Epicenter - Learn about Crypto, Blockchain, Ethereum, Bitcoin and Distributed Technologies - Alkimiya: Blockspace, the Digital Real Estate - Leo Zhang

Episode Date: August 17, 2024

As the crypto industry matures, more sophisticated market participants become involved. As a result, risk management and hedging will evolve to levels seen in TradFi. However, regardless of the preferred market activity, when interacting with a blockchain, every actor competes for the same limited blockspace. Based on demand levels, the cost for securing that blockspace can fluctuate (in the form of miner fees for Bitcoin transactions, or gas fees for PoS blockchains). Therefore, a particular niche of power users could lower these costs by reserving blockspace in advance of elevated demand levels. Alkimiya set out to build just that - a marketplace for blockspace.Topics covered in this episode:Leo’s backgroundThe vision behind AlkimiaMarket participants for blockspaceHedging costsUse cases on EthereumProposer-Builder Separation and preconfirmationsReserving blockspacePolkadot’s blockspace allocationCurrent market sentiment. ETH vs. SOLEpisode links:Leo Zhang on TwitterAlkimiya on TwitterSponsors:Gnosis: Gnosis builds decentralized infrastructure for the Ethereum ecosystem, since 2015. This year marks the launch of Gnosis Pay— the world's first Decentralized Payment Network. Get started today at - gnosis.ioChorus One: Chorus One is one of the largest node operators worldwide, supporting more than 100,000 delegators, across 45 networks. The recently launched OPUS allows staking up to 8,000 ETH in a single transaction. Enjoy the highest yields and institutional grade security at - chorus.oneThis episode is hosted by Brian Fabian Crain.

The fee is interesting because fee is universal. No matter how the way that people's relationship with this asset class changes, fee is always going to be something that people have to pay. Everyone, regardless of how complex your transactions are, it doesn't matter if it's a simple wallet transfer, where you're doing NFT mint or you're doing like multi-block Mavie. You're trying to capture. It doesn't matter the complexity.

You're all competing for the same resource. And these resources are quite limited. They can't scale based on demand just because demand suddenly scale. demand is quite ephemeral compared to how inelastic supply is. So pricing the access to these resources will always be a market-oriented problem. Welcome to Epicenter, the show which talks about the technologies, projects, and people driving decentralization into blockchain evolution. I'm Ryan Crane, and today I'm speaking with Leo Chan, who's the founder and CEO of Alchemia,

alchemia, which is a project that's creating a market for a block space. So before we're going to talk with Leo, it's just a few words from our sponsors this week. This episode is proudly brought to you by NOSIS, a visionary collective committed to fostering and expanding applications for a decentralized future. NOSIS is at the forefront of innovation with NOSIS pay, circles, and Metri, revolutionizing open banking and creating a superior form of money. With Hashi and NOSIS VPN, they are building a more resilient and privacy focus open internet. Are you seeking a robust L1 to launch your project? Well, look no further than the

Nosis chain. Enjoy the same development environment as Ethereum, but with significantly lower transaction fees. And with a robust network of over 200,000 validators, Nosis chain stands as a credibly neutral and resilient foundation for your application. Governance of Nosis is driven by NOSIS Dow, where everyone has a voice in shaping the project's future. Join the NOSIS community today by participating in the NOSISDA governance support. You can deploy your project on the EVM-compatible and highly decentralized noses chain or help secure the network by running a validator with just a single GNO and low-cost hardware. Embark on your journey towards decentralization today at nosis.io.

Cars 1 is one of the biggest node operators globally and help you stake your tokens on 45 plus networks like Ethereum, Cosmos, Celestia, and DYDX. More than 100,000 delegators stake with Chorus 1, including institutions like BitGo and Ledger. Staking with Chorus 1 not only gets you the highest years, but also the most robust security practices and infrastructure that are usually exclusive for institutions. You can stake directly to Chorus 1's public note from your wallet, set up a white table note or use the recently launched product, Opus, to stake up to 8,000 eth in a single transaction.

You can even offer high-yield staking to your own customers using their API. Your assets always remain in your custody, so you can have complete peace of mind. Startsaking today at chorus.1. Thanks so much for coming on, Leo. It's really great to have you on the podcast. Thanks for having me, Brian. Should also mention here brief disclaimer that with course one, we actually did invest in alchemia. Tell us a little bit about, like, how did you get into crypto?

