On The Brink with Castle Island - Matt Cutler (Blocknative) On Making Sense of Blockchain Mempools (EP.266)

Episode Date: December 6, 2021

Matt Cutler, the founder and CEO of Blocknative joins the show. In this episode we discuss: Matt's entrepreneurial history and path to founding Blocknative How he came to see blockchain transaction data as a big opportunity for his company How blockchain mempools work and why they are important The types of customers that are monitoring blockchain network data and how this data is actionable Matt's views on blockchain scalability across L1s and Ethereum L2s What is on the horizon for Blocknative To learn more about Blocknative visit their website. Sponsor notes:  This episode supported by Public.com. Start investing with as little as $1 and get a free slice of stock up to $50 when you join Public.com today. Visit public.com/onthebrink to download the app and sign up. This episode is brought to you by Withum, a top 25 accounting firm with a cutting-edge Digital Currency and Blockchain Technology practice. To learn more, visit  withum.com/crypto.        

This episode is brought to you by Witham and Public. More on those companies later in the episode. Today on the podcast, I sat down with Matt Cutler, the founder and CEO of BlockNative. BlockNative is a platform that builds tools to enable developers to more actively engage and monitor public blockchain activity. And Matt and his team have been pioneers in what's called the blockchain mempool space. So it's great to have him on and get his perspectives on this industry and to go deep on the emergence of new layer one and two protocols and how Matt thinks about the applications, that are driving adoption in this blockchain industry. Matt is definitely a wealth of knowledge from Web 1.0 all the way through Web 3.0, so I think you'll enjoy this one. So without further ado,

here's my conversation with Matt Cutler. Matt Walsh and Nick Carter are partners at Castle Island Ventures. All of these expressed by them or the guests on this podcast are solely their opinions and do not reflect the opinions of Castle Island Ventures. You should not treat any opinion expressed by anyone on this podcast as a specific inducement to make a particular investment or follow a particular strategy, but only is an expression of their personal opinion. This podcast is for informational purposes only. Brought down by bad mortgage investments, Lehman, which has 25,000 employees, will be liquidated. The federal government loans American International Group, AIG, $85 billion.

This is a different kind of market, and the Fed is asleep. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage giants that have been threatened by the housing crisis. The Bank of England has pumped 75 billion pounds more to Britain's ailing economy with a new round of quantitative easing. You print a couple trillion dollars, and all of a sudden, people started to worry. So out of this worry, we have something called a Bitcoin. Bitcoin. Well, Matt, thanks so much for joining us on the podcast today. I'm really excited to finally have you on. You bet my pleasure and I'm excited to be. I'm a big fan of the podcast. So it's a pleasure to get a chance to be a guest. I'm excited to introduce the concept of a mempool to a lot of people that don't know what that is.

So before we do it, why don't we just get into the standard? How did you get in this space? You're an entrepreneur before crypto. What was the path that led you to actually starting a crypto-focused business? I like to say I'm a glutton for punishment. I've done seven or eight startups, depending on how you count. I've bought them, sold them, split them, shut them down, taking them public, sort of all of the above. And significantly, my very first company was actually an internet company back in 1994, long before it was fashionable to do internet companies, long before it was fashionable to do startups as an undergrad. I like to say that one was a nine-year overnight success. It was the first ever web analytics business. It was called NetGenesis, zero to IPO. And at the time we went public was one of the

top 35 IPOs of history, which was a pretty wild ride. My most recent startup was a mobile collaboration platform called Collaborate.com that was an early exit to Cisco. And as part of all of that, me and my team moved from the Boston area to the Bay Area, so I live here now. I spent about four years as an exec at Cisco in their collaboration business unit. And I was sort of lightly aware of crypto, but honestly not really paying attention. And a good friend from my Boston days who would pop by every now and again and said, dude, there's some really interesting things happening in the land in crypto, you should start paying attention. Yeah, yeah, I am busy. Comes back around. You should start paying attention. Eventually, I started paying attention and started to tune in. And that was probably

2016, 2017. And once I did, I very quickly realized I'd seen this movie before that blockchain and crypto at that point felt a lot like the internet in 1995, 96, like just very, very similar. And as I thought about it, I realized how unusual that someone like me would be an operative. at the formative stages of the internet and still be an operator at the formative stages of blockchain and crypto. And I kind of realized I'd never forgive myself if I didn't jump in and try it again. And I like to say I made tons of mistakes in the Web 1-0 era. And I promised myself to make all new mistakes in the Web 3 era. And so left Cisco, jumped on board, joined a team that was already ongoing. And that team eventually became what's now block native. So it's been three

and a half years now, and it's been quite a ride to say the least, but super fun and absolutely no regrets. I love that background story because it makes me think about if you had the lens in the early internet that, hey, I'm not sure what's going to work here, but there are a few categories that seem like they have to exist. Seems like browsers are going to be a thing. It seems like search and portals are going to be a thing. Was that one of your initial thought processes around Block Native is just that, hey, analytics have to be a thing. And people are going to need to understand what's happening on these networks. So it's interesting. And people need to understand that emerging markets like early stage internet or early stage crypto have very different dynamics and

