Synthetix: A New Hope with Kain Warwick

In today’s episode, we’re exploring the frontier of the multi-chain Ethereum roadmap. Synthetix has been leading this charge as it pertains to the application layer of Ethereum. David is joined by Synthetix’s Founder, Kain Warwick in person in David’s Brooklyn studio. “Synthetix, A New Hope,” is a recent blog post Kain wrote and is a main focus for today’s episode. ----- Check your wallet with our brand new tool: Claimables 🎁 https://bankless.cc/GetClaimables ------ 📣 LayerZero | Accelerating Web3 Interoperability via GoogleCloud https://bankless.cc/layer-zero ------ BANKLESS SPONSOR TOOLS: 🐙KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE ⁠https://k.xyz/bankless-pod-q2 https://feeds.flightcast.com/%E2%81%A0https:/k.xyz/bankless-pod-q2 ⁠ 🦊METAMASK PORTFOLIO | MANAGE YOUR WEB3 EVERYTHING ⁠https://bankless.cc/MetaMask https://feeds.flightcast.com/%E2%81%A0https:/bankless.cc/MetaMask ⚖️ ARBITRUM | SCALING ETHEREUM ⁠https://bankless.cc/Arbitrum https://feeds.flightcast.com/%E2%81%A0https:/bankless.cc/Arbitrum ⁠ 🛞MANTLE | MODULAR LAYER 2 NETWORK https://bankless.cc/Mantle ⁠ 🦄UNISWAP | ON-CHAIN MARKETPLACE ⁠https://bankless.cc/uniswap 🔗 CELO | CEL2 COMING SOON https://bankless.cc/Celo ------ TIMESTAMPS 0:00 Intro 7:08 Synthetix Networks 8:50 Growth Complexity 9:50 Phases of Complexity of Apps 14:00 Elaborating the Problem Layers 15:25 Paramartizing Risk 19:00 Defining the Problem(s) 21:00 Likelihood of Solution(s) 24:05 3 Paths of Fragmented Liquitidy 31:40 Chainlink’s CCIP 32:50 Optimism 36:00 MakerDAO 36:55 dYdX Model 44:25 Free Market Model 47:00 Other Solution Tools 55:15 Cross-Chain Shared Execution 57:50 Kain & Synthetix Main Focuses 59:00 Timeline 59:50 Other Components of Synthetix 1:02:25 Kain’s Thoughts on Regulation 1:08:13 Final Messages 1:09:15 Closing & Disclaimers ----- RESOURCES Kain Warwick https://twitter.com/kaiynne Synthetix, A New Hope https://mirror.xyz/kain.eth/tAXGVKMTYM8K2gUOQq9JDQ1wyV_5Msdlrn_AtmiCGEI ----- Not financial or tax advice. See our investment disclosures here: https://www.bankless.com/disclosures

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:04David Hoffman?

  Welcome to Bankless, where we explore the frontier of internet money and internet finance. And today on Bankless, we are exploring the frontier of the multi-chain Ethereum roadmap. The rollup-centric roadmap has always been about producing many, many new Layer 2s, each of their own flavor, construction, and type, in pursuit of allowing diversity of chains to all exist under the same ecosystem that we call Ethereum. Synthetics, an application, has been leading the charge into exploring what does this mean for the application layer of Ethereum? And today on the show, we're bringing in Kane Warwick, actually, inside of my apartment. This is an in-person conversation. So you'll be able to pick up on the speed and lack of latency there is between me and Kane, I would say.

• 0:46David Hoffman?

  He was in New York for MainNet, and so we wanted to do a show about his recent blog post that he wrote called "Synthetics: A New Hope", about the next stage for synthetics in this multi-layer-two ecosystem, and how he is thinking about some of the complexities and challenges that the Ethereum rollup-centric roadmap presents for the application. Like I said, since he was in town for MainNet, I was like, Kane, just come on over, and we'll do the conversation in person. So that was pretty fun. It's always nice to have in-person conversations. I don't do them as much, even though I have the setup ready to go. Anytime there is a conference in New York, however, I will try and get one done. So in this episode, you're going to watch us navigate the complexities, the challenges of Ethereum's rollup-centric roadmap

• 1:27David Hoffman?

  as it relates to applications that desire to exist across multiple Layer 2s, across multiple chains. Depending on the Layer 2 application, the application construction itself, different challenges can arise in various levels of complexity. Kane and I walk through the three different levels of cross-chain complexity that an application can have, that is determined by what that application is trying to do. For example, just mere independent instances, like Uniswap deployments across chains, is the easiest way to navigate the multi-chain world. It doesn't really matter if different Uniswap instances are deployed across chain. But as soon as there's unified governance, all of a sudden, there is complexity, because we need to start to weave these chains together. And then there's the next phase, the synthetics phase,

• 2:12David Hoffman?

  which is not just unified governance, but unified liquidity and unified state.

• 2:18David Hoffman?

  Synthetix has always been at the frontier of navigating the hard problems in Ethereum. After Uni Pig, the Uniswap demo on Optimism's optimistic rollup, the first optimistic rollup that had a live in-production demo of an application, we called it Uni Pig back then, Synthetix was the number two. And so they have always been pushing the frontier of what is possible in the world of crypto. And now Kane is leading the charge into doing the same thing once again with Synthetix and the multi-chain ecosystem. So if you are curious about the super-chain idea for optimism, or just simply the shared state of Layer 2s, recomposing all the fractured composability of Layer 2s, this conversation is for you. And it's also just a fun conversation. Kane is a great conversationalist and he's, of course, wicked smart.

• 3:01David Hoffman?

  So let's go ahead and get right into that conversation with Kane Warwick of Synthetix. But first, a moment to talk about some of these fantastic sponsors that make this show possible, especially Kraken, our preferred exchange for crypto in 2023. If you do not have an account with Kraken, consider clicking the link in the show notes to sign up with Kraken today. Kraken Pro has easily become the best crypto trading platform in the industry, the place I use to check the charts and the crypto prices, even when I'm not looking to place a trade. On Kraken Pro, you'll have access to advanced charting tools, real-time market data, and lightning-fast trade execution, all inside their spiffy new modular interface. Kraken's new customizable modular layout lets you tailor your trading experience to suit your needs. Pick and choose your favorite modules and place them anywhere you want in your screen. With Kraken Pro, you have that power. Whether you are a seasoned pro or just starting out, join thousands of traders who trust

• 3:46David Hoffman?

  Kraken Pro for their crypto trading needs. Visit pro.kraken.com to get started today. Mantle, formerly known as BitDow, is the first DAO-led Web3 ecosystem, all built on top of Mantle's first core product, the Mantle Network, a brand-new, high-performance Ethereum Layer 2 built using the OP stack, but uses EigenLayer's data availability solution instead of the expensive Ethereum Layer 1. Not only does this reduce Mantle Network's gas fees by 80%, but it also reduces gas fee volatility, providing a more stable foundation for Mantle's applications. The Mantle Treasury is one of the biggest DAO-owned treasuries, which is seeding an ecosystem of projects from all around the Web3 space for Mantle. Mantle already has sub-communities from around Web3 on-boarded, like

• 4:27David Hoffman?

