Bankless - Osmosis Labs with Sunny Aggarwal | ETHDenver 2023 Interview #3

Starting point is 00:00:12 We are here at the Axler Interop Summit, and we are going to talk to Sunny Augurwald, who when I hear the word interoperability, I definitely think Sunny. He's been in the cosmos ecosystem since Cosmos was born. So he is the king of interoperability if he accepts that title. So we're going to go talk to Sonny right after we talk to some of these fantastic sponsors that makes this show possible. Cracken is our strategic sponsor for 2023. Why?

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Starting point is 00:02:50 Check it out at phantom. Now let's get into the interview. Bank of the station, we are back at the Interop Summit, hosted by Axelar, and I'm here with Sunny Oggerwold. And when I hear the word interoperability, I think of Sunny. How's it gone, Sunny? I'm doing great. Are you just vibing in this conference that is really custom-built for you to vibe in? Yes, it is. I'm getting to spread the word.

Starting point is 00:03:10 Yeah. So tell me about, as somebody who is largely inside of the EVM world, what is the new meta in the interrupt world? The new meta. Well, Axler is definitely helping bridge the EVM and IBC worlds. There are new stuff that they're building. It helps you like send messages between EVM chains to Cosmos SDK chains very seamlessly. So really excited about that coming about. What I've understood with Axelar and I've only really learned about it, in this last like 24 hours, is that it is like the cosmos between Cosmos and Ethereum.

Starting point is 00:03:43 Is that a fair metaphor? Yeah, that's right. It's a Cosmos SDK built app chain that lets, it's a bridge app chain basically. So, you know, you have like many bridges. They're all like multi-sig based and stuff, whether it's wormhole, multi-chain, whatever, right? But it's like, well, Axelor is similar,

Starting point is 00:04:02 but instead of being a multi-sig, it's a proof-of-stake-based bridging solution. Okay, so how are you? How is that different from other things like Thorchain, for example? Or like Wren protocol. There's a bunch of other proof-of-stake middleware chains. Is Axel are really all that different from all those? So Thorchain, it uses similar technology to Thorchain,

Starting point is 00:04:23 but Thorchain is like, it doesn't let you do bridging. It only lets you use their bridges for Thorchain swaps. And this is part of their whole security model where they don't want you to use it to bridge stuff, right? And that's cool technology, but we can't use it to an osmosis, right? You can think of it almost like osmosis plus axelar equals Thorchain. And so we've sort of fragmented these two things out. We were like, hey, at osmosis, should we be building our own bridges? And we looked at all the bridge hacks that were happening.

Starting point is 00:04:54 We're like, that is a responsibility and risk that we don't want to take on ourselves. Let's find a team that is like really solid and understands this stuff really well. And we went through this whole decentralized bridge bake-off process. process and we kind of came to the conclusion that Axler is the team that has the best bridging tech in the entire space in our opinion. Okay, and how much of that opinion is shared by others? Is that your opinion or is that kind of the consensus and why there are so many big names here at the Axlar Interrop Event?

Starting point is 00:05:23 So I think like part of it is like this is like a generalized interoper events or a lot of people have been coming. But I think like osmosis picking Axlar as our canonical bridge that helped like get them on the map. And then basically every other Cosmos chain. started using them as well, and now they're starting to be used by, you know, I think Polygon supernets are planning on using them. They're a partner for the new base roll-up, so I think they're starting to get more and more traction. What I really like about them is they're like, they have a lot of functionality, both from the cool features and security functionality that I think other bridges

Starting point is 00:05:56 just don't have right now. Okay, so just to really test my knowledge here, it is a Cosmos IBC chain, and it also, by a nature of what it is, can also connect. to non-cosmos IBC chains through its proof-of-sake consensus? Correct, yes. So it uses a more traditional multi-sig-style bridge system, not multi-sig,

Starting point is 00:06:18 but like validator-controlled deposit system to talk to EVM chains so they've connected to Ethereum, Avalanche, Polygon, Arbitrum, BSC, a couple others, Phantom, but then to talk to Cosmos chains, it uses IBC.

Starting point is 00:06:35 And what's really nice is that means for, something like Osmosis to talk to Ethereum. We don't have to have our own bridge protocol. We just talk IBC to Axler, and Axler acts like a translation layer for us to talk to EVM chains. Okay, so it's a translation layer. Is there a bridge risk here?