Yeah, for sure. I started my career right after graduating. My first job was in traditional finance. I was doing equity derivative, some pricing, some modeling. It was not the most riveting job, I had to say. But I followed a relatively stereotypical traditional finance path for about two or three years. And in 2016, I became obsessed with Bitcoin. And it. And it. And it. And it. And I started going to some of the meetups in New York. It was still very, very small at the time. There were not that many people talking about it. There are not many firms doing it full time. But in 2016, I was pretty certain that I wanted to see this become a real thing full time. It was a lot more exciting back then. To be honest, I think the possibility of this growing into a real thing.

There's a slight digression, but I was just looking at it. You know, people like celebrating Trump speaking at Nashville, politicians endorsing it. Like, you know, like 2016 people would be, will be mind-blum by, you know, by this. But and, and I know, you know, this is something that people wanted for a very long time, right? This is becoming mainstream. And now that black rog's picking up some countries talking about making this asset, National Reserve. And it's very clear now this mainstream asset.

But I kind of missed the sentiment back then when we're still just trying to figure out, like, you know, what to do after the Ethereum Dow hack. But anyways, I, yes, so I joined a small crypto fund in New York around 2017. I was a researcher there. After ICO in 2017, they were really not that many, you know, interesting thing to look at. So I end up spending a lot of time doing mining, spinning up mining operations, sourcing machines from China, setting up data centers. So that was my, I guess, journey into block space, I guess. And around 2020, I had sort of the vague framework. So that was for Bitcoin or for like other cryptos?

Oh, there were a lot of things. GPU with mining a lot of smaller coins as well. That was the game to play at the time. You know, it was some of these smaller projects and used GPU to mine it for a while and it pumps. And, you know, I mean, it's not that different from the ICO game to, but the distribution was required of a bit of work, I think. Yeah. So in 2020, I had the vague framework for what later became alchemia at the time. So I left that job to sort of try to craft this idea.

I started writing about some of, I guess, observations and reflections of the mining industry. And in 2021, put together a small team. And that was the birth of alchemia. And then when you started working on it, what was the vision that you saw for alchemia? It was definitely very different from the project, from the version that we have. life now. That was the, I guess, the prototype. The prototype at the time was very much catered towards miners. Well, at the time, you know, both Bitcoin miners as well as ETH prefer minors. And the, although the discourse at the time was much, much more interesting because that was just the beginning

of, I guess, people taking MNB more seriously and just trying to understand, like, how, what kind of roles that MEP is going to play in, for ETH miners. pool and just very, very early stage conversations. But anyways, so at the time, the focus was more for minors to hedge against their cost. So the instrument that they were creating will be a synthetic representation of the revenue produced by their hash power. And later, so that version we launched in early 2022, and that version ran about 35-ish million in transaction vault.

But towards the end of 2022, we saw very clearly the growth slowed down. And at the time, we're not sure if it's, you know, mining industry was changing or just this is the fundamental bottleneck of the of the of the sector. But the conclusion we had was that like our protocol was not good enough. It's how we start working on a second iteration. I mean, I can see as a miner, right, I'm basically spending all of this money on building mining. farms and then of course I don't know exactly what the revenues are going to be so if I can kind of hedge some of my future revenues then that can decrease my risk so that was kind of the target and I'm curious on the other side like who would take the other side of that trade

yeah that was exactly the problem so we're hoping that we can create something that can capture the cash flow of mining revenue and present it as sort of something that's a new, I guess, atomic toy for the rest of the defy universe. The challenge we faced at the time was that, and also the context in 2020, that was just around the five summer, like midway into it, and we're just looking at the source of the yield, right? It is all these fruits themed yield source. It's either inflation or just solid volatility. And at the time we thought, okay, you know, this is something, this is revenue generated from from producing blocks.

This is, you know, this is block subsidy. This is the actual transaction fee people pay to process their transactions. And there are a lot of like interesting dynamics there. As is a much more, I guess, organic cash. Compared to just pure token inflation. So the conceptually we thought it was, it was sound and as a building block. However, I think we underestimated the complexity of just how much jargon there is in a mining sector and how small it has gradually become over the years,

especially after China banned the mining industry and a lot of them move to North America. The type of players in North America are much more traditional, I should say. They are more from energy, oil, and gas industries. They are much more interested in playing the traditional capital markets game equity debts, spec, rather than something that's crypto-native. so that severely restricted the size of the playable addressable market, I guess. So anyways, but during this journey, we realized that, hey, people are much more interested in just the fee component. Peter Hash, all like Farahash, all these things are pretty difficult to talk about outside of beyond the miners.