  Game seven for Web3 Gaming and Bybit for TVL and Liquidity and OnRamp. So if you want to build on the Mantle network, Mantle is offering a grants program that provides milestone-based funding to promising projects that help expand, secure, and decentralize Mantle. If you want to get started working with the first DAO-led Layer 2 ecosystem, check out Mantle at mantle.xyz and follow them on Twitter at @zeroxmantle. Arbitrum is accelerating the Web3 landscape with a suite of secure Ethereum scaling solutions. Hundreds of projects have already deployed on Arbitrum 1 with flourishing DeFi and NFT ecosystems. Arbitrum Nova is quickly becoming a Web3 gaming hub, and social dApps like Reddit are also calling Arbitrum home. And now Arbitrum Orbit allows you to use Arbitrum's secure scaling technology

• 5:10David Hoffman?

  to build your own Layer 3, giving you access to interoperable, customizable permissions with dedicated throughput. Whether you are a developer, enterprise, or a user, Arbitrum Orbit lets you take your project to new heights. All of these technologies leverage the security and decentralization of Ethereum and provide a builder experience that's intuitive, familiar, and fully EVM-compatible. Faster transaction speeds and significantly lower gas fees. So visit arbitrum.io, where you can join the community, dive into the developer docs, bridge your assets, and start building your first app with Arbitrum. Experience Web3 development the way it was always meant to be: secure, fast, cheap, and friction-free. Thanks, this nation. We are here in person in my apartment here in Brooklyn with Kane Warwick, the co-founder of Infinix,

• 5:53David Hoffman?

  semi-benevolent dictator of Synthetix, house collector, and possibly, possibly, the best hair in Ethereum. Kane, welcome to my apartment.

• 6:02Speaker 01

  Yeah, thanks for having me. I was hanging out downstairs for a little while. I couldn't figure out what channel to get you on, so.

• 6:07David Hoffman?

  Yeah, just like the problem that we're going to discuss in this episode, how do you reach me? Telegram, Discord, email, Twitter, text?

• 6:15Speaker 01

  We need some kind of aggregator.

• 6:17David Hoffman?

  Yeah, we need one single, shared way of getting in contact with each other. You're in town in New York here for MainNet. How's that been going?

• 6:24Speaker 01

  Yeah, it's been good. Yeah. So MainNet and ETH New York/Pragma, I guess, you know, the Ethereum Hackathon/Conference. So yeah, it's been, it's been pretty good. Vibes are pretty good.

• 6:36David Hoffman?

  Lovely, lovely. And do you go in and out of Australia or do you do a circuit before you go back home?

• 6:42Speaker 01

  This time I did because I went from token 2049, landed in Sydney and then 24 hours later, hop back on a plane to come over here. I had to pick up my kids on the way through, so I couldn't go directly from Singapore to New York unfortunately.

• 6:57David Hoffman?

  Oh man, the life of juggling being a dad and going to conferences and also being an app founder, I cannot imagine.

• 7:03Speaker 01

  Yeah, it's pretty hectic. But yeah, my kids are pretty good travelers now, so.

• 7:08David Hoffman?

  Okay, so as I alluded to, there is a problem arising in the world of Ethereum. The rollup-centric roadmap, as great as it is for producing natural emergent solutions across the different modules that make up a chain, it also fragments composability. And this is like kind of how I alluded to with like, how do you reach me with all the different apps that we use? The illusion here is that there's so many different networks. How many networks currently is Synthetix deployed on?

• 7:34Speaker 01

  Really two, mainnet and optimism are the only two.

• 7:37David Hoffman?

  Okay, and why not more?

• 7:40Speaker 01

  Good question. I think, you know, we obviously were the first project to deploy to optimism. We worked really closely with the team. You know, I did try to warn people about this and say like, "Hey guys, why don't we coordinate around optimism rather than having, you know, 100 rollups?" But that ship has sailed now, I think. So, you know, we are in an environment where we're seeing, you know, even L1s convert into L2s, which I think is great, right? I think people, you know, who previously thought it was a good idea to launch an L1, realizing that, you know, being sort of connected to the Ethereum ecosystem is a more viable pathway, that's amazing. So, you know, in the end of the day, I think we'll kind of accept that that's just the direction that things are going. But for us, the challenge has been

• 8:25Speaker 01

  cross-chain communication. So with Synthetix, because we're a liquidity protocol, we need to be able to ensure that on whichever network a user is interacting, that information about those interactions are passing through to the other networks. And that just creates, you know, cross-chain communication demands that are much higher than like bridging a token, for example, where it's sort of a one-shot thing and then the token's on the other network and you can kind of let it do what it needs to do over there.

• 8:51David Hoffman?

  I would imagine with the demands that Synthetix has, the growing number of chains produces probably like an exponential growing amount of complexity for managing those chains.

• 9:02Speaker 01

  Yeah, if you do it the right way, right? So, you know, there's like, unfortunately, we're not Uniswap, right? Where Uniswap can just deploy their immutable code onto a new network. There isn't even the complexity of like moving fees around, right? Fees sit on that network, they go to LPs. You know, you flick a fee switch on and all of a sudden the complexity goes up significantly, right? Because now it's like, okay, well, where do the fees go?

• 9:25David Hoffman?

  Right.

• 9:25Speaker 01

  You need token holders on that network, you need token holders on mainnet, you need token holders anywhere. Do we burn the fees? Do we transfer them? Do we convert them? What about if it's on Avalanche? How do you deal with that? You know, so as soon as you start to have any contemplation of like cross-chain communication, the complexity grows significantly. So if you can just deploy your code and let it sit there and interact only on that one network, it's much easier. Unfortunately, for Synthetix, it's just not possible.

• 9:51David Hoffman?

  Right, and so what you're starting to allude to is that there are different types of apps out there that have different cross-chain needs.

• 9:58Speaker 01

  Yes.

• 9:58David Hoffman?

  Maybe there's a few categories of this in your blog post, which is going to be the basis of this conversation. You kind of start to progress through the different kinds of apps that have different levels of demands for complexity when it comes to cross-chain. And I think Synthetix would be at like the highest order of a cross-chain, a many multi-layered world is the most complex for Synthetix than it would be for like Uniswap. Uniswap is deployed on like 13 different chains, and that's just a property of the nature of what Uniswap is. Like you alluded to, there's this one thing called the fee switch, that if we turn that on, all of a sudden Uniswap goes from like, well, it's pretty simple to deploy Uniswap across chain to like, okay, now we are elevating in complexity. Could you kind of walk us through the phases of complexity that an app, the properties of an app might be?

• 10:43David Hoffman?

  Like what properties are simple to deploy across any chain? Like the roll-up centric roadmap of Ethereum, 10,000 roll-ups? That doesn't matter for some apps. What kind of categories of apps are those? And then what things make things more complex?

