Epicenter - Learn about Crypto, Blockchain, Ethereum, Bitcoin and Distributed Technologies - Felix Lutsch: Chorus One – On Proof-of-Stake, Interoperability & Crypto Markets

Episode Date: April 15, 2022

Brian was joined by Felix Lutsch, CCO of Chorus One, for a discussion of what is going on in crypto today. The discussion included the evolving Proof-of-Stake landscape, the role of and trends around liquid staking and interoperability. They also discussed the crypto markets and the possible impact of a changing macro environment with increasing inflation.Topics covered in this episode:Felix's background and how he got into cryptoHow the staking landscape is evolvingThe increasing complexity within the staking industry and the impact this will bring, including compliance and MEVLiquid staking - where it is today and where it is headedInteroperability - IBC adoption, Terra, composabilityCrypto markets - inflation and predicting the futureEpisode links: Chorus OneChorus One on TwitterFelix on TwitterThe Q-Trap by Arthur HayesSponsors: Chorus One: Chorus One runs validators on cutting edge Proof of Stake networks such as Cosmos, Solana, Celo, Polkadot and Oasis. - https://epicenter.rocks/chorusoneParaSwap: ParaSwap aggregates all major DEXs and makes sure you beat the market price at every single swap and with the lowest slippage - paraswap.io/epicenterThis episode is hosted by Brian Fabian Crain. Show notes and listening options: epicenter.tv/439

Hello and welcome to your episode in the show which talks about the technologies, projects and people driving decentralization and the blockchain revolution. I'm Brian and I'm here today with Felix Luch, who's joining me today as a guest host. So we're going to speak about lots of different topics today. Maybe briefly about Felix. So Felix, I've been working with Felix for many years now, over four years at Correspond. So he joined us about four years ago as a research analyst. and now he's the chief commercial officer of course one.

He's super knowledgeable about lots of crypto stuff, including staking industry and other things. And today we're going to have a bit of a discussion just where we talk about. We sort of try to answer the question of like, you know, what's interesting in crypto right now. And, you know, we have a bunch of topics that we want to cover, like things around, you know, decentralization, proof of stake, interoperability, crypto markets, Phoenix is going to tell us the crypto prices at the end of the year, so you can make your trades based on that. But before we go into that, brief about our sponsors, first of all, well, very fitting, course one.

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course.1 and start your staking journey. Also hiring people. So if you're interested in starting a career in the world of crypto and staking, make sure to check out the open positions there. And then paro swap. So paro swap is a multi-chain dex aggregator. So that means through paro swap, you can easily access liquidity or various different decentralized exchanges. They automatically find you the cheapest liquidity so you can trade knowing that you get the best price. It's also very gas-friendly and helps to keep your transaction cost low.

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And so with that, let's, yeah, let's get into our, let's get into our episode. First of all, how are you doing? And welcome. Hey, Brian. So great to be here and be on the kind of guest side of a podcast for a change. I guess you already introduced me. So not much to add. And looking forward to the discussion today and talking to you outside of work about crypto, my favorite hobby.

Yeah, yeah. Yeah. Well, I mean, I gave some intro, but maybe it would be nice if you can sort of give your own life story. Yeah, yeah, totally, totally. No, yeah. So I started out basically getting interested in crypto and I was studying. I studied finance in Germany. And I just realized more or less that I didn't want to join a bank or become one of the big four companies. And I learned about crypto through kind of the internet, just being an active internet lurker. And I learned about Auger initially kind of trying to write my master thesis about prediction markets and Auger. But then obviously Auger wasn't like ready at that time. So I wrote about like kind of another blockchain topic.

Ultimately kind of automated decision to work in the crypto industry. Luckily found the chorus. one ad on Angel List. Now we have positions again on Angelist, if you want to check it out. But yeah, found the ad there. It was like super fitting to my background. One of the, I guess, kind of rare at that time to have a role that wasn't like super developer focus.

And yeah, just was super interesting proof of stake and now and started as a research analyst as Brian said. I've been kind of trying to make staking, yeah, like understandable for people. I initially wrote a lot of content, stake economy newsletter. Maybe some people read that and kind of did work on more and more things in Corus 1. Ultimately, also like business development and just kind of things on the business commercial side. Now for over four years, as Brian said. And yeah, that's basically it. So I'm here today.

I've been looking at a lot of different networks, a lot of things that have happened in crypto. through the bear market and now the start of the bull market or wherever we are right now. So yeah, I guess that's the background. Cool. Well, yeah, proof of stake. Let's talk about proof of stake. I mean, I guess we've spoken about truth of stake many times. Mostly from the perspective of speaking with proof of stake networks.

I think that has been probably the most, you know, the dominant way that we have at EPSCENER, right? have sort of addressed the topic. I guess there's also been, I mean, we did an episode about Lido once, right? So we've covered like liquid staking a little bit, not too much. I guess bison trails we had a one point on as well. So maybe there's a bunch of different, but, you know, proof stake is basically gone from a concept. I mean, I remember we had Vitalik on, you know, 2015 or something talking about how a

clear we're going to switch proof steak, right? So like the notion of proof stake has been around for a long time. but now it's become something different, right, where it's actually like an industry. So what's going on today in your view? What are the most important sort of evolutions in the staking landscape? Yeah, I think one thing that has been a topic since I started in blockchain or crypto and probably even longer was this idea that the institutions are coming. I guess they are still coming slowly, but surely.