But just the fee, the fee is interesting because fee is universal. No matter how how much like the way that people's relationship with this asset class changes, fee is always going to be something that people have to pay. And at the time, okay, if roll-ups are starting to post like millions of dollars to pay for call data on L1, there are like serious commercial activities taking place on chain that are starting to look more and more like energy industries where people have to hedge against the fluctuation of electricity price. Large utility companies were hedging against the primary resources they were using. So it became very obvious to us that, hey, this is this one slice of the revenue being produced by the block space,

the block producers is much more interesting for infrastructures that are building on chain, frequent settlers, service providers who need to settle on chain regardless of the fee and firemen. So this essentially became our primary focus for the version that we just launched. Okay.

So now the focus is on fees. So basically that people can trade the future of transaction fees. Yes. I mean, so I think right now it's just like for Bitcoin but then you want to do it for Ethereum or like for for all the major networks? Yeah, so the architecture is synthetic.

So in theory, we can support anything that has high volatility and people want to hedge. I mean, there are several factors of considerations to address. One, this is still a marketplace, so we need buyers and sellers to be balanced. For mining, it's easier because without, frankly, it's actually has nothing to do with proof of work versus proof of stake. It's really YIPP-159. Without 1-559, Bitcoin is just first-price auction. It's very straightforward. The transaction fee, they go to mining pool, it distributed to the miners.

So anything that people pay, we can find strong correlations to what the mining, sorry, the mining pools they ultimately collect. Whereas for YIP159, this is very different, right? So validators don't actually collect the base fee. and most of your income is from block rewards these days and given the, I guess, much more reduced on-chain activities. 404-4 is definitely changing things for validators on L1. And there's just a lot of, I guess, moving pieces of how people,

where people want to take Ethereum, in terms of the relations of builders and proposals and end users. I think there's a lot of changes that's being proposed right now. And I've almost lost track of like the latest discourse. But yeah, went for Pepsi to Braide. I think there's just a lot of direction that people are pulling Eiff towards. And none of them really consider the feelings of end users.

Yeah. That's 72. So can you tell? Like when you have now this market for transaction fees, I mean, who do you see as the main parties that want to trade in this market? Yeah. So the kind of the most natural user, the most organic type of users who are interested in these are service providers who have to settle on chain regardless of the fee environment. All right. So on ETH, this will be the sequencers.

Well, before 4844, they will have to pay call data and now they pay called out and or blobs, block fee. and applications who are launching on, sorry, users of the applications who are on L1, and these days there are starting to have a few meme coins popping on Bumeth L1, taking advantage of the low fee. I guess ultrasound money meme is not dead. But these activists, they do have pretty strong impact

on the volatility of the base, of the of the of the of the of the I guess you know settlement cost for for regardless of the chain they're on right and for Bitcoin this used to be you know already knows ruins that had a pretty drastic impact on how full the the blocks were and this has pretty severe impact for you know service providers who just have to settle on chain regardless of the fee how high the fee is one example that we saw several ago was so OKX they did UTXO consolidation which is a very you know common exchange housekeeping thing where they just combine a lot of like dust UTXO exchanges do this centralize exchanges do this all the time and they had a bug in their strip where their bots start bidding against each other and resulting fee to

escalate during those one two three days ish around that period and OKX paid about 18 million in transaction fee and these kind of things that happen on chain all the time, right? All the time. In 2022, Summer, other than had this crazy popular mint. And users, I think it was something crazy, $150 million in gas costs incurred. That was the NFT, create, the peak of NFT summer.

So it's, I mean, at the end of this is, this is everyone, regardless of how complex, extra transactions are, it doesn't matter if it's a simple wallet transfer, or you're doing NFT Mint, or you're doing multi-block MV, you're trying to capture. It doesn't matter the complexity. You're all competing for the same resource. And these resources are quite limited. They can't scale based on demand just because demand is only scaled. I mean, Parachshank has some interesting ideas, but unfortunately nobody's already using them. But for most of the popular public blockchains, this is the case. Demand is quite ephemeral compared to how

in elastic supply is. So pricing the access to these resources will always be a market-oriented problem. But so if you now, I don't know, you take some L2 or you take some other kind of application that needs to L1, is your idea then that, I don't know, let's say at a time when maybe there's not so much demand, they kind of pre-purchase, right? or they basically, you know, take out some asset that reflects how much they expect to spend in transaction fees over the next year for like, you know, all the different maturities or something. And then it will sort of be the inverse correlation with what they actually spend on chain when that time happens. And so then they can kind of have like, you know, a predictable cost for the next year or so.