• 10:55Speaker 01

  Yeah, so I think on the spectrum, you know, the simplest thing is a Uniswap-style deployment. It's a Immutable code, so you don't need to govern it, you don't need to upgrade it, you just deploy the code and it sits there. There's no need for fees or anything like that to go outside of the protocol. So there's sort of, you know, endogenous to the protocol, LPs, you know, put liquidity in and LPs earn the fees. That's it. And so each instance is really distinct. As soon as you start adding things like governance, right? If there's any upgradability, then it's a question of where does the governance come from? Is it governance is just on that network or is it governance that is anywhere? Because you know, most of the time the governance comes from token holders and token holders are spread across all these different rollups.

• 11:39Speaker 01

  So it's like, well, how do we coordinate the governance? You know, do we want someone who is holding AVE on main net to be governing the deployment on Arbitrum?

• 11:50David Hoffman?

  Right.

• 11:50Speaker 01

  Does that even make sense, right? Like, are they the same kind of stakeholder, right? Or is it only the AVE token holders who are kind of staked in the mod, in the security module or whatever? On Arbitrum should govern the Arbitrum deployment.

• 12:02David Hoffman?

  Right.

• 12:03Speaker 01

  And then there's another, you know, area of complexity, which is fee sharing. So, okay, if there's fees that are being earned on one network, who do they go to? They go to all token holders, do they go to, you know, just token holders on that network? How do we distribute them? Are they paid out as a dividend? Do we do buybacks and burns, et cetera? And, you know, there's solutions to all of these things, but they all add complexity. And, you know, like the governance side of things, I think adds the most complexity, right? Then there's some other stuff like bridging. Do you want all your tokens on all of these different networks to be fungible? So, you know, I gave an example a long time ago, you know, even before this was a real thing of Maker, right?

• 12:44Speaker 01

  So if you have DAI on one network that is mainly backed by USDC, let's say, right? And then you have a different instance of Maker that's deployed on, let's say Arbitrum, right? And maybe the majority of the issuance of DAI is backed by arb, the arb token. Now that's crazy and that's not, that's not the case, right? But like in a future state, maybe that might be the case, right? And so you look at those two things and you say, okay, you know, We've got one network where it's all backed by USDC, another network where it's backed by like treasuries. And then a third network where it's backed by, you know, an illiquid shitcoin, right? You know, let's use SNX, right, as the example, rather than arb, right? I don't want to trigger, you know, arb maxis, right? So, you know, we've got a synthetics app chain where you've got dye that's being backed by SNX, right?

• 13:30Speaker 01

  And, you know, it's illiquid or whatever. Is that dye that's being issued against those, you know, collateralized positions fungible? Do you want it to be fungible? You know, does it even make, is it, you know, on some fundamental level, is it fungible? And if it is, how do you then enforce that fungibility, right? So you need bridges, you need cross-chain communication, you need to know if the dye is moved onto a different network and it needs to be liquidated, how does that liquidation happen? And so all of that stuff just adds complexity.

• 14:02David Hoffman?

  Is this both, if I'm understanding this correctly, is this both like a kind of a more higher level philosophical question of, is, is the dye fungible from like the social layer? Do we perceive these things to be equivalent? And then the other problem is like, okay, maybe even if we do get to that point where yes, everyone agrees that these things, the risks of one implementation of dye on one chain, we do agree that that should be equivalent with the risks of a different dye implementation on a different chain. If we can cross that barrier, there's still the technical barrier of getting it to be fungible at the technical level, like the contract address and equivalency. So like, there's two problems here.

• 14:40Speaker 01

  I think there's kind of three. There is the social problem, which is, you know, if I'm using dye, what is the perception of a user of dye? Do they expect fungibility? Like, what is my expectation as a user of dye? Then there's like the financial layer of, okay, if my expectation is they're fungible, are they really financially fungible assets, right? Like, you know, if one's backed by nonsense and the other one's backed by ETH. Is that even the same, right? And how do we reconcile that? Is there a way that we can set up the financial incentives such that, you know, one has a really low LTV and one has a high LTV? And the liquidation means that actually they're both as safe, they've just got different parameterization. And then assuming we get to that point, then the next thing is like, how do we even do that?

• 15:21David Hoffman?

  Right.

• 15:22Speaker 01

  What's the mechanism? What's the technical mechanism by which we implement that?

• 15:25David Hoffman?

  Really, just to drive this one point home, the way that you described this in your article is like, Alice has trust preferences that maybe Alice is very conservative. And so she only wants to use, you know, a very low LTV inside of Synthetix on mainnet with very good, strong collateral, because these are her trust preferences. Maybe a more adventurous Bob is out on some OP stack fork that just got deployed. And if there's a Synthetix instance on that network that for some reason allows for, you know, shitcoin collateral to back SUSD, that's great if these instances are firewalled, kind of like how Uniswap deployments would be. Then like Alice's preferences don't get commingled with Bob's preferences.

• 16:09David Hoffman?

  You know, conservative Alice is safe from Dgen Bob. And so long as there's actually like separation of instances. Why I think the articulation of Synthetix is such an ambitious project about shared composability is that the unified version of Synthetix would mean that Alice's preferences and Bob's preferences are actually commingled, and those conflict. And so that's where we get into like, okay, so is SUSD on, you know, OP stack shit OP stack fork with shit OP, with shit collateral, sorry for the language. Just like, you know, all the risk, all the risk on one.

• 16:44Speaker 01

  Maximize risk.

• 16:44David Hoffman?

  Maximize risk and then maximize conservatism. Do, how do we even square these things?

• 16:50Speaker 01

  Yeah. And is there, you know, this is the financial layer, right? Like, is there a way that you can parameterize this to allow both of these people to, you know, interact with one another and feel comfortable?

• 17:02David Hoffman?

  Right.

• 17:03Speaker 01

  And or if not, is there a way for you to sort of quarterize the risk and segment and silo the risk? So that, you know, the user gets fungibility, but on the LP side, LPs are protected from one another, right? And you know, you don't have this like cascading failure or you know, or whatever. And so, you know, these are hard problems, right? But then it begs the question of, even if you can get to that point, the technical implementation, there is no way to implement this. And this is where Synthetix unfortunately has a bad habit of being like on the bleeding edge. Like the vision is-

• 17:35David Hoffman?

  Very bad habit.

• 17:36Speaker 01

  Yeah, very bad habit. Like, you know, it's like this kind of very aspirational vision of like, what if we could do this? You know, what if this is the future state? And the reality is that the tech is just not there yet, right? Maybe this is solved with like, you know, at some point, like an op code, you know, like level of solution, right? Where like, we actually realize that cross-chain communication is necessary. And you know, we have this reliance on like Ethereum as a, you know, a state layer, you know, where we're, you know, storing state there. And somehow we have a way of communicating that back out or something. You know, maybe there's like a more, a more long-term solution. In the interim, we've got, you know, a bunch of solutions which are fairly novel.

