Unchained - Zaki Manian and Jack Zampolin on Why ATOM Is 'Dogecoin for Academics' - Ep. 406

Episode Date: October 11, 2022

Zaki Manian, cofounder of Sommelier Protocol and cofounder of Iqlusion and Jack Zampolin, founder of Strangelove Ventures, discuss everything about Cosmos, the new white paper, and how to improve MEV capture for ATOM holders. Show highlights: how Jack and Zaki got involved with crypto and Cosmos what the Sommelier protocol is, the role of Iqlusion, and what Strange Love does the basics of Cosmos and application-specific blockchains (ASB) why would a project choose to be an ASB rather than an application on a blockchain whether Cosmos can achieve network effects the reasons behind launching a new white paper for Cosmos why the team decided to pursue interchain security whether there would be an increase in fees with so many chains relying on the Cosmos Hub for security how much economic value the Cosmos Hub will end up securing if the proposal gets passed how the Cosmos Treasury could be used to fund development the role of the Interchain Scheduler to capture MEV whether centralized exchanges are going to start trading against the customers the new issuance model proposed for ATOM the role of an active governance community to make Cosmos more decentralized what problems Liquid staking solves how USDC will launch on a consumer chain Thank you to our sponsors! Crypto.com Chainalysis web3 with a16z Jack: Twitter Zaki: Twitter Episode Links Previous Coverage of Unchained on Cosmos: How Osmosis Is Trying to Improve the Crypto User Experience New white paper Document Proposal Interchain security Paper The Block article The DeFi investor thread ATOM 2.0 Thread by Route 2 DeFi Youseff Amrain’s thread Charlie Morris’ thread Other articles Vaneck’s article: Why we are bullish on Atom Alex Valaitis article: A deep dive into Cosmos Liquid Staking Native USDC on Cosmos Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi everyone. Welcome to Unchained, your no-hype resource for all things Crypto. I'm your host, Laura Shin, author of The Cryptopians. I started covering crypto seven years ago, and as a senior editor at Forbes, was the first mainstream media reporter to cover cryptocurrency full-time. This is the October 11th, 2022 episode of Unchained. A lot can happen in crypto in 24 hours. Subscribe to Unchained on YouTube at YouTube.com slash these slash Unchained podcast for your morning roundup of top headlines in 60 seconds or less. Chainalysis demystifies cryptocurrency by providing industry-leading compliance, market intelligence, and investigation support for all crypto assets for organizations like Gemini, crypto.com, and BlockFi.

Maximize your potential with the leading blockchain data platform by visiting Chainalysis.com slash unchained. With the crypto.com app, you can buy, earn, and spend crypto in one place. Download and get $25 with the code Laura, link in the description. Whether you're crypto curious or a C-suite decision maker, you have to check out Web3 with A16Z, the chart-topping technology podcast about the future of the next internet. Listen to Web3 with A16Z on Apple Podcasts, Spotify, or wherever you get your podcasts. Today's topic is Cosmos. Here to discuss are Zucki Monion, co-founder of Smolier Protocol, and co-founder of Eclusion, and Jack Zambellin, founder of Strange Love Ventures. Welcome, Jack and Zucky. Great to be here.

Yeah, thanks, Laura. Let's start with each of your backgrounds. Zucki, you've been with Cosmos for a while. Can you tell us how it is that you got involved and what your history is with the protocol? Yeah, so my involvement with Cosmos started as many of these things do with, there was the open source project, Tenderment.

So I met Jay back in like, I think late 2013, maybe early. Jake Juan, the co-founder of Cosmos, the creator of Tendermintemant. And he had this, you know, I was just getting into cryptocurrency. Everyone was talking about proof of work. Proof of State was like kind of a thing.

Like Dan Larimer was talking about it for Eos. But Jay had like what seemed like the best ideas of basically anyone I met in cryptocurrency. He was like, we're going to have like blockchains. You can take. We can combine like what we have learned from like why Bitcoin works and why it's great. And combined it with all this academic research that has been sitting on the shelf for decades. And no one has found a constructive use for. We could put it all together and turn it into a, to something.

And so, you know, I started contributing in various ways to, uh, the Tendermintment Project. And then we, uh, we held a conference at our office. There was a, there was a something called the crypto economic research group, which was this like mailing list back in the day. And we held a conference for that mailing list. And like people like Vlad and Vatelik all came to this conference. And I invited J. because he was my friend. And he presented Tendermit. And honestly, I could see, I remember seeing Vatolet's eyes light up a lot, what he saw, like what Jay was doing and being like, oh, like, this is a good idea. Like, we're many, you know, seven years later, you know, it's a, you know, Ethereum is

out for mistake. But, you know, back then we, so like, and then Ethan was friends with Vlad from college and we had been contributing to like early Ethereum, like the early Geth implementations. And so Ethan came, came to the conference. Jay and Ethan met. That kind of was like the first major full-time contributor now to Tendermint was Ethan. They co-founded the company. Then they really started to become a sort of actual thing. But then they tried to do enterprise blockchains, because that's what everybody was doing in 2015 and failed miserably. And then in 2016, they were like, we're going to do a public blockchain. And there were a series of ideas. Jay had this idea called White Jay and Jahan, who was his roommate, a housemate, had this idea