Is that the kind of trade that you expect people to make there? That's the hope and dream, yeah. I think for service providers, although one year is we have to grow there. Right now, the tenor is about two weeks. If it's just two weeks, do you think that actually makes sense for some L2 to do this kind of thing? So some of the L2 is actually one shorter time. It's very, very interesting. So I had a conversation where one of the largest sequencers, they want like 10 minutes,

They want to trade every 10 minutes because they want to have some more visible. These guys are pretty sophisticated. They want more visibility on how they control the pricing. But it's impossible to find, like, sellers who are willing to sell on 10-minute basis unless sellers are, you know, seriously taking advantage of. But there are also sequences who want to just like lock in, you know, several months, a quarter, half a year, which is also very very very. very hard to find sellers who are that kind of like that bearish on the outcome of the other

activities on that chain. So we're starting with, you know, some tenor in the middle and try to nurture this market and see which direction is more popular. So with traditional energy market, right, for oil, for instance, the oil companies, they would hedge very long term. They would buy futures that are, you know, quarter long or at least month long. But the speculators who are looking at, let's say, the progress of, you know, Ukraine-Russia war, and they're trying to think, like, some events, how they impact the oil price intraday. They would trade, like, intraday contract. Okay. Okay. Okay. And then you've, like, on the, I mean, I can see that there's, like, some demand here, or there could be some demand from the people who want to hedge.

Who do you think would be the other side? Is that just some kind of market market? maker hedge fund types or like who would want to trade this. Yeah. Yeah. So for Bitcoin is easy. For Bitcoin is the miners. And this is the reason we're starting with Bitcoin first. It's pretty difficult to construct a market like this, which doesn't quite exist in

the way, doesn't exist in crypto at very least. So we need to limit the number of variables that we're exposed to and just try to structure something simple and just try to establish a foothold and grow and touch something that's more complex like ETH, which has 1559, a lot of other moving pieces and potential directions that people are taking the, I guess, block supply chain to clips. But with Bitcoin miners, this problem is pretty easy to illustrate to see, right? With more halvings, now we have so many halings at this point. Block subsidy is just increases very quickly, and the industry is becoming more and more competitive, highly industrialized, highly competitive. It's impossible for anyone

with, I don't know, less than 10 million to spin up a real, like, mining operation anymore. And the amount of, like, optimization you can get from data centers is the minimis at this point. So more and more of these Bitcoin mining, like players in Bitcoin mining field, they're starting to figure out, okay, how exactly do we capture more transaction fees now that there are these metal protocols like Ordinosa Runes and some of their extensions. Bitcoin MVP is a thing now. There's a lot more sniping activity. And with 10-minute block time, some weird behaviors we've never seen before on ether

starting to emerge on Bitcoin. And there are like serious investments into MEPs sniping tooling, anti-MV sniping tooling in Bitcoin. So you mean the miners would want to basically say, I'm going to trade in this market because that way I can sort of, you know, guarantee some income stream. And then on the other side, it would be like wallets or exchanges that pay for user transactions. Yeah. On Bitcoin side, this is more, I guess, more custodian type of user service providers compared to because there's just much less unchain activities.

with a different chain that has much more like on-chain activities, this could be like anyone who's doing a large amount of like on-chain transactions. This could be a project that's doing, you know, preparing for an end-of-T mince. And this is people who are expecting like a cascading liquidations. Because several days ago, not sorry, I lost track of time or a week or two weeks ago or maybe two years ago. There was, uh, if just dropped, like, pretty significant. significantly. And there was a lot of on-chain liquidations that cascading fat. And gas price went from five-gway to 200-something in a short period of time and came back down.

Okay. Okay. And then how do you imagine this product would look like on the Ethereum side? Yeah, it's interesting. I think for the The use case, like why people would use it, why some service providers want to use it, is very clear, especially with Paymasters. And this is personally, I think, is a very good direction for end-user U.S. really. And especially if- Can you explain me for what Paymaster is?

Yeah. So there are these services that, so for example, a smart wallet that Coinbase just roll out. So they will sponsor. transact. So they will allow users to pay gas in a token that's not ETH. Let's say, for example, a Circle for example is pushing for a USDC-based paymasters for obvious reasons. And so if users wallet doesn't have Ease and they have a select app native token, and of course paymaster alone wouldn't be able to achieve that. But just general account abstraction bundle, I guess,

stack, I guess. And with Paymasters, they sort of effectively just concentrate end users' responsibility of paying gas to a single entity. So during that time, they charge a fixed cost or even subsidy, free, let's say, one cent for every wallet transfer denominator in USDC for end users. And during this time, the Paymaster actually pays for the gas to complete the transaction on chain. So during this time, the paymaster itself, and whoever runs the paymaster, who is paying for sponsoring the paymaster, will have to take on the gas volatility as well as the forrex risk. So these entities, they are the primary type of user who really, really would want to benefit from hedging. Otherwise, it's just be like marketing budget that keeps eating into their revenue.