• 18:20Speaker 01

  And none of them are really yet in a position to be able to actually do this. And, you know, like anything, we do it and then we go, oh wow, this doesn't scale.

• 18:28David Hoffman?

  Right.

• 18:29Speaker 01

  Right? Like, or here's a solution that like handles the problem today, right? Ethereum mainnet, you know, back in 2018, totally fine, enough bandwidth, right? Like just barely enough bandwidth, right?

• 18:38David Hoffman?

  Back in the days of one gray gas.

• 18:40Speaker 01

  Exactly. And then like 20 minutes later, it's March 2020. And you're like, oh wow, this does not work at all. Like it just is not possible for this to function, right? And so even if we have cross-chain communication and we've got these kind of rudimentary solutions or whatever, do they scale to something, you know, that is, you know, across 100 chains? Like at the moment, no. Can they get there? It's a technical problem to solve.

• 19:03David Hoffman?

  Right. And just to, again, really just hammer on the definition of the problem statement. The many, many app ecosystem, if you have Uniswap without governance, just raw instances of Uniswap deployed everywhere, that's like problem level one. Not too, not too much of a problem. Problem two is when, okay, we have central Uniswap governance and- Central Uniswap deployments. How does that, how do we cohere? How does this one app cohere into this one unified system? When we're across, when Uniswap itself is across many different states? That's like, you know, not a crazy problem, but still a hard problem. It's still like some things, some things to suss out. And then the final problem is like what Synthetix wants to do, which is shared liquidity. Shared liquidity across states and liquidity is finite.

• 19:47David Hoffman?

  If you have many chains, we're starting to fracture liquidity. And so the golden solution here is that when you add liquidity to one network, one implementation, you are also increasing the liquidity on a different network. And that's like the hardest level.

• 19:59Speaker 01

  It can flow through.

• 20:00David Hoffman?

  Yeah.

• 20:00Speaker 01

  Right. It's the hardest level problem that we've thought of to date.

• 20:04David Hoffman?

  So far.

• 20:04Speaker 01

  And this is, you know, like, like it would not surprise me at all if Synthetix or other protocols eventually come up with even harder problems.

• 20:12David Hoffman?

  Right.

• 20:12Speaker 01

  That are, you know, harder problems that have to do with cross-chain communication. There's some, you know, demand or some functionality that requires something. But at the moment, that's kind of the, you know, the most challenging thing is like to treat these distinct networks as one network requires a level of cross-chain communication that we just can't quite support yet.

• 20:30David Hoffman?

  Right, yeah. And of course, just to throw a bone to the Solana camp out there. This is why they are like layer one, one chain maximalist.

• 20:37Speaker 01

  Yes.

• 20:37David Hoffman?

  Like they, they get to be the composable chain because they only want to have one monolithic chain.

• 20:42Speaker 01

  Yep.

• 20:42David Hoffman?

  So they're listening to this and be like, yeah, that's, that's why I Solana.

• 20:44Speaker 01

  Yeah, don't like, don't fragment your liquidity, idiots.

• 20:47David Hoffman?

  Right, of course.

• 20:47Speaker 01

  Yeah. And, and you know, there's something to be said for that, right? But you know, the, this definitely a counter argument of like, okay, fine. But at some point, you know, the L1 monolithic thing breaks, right? And then.

• 21:00David Hoffman?

  They just kicked the can down the road.

• 21:01Speaker 01

  Yeah.

• 21:01David Hoffman?

  They'll get there too.

• 21:02Speaker 01

  Great, like you've got 10x more growth, right? But you know, eventually you're going to be like, oh, this doesn't really work.

• 21:07David Hoffman?

  Okay. Without asking about the technical details, what's the vibe check on this problem becoming solved in the fullness of time?

• 21:18Speaker 01

  It's a really good question and you know, there's some ways to route around it, right? And we've at the moment got these conflicting drives within the Synthetix community, right? One drive is maintain SNX as the primary collateral in the protocol, right? Maintain the value prop of the SNX token as effectively as possible, right? Like do not devalue the token in any way, right? And then the kind of counter to that is, okay, what if we don't need to fragment the liquidity as much by going and finding a more liquid,

• 22:03Speaker 01

  more prevalent collateral like ETH, right? And the assumption is that like, there's going to be a lot more ETH collateral available and ETH liquidity available on all of these networks than you could ever really have, you know, in SNX, right? You know, the market caps are, I think, you know, at the moment, a couple of orders of magnitude different, right? So there's a lot more liquidity out there, so use a more liquid thing and then use SNX for something different, right? And these are just conflicting goals, you know, because if we use ETH, then it becomes much easier. Right. Then you're actually back to more like the Uniswap style thing, right? Uniswap plus fee switch. Right. Right? Where it's like, you've got these distinct things, you use collateral on that network, you don't need to spread your collateral out, you don't need to, you know, communicate

• 22:45Speaker 01

  between them, you can maintain fungibility because they are fundamentally all the same instance, so you can bridge tokens back and forth and, you know, they're fungible because they're all backed by ETH, right? They all earn fees and, you know, the fees are paid in the stablecoin and then you just figure out a way to distribute those fees across the different networks and there's a whole bunch of solutions. Right. You know, I've been very against buybacks and burns as being inefficient, right? In the past, like if you're doing a buyback and burn, that means all token holders, whether they're participating in the network or not, get a benefit, right? And so it's inefficient from a, you know, incentive perspective, but in a cross-chain environment, it actually flips and becomes more efficient because by doing a buyback and burn... The benefits accrue to everyone equally.

• 23:29David Hoffman?

  Right.

• 23:29Speaker 01

  Right. And, you know, again, there's, there's some potential issues with that where maybe everyone just wants to camp out on mainnet, the safest place, even if the highest fee yield is over here. Right. And so you're, you're not creating the right incentives. But if you have sufficient fees on the network where you want the activity to happen that goes to LPs, and then some other protocol level fee that flows back to everyone, no matter where they are, then I think you can strike a balance.

• 23:55David Hoffman?

  Yeah. You, in that model, you're kind of letting the free market, you're really leaning into the free markets to solve a lot of problems, which I generally agree with and like as a design principle, the free market's powerful, let it, let it do its work.

• 24:07Speaker 01

  Yeah.

• 24:07David Hoffman?

  Right. Yeah. Okay. And so, and so this is the, the one thing I will give credit towards Synthetix with is it's seemingly like egolessness about being willing to experiment across all different, like being very pragmatic about like, do we want to enshrine SNX first and foremost? Well, let's consider the scenarios in which the answer is yes and no, and let's pick the best of both worlds. And so in your blog post, you talk about three different paths, three different options, some make more sense than others to solve some of this fragmented liquidity solutions. And one of them is like you said, it's like, well, we can bootstrap with Ether instead of bootstrapping with SNX. That's, I think, the first, the first path of three? You want to take us to further into the second one?