sort of later stage established markets. And there's so much happening and things are changing so quickly, it can be quite difficult to figure out where the opportunities actually are. And one of the things that I sort of realized and through my internet experience is fortune favors the bold that those who sort of dream the biggest in these early stages tend to have the biggest opportunities and those who try to play it safe generally don't make it. But it can be really hard to pick winners and losers and timing is really tricky. But in the internet, I built infrastructure. I built core measurement infrastructure. And so as we got into blockchain and crypto, we were sort of amazed at the profound lack of infrastructure that we had as a team build and manage so many

things ourselves. And that's pretty tricky to get right. And it's wasteful to do repeatedly. And so my experience there said, infrastructure is going to be a big opportunity. as sort of the next economy forms. There's a ton of problems that haven't been solved. And we're kind of a nerdy team and we like that sort of jazz. So we started a focus there. But along the way, I mean, huge things are spreading up around you. Businesses in this space are teams, Dows go from zero to a million.

And it can feel a little bit like you're sort of chasing dollars. But we've been very heads down. Have a problem that we think is really important. Have technology that we've spent a long time building. And it's really pretty gratifying to see the level of traction. but we just sort of know there's a massive expansion opportunity happening here. And if we can own one little corner of it, then it's going to be a really successful entrepreneurial experience and great for everybody on board.

And quite frankly, we can add a lot of value to the ecosystem along the way. It makes a ton of sense. How would you kind of set the table in terms of the products and services that you're offering now and sort of where you're going with them? So Block Native specializes in real-time infrastructure for Web3. It's really that simple. And it's this interesting challenge of real-time. and I sort of always ask people, so what's happening right now, Ethereum that's important?

Or can you wait 13 and a half seconds for the next block to be confirmed and then you can figure out what was going on? And everyone I talked to says, oh, I don't want to wait. I need to know what's going on right now because it turns out that right now transaction fees are being set by the sets of transactions that are pending in the mempool. Asset prices are being moved by trades that are pending that are going to move price in various places. NFT drops are happening that are going to drive network congestion, attacks or exploits are being tested or deployed that are going to affect overall network conditions. All of these things are happening right now, and none of them are available on chain. They exist in this pre-consensus or pre-chain layer, known as the Mempool,

which is where transactions go to be candidates for inclusion. And we specialize, Block Native specializes, in a data layer, an infrastructure that provides access to this real-time data, makes it easy to work with. And one of the things we like to talk about in public blockchain networks is they're inherently equitable. Everybody has equal access to the data, to what's going on, to use. There's no gatekeepers. And that's true of just about everything except this pre-consensus layer, because this pre-consensus layer is very hard to work with, very hard to capture, very hard to make sense of. And so you have a condition where haves and hafnots can emerge. You can have predators that can appear We'll talk about that a little bit later.

And what we're trying to do at Block Native is sort of democratize access to that and level the playing field. So we provide low-level real-time APIs all the way up to sort of front-end tooling to work with this real-time layer. We work with many of the top builders and traders in the entire world who have access to our platform to use it. And what they do with it is they improve user experience. They get better feedback about what's going on. They monitor how their stuff is being used in the wild so that they know, how their creations are actually being deployed. They protect themselves against potentially attacks, and they use our data set to trade more effectively and more efficiently.

So it's kind of a general utility. It's sort of like what can you build with electricity, water, and connectivity. Turns out you can build a lot of things. And similarly, what can you build with real-time infrastructure? It turns out a lot of things, which is what makes our job both fun and challenging. So you explain it very clearly, but I want to kind of drive home how complicated some of this stuff actually is. So if you think about the queue of transactions, just waiting to get into the Ethereum network, what I would see on my MMP pool as a node operator may actually be a lot different from what you would see on a different side of the country. And so how have you thought about some of the technical challenges to just, what the hell is the Mnpool? It's different for

me, different for you. How do you define it? It's great. And to dig into it a little bit, we use this term the mempool, but that's a misnomer. There's no such thing as the MEM pool. There are as many mempools as there are nodes in the network. And so in the case of Ethereum, there are thousands of unique mempools, each one of which contains a different set of pending transactions, candidates for inclusion. Now, when the network is stable or not very congested, there could be large agreement between most mempools. They tend to all have the same sort of stuff, but there will be variations all the way up to a couple of percentage points of variations, which, look, if you're trying to trade on certain things, a few percentage points of visibility can be

the difference between success and failure. But when the network gets congested, which these days is like all the time, you can have wild deviations between what various nodes on the network and where they are geographically see and have access to. And so there is no truth at the pre-consensus layer because there's no truth. Consensus hasn't been formed. And so this makes it exceptionally challenging for any one actor to deal with because you're only looking at a portion of the network and you don't know which portion. And then second, which is pretty interesting, is different nodes that are configured in different ways, behave differently depending on different network conditions. So it's not a consistent fabric. It's a very lumpy fabric that changes quite a bit over time.