Starting point is 00:06:51 So if Axler is talking to Ethereum and Phantom and then also Cosmos, how much bridge risk is there present in the system? Yeah, so it is a, you know, you could call it like a custodial bridge, right? The Axelar validators, their proof of stake system, is custodying the assets that are bridge from the EVM tree. So there is bridge risk. Part of the things that, like, the security stuff that, you know,

Starting point is 00:07:13 the Oswald's team, we work with Axlar to design, like, things like rate limiting. So basically, we have the system where, like, only 20% of the Axlar bridges TVL can be removed in a six-hour period. And otherwise, it triggers a circuit breaker. And this is the kind of stuff, you know, if you look at traditional finance systems, a lot of the security properties come from these circuit-breaker-style systems. And that's what we've been working with, Axelr team to, like, bring these security mechanisms. And that's one of the things that, I don't know, I sleep better at night knowing that, like, okay,

Starting point is 00:07:43 even if there was some sort of bridge hack or something on Axelar, the losses are capped. Right. Stop loss for bridge hacks, yeah. Yeah. So is the bridge that connects Axelar to Ethereum and Axelar to Phantom, those are two separate bridges, not one single bridge, correct? So there's not one central bridge that would collapse all the other bridges, right? Correct.

Starting point is 00:08:02 But it is run by the same validator statute. Right. Yes. Okay. Well, yeah, security by validators said, I feel like it's a pretty known quantity. It's that independent bridge from chain to chain that always seems to be the weak link in all these systems. Yeah. And so Axler still kind of has to work around that kind of risk dependency, right?

Starting point is 00:08:18 Right. And I guess to talk to every EVM chain, it's using a similar implementation. Sure, right. So if there's a contract risk, you can imagine that same contract risk probably exists on multiple chains. But then Axler is working on non-EVM bridges as well. And that's kind of what they were announcing at this event was like, basically building an SDK that allows more people to build plugable bridges into Axler. Okay.

Starting point is 00:08:42 Moving on from Axelar, because I know you're actually more of a Cosmos guy just speaking on Axelar's behalf. What's going on in the Cosmos ecosystem? What are people really excited about? What's the meta there? Yeah, so I think the biggest thing of the last one month probably is the Mars launch. So Mars is a lending app chain, and they just sort of launched recently. And so, you know, in Cosmos, they're having a couple lending applications, but none of them had real product market fit yet until, like, Mars launch.

Starting point is 00:09:10 And they hit their, you know, they have these borrow caps for security reasons. And I think they hit their borrow caps within three hours of launch. And so, you know, they're slowly up in that. But, like, you know, so far in Cosmos, we've had a lot of dexes. Obviously, Cosmosis is the biggest one. But lending and borrowing and margin training is sort of the next big defy use case that needs to come. and we've been working very closely with the Mars team to enable that. And I'm really excited because, like, one of,

Starting point is 00:09:38 there's a lot of cool things that we're able to do with Mars because of how closely our teams are working together. One of the things that makes, like, margin trading on Ethereum not as efficient as it could be is that the Ave protocol doesn't know about uniswap. They act as independent protocols. But in our case, the osmosis decks knows about the Mars protocol The Mars Protocol knows about the Osmosis Dex,

Starting point is 00:10:03 and this allows us to do a lot of cool capital efficiency sort of things, a lot more efficient liquidations, all sorts of cool stuff. And so, okay, so these things can be like oracles for each other just because of the on-chain state that's passed between each app layer or app chain. Is that a feature that is unique to app chains? It's not unique to app chains. It's unique to collaborating apps. Okay.

Starting point is 00:10:28 I love the nuance on that one. That was good. It's interesting. So, for example, yeah, Mars uses osmosis T-WOPs. Sure. It allows you to use osmosis LP shares as collateral. It's liquidations. Instead of doing an auction system similar to what Maker, compound Avey do,

Starting point is 00:10:44 they actually execute against on-chain liquidity on osmosis. Sure, cool. And the coolest thing is this thing called credit accounts, where what you can do is you can borrow. So in Avey today, right? Let's say to borrow $100 of USDC, you have to put down $150 of E. Right. In Mars, with the credit accounts, you can put down $50 of Adam as collateral,

Starting point is 00:11:10 and you can borrow $100 of USDC. How is this possible? Isn't this under collateralized? Right. The trick is that it's borrowed into a special credit smart contract account. Think of it like a smart contract wallet. That you're only allowed, all you can do with it is do certain margin trading on certain pools. and the Mars protocol has the ability to liquidate from the credit account directly.