called Super Tanker, which looks awfully like what Celestia does. Today, there were a whole bunch of iterations of ideas, and eventually we came to what we now know as Cosmos. So, like, my involvement with the project just kept increasing. 2016, I put the first, what is, like, the first person to agree to put money into the project. By 2018, I was, like, full time on the project. And then 2019, and then we had, like, sort of the famous explosion of tendermint in early 2020. And now I've kind of gotten much more sucked back into Cosmos core. So here we are. And Jack, what about you? How do you get involved in Cosmos? I got into cryptocurrency sort of in the 2013 wave as an investor for the first time. And after that, I kind of decided this is what I want to do and ended up teaching myself a bunch

of programming, going to a boot camp, and I started working at a Web2 database company for a while. And when the 2017 cycle came around, I had a friend who had started working for Blockstack, which is based in New York, a great Bitcoin company. And I joined them and sort of did that for the 2017 cycle. And after that, they sort of ended up going a different direction. And I did too. And I was kind of debating whether or not I wanted to get into cryptocurrency, keep in cryptocurrency. And I was like looking at a couple of different things.

and tendermint was definitely one of them. I wanted to go right go again. I wanted to work on distributed system stuff. And I had been through a couple rounds of interviews. And my next interview was Zachie. And I got on the phone with Zachie, and he was like in and out of an Uber. And we were on the phone for like 15 minutes. And at the end, he goes, yeah, so I'd love to hire you and we'll get you over an offer and hung up on me.

And I was like, that is the most wild interview I've ever had. sure enough, two hours later, I had an offer. And that was kind of how I got started working at Cosmos in early 2018. Yeah, it's been really fun since then. Sometimes when you know, you just know. I love it. I love it. I'm a big proponent of listening to your guts.

So clearly, if you're still here four years later, then Zuckie made the right choice. So before we get into all the nitty-gritty on Cosmos, why don't we just briefly also describe small, protocol and occlusion for Zucky. And then afterward, Jack, you can talk about Strange Love. So, Similei is a cosmos chain. We do decentralized, actively managed defy strategies, which is a pretty unique offering in the world.

We have an ABE strategy that is live. Jack is also a co-founder on the protocol. We've continued to work on various things. But it is a somewhat unique application of the cosmos technology stack, but it is like a canonical example of an app chain. But also we, one of the other interesting things about it, so all of our products are on Ethereum. So like there's a cosmos chain.

There's like cosmos tech inside, but the product is on Ethereum, which is an interesting model. And then inclusion started out as a validator. So one of the big things that like Jack and I did in 2018 was like bootstrap, this whole validator ecosystem as a way of making as sort of, because it was necessary to get tenderment and proof of stake like out into the world. And so we decide, you know, I dog-fooded my own validator.

But inclusion does a lot of other things. Now we primarily we run, we still do infrastructure providing, but we do a lot of like protocol innovation and like helping with other like lots of different teams. Jack, you know, I have a very large portfolio of advising and like ecosystem building and whatnot across a huge number of protocols. The joke is always that like there's like three clones of me. running around because like I'm like on the website of like, you know, I don't know, like 30 projects as like some early person. And yeah, it's true. There are three clones of me running around.

I've seen two of them in one room one time. Okay. So Jack, do you want to talk about Strange Love? Yeah, absolutely. So I'm kind of described myself as the Cosmos product guy. So it's the product manager for the hub. And as a part of that with the Cosmos SDK, I ended up talking to a ton of So I also kind of ended up in this position where I was advising a bunch of folks and running validators on a number of networks. And me and my business partner, Tyler Schmidt, took a lot of that and looped it into this company called Strange Love. So what we do is primarily focused on building out the open source components of IBC. And we also contribute to some other areas of Cosmos as well. but we build relayers and sell RPC nodes and a number of other sort of like

infrastructure-y-type products. You know, Zucky mentioned that we worked really hard to bootstrap the validator set. And that's always kind of been my expertise is the sort of infrastructure level stuff within Cosmos. All right. So now let's get into the nitty-gritty on Cosmos, but we're going to start with a super basic question just to make sure all the listeners are on the same page. Why do you guys explain what Cosmos is?

is and also what application-specific blockchains are. Okay, I'll take the first shot at this. So Cosmos, what is Cosmos? Cosmos has been described as an idea, not a thing. So like there's this big idea, which is blockchains are a kind of new kind of computer, a community computer that a computer that can be quite controlled and owned by multiple people. It's like an extension of like, first we had the mainframe computing revolution, then the personal computing revolution.

and now we have the community computing revolution. And this is like a, this is what we've been trying to, like, this is sort of where Cosmos is. And if you're going to have community computers, they should be able to network together. So that's like the galaxy brain version of the idea. The little bit more nitty-gritty is Cosmos is a toolkit for building like an L1 blockchain. So like many blockchains that people know about, you know, until it blew up. The most famous one was the Terra Luna blockchain, the Cosmos Hub, osmosis, axelar. Many, many other blockchains that I'm sure Ulysses are familiar with are built with a set of tools.