And I think it's also reflected in the staking industry and the landscape where essentially, yeah, the industry has matured a lot over the last three years from basically, I guess, game of stakes where most of the validator operators started out, or Tesos initially, right, where there was like basically some people that were interested in. this technology and started to run these validators. No one even really knew what they're doing. And in the meantime, like a lot of best practices developed. And I just proof of stake networks grew a lot. First of all, in number, but also in terms of like market cap and kind of money to be made from staking rewards and the commissions for the node operators. And I guess in general, the concept then became widely understood in the,

kind of broader market. And because of its nature of like relatively easy to understand and relatively risk-free yield in the proof of sake assets where that's, that's, I guess, an interesting field for institutional customers. And they have entered this field a lot. So I guess to say what that means is in the end that these customers have like different requirements in the end, then maybe the stakers that started out in 2018, 19 to stake where they would, yeah, basically just delegate from their ledger or through Metamask or whatever the wallet of their choices. And now there is a whole like other process involved and due diligence and compliance for these players to, yeah. And the node operators that want to work with these, because clients that are

the Instusha side, they need to adhere to their kind of or to these rules in a way. I mean, I guess we can get into that a bit. Brian, I'm sure you also have some thoughts on that. Yeah, I mean, it is interesting, right? Because when I became interested in crypto, it was 2013 and with sort of this Bitcoin, this Bitcoin bubble started, one of the first ones. And even then, one of the main. stories that there was, oh, the institutions are like coming and it's like imminent that they're

going to like, and of course there were some examples then, right? Yeah, like overstock starting to accept, you know, Bitcoin as payments. And of course, in the end, well, now we hear many years later, right, nine years later, almost, eight and a half years later or something. And yeah, it's still a slow, still slow process. But I, I, I, I, I, I, I, think you're very much right that there is actually, I mean, if you think about, you know, what do institutions do with crypto? I guess the first thing is sort of the easiest thing is like, okay, Bitcoin, right? You can just hold Bitcoin. I think that's, that's kind of like the, the first thing you can do. And of course, that is also something that we've seen happening,

you know, for years and, you know, maybe some corporations holding it on the balance sheet. custody, right, being a huge topic. And again, the custodians have generally been like, okay, first of all, you know, let's allow people to just hold Bitcoin or something, maybe hold some others, maybe enable like trading a little bit. But then if you go like beyond that, you know, staking is very attractive, I think, because it's, yeah, it's easy to understand, right? It's low risk. It's this, you know, it feels like a bond, right, with some savings. interest rate. It's quite different from Defi, right? Also, defyi moves so quickly, right? The GIFI you have something here and then next

month it's gone and something over here. And I think that's like very, and from a regulatory perspective also seems probably like more of a mess. So I think staking is probably, or is one of the ways that institutions kind of get into it, but of course it's still very slow. The other thing I think that stands out to me the most is sort of like one of the themes, I think, when it comes to staking is just the increased in complexity. I mean, you mentioned this from different types of customers, right? Compliance is like an interesting topic. So we, at course, one, right, we've been doing a lot of work on compliance. And it is huge amount of work, right? To basically then, you know, measure up to some of these

institutional standards and comes with a lot of implications. So those are some things. But then there are other things, too, that have brought, like, more complexity to staking and the validated role. You know, one is just the diversity in different roles, right? So we have the kind of normal validated role of, you know, you're checking the validity of transactions, creating the block, checking the other blocks, propagating in PDP network and kind of, you know, creating those blocks, right? But then, I mean, already there's been other roles like, you know, oracles and new ones coming up. How do you think this, what do you think the impact of that's going to be?

Yeah. Yeah, it's a very interesting question. I guess we started out like originally, like a long time, I think there were a lot of roles that people or protocol designers thought of for. crypto economic protocols. A lot of them actually never came about or maybe maybe didn't like take off as planned like for example the polka dot fisherman. It was for a long time a thing. I don't know if this is actually even implemented or how these work. But in general, right, people get creative with the things that the note needs to do to make the network work. And in the end, I guess as more applications also like if we think about the network,

works as this base layer where applications run on. And then more value is just on this chain. These roles become actually quite important. And there's more competition, I guess, around fulfilling whatever this role is designed to do. So I guess in the validator sense, normally, you're just looking at your uptime usually. And I mean, that's also not the easiest thing.

So it depends on the network, right? The networks nowadays actually also increase in demand for hardware. So for example, on osmosis, right, there's a lot of computation happening at the epoch boundary that needs like more servers or better servers. And I guess there's more state needs to be safe. But then there's also another dimension where for some of these roles, there's also like a certain optimization needed. And I guess, yeah, what we're what we're conceptually think. is probably that this optimization obviously will, like some people will be better suited to

to kind of fulfill or optimize these for these roles. And then they will basically take on a lot of the market share of, of these roles. So like if it's like a competitive market, probably like only a few players will be suited to to do that. Some of the examples that come come to mind, of course, maybe like familiar for people in the defy space is liquidations where essentially, yeah, there is some loan at risk if the price moves. Now the person that is the fastest to kind of get that transaction, the liquidation transaction in will make the money. So obviously there are parties that probably better suited to do that than the average

token holder that wants to participate in this. So I guess that complexity, I mean, I mean, yeah, makes it kind of harder for smaller players maybe to compete in a way. I guess, Brian, I don't know what's your. Yeah, I mean, I think that it also sort of brings up this other topic, right? That's become, you know, one of the most talked about in crypto. It's also something that we've been bringing up, you know, guests various times. And, you know, like people are thinking about it a lot, which is the topic of MEV.