• 24:51Speaker 01

  Yeah. So I think it's worth calling out though, that Synthetix, we are very pragmatic, but we're also extremely dogmatic, right? And it's a weird mix, right? So there's like certain dogma within the community where it's like, you can't touch that, right? So for a long time, it was like, you cannot siphon off fees away from the SNX token, right? Doesn't matter how good of an idea you think this is, right? And, you know, I'll give you a silly example, right? If we thought that like, you know, putting 2% of the total fees towards like funding bankless, right, was going to be a really beneficial thing.

• 25:22David Hoffman?

  Right.

• 25:22Speaker 01

  And everyone agrees that this is a beneficial thing. It'd be amazing. Like, bankless is a super amazing public good that we want to fund or whatever.

• 25:29David Hoffman?

  I'm liking this. Yeah.

• 25:30Speaker 01

  Yeah. Okay. Zero chance that will ever happen, right? Um, you know, back in the day, because we just said, the instant you. It was almost like the Uniswap fee switch. The instant you divert fee, like we had a fee switch that was on and welded shut.

• 25:44David Hoffman?

  Right.

• 25:44Speaker 01

  You couldn't actually turn it off, right? Like, it's the opposite of Uniswap, right? It's like, we basically, you know, jammed it to like full fee switch on. All of the fees ever generated go to the token holders. Zero goes to LPs because the token holders are the same. And then we're like, let's make sure that no one can ever touch this thing. And, you know, we broke the switch off and welded it shut, right?

• 26:03David Hoffman?

  Well, this is just a good lesson in incredible neutrality. That a similar EIP was put forth, shout out Kevin Awaki. EIP, I can't remember what it was, but it wanted to siphon off Ethereum block rewards.

• 26:14Speaker 01

  Yes.

• 26:15David Hoffman?

  For public goods or something. So we were going to take this, what was ideally this credibly neutral protocol Ethereum. And we wanted to fund public goods with it. Who, who doesn't want to fund public goods? It's a great idea.

• 26:26Speaker 01

  Yeah.

• 26:27David Hoffman?

  But the community was super divided over this and over just like the corruption that that might instill. Like, it starts off as a good idea. But what if, what if Bankless starts making content about XRP? And how apps are dumb? Like, that is not a, something that can be imagined in the short term, but then it might happen in the long term.

• 26:47Speaker 01

  Yeah, agreed.

• 26:48David Hoffman?

  Small, small little like divergence there.

• 26:49Speaker 01

  Yeah, but like this, you know, this is the same problem, right? Like that you really are trying to avoid trusting anyone, right? Like, you know, if there's no proper incentive mechanism to ensure that the alignment's there, then, you know, it becomes very risky, right? And, and so, you know, the same, by the same token, right? As soon as we're like, oh, but what if we just, it's just a little, it's just a little tiny bit of fees. Just give them, like, come on, we need this thing, right? And people were like, as soon as you do that, the floodgates open.

• 27:16David Hoffman?

  Right.

• 27:16Speaker 01

  And you don't know, and you know, there's, it is a bit of a slippery slope argument, but like, it is definitely like a qualitative change, right? You don't just going from like, oh, let's, you know, send another 1% of fees to this thing, which we're already doing. You're actually saying 0% of fees go anywhere but token holders. And now it's 2%. What's to stop it from going to 4%? What's to stop it from being wasted? The problem is that, you know, we're now at a, a point where we have actually started diverting fees. We finally said, we have to pay integrators. We don't have our own. Front end, there's no synthetics front end, right? There are three, four different integrators and we need to pay them, right? And how you pay integrators to come and do this is a hard problem to solve, right?

• 28:00Speaker 01

  There's a whole bunch of different conflicting, you know, kind of motivations from different parties, right? And this is how interesting it is, right? So there was a bit of a debate and I'm on one hand, building a new front end, right? So I'm doing an integration, right? So, you know, like you could make an argument that for me, I'd love if half the fees went to integrators, right? Like it's very self-serving argument, right? Like, let's make it 80% actually, you know, the protocol should get some fees, right? But like if 80% goes- But really, it's the front end, it's the hard work. The front ends are doing the work, right? So like, let's pay the, you know, let's pay the front ends, right? And we need them, they're critical to the ecosystem, right? So there's an argument of like to try and maximize that for my own personal benefit.

• 28:42Speaker 01

  And I said, no, like I don't want to be advocating for high fees. I don't think that we should be looking at the cost of running a front end today and setting the fee split based on that, right? We should set the fee split as conservative as possible. And if it's not working, then we can increase it, right? And some of the the front ends have like, you know, come back and said, well, that's not fair, right? Because your front end is being bootstrapped by you. And you've got enough money to pay for it. So you don't need money, you'd actually run at a loss, right? And so by that argument, the most self-serving thing for me to say, no fees for any integrators. Let's make it 0%. Let's go back to the old days of all the money goes to S and X holders because I get those fees. I can fund user acquisition. Exactly, yeah. You know, then I can choke off all of these other guys.

• 29:27Speaker 01

  And I was like, wow, I hadn't even thought about that. And so now it's a situation where like, it doesn't matter what I advocate for, like it's, it's bad in both cases. So I kind of have to recuse myself and let it play out in the community. But, you know, it's again, just kind of speaks to, it's a challenging problem working out. How do you split up fees? Where do the incentives go? What are you trying to optimize for? You know, all of this stuff, it's, it's really hard. And, you know, that's just talking about one network. Right. Like we haven't even gone to a multi-chain network where now you have the arbitrum network and the optimism- Network fighting, saying, well, hang on, we're generating more fees. Why don't we get more?

• 30:01David Hoffman?

  Right.

• 30:02Speaker 01

  Why is it equally distributed? Why, you know, like, we've got more users, got more activity. Let's just keep the fees over here in Arbitrum land. And then the optimism people saying, you know, and we've had a little bit of this between mainnet and optimism. Where people are like, this isn't fair. We want more fees for optimism or more fees for mainnet or less fees here or whatever. So these are all very challenging governance problems.

• 30:22David Hoffman?

  Okay. So as we're going down the rabbit hole, the idea made of like trying to discover how Synthetix has this like unified vision for itself. Where are we? We talked about, we talked about the three phases of difficulty. We started to define the differences in composability of governance. What's next in this conversation?

• 30:41Speaker 01

  So, you know, the liquidity conversation is can you get people across the line to let go of their dogma? Right? Really? Right? Like, that's the question. And so we were very dogmatic for a long time about no fees to anyone other than SNX holders. And no external collateral. Right? We, you know, we've had some wrappers and some other things like little experiments, but like fundamentally, the SNX token is the collateral that backs SUSD. Right? And so it's like, okay, how do we test this out in a way that maybe is not a one way door? And doesn't kind of open the floodgates and risk the position of the SNX token. And how do we, you know, negotiate that amongst the community and be pragmatic about it, to your point, right? How do we balance the dogmatic?

• 31:25David Hoffman?