The tools are the tenderment consensus engine, the Cosmos SDK. And then if you build with those two things, you can bridge or connect or interoperate with any other blockchain in this ecosystem using protocol called IBC. And so this is sort of has been a set of tools. Now, why did we build these tools? at the time of 2016, we saw smart contracts were starting to take off on Ethereum. But we had this deep belief that in the long run,

the most successful blockchain applications would not be smart contracts. They would be like blockchains themselves. Like the biggest, most successful, most important blockchain applications would end up being their own blockchains. And that was like a somewhat inevitable progression. And so what we needed to build

was tools for people who may or may not have been building smart contracts at the time when they were ready and they kind of knew what they wanted from their application to build that application-specific blockchain. So on most other blockchains, a Dex is a smart contract. In Cosmos, a Dex is a blockchain where the logic of decentralized exchange is built into the core blockchain protocol, you know, lending protocols, etc. we have application-specific blockchains for all of these things. And maybe this would be a question for Jack,

but when an entrepreneur is kind of trying to figure out how it is that they want to build whatever decentralized thing that they want to build, what are you seeing in terms of kind of their thought process around choosing to, yes, build something more akin to a smart contract on a layer one like Ethereum versus making an app-specific blockchain on Cosmos, kind of who goes with the first and who goes with the latter? You know, one of the sort of classes of blockchain that Cosmos has done a great job of capturing is all of the exchange chains. So, OK, Xchain, crypto.com, finance chain is built on an early version of the Cosmos SDK.

So those users kind of want sovereignty and they want sort of control over the platform. If you look back to Web 2 and think about things like FarmVille and a lot of these other Facebook games that got, sort of rugged by platform changes, the same thing can happen in blockchains too, you know, whether it's an upgrade to the underlying Ethereum network that changes the way you're making money or, you know, there's a huge NFT meant that spikes fees and suddenly your app is unusable for long periods of time. That's a risk that a lot of application developers don't want to take. And those folks end up choosing their own blockchain. But there's also folks like D-YDX who have built their stuff as a smart contract on another chain initially

and then sort of seen some of these effects and then they sort of move over to an independent chain. But the general theme there is sort of sovereignty and sort of controlling your own platform. And that is really attractive to a wide spectrum of developers. Yeah, I saw an interview that Antonio Giuliano, the founder of DYDX in it, he addressed why it is that they were moving to Cosmos, and he basically said that the ability to, you know, have their own set of validators and, you know, have them do some order book functions along with the validation was like part of it, sort of this ability to kind of customize the way validation happens was part of the appeal. But then so would you say that for people who

choose to go, for instance, you know, in the other scenario on via the smart contract route on Ethereum, would it be that then what they're looking for is more like that composability factor with other defy projects? And yeah, it's just something that is part of like a bigger ecosystem or what would you say there? I think, you know, it's kind of a quick to launch thing too. It's very easy to write a smart contract, throw it up, generate an easy front end off of it and start selling product to users. And a lot of startups and apps want to do that. If you look back at sort of traditional computing, you've got serverless platforms and infrastructure as a service, stuff like GCP and AWS, and then people can kind of run their own data center. And that's kind of like a continuum. If you think about blockchains, there's smart contracts, there's run your own validator set, and there's kind of a bunch of stuff in between like Celestia and shared security on the hub. Yeah, it's just kind of different entrepreneurs. different startups have different requirements,

and they sort of fall somewhere on that spectrum. And so for people that say that up chains are not very composable, what would your response be to that? Try osmosis. Go for it, Tucky. The more actually, the sort of more concrete answer is, I kind of view that there's a trade-offs. So when you started out, there were like the first few people

to try to build Cosmos chains. And this is before IBC. People tried to build them. And they really struggled with network effects. Like they struggled to get listed on exchanges, how to onboard users. They needed to get any users had to get new wallets. Like it was a whole, whole nightmare for users. And so like if you watched on an Ethereum or a Solana, like you kind of got all those network

effects for free and you watched on Cosmos, you did. And what we have seen over the like sort of intervening time frame is the different differentiation between, like, the network effects you have access to by launching on top of Cosmos and the network effects you have access to by launching on top of an established smart contract platform, getting smaller and smaller. And then composability is, like, is one of those network effects. You know, can your system financially be composed with other systems? And one of the whole points of, or like, what are the views of Cosmos is that, like,

the internet was built out of asynchronous composability. Like most financial systems operate on asynchronous composability. Asyncretic composability, there's no reason why we cannot build a global financial system out of asynchronous composability. And so we are, what you are starting to see is just like more and more interesting ways of composing things using IBC. Where like transferring tokens from one blockchain to another was like, like, you know, the email, what the email was to the internet. the transferring tokens is to like inter-blockchains stuff, and we're starting to see much more sophisticated ways of composing blockchains starting to happen.

And like, Somelier is a great example of that. The Somelier chain controls and runs a set of smart contracts over on Ethereum and is able to send Ethereum transactions directly from the validator set of the Somelier chain. That's a great example of asynchronous composability in production today. the toolkit that IBC enables is just a lot more expressive.

And in terms of the primitives for building that kind of asynchronous composability, offers much, much more than pretty much all other bridges out there. So, you know, what we're in the middle of seeing right now is the development of a bunch of new IBC protocols, interchange accounts, interchain queries, the ability to read and write to other blockchains that can then be used in sort of cool and unexpected ways. And we're starting to see the first set of those applications now. Yeah, I would say that in general, it feels like Cosmos is at an inflection point. Obviously, it's been generating a lot of good buzz, a lot of activity.

Surprisingly, or maybe not surprisingly, it hasn't suffered too much from the collapse of Terra, even though, as I can mention, it was a Cosmos chain. And at the recent Cosmoverse conference, you did reveal a revamped white paper. So what was the impetus for that? What problems did Cosmos have that the community was trying to address? So we have this thing we called the Cosmos Hub white paper. So the framing for this was in 2016, we wrote a white paper. Ethan and Jay wrote a white paper about this vision of the Cosmos network.