And, you know, I think anyone we have on the podcast that's like, you're building a crypto network thinks about this. And I mean, what is MED? We have also done some podcasts about it. But MEP is basically around the ability of the block producer to, you know, decide on the order of transactions. Although, I guess, the term is sort of used in different ways that sometimes also includes, you know, people who are not actually the block producer, right? So when you, and you hear them often, they would talk them as searchers, right? So the people who basically look for some kind of opportunities to like reorganize the transactions

or put in particular transactions to make money. And then, of course, if you think of these roles as well, now, let's say there's some crypto economic mechanism and expects some transaction. And for somebody who puts in that transaction, they can earn some money. Then, of course, if you are the block producer, then you can basically, you know, you have to monopoly. Right. You can say, like, you can say, like, I'm going to put my transaction first, right? And if there's that money to be made, you can make that money.

You know, examples of that are like, let's say liquidation, right? On maker, you can have some CDP or basically somebody. borrowed money, you know, put up collateral, the collateral drops in value, and somebody can liquidate it and earn something. And then whoever does that first, right, basically gets like free money. And then of course, if the validator or the minor, right, at the moment, but the validator in proof of sake networks, you know, has the ability to do that. But has the ability to do that does require like understanding, you know, the content. of the block, analyzing those things, maybe analyzing the transactions that are coming in,

then, you know, executing that in some kind of real-time fashion. So it's like pretty complex and something that, who does that today? It's, I think, probably just in like small amounts it's being done. But if you think, I think of the future of staking, like this is going to become like a very big thing. And of course you then have also the counter trend that, and I guess that's where MEP is very, you know, controversial as then people say, oh, but maybe that's bad for the network. Sometimes it can be good for network or bad for network, but at least it's something that then also protocol designers, the application designers, you know, try to deal with in different ways. I mean, for example, right, we've had cow swap on here before, right? or I think

and their Twitter handle at least is an MEP protection I don't actually understand or like but so you know specific decks

developed around that so but I think that entire thing is just a huge topic that's going to you know be something that would give work

for many different parties for, you know, like many, many years and, you know, the outcomes kind of, who knows where it all heads. Yeah. I guess like from the node operator perspective, in terms of you, you're kind of forced to deal with this topic in a way because, yeah, most people realize that this is big because we saw it on Ethereum. We know there is definitely a market already and it will probably grow.

And of course, there's also people building tools to like. make it more accessible maybe to smaller note operator. So I guess from the perspective of who is well suited to do that, maybe there is some scenario where the node operator can work with searches through some tool and still have the same opportunity as like a bigger operator, but still just in terms of like it's one of these things where that you have to think about as a node operator. So it's not just about, you know, keeping your server up.

There's a lot of things that go into being operating these nodes and at scale especially. So I guess one of the topics we wanted to discuss when Ryan and me talked earlier, what we want to discuss is kind of this idea of decentralization. What are kind of forces that help it, that hamperate. And I guess the MEV seems as one that probably is a centralizing force in a way. I think we also just came up with a few other things, or I guess we could discuss some other things that maybe increase or decrease centralization. Do you what is like things that you?

So I guess we mentioned compliance. We mentioned MEV. Do you have other things to come to mind? I mean, there's definitely various things that I think are driving towards the increasing complexity of validation and then increase. And of course, that means that if you can invest more in it, you know, you can provide the better product and you can get more customers and you can become bigger, right? So like you have those kind of dynamics.

I think they're there. Of course, you also have other dynamics. I mean, you know, one thing is just that, you know, when we started, of course, Ron, right, we didn't, like there was not really like a template for how to do it, right? So it was a lot of work to figure out how to run a validator. But today, there's lots of open source tools, like lots of guides, right? So I think that barrier, the initial barrier to just, you know, have a validator run on the network has gone down, you know, a lot, right? I mean, I think in cosmos, for example, it's like very easy to do it.

You know, that's one thing. Yeah, I guess there's liquid staking too. liquid staking, it can be sort of like decentralizing and centralizing in different ways, right? So you can have, let's say if you have something like LIDO as an example, right, you can have on the one hand, it distributes the stake to many node operators. So that's kind of more decentralized, right? then what would you have as a normal outcome. But then at the same time, more control gets shifted to, you know, like the governance of that governance token.

And so you can have sort of like some degree of centralization again at there. And so that's also interesting, you know, that interplay. Yeah. I found this always very, very interesting. And I guess we saw the. the staking mechanisms shift a lot since kind of staking came around, right? Like, I guess early cosmos and TESO started with this model of delegation. So you're actually able as a token holder to stake, even though you don't run the nodes,

which enabled like all these businesses that now run nodes for others. And then I guess the theorem kind of made a shift from that again, where it's like, oh, you have to hold the etherself to validate. But then, of course, someone can. came around and realized there's an opportunity to build like a delegation protocol as a smart contract, which is essentially Lido, and give that liquid staking dimension to it, which even makes it more attractive than the native staking. So I think from my perspective, what this is also like, I guess if we're thinking about protocol designers designing their protocol to minimize MEP,

I think they should probably also think about designing the protocol to minimize like having other protocols take like share from their core mechanism, which in this case, I guess, is staking where now it shifts to Lido, as you said, right? The governance is now with Lido instead of the protocol. So maybe it would make more sense. I mean, I don't know actually if that's true, but that's kind of like what I was thinking that maybe if you have this kind of natively in the protocol that the stake is already liquid, then I guess you're taking a little bit that opportunity away from someone to make like

a drastically better staking model than yours. I would actually be curious to hear Brian, what do you think about that? You mean because if you have an outcome where you then have, like, let's say, LIDO, which controls a lot of the stake, that then LIDO is in a strong position to basically, you know, extract MEP and that's kind of your point. Yeah, yeah, just that or also like distribute the stake how Lido won't. And maybe it would have been, yeah, like, better than. that from the start we have like a protocol that is like liquid staking.