  Right.

• 31:25Speaker 01

  If we open this door, we, you know, we flip this switch, you know, we might not be able to unflip it, right? With, we have a genuine problem that needs a solution and we don't have a clear solution. And so we need to experiment. And that has been, you know, honestly, the challenge of Synthetix from the beginning, right? Is balancing those two, you know, kind of competing drives.

• 31:45David Hoffman?

  One of the tools in the tool belt for solving this cross-chain liquidity issue is just cross-chain bridges. I think chain link CCIP comes into play here.

• 31:54Speaker 01

  Yes.

• 31:55David Hoffman?

  How does that help solve the cross-chain problem? Can you talk about the involvement here?

• 31:59Speaker 01

  Yeah. So it helps, right? In the sense that you can start to pass messages about the state of the different instances.

• 32:08Speaker 01

  Back to the main instance, right? So very good for like, you know, managing governance, managing deployments.

• 32:14David Hoffman?

  Okay.

• 32:14Speaker 01

  Right? So you can have a unified governance framework that exists on optimism, let's say, right? That can pass messages to the other networks to change parameters, to make new deployments, to do a whole bunch of things, right? And so that's super valuable. What it probably can't do at the moment, or what it's not yet ready to do, and Chainlink have some other solutions out there that are coming online that will be able to do this, is to manage like a shared cross-chain liquidity profile.

• 32:44David Hoffman?

  Right, which is the golden standard.

• 32:45Speaker 01

  That's the ultimate aim that we want to get to, yeah.

• 32:48David Hoffman?

  Right, yeah, okay. So maybe one metaphor that's helpful for people to understand this. Like, Synthetix, a long time ago, has chosen optimism. You guys have been working with the optimism team since UniPig, right? I think like after Uniswap, it was Synthetix that was the second app that was using the OP tech stack. And so this is Synthetix's brain. This is the home base where parameters get changed, and then hopefully it spans out from there. And so if the optimism version of Synthetix is the canon, the home, the brain, then you use Chainlink CCI P to send messages down the neurons to other instances of Synthetix.

• 33:28Speaker 01

  Base, Arbitrum.

• 33:29David Hoffman?

  Right, wherever it's deployed. And that's passing governance messages.

• 33:33Speaker 01

  Yes.

• 33:33David Hoffman?

  Passing protocol updates and changes.

• 33:35Speaker 01

  Pulling fees back.

• 33:36David Hoffman?

  And pulling fees back, right. And then, kind of how we talked about earlier, you're allowing some of the margins, the edges of the free market to balance pools, balance liquidity, and kind of do this kind of immersion stuff where there is no one single shared state, but things do get balanced relatively quickly according to the free market hypothesis.

• 33:56Speaker 01

  Yeah, so you know, if you've got ETH sitting on Arbitrum or optimism, and there's a bunch more demand on Arbitrum, you know, there's just a strong incentive to move over there and capture the fees. Because there are some fees that are only going to LPs. So ETH stakers in this case, right? So people, you know, if you're staking ETH on optimism and there's less activity there, you're going to get paid less.

• 34:15David Hoffman?

  Right.

• 34:16Speaker 01

  So you're going to move over to Arbitrum.

• 34:17David Hoffman?

  Right.

• 34:17Speaker 01

  Absent some... Very strong ideological reasoning, right? You know, same thing with Avalanche or whatever, right? So you know, you kind of pick where you're willing to deploy liquidity and you're going to get fees there. But then there's going to be a cut of the total fees that flow back to someplace, right? And that someplace then becomes an interesting question, right? Because, okay, we've been on optimism for a long time. We had to move to optimism because we needed scaling. We couldn't deploy our perps solution on mainnet. It's just not possible, right? The latency is too high, a whole bunch of reasons, right? Cost is too high, etc. So we had to do that. But now we've got the OP stack and the superchain.

• 34:56Speaker 01

  And it's like, is it weird to have all of the governance on synthetics happening in this arbitrary chain, right? Because let's say, you know, in two years' time, there's five or 10 chains where synthetics is deployed. And let's say we do get to a point where it's all ETH collateral. There's ETH collateral and all these different L2 chains, right? And maybe optimism is number eight in terms of volume, right? It feels a bit weird for the number eight chain. You know, maybe base is number one, right? It's like, well, hang on a second. Why are we sending all our fees back there? That seems weird. And so this, towards the end of the article, is where I sort of propose this idea of having a credibly neutral

• 35:38Speaker 01

  place for governance and fee share and all of that stuff to happen. And, you know, it might be an OP stacked chain, but it'll be like a synthetics app chain. Where stakers live there, governance lives there, fee sharing and, you know, other kinds of liquidity around SNX and, you know, various things live there. And then all the other chains have a deployed instance of perps and spot and whatever.

• 36:01David Hoffman?

  This starts to feel like a little bit what Rune was going after with his MakerDAO app chain. That is what he was calling the backend management of the DAO.

• 36:09Speaker 01

  Yeah.

• 36:09David Hoffman?

  And one specific chain that's custom-built for MakerDAO.

• 36:12Speaker 01

  Yes.

• 36:12David Hoffman?

  And then just instances of MakerDAO splattered across the cross-rail up because it sounds a little bit harmonious.

• 36:17Speaker 01

  It's similar, except minus the crazy LLM salata scaling. Neural tokenomics thing. Still haven't got my head around that yet. We didn't do our cage fight in Singapore, unfortunately. We didn't have a chance to. Maybe a permissionless next year, we can, we can put a sumo suit on or something and battle it out or have a boxing match.

• 36:35David Hoffman?

  Yeah, yeah, yeah. It's the permissionless games. It's just a meme I'm trying to inception. Okay, so that would, that would be the Synthetix app chain, not that there is one instance of Synthetix that is the large central instance, like DY, there's us, that's a DYDX model. Where DYDX is like F chain, F all the chains, just a DYDX.

• 36:53Speaker 01

  We're gonna go to the best place and we're gonna, yeah, we're gonna deploy, you know, on the best ghost chain that we can find.

• 36:59David Hoffman?

  Right. Why not do the DYDX model of building your own like Cosmos IBC or your own one single central, like even roll app on Ethereum and say, hey, no, no Arbitrum deployment, no optimism deployment, just this one place where you come to us. Like, why not do that?

• 37:14Speaker 01

  It's a good question. And this is, I think, one of the unsolved or unanswered questions, right? And, you know, I had a debate that was moderated by Dan from Paradigm with Antonio, I think it's a couple of years ago now, maybe almost three years ago, right? And I was like, this is crazy. Like, you're crazy. Composability is the thing, right? If you go and build your own siloed chain at that point on Starkware, right? Then the only people that can interact with it are people that bridge there. Like, that's crazy. We want to be on a composable chain. That's the benefit of DeFi. And turns out I was wrong. At least in the short term, right? You know, in the short term, I was wrong because what they got out of having their own chain where they controlled everything is they were able to concentrate all the liquidity

• 37:57Speaker 01

  there. They were able to get a much better user experience. They were able to scale faster sooner, right? And they got a significant lead over the other DEXs. And so there is an argument for an exchange to live on a very specific place, right? And to concentrate all the liquidity there. The problem that I see with that is this liquidity fragmentation and user fragmentation that we have today. The thesis is that there are distinct users on Arbitrum, on Avalanche, on Solana, on mainnet, on optimism, you know, et cetera, et cetera.