And in that white paper, almost nothing is mentioned about the atom token, the Cosmos Hub, any of these things. Like it was like we have we we envision this network. We envision this use case. We envision proof of stake. And so we're going to like yeat into the world a prototype of all of these ideas that runs out a token called a thing called the Cosmos hub. And that is going to be the product. And you know, if and for the people who participate in the community, that was going to be like the coordination point of the Shelley point. And we finished that white paper in 2020. Like it was complete it's it's done. Like everything that was in the white paper exists in the. It exists in the. the world, we completed the work. And so one of the things, though, that has, so as the network has grown and expanded, we have about 50 IBC connected blockchains now in the network. The atom token and the Cosmos Hub has seemed directionless. There's never, there has not been a clear vision of what it was. We've started to add, conceive of features that should be added to the Cosmos Hub. So, like, there's this new concept called interchane security, which actually, uses IBC to expand the number of blockchains that a single proof of stake token can secure.

It's sort of this form of shared security that we are building for the Cosmos Hope. But there's still no vision for the Adam token. And this lack of vision, I feel like, is really holding back our ecosystem. Adam is a widely available, widely listed token. But like Tarun's joke about Adam is it's Dogecoin for academics. And I think that there is some truth. to this in its curve form. So like here we were.

We had this amazing, truly amazing community created conference. Again, Cosmoverse is not sponsored by a foundation or a dev company or anything. Like, it is primarily sponsored by the blockchains themselves. So like the Cosmos Hub community fund, the community treasury of everything. And we go to that conference and like in coordination with our. our organizers, we did present a new vision that we call the Cosmos Hub white paper or more colloquially Adam 2.0. And so, you know, but in Cosmos, no one, no individual entity has remotely the power to make such a big change to the software or into the blockchain. And, you know, Cosmos is not like

a cult of Zucky or Jack or anyone else. And so we are now in the midst of this like community driven process of evaluating that vision, discussing that vision. There's going to be a on-chain governance vote about that vision, you know, in about two weeks. But that even, you know, regardless of how that vote goes, it will, it's like, it's like we've started down a multi-year process. But if our goal was to like reinvigorate the Cosper Sub-Community, re-invigorate thinking about what Adam could be, change people's perspectives, I feel like we've already accomplished that. with the white paper and with the presentation. So I'm very happy about it.

All right. So let's unpack some of the ideas that you guys proposed in there. Let's start with the security aspect. I'm sure, you know, most people who have heard of this, the interchained security proposal. It really seems very similar to Pocod where, you know, multiple chains can share security. And I was wondering, why is it that this was the direction that you felt Cosmos Hub should go?

This is an idea that was around, even when the original Cosmos White Paper came out. When I came on in early 2018, the developers were saying, well, we shouldn't build IBC first. We should maybe build Interchain Security for the Cosmos Hub first. And this is an old idea. And it was why it was kind of the first Adam 2.0 idea to get worked on is because it had broad acceptance within the atom community as something that we should do. one of the common sort of criticisms of the app chain model is that the security is much lower because you have to each chain has to bootstrap their own validator set and they're responsible for their own economic security.

So that we should have a way to sell the security of the most secure validator set in the interchain to other chains. And when we were talking earlier about that sort of like spectrum of sovereignty, this falls somewhere in the middle. And that's a really active market right now. And there's a lot of like compelling offerings. And I think that what we built with Interchain Security V1 is definitely one of the most compelling offerings out there. And I was curious, you know, we talked about how with Ethereum, there are different smart contracts competing for block space. And so if this model goes through and you have different blockchains that are relying on Adam and the Cosmos hub for security, would that ever cause some sort of congestion on the network that would increase fees or, you know, kind of enable?

activity on one chain to affect another? So the short answer is no. So like what are the big concerns in like this sort of blockchain innovation thing? One is your blockchain halting. There's a lot of, you know, Solana gets a lot of criticism, you know, because of these downtimes that they periodically have. One of the things that like we are very proud of and like could not have been anticipated when we started is that the Cosmos Hub has actually never had an unplanned halt since

we launched in 2019. And I remember talking to our PR people when we launched and being like, they're like, what is the chances the blockchain is going to halt? And I'm like, about 50%. And they're like, that's not great. And here we are. You know, it's, you know, three years later, the blockchain has never halted. And so, but like, we kind of wanted, we wanted to find a way of extending the functionality

of the atom ecosystem without creating the competitive pressure that many blockchains face it where they're like, we have to keep addict features that constantly increases risk. The whole vision of cosmos is fault isolation. So what we did is we create, like each one of these, each one of the interchained secure chains are in most ways an independent blockchain, which means that activity on them does not affect activity on any other chain. and like, you know, we can take more risk on interchained secure chains, but we can also isolate risk. With, you know, we've been one of the things that was announced simultaneously at Converge and Cosmoverse is that USDC is coming to Cosmos as a consumer chain, which is what we call these interchained secure chains.