And so this is why we built what we built. So we at BlockNeda built a global data fabric to capture normalize and enrich MMPL data at a census level. So we capture as close to 100% of public mempools as is probabilistically statistically possible. And just to sort of smooth all of this out. And it requires quite a bit of infrastructure to do and quite a bit of unique technology to make that happen. And then we just serve it all up via common and consistent API so it's easy to work with. But for perspective's sake, every block on Ethereum contains anywhere from 100 to 200 transactions, give or take. And at any given moment, there's 80 to 150,000 pending transactions. So you have 80 to 150,000 competing to be one of the next 100 or 200 included in a block.

and what can happen in that real-time environment and that pre-consensus environment is much more interesting and much more complex than people expect. And there's all sorts of interesting things that can be done with it, which is, again, why we do what we do. And just to kind of tease that out a little bit, so it should be probably pretty clear to anyone who comes from a capital markets background that if you know that there's a trade that someone wants to do 10 seconds before they do it, then there's some advantage there. And clearly, this is something that we're seeing in defy. So I want to just touch a little bit on MEV. and maybe you can define what that means to you and how you're seeing that in the market, what opportunities that is created for your company over time? MEV is this concept. It first started for minor extractable value.

That definition is changing slightly for maximal extractable value. And it's this notion that in public blockchain networks, you have actors who have privileged position, namely the miners who are doing block construction. and they control block ordering. So within a block, you have transactions, 100 to 200, as I mentioned before, but there's a sequence that they are, first position, second position, third position, and they get executed in that order. And it turns out order matters that depending on what you're trying to accomplish, being in a specific position in a block or being able to set transactions in a specific

sequence in a block can create economic opportunities. Also, you can look at it and you can say, hey, that trade is super, super, profitable. I'm going to replace that transaction with my own, and I'm going to get that. So you can censor. You can do all sorts of things from this privileged position of block constructor or miner that can affect outcomes. And the economic value of this started to become apparent. And the concern was this would all be happening behind closed doors, that various mining pools, various miners would figure this out. And there's so much money at stake, they just couldn't help themselves, but to start to extract some of this value. So there's been a

a bunch of research that's been published on MEV. Most notably, the sort of the first one that coined the term is called Flash Boys 2.0 by Phil Dian at all. It's quite a fascinating read, and it basically matches some of the HFT techniques that were used in the formative stages of computerized trading and says, hey, these same ideas are still here. They just take different form in public blockchain networks. Now, a series of responses have formed, most notably is called the FlashBots project, which is a research collective, which is all about documenting and normalizing and providing equal access to these opportunities, creating marketplaces of MED. And there's various forms that it takes. But one of the consequences of MEP is that there's negative externalities. So for instance,

you would have a big trading opportunity. You might have some trading bots that are competing to get it. And in the public mempool, they would compete with each other by bidding up gas prices to be included first. And that's called a PGA or priority gas auction. And that would adversely affect gas prices for the entire ecosystem. So two trading bots who are just bashing over big opportunity can affect hundreds or thousands or tens of thousands of users and forcing them to pay higher fees. Through systems like flashbots and now there's others, making MEV more programmable and more accessible, you take care of some of these negative externalities, sort of move them off

chain. And so regular users like you and me are not affected by it. It continues to be a game of cat and mouse. And I have an analogy, which I've never used before, you can tell me if this works. But in a weird way, I create MEV to SEO. Insofar that, hey, search happened on the internet. And people started to figure out pretty quickly that it was valuable. And it turns out that you could have keywords that you talk about.

But you know, your position on that page had a big impact on how much traffic you got. If you were on the first page or the second page, then you're the eighth position or the second position. And people started to figure out that there were things you could do to actually move yourself up in the rankings. And as you did, you got more traffic, which was more valuable. And there was a whole dark art of this. There were specialists who did this behind closed doors. They were very valuable. And then tools started to come out to say, hey, SEO is a thing that anyone can do and you can have tools to do it.

And then consulting services are now exist out there to do SEO for you. But the whole point is there's this thing called search and that rank matters. and it turns out there's a lot of specialized knowledge that go into that. And we all accept SEO as a fact of life. And I, as an individual, happen to know a fair amount about SEO. But oh my gosh, it's so much more complicated than I ever thought it would be. And I'm nowhere near an expert in the field. We actually have firms that we work with to help us with SEO.

MED is kind of the same thing. They have blocks. You have position in blocks. You have this dark art of getting in specific positions. It turns it to be very profitable if you can do so. You're now having tooling that's coming out to help manage that. And it's going to be just another form of, complexity that folks need to deal with in these areas. That's a fascinating analogy. I hadn't thought

about it that way. If you think about it through that lens, and maybe this is stretching the analogy a little bit, with SEO, you had one company ultimately that really was in a powerful position there. And even maybe one or two individuals at those companies, like Matt Cuts had the ability to make pretty radical changes that would impact people's entire business models, like pretty much blew up the Mahalo business model, for instance. It's different, obviously, in Ethereum, where there's no one person governing this. And so how do you think about MEV in the context of an open protocol that has to address this issue over time, basically through free market incentives or some sort of protocol shift?