I think one of them that now comes around slowly to it, I guess is Cosmos where there will be these delegation voucherish design where now you can tokenize your delegation on the hub or you will be able to. And then that can be used in different composable ways. So that's kind of like natively built into the protocol instead of having, a separate thing. And I think that's a pretty good idea. Yeah, I mean, I think one thing that's like interesting sort of like on this point

is this, you know, like you raise it. So like on cosmos, right, like anybody can like spin up a validator and you have to have like whatever one atom or, you know, one token and whatever the coin is. And then people could stake with you. And you don't have to have. capital, right? Now, Tazels was already kind of different there, right? Because Tazos required the validator, they call it Baker, to have 20% of what other people stake with you in their own wallet, right? So now if I'm like some random guy who wants to start like a Tazels baker,

well, that kind of creates a big barrier because if I don't have the Tazis myself, like I have to go and like figure out some way to get taseys before people can actually stake with me. So like I guess the idea of tazos was that there would be some sort of, you know, skin in the game for them and maybe higher security. But I don't think that played out like that. Right. So I think in it, practically speaking, there's never been an issue, let's say, on the cosmos networks that, you know, while they just don't have their own stake up, right? Because first of all, there's not really any attacks they can do that will give them money

and their reputation is so key so if they did anything then people will just like go elsewhere and so I think but the effect has been right that then the validators or the bakers have to you know have a lot of extra work may have to find whales create legal contracts

actually we have kind of dealt with that and and I think in the end it has it creates a barrier to entry and it's kind of like a centralizing thing and of course Ethereum I mean Ethereum I guess that there was like an um so one guy we were in touch with quite a bit in the beginning cosmos right because he was running a cosmos validator at the game of sace and at the launchers Orion Adams who of course has become it has done like fantastic work with bank lists and it's created like you know really great post podcast and media thing around mostly Ethereum and DeFi. But, you know, he was making this tweet recently of like, oh, you know,

a cosmos staking is a cartel and too centralized. And it's interesting compare that with like Ethereum, right? Because on Ethereum, of course, you again have this thing, as you said, right? Like, I mean, yes, it's easier, right? For me, as somebody who has, let's say, 32EF and I want to run my own validator, Right. Like, I can do that, right? Whereas in Cosmos, you know, the least validator may have like, let's say, two million or something like that of Adams staked on the Cosmos Hub, let's say. So, you know, the barrier to get in there is higher. But from that perspective, but you have to have the capital, right? And that's a huge, it's a huge centralizing effect. Yeah, I guess on that, right. I mean, for one, In cosmos also the nice thing is there's many cosmos chains, right?

The idea is we have many networks and there's also like networks that have a lower barrier to entry where you can get started and start a validator and get familiar and make your reputation. So I guess that's one point. And the other is also right. As you said, you need the capital. So what I think happens is that sure, there's probably more people that run like notes on their own with their 32E if they have that much, which is also like already, I guess, pretty substantial. potential amount. And then, but that's kind of like a very long tail of node operators or like in terms of percent of general stake.

I feel like that's a very small minor fraction. It's probably not even very clear how much it is, but I would assume it's less than 10% and will probably never be, probably less than five even. And so what is actually the impact of that is probably not that much. And then on the other hand, on the more extreme side, is I guess. you have more centralization because it's so hard to build this delegation model on Ethereum that really only Lido as like a liquid-saking protocol can do it and maybe like centralized exchanges can do it.

So there's really like only like a few very big players that then get a lot of stake and probably in terms of kind of how many people it takes or entities it takes to reach that threshold of something going wrong. Like I guess that's what you should optimize for in a way for the proof of state network, right, that it's hard to attack the network and maybe distributing the entities. I would almost say that probably in terms of this Nakamoto coefficient or how we want to call it, maybe the cosmos design is actually doing better than Ethereum, at least right now. And so, yeah, that's kind of my view on it.

Yeah, I mean, I think that seems pretty clear. I think if you add up like whatever, Coinbase cracking and Binance or something, then I think you are going to be above a third for sure on Ethereum. and your course. And also, I think one thing is, like, actually, Ethereum hides a lot of it. Like, you don't really, you have a lot of much visibility what's going on, right?

And, of course, that's also one of the nice things about the cosmos model, is that there is this aspect of, like, I can look at the validators and I can, you know, there's, like, the name and the website, and you can, like, stick with them. So there's this, you know, in a way, it's like this advertising board. where like people can show up, people can not do something.

And of course, it's not so easy to get a delegation, right? You have to stand out somehow, but much, much easier than to, I know, convince some, some institution, I guess, to like, you know, basically, you know, build some solution where you can, you can take their youth. Yeah, I think that the upside. of that is also like now you have this the valulator has some kind of identity right there's a reputation as you said attached to it there is all that i think if you if you get rid of that again now all the validator is anonymous so really they don't care about anything maybe about but the

yeah their stake and and i guess that is also like maybe less secure right because now with this reputation if your thing is on the line your your brand is there you actually kind of increase the security I guess because you have all that on the line where if you're just like a string of numbers like let's say on Avalanche where right now if you run a node really you just see like a string and you don't really know who that belongs to so if they misbehave

you wouldn't really know who was it and they could maybe like launch a new node again and get stake again and that probably wouldn't happen on Cosmos like that. Right. Although like I guess the flip side of that is that you know the, if you look at like a cosmos network, right?