Starting point is 00:11:31 Right. So you're giving it into a custodial account that limits what you can do, but you still have more capital available to you. Yeah. Smart contract custodial, right? It's like it can only pull from your account if a liquidation is triggered. Right. Right. So you get to, it's under collateralized lending, but with constraints on what you can do with that. Exactly. This is how margin trading works on centralized exchanges, right?

Starting point is 00:11:51 If you have a margin account, you can't withdraw money off of the centralized exchange. Right, right. That makes a ton of sense. Yeah. So I heard a take recently that Cosmos is really defy focused, as in most of the innovation in the Cosmos land is Defi. There's less gaming, there's less identity. How does that take ring true for you? And are there other, what are the other non-Defi parts of Cosmos?

Starting point is 00:12:14 Yeah, so I mean, obviously I spend my time focusing on the defy side of things, but there are things going on. So Stargaze is like this NFT platform. You know, there's a couple of, you know, we mentioned the bad kids. I think when I mentioned it on the bankless episode, start bad kids had this like huge uptick-in popularity since then. And there's a couple of projects working on a lot of cool gaming stuff. So like this is a project called Argus.

Starting point is 00:12:36 Scott, he was a friend of mine, he was one of the builders of Dark Forest. And he realized that like, hey, the cost of SDK actually gives us the ability to build a lot more powerful, like on-chain, fully on-chain gaming things. And so he's building this project called Argus that will enable a lot more like gaming apps, chains and stuff. So we're starting to see

Starting point is 00:12:56 the initial proliferation of other use cases as well. So how does, because of Cosmos of what it is, the whole like App Chain mesh layer in contrast, you have Ethereum with the Central Shared Security. The Ethereum community, as a result, I call it kind of more coherent. And Cosmos is a little,

Starting point is 00:13:12 what's like, what is the state of the broad set of the Cosmos App Chains community? Are they like, is each community, is each app chain its own community? Is there one broad Cosmos community? Like, give us the topology of the cosmos, like, layer. Yeah, so there's definitely this like meta thing where it's like people are often community members of specific popular app chains like osmosis has its own community, Kujira,

Starting point is 00:13:36 which another popular dex has its own community, Juno will have their own community. But then at the same time we're all like citizens of the cosmos as a whole. And it's kind of like, you know, I'm a citizen of, you know, I grew up in New Jersey, so I'm a New Jerseyan, but I'm also an American, right? And so it's just like you kind of have both layers going on. And so there's always a little bit of like, people are often like, oh, there's so much drama in cosmos. But like, I think people, it's a little bit overblown, actually, to be honest. Like, I think there's often a lot of drama within Ethereum as well, right? You had uniswap, sushi swap fight.

Starting point is 00:14:10 Compound Ave. You have today, now you have optimism versus arbitram, right? And so you see similar things. But I think at the end of the day, everyone is still like very tied with this larger cosmos vision and community. Yeah, like sports teams are still all washing the same sport, right? Yeah. Yeah. Sunny, we got a lot of left in the East Denver conference. It's just Tuesday, and it goes all the way until Saturday. What's left on your schedule? What's left on your itinerary? Yeah, so

Starting point is 00:14:33 when tomorrow, really looking for checking out WalletCon just, I don't know, I'm just interested. I recently downloaded a new browser and I'm like, this is an opportunity

Starting point is 00:14:43 to try out some new wallets and so I've just been playing around with a bunch of different wallets and exploring like, wow, there's so much cool innovation that's happening, so I decided to go check that out. Thursday, there's like this shared security summit

Starting point is 00:14:54 hosted by Eigenlayer and Babylon. So I'll be giving a talk there about MESCH security and how that's like the future of Cosmo's shared security and then on the weekend I'll just be hacking at the hackathon. And Sonny, could you walk us through your sweater please? Yeah, this is just our...

Starting point is 00:15:11 Osmosis Christmas sweater. We did a test batch run this year just for the core development team. I figured, you know, why wear a Christmas sweater only one month a year? I'm going to wear it in February, who cares. But I think, you know, we definitely want to figure out how to get these on-chain, something more like Unisox by next year. Sure. Thank you for always walking me through this interoperability world, which again, I definitely

Starting point is 00:15:35 need a guide, and you are always a good one. So thank you so much. Thank you. Cheers.

Bankless - Osmosis Labs with Sunny Aggarwal | ETHDenver 2023 Interview #3

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