And a big part of that appeal to to circle and to center was, hey, we can like provide an environment. a generalized asset issue its chain that has a very low attack surface area and is like going to need to probably not going to need to be like touched or upgraded or changed in any big way on a regular basis. And so the rest of the interchained security ecosystem can constantly evolve. We can build all these new things, the scheduler, the allocator, we can take a lot more risk. And they all know that like their USDC chain is just trucking along secured by the economic value of Adam. and doing what it is that needs to do without really having, you know, with a lot of isolation from the rest of the ecosystem. Okay, so essentially block space on each of the chains does not affect

blocks space on any of the others. They're just sharing the security. Would any activity on one chain affect fees on another? No. Okay. The only way they would affect it is the fees from the consumer chains go to the staked atom holders as a way to sort of pay for that security? A big theme of Adam 2.0,

just to kind of like, like, holistically look at this, is a lot of blockchains when they build their staking token are like, where is the sustainability of the staking token going to come from? And they're like, fees are where the sustainability of the staking token

they're going to come from. And Cosmos has always basically been like, If fees are high, your blockchain has failed, right? Like fees are like, fees should never be a meaningful source of revenue. Your blockchain has failed, a fees are, like, they're there to prevent span. They're not necessarily, they're not there to generate revenue. And so a big part of like what we've tried to do with Adam 2.0 and as we get into the other parts of it, the whole point has been to design a system that is like, no, like you want to provide the most valuable service to users, which is like,

like the incremental cost should be as low as possible to just keep the systems, you know, from being overwhelmed by like spam and bots and transactions that have low economic value. But like you want to capture as much economically valuable transaction activity within your blockchain ecosystem as possible, so fees should be as low as possible. But then how do we make the thing sustainable? And this is what the puzzle that Adam 2.0 has been trying to solve. Okay. And out of curiosity, if this proposal gets adopted, What percentage of blockchains do you expect that Cosmos Hub will end up securing?

It doesn't matter what the percentage is. It matters what the economic value is. I'm sorry, it matters what the economic what is? Like what the economic value of. So a big part of the Cosmos Hub thesis is that the Cosmos Hub value of cruel thesis is that if you look at a value flow in Cosmos, someone raises money for a new blockchain or a new entity. Someone goes and wants to buy something on osmosis or another decks.

Somebody wants to open a position on D-Y-D-X. The whole point of Adam 2.0 sort of success model is, is if we can make the atom zone, the chain secured by atom, a part of as many of those sort of value flows, as possible. There's a lot of opportunity for value to then accrue to Adam. And that's sort of our goal. We're not trying to exclude any of the innovation around sovereign zones at all or impede them or compete with them. What we're trying to do is provide a set of essential building blocks that make sure that Adam is relevant to like the most important and like largest value flows in

cosmos. And this kind of gets to the underlying. philosophy of Cosmos. We built a suite of open source tools that are free for anyone to use that enable you to launch your own blockchain and allow it to communicate with a bunch of other blockchains. Every other blockchain ecosystem has tried to build in multiple value capture points in each one of those things. And our strategy has been basically open source that and then try to monetize on top of this. This is kind of a classic open source strategy. It's been tried in a number of sort of traditional fields. The one that always comes to mind for me is Kubernetes with Google, where they sort of won

the container wars by building the best one and making it free. And then they tried to build monetization on top of that with their cloud platform. And that's kind of what we're doing with Adam 2.0. We built all these free to use open source rails. There's all this activity that's being generated, but none of it is accruing to the Cosmos hub. So how do we capture value in that world? All right. So in a moment, we're going to talk a little bit more about what will happen to those funds. But first, a quick word from the sponsors who make this show possible.

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Web3 with A16Z is the podcast for you. Tune in each week for leading insights from the top scientists and makers in the space through carefully curated conversations with acclaimed podcast host Sonal Choxi, former showrunner and long-time host of the A16Z podcast, along with frequent guest appearances and hosting by Chris Dixon. Listen to Web 3 with A16Z today on Apple Podcasts, Spotify, or wherever you get your podcasts. Back to my conversation with Jack and Zucky. So under the new model that's being proposed, 75% of gas fees would go to a developer Dow. So what's your, and this I assume is for Cosmos Hub.

So what are your ideas around kind of what would happen with these fees? So let's talk about this whole. So the Cosmos Hub white paper proposes three new things that primarily don't exist in the Cosmos Hub right now. So one is the Treasury, which I believe is what you are referring to. The second piece is the The second piece is the scheduler And the third piece is the allocator So this idea of the treasury is

So if you look at the Cosmos Hub Many other blockchains in the blockchain ecosystem They have sort of large on-chain reservoirs of tokens That are designed for like funding ecosystem activity But the treasury is actually a much more developed thing than these like underdeveloped sort of just like pots of money that are floating around in the various in the various chains. So like what we imagine the Cosmos Hub will do with its treasury is we actually think that

there's a very small thing will be like funding dev work. So like, you know, you got to like, sure there has to be money for both continued contribution from the Cosmos Hub to like Tendermint, Cosmos STC, IBC, development of new consumer chains, etc. But one of the larger things is we just want the Cosmos Hub to be more like an economic actor. We want it to be like, hey, you have built this service liquid staking, a new stable coin backed by Adam, other economically useful things in the Cosmos ecosystem, a new token that is being distributed to Adam Stakers as an interchange secured zone. As people build these things, go out collectively as the Cosmos Hub and go out there and, you know, make investments, own LP shares, own assets, bootstrap liquidity. Do these things that only centralized things do now in the blockchain ecosystem, do it as a decentralized entity.

So that's a big part of the Treasury vision. And then the way in which the Treasury vision, the Treasury rather than being continuously sort of draining the value from. stakers to fund this activity. The idea is the Treasury becomes a self-sustaining thing because of two things. One is this idea of capturing MEV value, sort of maximum extractable value, block production value through the scheduler, and those funds flowing back into the Treasury. And then also, there's this idea of the allocator, which is sort of a little bit of a collective investment fund, but basically the profits from that feed back into the Treasury. And so we go through this phase this transitionary phase over the next three years, as described in the white paper.