How do you see this from a governance perspective? The analogies here are a little bit strained, but you have this concept of search. You have a concept of public blockchain networks. You have people in position of privilege. In search, you have Google, obviously, and you had individuals at Google. hey, in public blockchain networks, you have block producers, whether they're minors or validators. And so while they're different, again, the semantics are different, but they vary. So now we have many chains that are out there, many L1s and L2s. And each one of those have their own unique

MEP characteristics, their own opportunities. And just like before, you could create tools to help mitigate or manage or understand, there's tooling that's being created to mitigate or manage and understand MAB. Now, in the world of crypto, it's generally the idealist towards decentralized towards incentive mechanics and things like that. And we're already seeing this play out quite a bit. You're seeing DAP developers actively include features that help minimize or mitigate MV. You're having chains that come up that have specific MEV prevention or MV features that are specific to them. You have private relays that are coming together to help people become less susceptible to it. And I think all that's quite healthy. It's just sort of a fact of life. And the argument that

leadership of flashbots would say is like, hey, look, this is happening. And the best thing to do is do it out in the open and have it be understandable rather than behind closed doors. And I think that thesis has really proven out. And it seemed like the whole world was going down the MED rabbit hole about six or nine months ago. And now it's just, oh, it's just another piece of the puzzle. I think that it's an important piece of the puzzle, but it's by no means the entire puzzle. If you're a regular listener of this show, you know that we take accounting and auditing pretty seriously. And that might seem a little bit strange in an industry that prides itself on the removal of intermediaries, but we think when it comes to digital assets, trust relationships

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approval. See public.com slash disclosures, not investment advice. So you brought up the relay net works. And that was something I wanted to get your perspective on too. I mean, I remember back in 2014, just Bitcoin before Ethereum launched, you would have these mining pool operators that would actually think that one of their business models would be appealing to institutions and, hey, send us your transactions because if you're worried that your block is going to get mined by someone in North Korea, maybe that's a compliance issue. And it turns out that didn't really manifest. That didn't really matter. Obviously, on Ethereum, the relay networks are not for that reason. really an MEV type of a thing. So talk a little bit about what these networks are. Maybe you disagree

with kind of why they exist. So there are many forms of what are known as sort of private networks where you send a transaction and it doesn't go through the public mempool. And so the idea there is it prevents observation from the outside before it gets included on chain, but you're just trading off. So now there's some other group who you're trusting with your transaction. And they may not have access to full hash power. There may be other folks who they're dealing with who they compete with. They may look at you and replace or censor you. And so there's no sort of magic bullet solution here. There's just sort of a range of options.

The truth is is that most transactions don't have any MEV associated with them. So there's really very little to worry about. And it's much more efficient and probably much healthier for the network to communicate using public memples. But for those who would desire not to, then there's options there to and there's many of them. And so again, there have been periods of times where conversations are such, where it feels like there's going to be nothing but private mempools the whole way down, and that's the wave of the future.

But it seems pretty apparent that it's, again, just going to be part of the mix. We at Block Native, based on what we do, we actually measure in real time the number of privately transmitted transactions. And believe it or not, it fluctuates months to month. Some months it's more, some months it's less. But it's not like gobbling up the network, at least in any capacity that we can see right now. So you'll pay a fee to use a private relay. You'll maybe get some benefit out of it.

Maybe you don't. but for the most part, it's just one more piece of the puzzle. That's fascinating. How do you think about the layered scalability that we're seeing in Ethereum and what L2s you want to cover? And I guess the same question for where are you seeing demand for additional smart contract platforms and how do you think about implementing this on other chains? Because of what we do at Block Native, we have a large number of builders and a large number

of traders who basically integrate our infrastructure and API at a pretty low level into what they do into how they function as a protocol or exchange or marketplace or how they detect and act on trading opportunities. And so they'll tell us quite quickly where they need to be, sort of what new L2s or what other L1s they want support for. So we have a lot of demand. And it's pretty interesting for us. I think demand for block native services on various L1s and L2s is a leading indicator of sort of future TVL from what we've seen. So for your listeners who are not familiar with L2s, these are just, again, trade-off mechanisms that you make to batch transactions up so that you can get transactions that are cheaper or that are faster or that are more private or that have other characteristics,

but they always involve a trade-off. The common analogy that I like to use is like a bar tab. I buy a drink, you buy a drink, I buy a drink, you buy a drink. It's very secure, but it's very slow. Instead, we open a bar tab, we buy a bunch of drinks. At the end of the night, we settle up, much more efficient, much faster, easier for the bartender, easier for us. But at the end of the night, there's a whole bunch of risks. Like, you wait to settle. You can walk out with forgetting your credit card. The bartender can add things on your tab that you never added on there. So similarly, these L2s contain similar classes of risks. There's no free lunch here, if you will. But now you have smart contract-based L2. So you can move some of these DFI applications off of L1 and into L2.