• 38:32David Hoffman?

  We can go on, yeah.

• 38:34Speaker 01

  We can be here all day, right? And, and those people are not going anywhere. Else, right? Maybe there's people that are like on mainnet and Arbitrum or mainnet and optimism. But if you're on only optimism or only Arbitrum, there are users you cannot access, right? And so that thesis is still kind of unproven. And this is where the base experiment of, okay, let's deploy an instance of synthetics. Let people deposit ETH. Let's see if any activity happens there. If there's no activity there, that is a really, you know, important piece of information. Now, why do it on base versus Arbitrum? My reasoning is that Arbitrum is more valuable, right? Base is very new and, you know, it's a low stakes experiment.

• 39:14Speaker 01

  If you do it on Arbitrum and you get it wrong and, and, you know, you launch this ETH thing and people don't want to use ETH or liquidity is bad. You kind of get one shot at it. We waited a long time to go to Arbitrum and I want us to get it right when we go there. And so let's do it on base. Let's see if it works. If it kind of works, then okay, let's, let's do it on. Arbitrum is production, base is an experiment. Hundred percent, exactly. Yeah. And so, you know, again, it's like, if there are distinct users on these chains, then you need to be on every chain. Right. If you believe, as DYDX does, that it doesn't matter what chain people prefer, they will come to your chain if you are the best solution. Then that's another approach. And that has been the approach that DYDX has taken and it's gone very well for them so far.

• 39:56Speaker 01

  There is a third option though, and this is the Infinix option, which is abstract away the chains completely. Right. Right? Use an execution environment, but you don't even need to talk to users about it. But go like multiple steps further than DYDX where you're abstracting away the fact that there is even a chain. You're just giving people an application, a trading application. And you're giving them what they're used to using on centralized exchanges. User names, passwords, you know, no bridging, USDT, USDC is collateral. You know, not signing transactions, a database-like performant environment where it feels like you're inside the app. And every time you move or touch something, something happens, right? It's not this kind of slow, clunky, high latency thing.

• 40:42Speaker 01

  And if that works, then you can be on whichever execution environment you want, because all of your users are just going to be signing into a front end with a username or password and not caring. You can switch execution environments out arbitrarily and they'll never know. Using execution environments as blockchains. Blockchain. OP stack is an execution.

• 41:00Speaker 01

  Yeah, so like. If Infinix is working, let's say, right? There's obviously, there's the demand side and the supply side. Okay, so at the moment, the supply side of liquidity is coming from optimism, right? And the demand side is coming from people on optimism. You build Infinix and you abstract that away. The demand side's coming from centralized exchanges. It's coming from Binance and Bybit and OKEx and all of those guys, right? And so now you've solved the demand side by building something that is feature parity with centralized exchanges, right? Maybe on the supply side, the liquidity is not actually there. Maybe there's not enough liquidity on optimism and maybe there would be more liquidity on Arbitrum. You can actually switch out those execution environments and just move or combine them and but you're abstracting it away.

• 41:42Speaker 01

  The user does not care or even know that sometimes their order is routed to Arbitrum, sometimes it's routed to optimism, sometimes it's routed to Solana. It's irrelevant to them. They just want to know that they get, you know, fast execution and deep liquidity. That's it.

• 41:55David Hoffman?

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• 42:38David Hoffman?

  Cello is the mobile-first, EVM-compatible, carbon-negative blockchain built for the real world. And now, something big is happening. Introducing the Cello Layer 2. It's a game-changing proposal that's going to bring Cello's rapidly-growing ecosystem home to Ethereum. Vitalik has shared its excitement for the Cello Layer 2 on the Cello forum, so has Ben Jones from Optimism. But why? The Cello Layer 2 will bring huge advantages like a decentralized sequencer, off-chain data availability, and one-block finality. What does all that mean? Rock-solid security, a trustless bridge to Ethereum, and more real-world use cases for Ethereum without compromise. Real-world adoption is happening. Active addresses on Cello have grown over 500% in the last six months. With the Cello Layer 2, gas fees will stay low and you can even pay for gas using ERC20 tokens.

• 43:22David Hoffman?

  But Cello is a community governed protocol. This means that Cello needs you to weigh in and make your voice heard. Join the conversation in the Cello forum. Follow @celloorg on Twitter and visit cello.org to shape the future of Ethereum. You know Uniswap, it's the world's largest decentralized exchange with over $1.4 trillion in trading volume. You know this because we talk about it endlessly on Bankless. It's Uniswap, but Uniswap is becoming so much more. Uniswap Labs just released the Uniswap Mobile Wallet for iOS. The newest, easiest way to trade tokens on the go. With the Uniswap Wallet, you can easily create or import a new wallet, buy crypto on any available exchange with your debit card with extremely low fiat on-ramp fees, and you can seamlessly swap on mainnet, Polygon, Arbitrum, and Optimism.

• 44:05David Hoffman?

  On the Uniswap Mobile Wallet, you can store and display your beautiful NFTs, and you can also explore Web3 with in-app search features, market leaderboards, and price charts. Or use Wallet Connect to connect to any Web3 application. So you can now go directly to DeFi with the Uniswap Mobile Wallet. Safe, simple custody from the most trusted team in DeFi. Download the Uniswap Wallet today on iOS. There is a link in the show notes. The pattern that I'm picking up here is just like, again, allowing sophisticated players in the free market to do a lot of the big lift because it's profitable for them, and just allowing simplicity to go into the actual end users who's supplying the orders. It reminds me a little bit of like the whole Uniswap X intent model,

• 44:46David Hoffman?

  where people are just come to Uniswap X or CowSwap and say, hey, I have this desire. I have this intent, and then the free market bids for that. And so they would come, like the model I'm seeing with Infinix is that people are just coming in, signing in, depositing their collateral and say, hey, I want to do these things. And then more sophisticated backend providers do the best to optimize their route between Arbitrum, whatever, deployment of Synthetix, Arbitrum, Optimism, wherever base. And then they just serve the best price possible to the user and they take the cut. This sounds like a design pattern that I think is going to be important for producing composability. For all chains, it is another tool in the tool belt, if you will.

• 45:24Speaker 01

  Yeah, absolutely. And, you know, again, it might be that that something like Infinix ends up routing to multiple different liquidity pools, right? And that there are multiple instances of synthetics where that goes. The thing that I think is interesting is my sense is that liquidity providers are a different group of people to end users, right? Or even traders, right? I think I have, I, you know, I kind of believe in this thesis that there are traders on Arbitrum that don't trade or won't trade on optimism, right? I don't think the same thing is necessarily true of liquidity providers. I think liquidity providers are a bit more mercenary. They just want yield, right? And, you know, they'll move arbitrarily between different chains to get the best yield.