Yeah. Okay, okay. And then what's the state with the hearing product? Like when are you planning to launch that? I don't want to share it so much. I'm actually talking to Michael on your team about this. Yeah. But, yeah.

Soonish. Do you feel like in the longer run, these kind of instruments will end up becoming interested also for like more stratify to trade? Yeah, actually. The funny thing is, with Tramify people or crypto traders who came from Trify or Quants mostly, they understand this right away. It's very intuitive that they've seen this like a million times in being like,

I guess, real life. Because the parallel with like commodity futures, energy futures and just how like Starbucks had just coffee being so that latte has a fixed cost and not fluctuating because all of like a forest burned down somewhere real time. And all of a sudden, a cup of coffee in New York, like doubles price. And, you know, airlines had just again, like jet fuel price. These are, you know, establishes that has been, being around for hundreds of years. In the past, this wasn't really a problem for a crypto because they're still not really that serious of use cases until more recently, in more recent years.

now with centralized exchanges, traders who have a lot of unchain footprints, yeah, paymasters, bridges and roll-ups, not bad. Okay, this consistency lead to the importance of having this type of instrument. Right now, this is the alchemia product, it's built on base, is that right? It's on L1. It's on each is L1. Okay, okay. And I'm curious, for example, for the Bitcoin transaction fee thing, do you need some kind of Oracle or like, how do you get this data onto EFL1? Yeah.

So, yeah, we run our full nodes and, yeah, and we use Oracle. We have, we built our own Oracle essentially. It's an inevitable part. But we feel okay because it's pretty easy to verify this data. Like anyone who's running full nodes, or actually anyone who's. who access Quicknote or is able to verify this data. So it's not like some kind of like price oracle where you have to pull, you know,

some price information of a specific coin from like multiple exchanges and compared to minosecond ticks. This is something that's very easy to verify for anyone who has basic understanding of how Bitcoin works. Okay, okay, okay. What do you feel like we should talk about? I'm actually interested in your view on, you know, because there's a lot of things that's going on with, with the, how people are thinking of like how the proposers role in the ecosystem, right? And I feel like proposers are what are the groups that get marginalized the most.

Well, users and proposals, the youth researchers, they think about users less and then validators and the rest of the stack. There are a lot of, you know, interesting directions and a lot of them have very clear tradeoffs. All of them are pretty complex, right, going from the old Pepsi fossil inclusion list, now to multi-concurrent proposers with very clear trade. off of sacrificing, you know, users, UX. But I feel like all of them, they've almost never had, you know, conversation with validators or asked like how bad it does feel about the directions that are changing.

Yeah, I just wonder like how, how was your, because you're, you know, on the front line of this, I was just curious how you feel about all these directions that ETH is going. Yeah, I mean, it's a good question. I mean, actually, we did a podcast with Vitalik at EFCC, and we asked him like, hey, dear, I asked him, how do you feel about proposed builder separation today? You know, do you feel like this was a mistake, or was it like the right thing?

And he was kind of like, eh. Not really sure if I would do it again. So I feel a lot of it, you know, it's kind of downstream from, you know, propose a builder separation and then pursuing that path. And now, of course, you know, one of the situations, which not sure, I don't think people are like particularly aware of it, right? But is that on the builder side, you know, it's really very concentrated, right? I think you have today like two builders that make up something like 90% of the blocks.

And then, and then I, so I feel like a lot. So, you know, there was maybe some idea, right? I think propose a builder separation to some extent where you basically say, okay, the validator doesn't build the block anymore, doesn't like arrange all the transaction the cyber goes into it. You know, of course, FlashBots was kind of the company that said, okay, let's try to split this up and have this separate system that arranges the block and then the validators just gets the block. And then I think to some extent, you know, they sort of said, oh, this is because we want to, it will help keep it more decentralized. make this open market so anyone can compete in. And I think that was one of the reasons why, you know, the theorem foundation and researchers also kind of push this

and then help to make this part of the core theorem protocol. But I think the sort of unintended consequence was that actually, in some ways, it became much more concentrated because now, you know, if you look at the staking side, you know, the largest validators, you know, which gets like Coinbase and Cracken or something like that. You know, they're like... 30%.

Yeah. Yeah, they're like 10, 15% or something like that. Now, when you look at the block builders, right, they're the largest blockbills are more like 40%. Right? So like the two largest, I think, are together like close 90. Although, you know, it changes. So you have this big concentration there.