And guess what? Now trading strategies become profitable. MEV starts to emerge. And you kind of have this doing it all over again, but in a new capacity. There's actually another interesting analogy that I draw here with the growth of L2 and alternate L1 EVM chains. And so one of the things we're seeing, by the way, is a lot of demand for other L1, so smart contract-based platforms. And Binance smart chain really seemed to have established the model there, which is they took basic ideas off of Ethereum, put them on a different chain with some different parameters. It's more highly centralized. It's got a smaller block time. And it turned out that a lot of trading strategies that were no longer profitable, they were too

competitive in Ethereum, but suddenly became wildly profitable on BSE. And guess what happened? People who were using Ethereum moved over their trading volume to BSC because they were more profitable there. And the analogy is to the rise of the modern day casinos in Vegas in the 90s. It's something that's not really well understood. So coming out of Boston, I was at MIT at the time where bringing down the house or the movie 21, how the MIT kids took Vegas for millions. And those are actually roommates of mine,

friends of mine was happening while I was there. And what was happening was you had these existing long established casinos, the Sands, the Flamingo. They had these regular customers who were sort of lifer gamblers. And they locked them in by knowing their name and having their point system and comping them rooms and all sorts of that. And they were really pretty fixed. And these new hotels in the 90, there's a whole bunch of tax incentives that get built and the Luxor gets built and all these casinos get built, but they need to attract players. How can they attract players if the established ones are really comfortable? It's very simple. They made it easier to win. They just made it easier to win at Blackjack. They made it easier to win at craps. They made it easier to win. And guess what

happens that if I'm a gambler, I may like getting my room comp and people knowing my name. You know what I like more. I like more winning. And it turned out that that created this huge migration and basically was the foundation of that next generation taking off. And the same thing is happening in L1 blockchains. Hey, you have these established people who are really committed to chain A or chain B. But chain C and D come up and they say, hey, it's easier to be profitable over here. Guess what people do? They love profits and they move.

And so we're living in this increasingly multi-chain world where we're seeing real action, not just real user, but real developer support of alternate locations because it creates new profit opportunities. And I think that's really healthy for the ecosystem, but from the perspective of infrastructure providers and from the perspective of any institution, creates new complexity. So now, hey, I want to trade X for Y or I want to open up a collateralized debt position. Well, there's 18 different ways to do it across nine different chains. And what's the best way to do it?

Well, it depends on what you're trying to accomplish. What are the settlement terms you want? What's the cost to settle? What's the time to settle? What are the settlement guarantees? How much decentralization do you want? What assets do you want to do that in? And so it becomes increasingly difficult for folks to operate with confidence.

And again, that's why entities like Block Native can provide a lot of value to our customers is because we help people understand and then navigate and make decisions with confidence. And so anyways, it's pretty interesting to see and be a part of. And I think we're still fairly early in the evolution. But it's not going to be one chain to rule them all. It's not going to be one, L2 to rule them all. It's not going to be one anything. We're going to live in a heavily heterogeneous ecosystem moving forward.

which is fantastic because it creates lots of opportunities for players like us to drive innovation. That makes a lot of sense. I like that analogy, and I certainly agree that there's the demand for block space here is just so extreme. And there are things that are being attempted, that there's just not enough space. And so we're going to see more L2s and we're probably going to see more L1s, for that matter. But the interesting thing to me has always been, if you think about just the evolution of protocols in the internet time, imagine a world where when it was TCPIP versus OSI, you had TCPIP coin and OSI coin, and you had developers that were just religious around a particular ecosystem and torching people on Twitter for liking another ecosystem and had all of their

wealth tied up to one protocol. That's kind of what we're going through right now. So how does that factor into this, hey, I want to be on this chain versus this chain? So a couple of different thoughts. Like, believe it or not, Steve Bomber said it best, which was developers, developers, developers, developers, hey, where developers create new experiences and users go. Okay. So So, by the way, in any technology ecosystem, blockchain or notwithstanding, the developer community holds a privileged position. So I pay a lot of attention to what developers are embracing and why. And while you have some developers who have very strident positions, I think you have a lot

more developers who are fairly pragmatic and are looking to drive traction and they're chasing users and users are chasing new experiences. And so while historically there may have been some intranced positions and heavy concentration, I think that what we've seen, particularly over the past six to nine months, is pretty rapid diffusion. I was actually just looking at some data that said, DeFi TVL is at an all-time high, but Ethereum's share of that TVL is at an all-time low. If you look at all of the TVL in Defi today, this is from Delphi, by the way, Ethereum only control 65% of that TVL, which is pretty surprising because not that long ago was 100% on Ethereum.

But if you look at all the other L-1s that are seeing L2s that are seeing, TVL, basically none of them have more than maybe 8%. So you have a whole bunch that are relatively small in Ethereum, which is 65%. And you can say, is this good or bad? And again, my view is, more diversity of platforms, of opportunities of choice is generally going to be healthy and constructive for the ecosystem. It's going to be good for developers. They're going to have more support. It's going to be good for users. They're going to have more choice. And it's going to create more competition and therefore for more innovation. Again, I think we're still pretty early in this evolution. And the interesting question is, we're going to live in a multi-chain world, but how many chains are going to matter?