The entities running that are basically identifiable. Like you can be, you know, you can figure out, at least for most of them, okay, where are they, who are they, you know, where's that company? So I think in terms of, you know, pressure from governments or, you know, maybe some regulatory crackdown, it may well be that the Ethereum model might be more resistant. Though I would say it's still probably for a government-sized actor, easy to identify the notes. We talk about liquid staking. Where do you think that's going?

Yeah, I think it's still, I mean, we've been, it feels like a long time, but I guess even people that were really in this space is like only two years since people started like, thinking about it and then probably like a bit more than a year that something is life. And then I guess most of it is Lido, right? And Lido and Ethereum kind of being the poster child for liquid staking and a lot of things designed around that. I think there's been a bunch of innovation since then already. And I would obviously expect there to be a lot more innovation coming since, I mean, I guess liquid staking for me is also just like an extension of general staking design that

kind of takes into account defy. And yeah, right, like we've seen a few things already, like some innovation. I guess we'll see more and we'll hopefully have competitive market and see different models play out and succeed. And probably it will, yeah, definitely be. I mean, that's why I guess at course, one, we are also like very interested in because it's like, also like this trend, we have to kind of deal with it because it kind of changes the model. Like who is your customer now? Now you have this liquid staking protocol, I guess, as a customer, which two years ago didn't exist as your customer potentially. Yeah.

And then these protocols can all have like different ways how they stake and you can probably. Yeah. As a node operator, you would like try to optimize to get in that set. I guess we talked about about Lido, how it works there where it's more like a governance based decision. And essentially you need to like prove that you have, you know, of your setup or of track record and send an application. And it's a bit more like that the whole system. And then there's like some algorithmic solutions right now.

I guess like primarily like some people that innovated there essentially was, I guess originally the Solana Foundation itself with the their stake pool design that kind of try to look at uptime and different kind of objective measures to decide where the stake is delegated and then marinade and then. and a social, I think, kind of build off that and build like liquid saying protocol that does a similar thing. Now, sure, there's like more designs to be explored there. And I'm just excited to see some of them. One that comes to mind, of course, where we have explored is now being implemented by quick server,

kind of a spin-off, of course, one where they are building a system where essentially the holders of the, of the liquid sake token can kind of signal their preference when they initially mint the staking token to which validated the stake should go to and through that basically the the validator set is formed um i'm i'm sure there's like a lot of other designs one thing i could think of also like maybe there could be something that just mirrors the um existing validator set and the distribution error i mean yeah lord knows what what's there um i guess yeah what what's your Brian, how do you expect this? It's a good question, right?

Because I think at the same time, let's say, I think the thesis around liquid staking, I think there's also a little bit that, you know, you're going to have this liquid staking asset that's being created, let's say, state beef. And, you know, the ambition of Lido, and I think this is true for, you know, many proof of stake or many liquid staking protocols is that then this token actually becomes kind of you know the token that is used right so you know i hold state if in my wallet not if you know maybe you have uh pools on amms that have like state if pairs it's used as maybe some sort of base token in defy applications and of course that has a big benefit right because then all those

tokens wherever they are basically, you know, like accruing, staking rewards. And then I think the, I would say the thesis is a little bit that then you have this, you know, sort of ossification, right? That becomes like the standard becomes like super hard to disrupt, becomes, you know, like, and also winner takes all dynamic potentially. At least can work out like that, but I guess we'll see. but I think there is obviously a benefit to having, you know, a lot of liquidity accrue around a particular liquid-saking asset. So it's interesting, sort of ask, you know, how much evolution is there going to be, or is it something that kind of, you know, become sort of solidified and is then this like layer and then other things are happening on top?

I'm sort of, I guess, have a little bit question if does MEV change things fundamentally? Maybe not, right? Maybe it's, uh, maybe it's sort of like, let's say, a hold stake if and then, uh, on a somewhere else, MEP happens and maybe it changes what my staking rewards are and, and what the validators do, but doesn't really change, you know, the EOC 20 a hold. So maybe it doesn't.

doesn't fundamentally change the liquid staking model or like, but maybe, I don't know. So I think that's still kind of like an open question because I do think MEP is going to change a lot. And so I'm wondering if that's going to impact, you know, kind of bring new, new models or licking staking that maybe are able to outcompete some of the existing ones. I think, yeah, for example, I guess now some of these liquid staking. solutions look at the algorithmic ones at least try to like find the most performant validator which often is just the one that has like zero percent commission rate so i think a lot of the algorithmic solutions on sulana right now they basically delegate a lot to like low fee

validators and that also like kind of obviously means that these um the operators of these nodes actually don't really earn so like kind of the money uh goes away from the node operators And I don't think that's in the long term a good idea in a way. But I mean, maybe if MEV is there, then they would pick notes that do better on MEV. So it could again kind of lead to that. Because I guess if your liquid staking protocol really like your main product is the API of your and the integrations, of course, which I guess mostly the goal of the integration is also to increase the APII of your, the holders of the liquid staking asset.