And I think one of the things that, that's driving, I think the Ethereum researchers is like, oh, how do we make this more decentralized? I mean, there's different concerns, but at least I think that's like one of them. And then, you know, they come out with some new thing and, you know, who knows what the implications are of that. I mean, we are pretty in, at the course one side,

we are actually pretty, you know, we try to be pretty at the cutting edge of that. So at the moment, one of the areas that where there's a most, interest and activities around this idea of pre-confirmations where it's basically something like you know you can get a promise or some kind of guarantee that a transaction will be included in a block further down the line and then I think there's also two different philosophies that are two different approaches one is the idea that the proposer to validate it would give this pre-confirmation and

then there's another approach where the builder could give this pre-confirmation So I think there's like different companies pursuing those different paths. And you know, we're kind of interested in it. You know, we run some of these things on test nets. I'm not sure we're like super opinionated there at the moment. Yeah, I don't know. Do you have any thoughts on pre-confirmations or like this, or like how that also intersects with some kind of market for block space?

Yeah. Yeah, I think pre-comfor, the one thing I haven't really, and I think this is probably something that we just have to see how it unfolds in real life, is how to price these things, right? How to price this future slot that you're going to sell? And it's the same problem if it's starting from the builder's side or starting from the proposal side. Actually, from proposer side, it's probably harder because, okay,

there needs to be enough, like, volatility. okay, can you cancel? Can builders actually cancel it? As far as I know, there's no such option, right? Like they buy it, they have to use it. So I think the nature of this kind of commitment to buying, okay, specific block in the future without knowing, okay, what kind of content I'm about to produce,

about to include my block, it makes it very difficult to know what kind of premium I'm going to pay to option for that, unless I have a lot of information about what I'm going to get. But I guess in the current landscape of the builders where two players are highly, highly have a lot more information

than the rest. This is potentially less of a problem. But I, yeah, I'm really curious how builders actually react to this if there's interest yeah from them right

so yeah I guess this gets kind of quite in the weeds I mean if you have I think if you have you know in the end right the builder produces some block

at this particular height and it's like hey this is this is the block it includes all these transactions and here's how much I'm willing to pay for it and then the valid will basically

compare the different blocks for the different builders and choose the one that kind of pays the most. Now, of course, if the validator, the proposal kind of goes to the, to the builder and says, hey, you have to include this transaction, then it's like a constraint for the builder. And then it may lower the value of that block. I mean, it depends also what does it mean, right? because is it, I think for my conversations here,

it seems like something like an arbitrage transaction probably wouldn't be suitable for a proposal pre-confirmation, right? Because like in an arbitrage transaction, you say like, okay, you know, there's like some dex state or some uniswap pool, for example, and you can make an arbitrage of some other thing when you get that transaction in and then someone is willing to pay a lot for that because they can make a lot from that. But I think for the proposer

to basically promise to include such a transaction I think doesn't really work very well because one is that the proposal is too slow because like the proposer has to communicate back and forth to the builder and then so they, they're at sort of disadvantage there. And then I guess the other thing is that, you know, let's say now the proposal makes a bunch of money

because they're getting paid to include some transaction. That is basically money that the builder is not making, you know? So it's not really like a net gain. And if you, of course, the other thing is the order of the transactions in the block, right? for that transaction to be effective, right? It would have to come first in the block. But then that's the most valuable block space, right? I guess the first part and the last part.

So yeah, I don't know. It's always complicated. And it's just getting more complicated, right, with these new things. The whole thing about concurrent block producers. So basically, for the listeners you're not aware, it's basically the idea. So this is something that has been, an idea in the Solana ecosystem for a long time. Anatoly has been talking about this for years.

But it's basically the idea of having different block producers or different sort of validators produce blocks at the same time. So in the Solana world, it will be, you know, the validators kind of all, let's say there's like five at the same time. They're all, you can send transactions, any of them, they all include them. and then somehow in the end it gets kind of resolved about like you know the order and and I guess that's a similar that that idea is being explored in Ethereum as well to have like different people producing blocks at the same time I'm not sure actually I haven't really spent the time looking into this in terms of you know how it will work what the implications are I'm also not totally sure how how far along that is and how likely that is to happen any time soon, although it seems to be getting some traction

and people seem to like, some of the key people seem to like this direction. Yeah. Yeah, that's the reason. The funny thing is, because the most popular, I guess, at least so it seems, right, for looking from far away,

the most popular solution, which is the Max Resnix proposal of braids, I think, is incompatible with pre-cons because you won't have, you know, a proposal that has the ability to commit to a future block because now you have like, oh, you have unionize all these like number K of different parallel chains that unionize them, or however it's getting like agreed on in the end.