Is it going to be four or five? Is it going to be 30 or 40? Or is it going to be 50,000? And there's a world of difference between them. And so one of the good news is about the internet is we settled on TCPIP and everybody spoke. It was a lingua and it allowed everything else to jump on top. It seems we're not going to have a single chain, one ring to rule them all here. So what's going to happen And instead, there's going to be cross-chain solutions like Cosmos or Pocodot that are going to enable chain bridging. And all sorts of new opportunities are going to fare forward. So anyways, I think it's my view of it's increasingly multiplicative. And that doesn't show any signs of slowing down.

There may be some logical upper bound to it all, but we don't seem anywhere close to that today. One of the fascinating things about this space is just how quickly the applications drives the need for more infrastructure. And so when you started the business, Defi wasn't super prevalent. And then Defy takes off and there's a massive market here. But if you're a non-crypto native, maybe you dismiss Defi and just say, hey, the use case here is trading and, you know, like, whatever. But then NFTs happen and you have this kind of cross-the-cosm use case and reservation demand for block space for things that are cultural and kind of capture non-crypto people. So how do you see this playing out, I guess, in terms of more applications, capture? more attention and then driving the need for more block space and more analytics tools like what

you're doing. A couple of thoughts. So I have this saying. So I was building in the early days of the internet. And in the 90s, I used to have the story, which is, look, the online world is small and the offline world is huge. But the trend is pretty clear that online is growing and offline is shrinking. And hey, at some point in the future, we're going to live more online than offline. And in the 90s, people thought I was crazy, legitimate, like, should be committed for this. And now, here we are, 2021, and we live, what, in a 98% online world? Like, this is our reality. But right now, today, the on-chain world is very small, and the off-chain world is huge.

But the trend is just as clear. On-chain is growing and off-chain is shrinking. And, Matt, you and I are both going to live in a future reality, which is way more on-chain than off-chain. This is going to create infinite demand for block space, which by definition is a precious commodity. And so what seems to be clear is innovation is taking hold and developers are experimenting at the edges. And the nice thing about this is everyone's building everything at the same time.

And then the ecosystem, it's like natural selection, selects out the things that bubble to the top. And so it was defy for a while. And defy, by the way, hasn't stopped. They're still growing great. but then the narrative shifted and then it was NFTs and culture. And now that narrative actually seems to be shifting a little bit more into DAOs and collaboration. There's new things brewing on the horizon.

I certainly don't anticipate that stopping, that there's going to be something after Dow's and something after that. And it's very tough to predict what's the next thing going to be. But it seems that the developer creativity being applied and quite frankly the expressiveness of these EVM-based blockchains and increasingly these cross-chain blockchains as well, just the limitation is sort of imagination and the limitation is developer cycles crossed with there is a finite capacity of block space. And so again, I think this is constructive because as you have growing demand for block space, you have, hey, L2 start to become a thing as a way to more efficiently

use block space. Hey, alternate L1 start to become viable where they weren't viable before because people are seeking block space to do these things. But make no mistake, we're going to live in an on-chain future. and I ask people all the time, in your institution, and your enterprise, how many transactions happen a day? Inside your enterprise, between different entities and outside your four walls. I mean, transactions are basically the circulatory system of any institution or enterprise. And it is sort of mind-boggling how many transactions actually happen at any large entity. And they go, all of those are going to be onshund. Today, none of them are literally zero.

And in the future, all of them. And we're going to go through a transitionary period where we go from, the first few to sum, to part, to maybe half, to most, to all. And there's going to be this reflexivity between as that transition occurs. So again, is it all going to be L1? Is that going to be L2? Is it going to be something else entirely tough to say, probably more L2 than anything else? It's very easy to start to paint a picture for the need for millions, tens of millions, hundreds of millions of transactions per second, because that's just what enterprises do. Businesses do, entities do is they do transactions inside their four walls and outside their four walls. And all of that

is going to be better served than a public blockchain network with increased transparency and reduced friction. So it seems pretty clear to me the macro trend that we're in, but there's definitely going to be a lot of challenges to figure out along the way. Well, it definitely has to be challenging just when you think about being an entrepreneur in predicting even the categories of customers that might be interested in this in the future. Three years ago, I mean, you would have been hard pressed to find people that would have predicted that DAOs would become customers of some of these platforms and that they would be as big as they are. And by the same token, you probably have enterprises now that if you told them what you're doing, they would say, I've absolutely no idea what you're talking about. In five years

from now, they may be your biggest customers. So how do you navigate that kind of divide in the customer base? As an entrepreneur, I've built software for a long time. And I have a saying, which is it's not that it's easy, but it's not that hard to build software. Like there's lots of people who do it. the hard part is getting people to care and pay attention. That's the most precious thing in the world. I was actually just coaching a friend of mine through this, which is, why does someone pay attention to what you're building? Because really, there's like a million things any one of us can pay attention to at any given moment. And you have to be number one to get one person to pay attention to paying attention to. Meaning in the whole universe of things someone could be paying attention to,