And then what we've done is we boost-strap the treasury. And at that point, the treasury is supposed to sort of be generating ongoing, self-sustaining value for the atom community. And just one note on the sort of like investing in other chains, a really common pattern during the sort of bootstrapping of IVC is if you were launching a new token or a new zone in cosmos, you would air-drop your tokens to the atom. token distribution. That's a really heavy-handed way of sort of incentive aligning the atom community with whatever you're doing. And it's not a

really long-term way to do it because those users will often go dump those tokens. It's not really beneficial for everyone in the way that people really want it to be. What they want to do is they want the atom distribution, the atom holders themselves, to make an investment in their chain and sort of like have this sort of mutual economic benefit. And this is what the interchain allocators is designed to do. It's designed to sort of formalize these relationships between these different blockchains, on chain, and enable the Adam Stakers to participate in the long-term growth of the IBC ecosystem from an investment perspective. And this is what is called covenants in the white paper.

Yeah, exactly. So, you know, you've been mentioning the interchained scheduler, and it's, you know, essentially this cross-chain market. a place for maximum extractable value. It's basically the flashbots of cosmos as far as I can tell. And I was curious, you mentioned that that value would then go into the treasury that's being extracted as I'm sure you're aware, MEV is a little controversial because there's what some people consider toxic forms of it, like front running and then other kinds that are helpful and make things more efficient. So I was curious, like, how will the interchange schedule or handle those different types of MEV? Will it, you know, not seek to capitalize?

on what people consider toxic MEV, or will it just go ahead and extract that as well? Okay. So I'll start with a little higher idea before I answer the question, which is one of the big things that tendermint has been working on is this thing we call ABCI Plus Plus, which is these improvements to tendermint that make it easier for application-specific blockchain developers to build in MEV mitigations into their application. And I think one of the reasons why Cosmos has been so compelling, especially for DeFi builders to build on top of Cosmos, is that in other application-specific blockchain ecosystems that are out there, the answer to like, what do we do about MEV is like, no one's really ever thought about this. And like in Cosmos, it's like, we've been thinking about it for years.

We have a plan. We've built most of it. And like, this is a big part of the story. And we don't want to, even within this world where the scheduler exists, we're not taking away the capacity of an application-specific blockchain to mitigate toxic M-EV within their application. And it's like a huge reason why you build application-specific blockchains. The actual biggest source of M-EV, and like this is the, it's like, I don't know, it's like, it's the truth that people don't want to talk about is the actual biggest source of M-EV is between the exchanges and the blockchain. Like that is the actual biggest source of MEP. As far as I can tell, it's not really being extracted yet.

But like exchanges know when you go click the exit button from an exchange, like they're going to know, like, you know, they may be able to buy like what were you looking at in coin gecko, like right when you clicked exit on your exchange. Like they're going to have like a lot of insight just from like customer profiling about what financial actions are likely to come from that exit on the exchange. And they're going to like at some point exchanges are going to start front running this. And that is the source of value that, like, atom holders, I think, are, like, when we designed Adam 2.0, this is, like, what the gout, what the vision is really about is, like, if we don't have a block space futures market,

we're leaking all of that value back to the exchanges. And Adam holders have an opportunity to get a cut of it. And that might be a very, very valuable source of revenue that, like, exceeds what you could ever earn from, like, fees, for instance. No, wait, I'm sorry. So you're saying that a lot of centralized exchange. trade against their customers? This will inevitably happen. Okay, but I don't think it's...

It's not happening yet, but it will. I've been watching, but like, if you look at just like value, right? Like, we talk about like, oh, there's like the sandwiching and front running block space MEV value. That's like one thing. Then there's like the cross-chain M-EV value. That's another thing. The real giant gold mine of M-M-EV is exchanges to blockchings.

Right, but I just think a lot of exchanges don't do that for a reason. So I'm not sure what would cause them to suddenly change course. I mean, what happened in traditional finance? Like, the same thing happened in traditional finance. In fact, eventually they sold that order flow for like all retail users got sold to market makers in exchange for zero fee transactions on exchanges. And like it all rhymes. Not like payment for order flow?

Yeah. Like there's no difference between. like Robin Hood selling your order flow to Citadel and the world in which blockchains are like, oh, like we're going to like sell user data to market makers about like when they're exiting the chain, like about user exits and like what other user behavior like categorical user behavior can be sent and send it to an exchange for giving like people zero fee trading on exchanges. Yeah. Okay. I take your point. You're right that it is a possibility. One other thing I wanted to ask about this was, you know, FlashBods is having this auction.

It's on Ethereum, where, as we discussed, it's a very different model. And I was curious how efficient you thought a Blockspace auction could be across app chains as, you know, it would need to be on Cosmos. So the Blockspace Futures Market, like, basically what this is is an auction for Blockspace across many different chains that are all connected to the Cosmos Hub. and that auction happens via IBC. This kind of fundamentally gets down to the latency in IBC, and it requires one message on the sending chain, and then another message on the sending chain, on the receiving chain.

So it's sort of the sum of the block times of the different chains. Right now, the Cosmos Hub has like six second blocks. Yvesmos is running with two-second blocks, and there's kind of nothing really preventing all the Cosmos chains from doing that. Say Network has done a lot of research into latency within 10, tendermint and their sort of beta net is running with, I think, 250 millisecond or 600 millisecond blocks. So definitely sub-second blocks. But if you've got, let's say, one-second blocks, then your sort of IBC transaction time is two seconds.