So like it just changes all the time, you know. And these are not small changes. These are very fundamental changes. I say all of a sudden, okay, we enter into a pre-coms market where all these pre-conferes it is actually worth it is a real world

and the and then just you know just bookmarked that thought for a second the thing with pre-confirmation is that you have a very complex market with a lot of like moving pieces and you have so few players yeah

yeah yeah yeah and it has so few players to to drive pricing I mean actually it seems like whoever, it seems like the market for someone who would be interested in pre-confirmation is probably very similar to the market of someone who would be interested in some kind of, you know, future of transaction fees, right, on Ethereum, or maybe even the same, right? Maybe it's like, I mean, probably it's a significant amount that there will be the same kind

of players, and maybe they're kind of like, do you think these are substitutes? Like if you have free comps, and it's kind of like less important to like maybe hedge your future transaction piece? Yeah. So I think physically allocated block space are very, very different kind of products from synthetic block space, I guess, paper block space with a lack of a better word. And I think they serve very different purpose and they serve very different user base. So with like these kind of, I guess we can call pre-conviz or Pepsi as like physically allocated

block space, right? I think these are more for, yeah, these are for block builders. It's, it's, the, the users who would use this are people who are very, very, have very specific needs, have very high requirement for granularity of ordering the transactions and the timing of these transactions get included in the block. They want to pay for that guarantee. So I think that's the level of like precision that they're operating in order to, for this kind of instruments. So the concern is less about like, hey, I want to pay for a future block because I want to lock in the base fee. I think it's less, you know, less about that. And because, you know, frankly, the builders, they know exactly what the base fee is going to be.

Anyways, whereas for paper block space with, you know, this kind of block space futures, the kind of users is servicing are businesses who are just trying to not think. about fees for a long period of time. They are trying to have this part of volatility removed or partially removed from their operating like day-to-day operations. For OKX, for example, they would, if they're constantly hedge when they have this kind of like screw up, they would be able to at least like partially collect or fully collect their loss, which is not something that you can really achieve with like physically allocated block space. And the kind of things that you can achieve with physically allocated block space of like, okay, I want to get my transaction

into that specific flock. That's not possible with paper block space because it's entirely different day. Yeah, okay, that makes sense. Yeah. Do you feel like any other chains are doing something interesting related to block space besides

Bitcoin and if you are? Yeah. I mean, PolkaTal has been experimenting with this idea for a very long time, right? I think they are, this idea of like aphemeral blockchain. Oh, sorry, if immoral block,

yeah, aphemeral blockchain. I think the implementation, the design has evolved a lot for the past few years. I always think that, you know, poke it off, people are, the original crew,

they're quite forward thinking in terms of how to manage like, okay, full no resources and that relations with, with, I guess, end users. The only problem is that I think they have gone to the rabbit hole a little bit too,

bar. So it's a little, you know, the kind of problem that it spent a lot of headspace on is not something that end users, you know, particularly are interested in. Right. So I think that tradeoff is very hard to balance. I mean, same can be said for Ethereum today, to be fair. Maybe, I mean, you're coming from there, like, traditional finance base, right? So I see a lot of like finance knowledge as well. I'm curious,

what are your thoughts on the current market and where do you see things going? Oh, I mean, so I've spent far more time in crypto than in traditional finance at this point. I think I've seven years of full time in crypto, three years in traditional finance after graduating from college. Yeah. I think I think it's hard. right like that I definitely I mean have opinions but I think I definitely don't look at market as closely as people who have more time I guess yeah it's I do think that if anything I do think ETH is probably a little oversold but at the same time I think there's some bigger problems that more fundamental questions I think if as a community it needs to

needs to answer, right? Like, I think it's very clear that people are not happy about how fragmented L2s are today. And people are not necessarily happy with, like, the kind of questions that Ethereum foundations are choose to spend their time on and how some of, you know, these newer proposals, they're further and further away from users. I actually think multi-concurrent and proposers is pretty interesting. because the trade-off is very, very clear, right? Like, okay, censorship resistance,

and the, but of course, it breaks a few things, including pre-confirmations, and there are a lot of, like, U.S. trade-offs, like, okay, more transactions are going to get reverted. And, of course, all of the proposals are still very much in the early stage. I, yeah, I'm just curious, like, how validators adjust to these kind of, like, big drastic changes. Biggest they do affect, like, how you collect revenue and...