they need to pay attention to Block Native right now. Like, why? Why would they possibly pay attention to BlockNative? Why would they go to BlockNative.com? And when they do, like, what do they see that basically gets them to say, that was a good choice. I'm going to spend more of my precious attention. And you have to be number one. Number two is the same as number 12 million. Like they're paying attention to something else. And so as a result of that, what I have learned to do my entrepreneurial experience is build stuff, get it out there, work really hard to get initial engagement, and then listen super carefully to what people find value in. And basically, every single company have ever done, what we build and think is the interesting part and what users actually

engage with are quite different. And my entrepreneurial successes are where we have leaned in positively that engagement. Like, hey, people are using this. We should do more of that. And this thing that we spent a lot of time on, no one's using, so we should abandon that. And my entrepreneurial failures are those that did the opposite. Say, ah, we spent so much time on this. We're really committed. We're going to stay the course. Those have been the ones that have not worked out anywhere nearly as well. And what's amazing about crypto and blockchain is one, there's so much activity. There's so much need. And if you can build something mildly useful, there's many channels to get it out there to start to get your initial customers, initial users to drive engagement. And then they're very happy

to give you feedback. There's another thing I coached the team with like, our customers constantly ask us for more stuff. They want more features. They want more chains. They want more flexibility. and it can feel like, why aren't they happy? And you go, oh, that is a happy customer. Because an unhappy customer tells you nothing. They just don't care. And a happy customer says, oh, I'm happy using BlockNative. I want to do more with them.

So, hey, I need you here. I need this. I'm using this other vendor for this thing. Can I move this to your API? Why doesn't your API work this way? So we're privileged to get all that positive feedback. And so the net result is, as we think about building our business, we lean into proven demand.

We don't do speculative development. We don't like, oh, we think this is a good idea. we're going to go spend a bunch of time building something and hope that people use it. It's more like our customers are yelling at us for these 12 things. Why don't we build the three that are most relevant right now? And then we'll say, hey, customers, here's this thing you've been asking for. And we have a viable business there. So that's how we've done it.

That's how we've navigated. And so far that's serving us really, really well. We're growing like mad, to be honest. It's a challenge to put up with the demand. We're lucky to be in that situation. And on that demand growth, what's the hardest thing about building a team in the crypto space as compared to some of your non-crypto startups in the past and particularly curious around the engineering talent these days. Everyone in crypto will tell you how challenging it is to hire

and we are hiring at all levels of our organization and we spend a tremendous amount of time and energy on it. We're actually hiring super successfully. I would say the biggest thing is there's this massive gulf of getting it, crypto knowledge. And I can't tell you how many times I talk to people who are like, yeah, I've been reading a lot about it. Or yeah, yeah, I'm an investment. I hold a bunch of coins. You're like, it's not bad, but like it's different from being in it and being inside of it and using it, participating in defy, being a part of an NFT discord, participating in Dow governance. These are the sort of hands-on activities that really sort of differentiate folks who are ready to get started. And I think that for folks from the outside,

they often will underappreciate just how steep the learning curve is. And so the number one thing is just experience. Folks who have gone hands-on with geth, folks who understand the inner workings of Metamask and how a transaction is structured or what a Mempool mechanic looks like as it relates to a specific protocol. There's just not a lot of people on the planet who really get this. And so we're both hiring for folks who obviously have that experience and then bringing on folks who have a bunch of expertise and helping them get there pretty quickly. It's challenging. There's no doubt. And I always just tell people, the sooner you can start falling down the rabbit the better off you're going to be. And in fact, one of the things we did at BlockNative was we published

resources for the CryptoCurious blockchain 101 blog post with a whole bunch of resources for people to read because we get asked that question so often, like, how do I get going? That post has grown longer than I would have anticipated. There's a lot of resources on there because it's a big space. That's a good place to start for anybody who's curious. And you guys have been doing a great job of just seeing what's next in terms of emerging layer two's and keeping up on the layer ones. And how do you think about just segmenting the team such that you actually have the bandwidth to keep an eye on some of these things. And I guess are there anythings on the horizon in the ecosystem that you're particularly excited about just as conceptual categories? Given what we do, I mean, we build the

real-time layer. It's really critical that we be watching the horizon for what is coming next. That's important. And I'll tell you a story, which is, hey, Ethereum recently went through what's called the London Hard Fork. And as part of that, there was this EIP, EIP 1515, that fundamentally changed the way that transactions get priced on the network. And this was pretty significant, probably the most significant upgrade to Ethereum. And we have an element of our real-time platform that we call gas platform, which is all real-time models for predicting gas fees. And so given that the way that gas is working is changing,

we kind of felt we needed to be ready for the London hard fork and for 1559 and the new fee structure and all this sort of jazz. And as we started to get into it, it was pretty tricky. It wasn't really clear the right way to do it. But I personally, as a leader, felt it would be embarrassing that if the London Hard Fork happened and we weren't ready, if we weren't 1559 compliant, it would just look bad for us, that our customers depend on this. And so our team pushed really hard.