That's sort of a very long time when we look at things like traditional ad markets with these huge sort of multivariate auctions that happen. We can absolutely provide good latency for this. And one of the other use cases for this sort of cross-chain MEV, which is definitely what the schedulers designed to capture, is the Cosmos Hub will be selling block space on many, many different app chains simultaneously. And if you want something to happen over here, at the same time it happens over there, this is going to be pretty much the only way to negotiate that with any sort of guarantees. And there's a lot of opportunity in that space as well. All right. So now let's time a little bit more into the crypto economics of Adam 2.0. Why don't you just describe what it is that was proposed here in terms of the changes to issuance and etc.

Okay. So first statement about issuance is there's a proposal about changes to issuance. Whether or not this proposal is going to be the proposal that's actually implemented is the community process. And I don't really just like saying this. I mean like every blockchain founder is like, it's not me. It's the community. Like literally, I need, no one has this power to like actually change anything like this. And like it'll, it just, it's going to be like a, it's going to be a public political process that's been playing out on Twitter and the Cosmos Forum.

There's probably never been so many posts on the Cosmos Forum as there ever been. Like this is, again, like a community process. But the current dynamics of Adam are this like exponential infinite inflation, which is basically transferring values from non-steaker. to stakers. So people who have atoms out in defy using atoms in the IBC economy are constantly transferring value back to the staking atom holders. At this point, like the issuance rate for atoms is 9% approximately. And it's dynamic based on how many people are staking in this model. And then the, but this is about like a 20% yields or you're like 2xing essentially how much value is like almost 2xing how much value is flowing from stakers, from non-stakers to stakers.

And basically what we propose in the Cosmos Hub white paper is that this is an unsustainable model. It's harmful to the ecosystem because it makes atoms a bad asset to use in IBCDFI because of this like continuous value extraction for people who are out there using it. And we want to like profoundly change this model. And so basically the idea is first. we create a bunch of new atoms that go into the treasury. There's a whole, we can get into it.

But we create a bunch of new atoms. They flow into the treasury. They don't go to any users. They're sexually collectively owned by the Cosmos Hub mechanism. No one, the ICF, Jack, Kentucky, no one's control of these atoms. Still the property of the Cosmos Hub. But then after three years, we very rapidly decrease the amount of inflation. And we end up with an issuance rate that is about one.

percent and is steady state, not exponential, not adaptive. And we basically say, you know, the mature stable state. So now Adam goes from this asset with a very unpredictable future supply that is going to something that it becomes very predictable, very regular. And the big idea of this like massive mint into the treasury is we actually think that like the best possible mean from Adam is how credible that like total number of atoms that out there in the universe is. And if we think if we were like, we sort of overshoot

and maybe like two or three X, like what we actually think it will take to set up the economic flywheel, we end up with a lot of credibility to the market that like there won't actually ever need to be another big issuance like this ever again. Okay. So essentially like right now it's sort of this focus on,

it's sort of almost in a way like a vexious. model where you're just giving it some capital in the beginning to help it grow to a certain point. And then once you reach that threshold, then you reach the study state that you mentioned. Is that the idea? Okay. I just wanted to take a brief digression. At the beginning of that, Zach, he was talking a little bit about cosmos governance and how no one has control. I think that this is really one of the defining features of cosmos. For a large number of historical reasons, no one, there is no one entity in control of the project. Various folks at different times have tried to sort of exert control over the project,

and that has not worked out well. And if you go look on MNScan and look at the recent governance proposals on the major chains, we're seeing around 50 to 60,000 individuals voting and around 60 to 80 percent of stake voting on each of these governance proposals. We have an extremely active governance community that helps make changes to these chains and sort of provide checks and balances to the various folks. If you remember, and I know you do, Laura, back in the sort of 2015 era with the Segwit changes on Bitcoin, people wanted to increase the block space. And one of the proposed mechanisms to help sort of resolve disputes like this was on-chain governance. You would vote

directly on chain to sort of do this. And Cosmos is a bunch of bitcoinsers. So, of course, we went and implemented that. And it is one of the things that makes Cosmos unique is this on-chain governance that does truly decentralized control of these systems. And when developers like me and Zucky or the ICF want to go make changes, we have to go to the community and convince them that those changes are a good idea or else they vote them down, like what happened with Prop 69 on the Cosmos Hub.

There was a lot of folks who wanted to put Cosm Wasam, which is a virtual machine onto the Cosmos Hub. That would allow us to deploy code in a different way, basically. But a lot of people opposed that, and that got voted down, and we don't have Cosm Wasam on the hub. So I think that that is, and you can go and look many governance proposals. I think you did some reporting on the Juno Whale issue, and that is one of the things that sort of makes Cosmos unique. And out of curiosity, I'm assuming that with those coins will not be used in any governance voting, right? Correct. Okay.

That would be insane. Basically. So then I wanted to ask also about liquid staking, which you guys will be introducing. Talk a little bit about what benefits you expect that will bring to cosmos, what problems it solves. So, like, myself and the occlusion teams, like me, Christy, Tony, and, Chella have all been working on this project, which is a change to the Cosmos default staking module. So again, like Cosmos SDK comes with an implementation of proof stake. One of the things that, you know, we've long believed is that you cannot stop liquid staking.