So, yeah, like, yeah, remains interesting to see. I think we have still very, very early. I think that's another, you know, another big trend, right? A big thing that's happening is just that, you know, interrobability is really, you know, really starting to happen, right? Because there is, I think, been work on this for, you know, a long time. We had early things like, what was it? Like the BitGo?

you know, BTC on Ethereum that was like, you know, casodial stuff like that, you know, but then, you know, then you had, you know, a bunch of different bridges. But now, I think, for example, IBC, right, has seen, like, pretty massive adoption. I haven't seen, like, I haven't really looked at the numbers recently. I think, yeah, as Moses did, like, 120 million IBC volume in the last day.

I guess overall 134 million in one day over 100,000 transactions. Yeah, I mean, that's right. Because I mean, I remember when it launched and then it was like a million transactions within like a month very quickly. And now, you know, it's Moses alone doing 100,000 a day. And so I think IBC is obviously doing tremendously well, like getting like a huge amount of adoption. A lot of new cosmos change.

are launching. And then I think the interesting thing there, right, is that IBC still, you know, IBC is a generalized protocol, right, where you can pass messages and then you can do different things. But like right now, all that's happening is basically token transfers, right? Like nothing, nothing else, right? But even now, I think it's, you know, it's now life, right, on the Cosmos Hub, this interchained accounts thing. And the interchained accounts thing is pretty cool. Because the interchained accounts basically means that you can have, you know, an account on one chain that's like controlled via messages from another chain. So like you could imagine, for example, let's say Cosmos Hop holding Osmo on osmosis and like staking it. Or like, for example,

you could have like, you know, Cosmos Hop could buy osmosis. and like vote in the governance on the osmosis network. And that's just one example, right? I mean, I think there's this. And a quicksaver, right, that example, right, is where you basically say like, okay, you're going to have this one chain that has an account on another chain with staking through it. But then issuing a liquid staking asset on the host chain. So let's say you have like, let's say, quicksilver staking atoms on the cosmos hop

and then issuing some sort of, you know, quicksilver atoms, which is another token that basically similar to the state thief in Lido. And so I think that's the use cases that this opens are just going to be mind-blowing. Actually, hard to wrap your head around what exactly will happen. I guess it will, I mean, I remember some years ago, there was the web, what was it called, the polka dot conference. And then, you know, someone, Gavin gave a talk and someone asked, I think he was Dennis from, he was at A16C at the time. But he asked like, what about composability? You know, you have these different pair of chains and then like, isn't the great advantage of Ethereum, right?

you can just build on top of each other. And, you know, somebody builds, you know, steak deep, and then you can put the steak deep into curve and somebody else built something else on top. And, like, how does that work across chains? And until now, it doesn't work so well. But I think we are on the cusp of that starting to work, you know, pretty well. And maybe one more point on this,

Like one thing I found super interesting. I recently did a podcast with the near guys. And they, in their smart contract model, actually all of the cross-contract interactions that kind of work in this asynchronous way in the same way that like, let's say, Cosmos Hub would interact with something on osmosis or something on Terra. are, that's how even on the same chain on near like this works. And I think that was like very interesting. And it's kind of like a good case for just how well that might actually work. So I think this composability thing on being on the same chain is going to be,

it's going to look a lot less like a lot less of advantage, I think. I mean, still going to be some advantage, but I think it's... Yeah, yeah, that near design is really cool because I guess in the end, the thing they're trying to solve was that people would want to be on the same shard as some popular application and everything crowds there because it's faster, right? So you avoid having that, which I also find pretty interesting.

And I guess, yeah, nowadays, there are a lot of solutions. I mean, IBC stands out because actually, like you said, it's a protocol. It's very trustless. or trust minimized, I guess, versus I think on the other hand, we have kind of other things emerging also like, I guess there's a spectrum always, right? But I found it very interesting from Terra from the start, kind of trailblazer in that space, initially with the Terra shuttle bridge, which was very, very centralized and then, but like starting to get assets from other chains

into Terra to kind of supplement this anchor yield, right? Initially, I guess, a ETH, so B-Eath and now, for example, also B-sold soon, where they actually switched also to bridges from that Terra bridge to wormhole, which is at least, I guess, another protocol. It's again another network in and of itself, but I guess it's more decentralized than having one, and then IBC or like other protocols like this, being like the ultimate maybe a solution of the good thing about Wormor is also that he has an insurance fund

yeah yeah iBC has unpaid relayers yeah so yeah i guess yeah a lot of things are happening and and sometimes you know the bridges are i guess lower than the demand for cross-chain applications i think that's what terra realized very well or like cross-chain collateral and they really that's that's I think a big part of why became so popular right now is like so dominating so much because you had it really like after cross-chain bringing both UST to other chains but also bring collateral from other chains to Terra itself so it's really fascinating to see see what's going on there yeah yeah I mean in a way I think

it's a good point, right? Because in a way, I think Terra is like the most advanced cross-chain application. Even somebody has osmosis, okay, like, I mean, you have a lot of other assets coming onto osmosis, you trade them. But like, actually, Terra has a lot more sophisticated use cases,

right, where you have to, you know, you see going elsewhere. And I think there are, I, I'm personally, I mean, there's a lot of, like, questions around UST often, how sustainable is it? But I think it is absolutely brilliant strategy to use other crypto assets as like, you know, some kind of backing in addition to Luna

so that you have both the scalability of being able to like increase the UST supply fast, but you have this like decentralized kind of asset pool backing it. And I think if you think of like the, if you think of just the how massive this use case is, like a decentralized stable coin, which is an enormous use case, right? So I've been, yeah, I think it's very cool and still. Terrabud confirmed. Yeah, I think personally, yeah, it's a great strategy. And I think the one thing where I, what I would find cool, because in the end, now it's a lot reliant on, like, the assets that come from the other chains are through wormhole, mostly.