And we did it. We were ready for it. And we were shocked to be the only team in the entire ecosystem that work. And so I was really happy that we did it. The team was pretty exhausted than we did. But our business went through the roof because we were the only source for real-time EIP 1550. for base fee and priority fee data that was out there. So it was super constructive, like it really helped our business quite a bit. So I tell this story because we can anticipate changes that are upcoming,

including the transition to ETH II and the merge, that we know we have to be ready for and that these are major technology upgrades to our infrastructure that we have to start planning for. And so to your point, we assign personnel to do research, to talk to experts, to try to understand things. By the way, interestingly about EIP 1559, as we were going through, through that, we had a whole bunch of questions about what the terms mean and how they worked and what would happen. And then we sort of talked to others and some experts in the domain had the same set of questions. And so we realized if we have these questions, everybody else probably has these questions too. And we published a blog post called a definitive guide to EIP 1559,

max fee, base fee, priority fee, to sort of help the ecosystem who probably had the same set of questions. And I share that because that's a pattern for us. Hey, we try to anticipate what questions, what demand people out there have, and then both build into that and publish into that so that we all have access to level the playing field, if we will. Sort of as I look out there, certainly the multi-chain consequences that we're facing as an ecosystem, I think are really fascinating, that we have this, we used to have Bitcoin, which is Bitcoin, we have Ethereum, which is smart contracts, and we had everybody else. And that world is changing. There's a lot more ecosystems that matter. And there's whole new development experiences that are emerging. And this is creating, again,

lots of possibility, but also a lot of complexity. And so that's probably the biggest one that I am paying attention to and we're paying attention to, which chains are going to matter. What are the challenges that are going to happen? How do we facilitate multi-chain interaction? What's the difference between multi-chain? Meaning, I work on Ethereum. I work on BSC. I work on Polygon. I work on Phantom. I work on Solana and cross-chain, which is I'm doing transactions that span chains. That whole play out, I think is really quite fascinating. And then within this multi-chain and cross-chain experience, you have NFTs happening, you have Dow's happening, you have MEV happening across all of it,

which is horizontal across these vertical components. And so anyways, those are some of the stuff that we're paying a lot of attention to. I think a lot of the zero-knowledge proof stuff is pretty fascinating and has a bunch of major advantages for the ecosystem moving forward and again, ramifications for us. So that's part of the reason why this industry is so fun to be a part of is it's constantly moving. It's constantly innovating. And we really do have to sprint to keep up that we're only as good as our last release

and we're only as good as our staying ahead of the next step so we can deliver what our customers need. You brought up the zero knowledge systems. That's an interesting thing to think about is a future where privacy is more preserved on these networks. How do you see that evolving? Clearly there's demand and interest. then clearly there is need to do immutable transactions without having perfect knowledge of everything

underneath the covers. And there's whole classes of applications that public blockchain networks could be effective for, but these privacy issues. And so zero knowledge proofs sort of open all those up. They're pretty weird to work with. They're kind of mind bending about how you can do stuff definitively without really understanding what's going on and how you know something's happened without actually knowing what the something was. And so my sense is we're still pretty early in that evolution. I think the technology is moving forward quickly, but the mental exploration of what those are going to mean and how those are going to be used in the wild. And also how they're going to interface. This is other piece. When the whole world is on zero knowledge proof, it's going to work this way.

The whole world uses Polygon L2. It's going to work this way. But the world isn't going to work that way. The world's going to be heterogeneous. So you're going to have public blockchain network non-private transactions, alongside private transactions, you're going to have things that mix the two of them together in ways that aren't obvious. You're going to have those span L1s and L2s. You're going to have them span all sorts of things. And so again, it just creates a lot of combinatorial effects that, I guess, long answer to a short question, but it's early in the evolution of zero knowledge proofs and that whole infrastructure. But it's clear that there's very real developer and end user demand for those classes of systems.

Well, I'm sure you guys will be on top of it. Well, this has been a fascinating conversation where can we send people to learn more about what you guys are building at BlockNative? Anyone who's interested in what we're building, definitely start with BlockNative.com. We have a pretty rich product portfolio. And all of our products today have free to use options so you can get started to go hands on right away. Our blog is a great resource. It's at blog.com. We have quite an active Discord community.

Our Discord server is linked off of our homepage as well. You can find us on social platforms at BlockNative. And you can find me. My name is Matt Cutler. I'm at M. Cutler on Twitter. I'm pretty easy to find there. And it's worth saying we are hiring at all levels. So folks who might be interested in joining our team in a technical sales marketing customer

support capacity, we'd love to hear from you. We have a career hub there as well. And it's really been a pleasure to be on the show, Matt. I appreciate the opportunity and looking forward to continuing the conversation. It was great to have you on Matt. Thanks so much. You bet. Thank you.

Thanks for listening to another episode of On the Brink with Castle Island. To find out more about Castle Island, visit Castle Island.V.C. To listen to all of our podcast episodes, please go to On the Brink-Podcast.com or just click on the tab in our website. Thanks for listening.