Liquid staking is just part of staking. You could fight it or you can embrace it, but you cannot stop it. And so we've seen like a number of liquid staking projects emerge in the Cosmos ecosystem. And the, you know, Stride, Quicksilver, Lido is coming to the Cosmos ecosystem. There are persistence, many more. And so we have this very robust marketplace of different liquid staking providers. But one of the things that's really annoying about them all is that you have to wait 21 days to move your atoms from like the old legacy staking to the new liquid staking system. And this change that we are putting into the cosmos staking module that the occlusion team has built is a base.

basically gets rid of that 21 days specifically for this use case that allows you to, like, move to liquid staking without having wait this 21 days. And so we think that will accelerate the adoption of liquid staking across the ecosystem. And our dream is kind of to kind of move to this world of 100% atoms state. Essentially that like these liquid staked atoms become like the currency of account in the atom economy that like all essentially all atoms are staked. And like that is the prime and like so you know we again we view it as like taking a couple of a few years for doing this and the and this is really why it allowed and like this vision allows us to get to the point where like to make that like very low new issuance that we're trying to go to sustainable because the

issuance needed to be adaptive in the past because you could own your atoms could be either on securing the cosmos hub or in an osmosis liquidity pool they could either be like securing the Cosmosib or like collateralizing a stable coin. Liquid staking allows you to do both. And then by actually gradually reducing the issuance, we're actually basically incentivizing or incentivizing a world in which the most atom holders in order to earn yield, actually have to go out into the economy and actually use all the stuff. Yeah. And then ultimately the value of atom would rise because there would be so much more stake. The theory is, is that, you know, you take this thing that is like the doge coin for academics,

and you turn it into like a valuable thing that is doing something really special in the ever-growing Cosmos ecosystem. Okay. Let's also now talk about USDC coming to Cosmos. You alluded to this earlier, which I didn't fully understand, because I was going to ask you that, you know, I thought that USC probably had to pick a chain to launch on, and I was wondering what chain that would be.

But then you said something earlier about how it's going to launch in a consumer chain. So talk a little bit about that. What does that mean? Yeah. So there's going to be a specialized consumer chain that focuses on asset issuance and USDA will issue directly on that chain.

This gives the benefit of not having congestion with any other chains and gives USDA a lot of control over the environment. And, you know, in order to come comply with regulations. USDC does need to have quite a bit of control over that, and this sort of fits the bill for them entering the interchained. Okay. What have I not asked you about that? Are other things either on Cosmos' roadmap or other things that you think unchained listeners should know?

I would like to sort of just like return to the theme of, so like, why Cosmos, why now, is I think probably the overarching team. Like, why are you doing an episode about Cosmos right now? And it's, you know, when we scheduled this, you didn't know anything about Adam 2.0. You know, we did a little bit of showmanship for once. And we are and like actually like, you know, had a surprise announcement. And so that's definitely not why we're here. We're here because it's after like a lot of time of building, the market has sort of come

around to a lot of the ideas that we have been on since 2016. You need a very complete set of services in order to build, like, great products in blockchain. You need a very discrete set of capabilities. And right now, as, as developers have kind of looking at the aftermath of, you know, the last bull run and saying, how do we start building for the next one, a lot of them are saying, hey, we see, we finally see, like, watch. you need a cosmos, why this set of tools are actually the most complete ecosystem for building

the next generation set of apps. And, you know, just to sort of tag on to that and to return to a theme that we talked a little bit about earlier, asynchronous composability. Composability is key in all sorts of applications. And the biggest knock against this multi-chain world for a long time is that composability goes away. It doesn't. It just changes. And it changes into it. a new programming model. And I think that this is where IBC is just incredibly key and this huge technological innovation that the cosmos ecosystem is responsible for. It allows chains with different consensus, you know, even sort of centralized databases to all share a messaging protocol and to

build the primitives for composability between different kinds of applications. And that is, you know, all the stuff that Zucky is talking about with the sort of App Chain Vision is true. But I think that the sort of unsung hero of that and the least understood part of it is IBC and what that enables. And I think that that's going to be a huge part of the next couple of years. All right. Yeah, I'm looking forward to see where the story goes. It's kind of interesting because I think the very first time I had Cosmos on Unchained was, I guess it must have been very early 2017, like February or something. Wow.

I mean, I had osmosis on recently, which also addressed Cosmosis, but it's just interesting to sort of see the trajectory of Cosmos over this time. All right. To wrap up the show, we're introducing a new feature on Unchained, which is to ask each guest for a single book recommendation. So what one book would you recommend to Unchained listeners? Okay. The book that popped into my head was one of my favorite books about finance, which is Fisher Black and the revolutionary idea of finance. It's like a 20-year-old book, but I love it. Huh. Okay. And who's the author? I'd have to look it up. Oh, okay. Fisher Black and something revolutionary of finance finance?

Revolutionary idea of finance. Revolutionary of finance. Okay. Cool. Jack. God, a bunch of things jump to mind. But one of the books that I always recommend when people are getting into blockchains is debt, the first 5,000 years by David Graber. Probably not the most unique response, but definitely a book that I love and keep recommending. Okay, great. Yeah, it's on my list. I think I started it and then didn't finish. So I will try to get to that.

All right. Well, where can people learn more about each of you and your work? The best place is to follow me on Twitter.com slash Z-M-A-N-I-A-N. Also on Twitter for me, I'm at Jack Zamplen, all one word on Twitter. Perfect. All right. Well, it's been a pleasure having you both on Unchained.

Laura, thank you so much. Thank you so much, Laura. Thanks so much for joining us today. To learn more about Cosmos, Jack, and Zucky, check out the show notes for this episode. Unchained is produced by me, Laura Shin, with help from Anthony Yun, Matt Pillars. altered, Juan Urvanovich, Pamajimdar, Shashok, and CLK transcription. Thanks for listening.