And I think that's also like a big risk, of course, to anchor. If there is something really goes wrong, that could also be a problem. And I guess that's where the interchain accounts kind of come in, because in the end, ideally, Terra could use that. and have like cosmos assets or ibc enabled assets there and maybe they have like a little bit or like at least diversified the bridges i think that that would be cool but ultimately like have a bridge that is probably um like yeah ivc based and obviously terra is built on the cosmos sdk so it should be possible i guess i don't know exactly the details but um i would find that pretty cool and i hope someone in terra is looking at that too yeah i think this is the other thing

that has been like in i think that's interesting about bridges right where to me it seems that you have two very different, uh, approaches, right? Like you have IBC, basically have like a light client on each side and then, you know, you can just, uh,

put assets in between. And of course, a nice thing is that, you know, the cosmos have validators, for example, they don't also have to run a validator on, you know,

some other chain. Nobody has to basically do anything on the other chain and you still can have this connection between the other. chains. So it's like, you know, very permissionless, very open, like, uh, you know, fantastic model, uh, and working super well. But of course, the big downside is you have to have that light client and the light client works well in, you know, between Cosmos, a SAC chain, kind of comes out of the box, but then you try to do that with, I don't know, Ethereum or like a lot of other chains, Solana. And it's super hard. Actually, really.

a bunch of work, of course, one way to basically do this kind of cello cosmos and building, you know, cosmos like kind of mind and solidity and, you know, it kind of work, but it was, you know, very challenging. And I think that's where you have to depower of something like, you know, the wormhole axelar, where you have, you know, a central set of actors who can, like, run lots of different chains. And then, yeah, and of course, you don't have to path depend. either, right? So that's something they get there. So I think in the end, both of them are going to be like huge success.

I think both approaches. Yeah. Yeah, I agree. There's even like, I guess even more approaches with the optimistic nomad design, which is like somewhere in between. Yeah, I don't make me try to explain it. But I guess, yeah, I mean, in general, I think, yeah, definitely been, I guess, been, I guess, the hot topic in the last few months or actually even weeks, this spirit

interoperability and will remain so. And I guess IBC is still kind of under the radar in the wider sense. I mean, we were also at the Avalanche conference. And of course, we have some big avalanche fans in Kuros 1. But I guess there also, it was, you know, there's the subnets, which is kind of similar to the cosmos zones. And then there is also supposed to be an interoperability protocol, but it's kind of not there yet, of course. And IBC is there is being used today. I guess there, then there, yeah, we'll see,

we'll see how that goes and even maybe how the interoperability between. Because I guess between finality, fast finality chains, the IBC connection should be easier, this like client design. So I guess more chains that have that could adopt IBC. But I guess it's always like the thing with standards that do you have to convince people to use yours. Yeah. No, I do think that makes sense, right? So I definitely think IBC will spread beyond Cosmos SDK networks.

But of course, it's it is always, it's never going to be a solution for like connecting to Bitcoin or, you know, various different networks. Okay, so the other thing I wanted to, maybe final topic, I wanted to touch on is sort of the topic of crypto markets. Now, it's something we like hardly ever talk about on this podcast and also something like I don't feel I have, you know, like great insights in. I'm basically always optimistic, always think things are going to be fine. And then like, you know, in retrospect, they can look back on like 2018. It was like, should have been obvious that this was like a bubble. Iron hands. I mean, kind of, kind of recognized it.

But like, but then I was, now, of course, we do have interesting times, right? like in the world. So maybe, you know, what are the interesting times? Probably the most interesting one, I think the most interesting aspect may be inflation. No? Because I think that's, I mean, maybe there's, you know, the one is this monetary tightening, right? That like you've had for many, many years, you have like central banks, you know, like issue, you know, basically increase the money supply. And then of course what happens with all the money, like there has to go somewhere, goes to buy up assets, asset prices go up.

And, you know, it's interesting if you think of real estate, right? Like if you're like in a real estate investor, then probably your entire investment career, like the 30 years, let's say you've been around for a long time, right? You've been investing for 30 years. You spend the entire 30 years investing in an environment where basically, interest rates were going down. And of course, if interest rates are going down, then it means that if you just do this like discounted cash flow, right, you take all the future income streams and you take and you basically say what's the present value of those future streams. If the interest rates is lower, the value of the streams in the future goes up. And so you guess you had this situation that basically

because of the changing interest rates, you're kind of bound to have continuously increasing prices. I think we're so used to this. And I mean, who remembers, like, times of high inflation? Like, I mean, that was in the 80s, right? In the 80s, you had, like, high inflation in...

And so now it's weird, right? And now you all of a sudden having a higher inflation, having this monetary tightening. Of course, you have the whole war and Russia and stuff. So, and I was reading like Arthur Hayes, you know, he wrote a great post, fantastic writer. So, you know, the Bitmex founder. You know, he was basically being very bearish, right? He was like, hey, it's, I think for other reasons as well.