I guess a lot of these things, they have been such that validators can kind of, you know, just run the software and it works and, you know, even like propose a builder separation. I mean, that, I guess, was the big or the big thing that Flashports, like, achieved, right? They said like, hey, just run this other client. And they basically takes care of everything. So the validator doesn't actually have to know that much, right? And you can make more money, right? So I think in the end, they got so much adoption at the time, right?

So this was still proof of workdays, right? But I think you got something like 80 and 90% of the hashing power to use that. And I think they did it because, like, it really abstracted away. And like, wow, they just don't really have to worry. about it. And I think that's still the case today, right? Like most validators, they don't really have to worry about, like, how does all of this work. Some of them go much cheaper. Like, so we have gone very deep there at course one, where we basically, you know, modified the serum client and then would measure, you know, different parameters in the network, different things we can

control to try to build more valuable blocks. And then, you know, you know, we are able to do that, and then, you know, we're able to like generate maybe something like a little bit less than 10% in additional MEPE revenues. So there's a bit, a bit, you know, there are some things you can do there, but then that sort of requires a lot of sophistication. And it's probably not something that's like worth it for most validators. But they just sort of like run it and then I think fine.

So I think most of all is honestly, I don't think they're really worried too much about, you know, concurrent proposers or things like that. I guess they will have to worry about it once it comes. And then, you know, I guess we will see what the implications will be. It will certainly possible it will break a bunch of stuff, right? Maybe it breaks pre-confirmations, maybe I don't know what it means for block builders. But I think that I would say on a high level, right, a lot of the move hassles of, of, of, proposed builder separation has been that a lot of the complexity and sophistication has been moved to the builder and and the validers have you know less less sort of degrees of freedom of

which is maybe for example what's somewhat interesting there is like I think Solana is maybe a bit different right where Solana there's also a lot of things happening a lot of transactions There's a lot of MEP on Solana, and there is a lot of degrees of freedom now how you can run things, right? So you have a client called G-Tor, right, that does like some MEP. Then there's another thing, I mean it's called state-weighted quality of service, where basically someone will pay validators for including transactions. And then you can make additional revenues from that. And then some of these things can work with other things or not work with other things.

So we have also gone, you know, run to some lengths there to like, you know, try out different things, test what works better, what generates higher revenues. So I think Solana is probably the other ecosystem where there's actually a lot of, I mean, Bitcoin, I guess there's not that much happening, right? And there's maybe some things on that. But I think it's really like Ethereum first and then Solana probably. a second where you really have enough activity happening, enough MME, enough of this kind of value that's there, that, you know, people can really try out a lot of things and it's worth it. So I think it would be very interesting to see both these places evolve. And of course, they have like very different philosophies as well. I feel like in

Ethereum, it's much more something where the Ethereum Foundation and core development is sort of trying to steer things in a certain direction and control things, whereas I feel like with Solana, a lot of the stuff is like different teams and protocols just building on top. And I think Solana, the Solana code development is a bit less involved there. Although I guess, I mean, I'm not actually sure how far they are with the whole, you know, concurrent proposer thing on the Solana. side. I know it's been an idea for many years, but I'm not sure if this is actually something

that's being built. I haven't heard at least of this being far along. But yeah, in general, I think it's mostly other teams like, you know, G-Troll blocks are out and a bunch of others that are building some of these things on top of Solana. Yeah. Yeah, it definitely feels like with Solana, the building block. are, I guess, slightly more decentralized in some sense. I guess people who are building like the critical tooling and critical infrastructures in that sense. The trade-offs are also very clear.

But yeah, it's definitely, it's definitely very, very different type of experience. Transactions barely land, but that's a slightly different thing. But it's, one thing that's pretty interesting is, I guess most people don't have like a lot of disability, unstaking business because it's just so far away from everyday life. It's pretty interesting. Like some validators, right, like yourself, would invest so heavily into R&D and look at, okay, additional ways to capture M&Vs and try to like capture these, I guess, additional alpha. And it comes with cost. It comes with time, energy, like main power, uncertainty. And I guess some like most

staking business, they just spend money on BDE and just try to, like, get as many whales as possible and don't really care about, like, oh, what's going on with, like, what's changing underneath. Yeah, certainly. Cool. Well, thanks so much for coming on. Leo. It was great to talk to you, and I'm excited to see sort of how this whole thing is going to evolve.

I think it's going to be interesting, especially, you know, with some blockchain's becoming more mature, right? And I think some of these markets will really start to emerge. And I'm excited to see how alchemia is going to play out there. Yeah, I'm pretty excited myself. Cool. Okay. Thanks so much. Thank you.