kind of alone in this category. And then another category is hash time locks. And so this is kind of a game where you have one party lockup assets on one chain with the secret. The party, another party locks up assets with a secret.

And then someone reveals the secret on one chain. And then the other party can use that revealed secret to unlock on the other chain. And so hash time locks, they've been around for a long time. This is the same technology that underpins the Bitcoin Lightning Network. And there's, you know, they work well in some scenarios. And then there's some difficulties and, and, and, and, there's some difficulties and, and, and, you know, these difficulties are ultimately why we chose not to take this approach when we were looking at this problem with Ethereum. And so one is that, you know, you have to wait for two

rounds of finality. So, you know, the, you can't move too fast when you're doing kind of the second preparer transaction. And then you can't move too fast when you're, when you're revealing the secret. Otherwise, you're at risk of a reorg. And then the other one is that whoever goes, first in this game is kind of locking up their assets without any promise of the other party kind of locking up their assets. So if you have one party that has like reputation, then things work really well because, you know, they're reputable and you know that they're not going to kind of like, you know, lock up your assets without fulfilling the game or something like that. But then it gets harder to to like really decentralize that network because once things get

competitive, then you know, you have to like layer in some kind of reputation layer to make sure that, you know, you don't have parties entering and then just locking up people's funds so that, you know, that more assets route through their router or something like that. And then the third type of bridge is kind of this externally verified bridge. And that's kind of what I was talking about with, you know, it could be a future direction of hop. But ultimately it introduces this, It introduces a new trust model. And with Hop, you know, for going across layer two, we want to just rely on Ethereum's trust model and see that as kind of the best way to scale in the near term.

But then for kind of addressing, you know, disjointed layer ones, that's something that's better suited for hashtag much or for these externally verified bridges. Very cool. Let's talk about the organization behind. Hot Protocol. How is the protocol actually, who are the people around Hop Protocol and how did they become organized? So we launched Hop towards the beginning of the year. And since then we've kind of had this community grow. And then we have a company that kind of facilitates the development of the protocol. And yeah, so as we move forward, we're going to be kind of becoming more and more

community oriented and we're already starting to see, you know, community members that have developed like analytic dashboards or like Twitter bots and stuff like that, which has been really cool to see. Is there an actual formal hop-dow? There's not. Will there be? There could be. There could be.

Is there a hop token? There's not. Will there be? There could be. Okay. Awesome. Well, okay, if I, I don't know if there is an official hop roadmap, but what is left on the roadmap? So, so there's a lot.

So right now we kind of have the first version of our bridge. The next version of the bridge is very similar, but enables multiple bonders per an asset. And so we're excited about that. And it also allows us to kind of consolidate like kind assets. So right now we have a separate bridge for, you know, each of our stable coins. In the next version, we're going to be able to kind of have like a single stable coin bridge, which is going to be much, much more efficient. And like I said, you know, it scales up really well.

So it should allow us to drop the fees by a good amount. And then, you know, we want to head to, you know, we're heading into direction where we're making kind of the this like core messaging protocol more generalized. And that's going to enable some really cool stuff in the future. And then beyond that, we want to address. the disjointed layer ones. And, you know, that's going to be a big R&D effort to kind of figure out, you know, what's the best way to do this in a really decentralized way,

even if we can't, you know, leverage the security of Ethereum for other disjointed layer ones. Okay. Well, Chris, thank you for having extremely, like, powerful and concise answers. And so I think that's everything that I need to know about Hop. Is there anything that I missed or forgot to ask? I think that's it. We're really excited about the way everything's going. We're really excited about the way Ethereum is going.

We've been waiting for Layer 2 for so long. So it's been awesome to see that it's actually here and it's usable and that we're seeing more and more Layer 2s kind of come online and get traction. And yeah, if you want to try the protocol, I'd recommend visiting hop. that exchange or follow us on Twitter at Hot Protocol. And yeah, I really appreciate you having me on the show. Chris, before you go outside of Hop, when you are done with work, done with developing, what else about Ethereum excites you or do you pay attention to?

That's a good question. I mean, that's a hard question. I dive into defy all the time. Like that's been super fun. Like oftentimes like my entire Saturday is eaten up by just, you know, making, you know, jumping around these different protocols, trying out new stuff. I admittedly missed, I think, a lot of the NFT craze. It's been so awesome to see like how mainstream it's gone.

And like I, you know, was so kind of had my head in defy that, I really just didn't see it going the way it did. And I see your poster behind you. I know that you guys have been big believers in it. So it's been awesome to see. But yeah, I have been following closely, but not too involved on the NFT side of things. And then, you know, Dow's have been a huge interest for a long time. So like just seeing, you know, Mullah kind of kick things off.

And then Uniswap and compound really start the, you know, more. organized, or not more organized, but kind of the protocol of DAUs has been awesome to see. And so, you know, excited to see more and more people like working for DOWs and having that be like a legitimized type of organization. 100%. 100%. It's funny. It's funny that you think I'm an NFT person because I definitely like align myself as a DFI person.

And it's like, it's also funny to see like all the DFI people. like not really be there there's a separation between the defy people and the nfts people out there yeah yeah yeah and like it's so cool like the you know the nft communities are really taking off and it's just like it's so hard to keep up with everything these days like it really is crazy how far it's come is there room in the hop protocol for cross l2 nft transfers or is that on is hop kind of only for fungible tokens absolutely um you know vitalic put out a paper uh about a month ago go for a cross-chain NFT bridge. And we think that the messaging piece of hot protocol is very well suited to kind of facilitate this type of NFT bridge. And so like actually, he doesn't talk too

much about how that that communication would work in there. And so like we see this as kind of a missing component and would love to kind of implement that in the future. Well, there's a lot of things to be optimistic about with the future of hot protocol. So Chris, thank you for coming on and telling us all about it. Thanks, David. Really appreciate it. So I think you mentioned this, but just to reiterate, what do you want listeners to do? Go try out hop exchange, follow hop on Twitter, join the Discord. What else?

Yeah, jump in the community. You know, we're always at Discord. So if you're looking for something to help, just start chatting. And, you know, we'd love to find something. And yeah, follow us on Twitter and get your assets on Layer 2. There's real stuff happening. And it's a lot cheaper than Layer 1. Very cool. Well, all of those links will be in the show notes if listeners want to hop into hot protocols.

Chris, thank you for joining me. Thanks, David. Cheers. Hey, we hope you enjoyed the video. If you did, head over to Bankless HQ right now to develop your crypto investing skills and learn how to free yourself from banks and gain your financial independence. We recommend joining our daily newsletter, podcast and community as a bankless premium subscriber to get the most out of your bankless experience. You'll get access to our market analysis, our alpha leaks, and exclusive content, and even the bankless token for airdrops, raffles, and unlocks. If you're interested in crypto, the bankless community is where you want to be. Click the link in the description to become a bankless premium subscriber today. Also, don't forget to subscribe to the channel for in-depth interviews with industry leaders,

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