But so it's just been like thinking a little bit about, you know, what is this interesting? interplay between this macroeconomics and crypto and what is it going to mean for crypto markets. It's like a bear market ahead or maybe not. Do you have any thoughts on that? Yeah. I guess we come to the section where we predict the prices. What's the Bitcoin price on New Year's Eve? I can only, I guess I'll say that, I mean, for the longest,

time, right, there was this scenario that like everything will crash. It's been around for a while. I guess now we're at a point where we also have this war on top of everything. And I guess we had COVID. I guess that was also already the first time where we thought maybe now everything's falling apart and this asset bubble is crashing. Now it's kind of the war. But who knows if it's actually going to happen. And then I guess the second thing, let's say if we come from that, what is happening to crypto when that happens? Like for the longest time, right, it's, also at some point the narrative was that yeah, Bitcoin is this hatch against the other assets because that fails and everyone

will flee to Bitcoin as the safe haven. I would actually say I think if this all collapses, then probably it will still also mean Bitcoin and in crypto would also collapse. And it wouldn't be that crypto does good in these times. So I think it will still be correlated. then in terms of like, you know, is this the mania over? Can we further increase everything? I guess I don't have a good opinion on that and what time frame that is.

Or what's the, are we in a world where it just keeps going like this? Or does it have to fall apart at some point? Yeah. I mean, I think you, of course, do have a bunch of trends that are like very bullish. crypto and they're not stopping right like I think first of all you just have to advance of the technology and you know like we talked about a bunch of stuff right like proof of stake interoperability like so many other things and if t's user experience everything's getting better scalability right scalability is getting soft i think right it's pretty clear uh like so you can have like abundance

or cheap transaction so all of those things are progressing and there's so much money in the space, there's so much funding that even if there is like a pretty dramatic bear, even if there is a big crash, it may slow down things a little bit, but it's still going to progress, right? Because also many companies in the crypto space, they have, I mean, all the exchanges, right, they have like huge, more money than you never spend. Many startups have raised so much money. So I think that's just progressing. And then I also think mainstream adoption, you know, we have seen NFTs, right, bringing in lots of users. And I think that's also going to kind of continue, right,

with like new new user experiences, new maybe games. Like, I don't think that's going to stop. Even if the market goes down, right, I still think you're going to see more people doing. something crypto related. And then the institutional adoption, we talked a little bit about it, right? So, okay, it's very slow. But of course, I think the flip side of that is also that it may take these institutions like a very long time

to decide to do something crypto, or then it takes them a long time to like move. They move slowly. But they're not going to just stop. Right? They're going to, I think they might slow down how much money they put in. Yeah, there's also like, I guess they have certain, you know, you have a fund that has that many millions that you kind of need to deploy and then maybe they would continue that or they, it just takes so long that, yeah, I guess there will be continuous stream coming in, maybe not as big or.

That wasn't actually. I saw also some person tweets. So unfortunately, I don't remember who that was. So can, can't give credit here. But shout out. Yeah. But basically, you know, kind of. Pointing that out, just like how much money has been raised by, you know, like, crypto VC funds or crypto investment funds to like be deployed.

And of course, that's going a lot into, you know, these private funding rounds. And of course, you're seeing private funding rounds and like, you know, huge valuations, like raising lots and lots of money. You know, everyone's raising money. And I mean, that does mean, I guess that you're going to have a lot of, you know, funds being deployed. But at the same time, it was also sort of the point was, okay, but who's going to be, like, where does a demand come from afterwards, right? Because like, okay, money goes in, they build something, they go live.

Now there's some token trading. And like, who's buying that token, right? For in the end to generate the return for these investors, they need to go up like, you know, 10 times or five times. Yeah, yeah. So I mean, I guess that reminds you a little bit maybe of the 2017-18 thing, right? Where there's also like a lot of money going into these ICO projects and then, you know, they maybe came out. But then there was like nobody there to buy it. Yeah.

I think the question is just, yeah, where are you in? Are we in this cycle, right? I guess is it already is there still like another wave coming? I do think the nature of this market. is that it like creates exuberance and it goes too far. So I was reading this newsletter from Dan Moorhead and, you know, he was pointing out where they use some sort of, I don't know what it is, like some kind of, you know, moving average thing progressing, you know, going to the moon over time and then seeing like where we are compared to this,

you know, inevitable. A rainbow chart. Yeah, yeah. It's kind of like, yeah, it's basically like the rainbow chart. And, you know, saying like, okay, if you look at the rainbow chart. that, right, we're like, you know, 56% underneath the, you know, trend line. So this like cheapest, cheapest ever kind of, right? So I guess that's, uh, so it's definitely in all the phase of like crazy Zuberans, right? That's, that's pretty clear. I mean, I

guess it in terms of like, I guess there's, there was this Vitalik post once, right? Like, crypto markets are at this point, have we earned it or something? I think it's very hard for me to like kind of put into context how much of it is like actual value and and or like sustainable obviously it's kind of not sustainable some things and and yeah where is the exuberance when is the point where it's gotten too far um it doesn't feel like it right now i mean uh maybe that's that's why it is the case i guess that's that's always the problem with with these with these things but um i mean yeah i mean we'll see uh i don't have too much alpha to leak here today.

Cool. All right. Then well, thanks so much, VEX. That was fun. Enjoy this conversation. And thanks so much for. Yeah, thanks for having me. Didn't expect to be on epicenter that soon.

I didn't even build anything. No, yeah, it was great. And yeah, looking forward to, yeah, what's to come. And, yeah, see you tomorrow at work. Yeah, absolutely. And thanks so much for listeners for tuning in. Let us know what your thoughts are. You can tweet at us at Epicenter BTC. And yeah, thanks so much. We'll see you next week. Thank you for joining us on this week's episode. We release new episodes every week. You can find and subscribe to the show on iTunes, Spotify, YouTube, SoundCloud, or wherever you listen to podcasts.

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