• 46:06Speaker 01

  And so on the supply side, I think if Infinix is routing orders to Avalanche and it's working, and as a liquidity provider, it's really high yield. I think people will move there and they'll just be like, well, I'm a liquidity provider. I'm just looking for the best yield. That's all I care about. I'm not ideological.

• 46:22David Hoffman?

  Right.

• 46:22Speaker 01

  I'm, I'm.

• 46:23David Hoffman?

  Well, because if nine liquidity providers, like, I'm not touching Avalanche. Well, then it just increases the, the yield for the one that does.

• 46:29Speaker 01

  Yeah, exactly. And if for some reason there's, it makes sense that that is the place to route the orders, right? Then, you know, it's this forcing function where everyone kind of has to go there, right? And so, you know, on the user side, you just distract away, you know, Binance doesn't tell you which database engine it's using, right? It doesn't tell you which cloud computing, you know, if you really love GCP and you hate AWS, like, there's no Binance option for you to choose that, right? Like, you just turn up to Binance, username, password. They could switch out, you know, the, the like computing provider and you would never even know.

• 47:05David Hoffman?

  So there's some other tools in the tool belt that I want to bring up. Optimism's idea about their superchain and homogenous block space is their strategy. It's a little bit of hand wavy-ness. There's a lot of, a little bit of unknowns, but I, I will accept on faith that once we get to homogenous block space, we have some other things that we can then access and it's an iterative process. So maybe there's some solutions there. And then there's also this concept of shared sequencing and shared execution. Espresso Systems and then like you mix that with a roll up as a service provider like Conduit, for example. So Conduit runs OP stack chains. They just opened up their support for Arbitrum. And all of a sudden, like say, for example, Conduit or Espresso Shared Sequencing, they just work

• 47:48David Hoffman?

  together. It's that transactions on Arbitrum can be matched and balanced with transactions on Optimism before settling down to the Ethereum layer one. All of a sudden, we get even more composability across chain than what we had previously. And maybe, maybe that's too far down the line for what Synthetix is putting in practice today for solving the problems today. But like, how are these solutions on your radar and what do you think about them?

• 48:13Speaker 01

  They are. They're, they're on our radar. And, you know, there's, if I put my Infinix hat on, or I put my Synthetix hat on, there's two kind of different approaches, right? Or thought processes, I guess, that are going on here. You know, with my Infinix hat on, I sort of say, it doesn't really matter, right? Like, it really doesn't matter about any of these things because the allegiance of a user in web two world is not to the execution environment or the network, right? It is to the brand of the application that they like to use, right? They feel comfortable with it or whatever. You know, if someone likes Robinhood, they don't care if the orders, I mean, they care a little bit that it's being routed to Citadel, you know?

• 48:56David Hoffman?

  We'd care now.

• 48:57Speaker 01

  There's a payment for order flow issue, right? But like fundamentally, the average Robinhood user does not care whether it's Ken Griffin getting their orders routed to them or, you know, some other guy, right? Like, they don't really care. They just want to make sure that they don't pay anything to trade and, you know, that the execution price is reasonable-ish, right? And even that, they don't care about that much, right? They care about the Robinhood app. They care about the features, you know? If you change the color of the confetti when you go and, you know, that they're going to care about. They're like, whoa, I like the blue confetti, right? Like, don't change it from blue to white. So, you know, what users actually care about is the user experience and it's the allegiance to the brand. It's the allegiance to the, the look and feel of the app and all of that stuff, right? The execution environment

• 49:39Speaker 01

  or where the orders are routed or whatever is not that relevant. And so when I put my Infinix hat on, I say, all of this stuff that we're, you know, getting caught up in Arbitrum versus Optimism versus, you know, whatever, may get abstracted away, right? And the question is, well, why have we not gone there before? Like, why now? Right? And I think that There's a couple of reasons. One, we didn't have the infrastructure in place. Like, the infrastructure was not sort of good enough to compete with C-Fi, right? You know, whether it's on the lending front, or, you know, OTC desks, or, you know, spot trading, prop trading, whatever it is, right? We've always had this competition between decentralized and centralized.

• 50:24Speaker 01

  And centralized has always dominated, because centralized has just been better, and easier, and simpler, and not safer, but, you know, all of those other things. And unfortunately, safeness is on the low end of the stack, right? And so, you know, if we get to a point where we have an aggregator, or this like DeFi super app, like Infinix, where it's just choosing to integrate the best liquidity pools, and the user doesn't care, they just care that they're getting the best experience, then all of this other stuff may disappear.

• 50:52David Hoffman?

  Right.

• 50:53Speaker 01

  Then I put my-

• 50:54David Hoffman?

  But it is solving it with centralization, though.

• 50:58Speaker 01

  Yeah, to an extent.

• 50:59David Hoffman?

  Minimum centralization.

• 51:00Speaker 01

  Yeah, to an extent, right? So, you know, how is it solving it? It's saying, "We're creating a brand that will kind of overlay itself over all of these different things," right? And that brand will have users that will have some, you know, level of allegiance to the brand, right? And they will be used to the flows, they'll have an account there, all their assets will be there, and, you know, they will just want to be able to use whatever is there. Now, there is a problem with that. Like, if you take that to a logical conclusion, all of a sudden, the market power that, you know, even forget about Infinix, if any app were to have that level of market power, where it is more powerful than the underlying execution environments,

• 51:44David Hoffman?

  Right.

• 51:44Speaker 01

  then you, you know, get into a situation where, like, what if, you know, that app decides to route orders here over there because of some weird preference-

• 51:56David Hoffman?

  As in its competitor?

• 51:57Speaker 01

  Exactly, all of that stuff, right? You know, like, you, suddenly there's conflicts-

• 52:00David Hoffman?

  Not even a synthetic competitor, but Infinix just forks synthetics with this new token.

• 52:05Speaker 01

  Yes.

• 52:05David Hoffman?

  And it's like, "Hey, it's us now."

• 52:06Speaker 01

  We're doing this thing, right? So, so here's a great example, right? Let's say we get- To a situation where we want to use a lending protocol for margining, right? Rather than building our own margining system, right? So InfineX says, okay, you know, Binance spent two years building their, I mean, FTX, but spent, you know, a few years building their margining system. And, you know, by all accounts, it was a good margining system. It had some fatal flaws at a deep level. But like, the margining system was good. People liked it, users liked it, right? You could margin with a bunch of different things. You had cross margin. It was, it was pretty good, but they had to build it bespoke, right? What if we just use Compound or Abbe, right? Now, okay, let's say we have a lot of market power, right? In the sense that we can route a lot of borrow, right?

• 52:50Speaker 01

  Into one or both of those protocols, right? And so we say, okay, well, if we want to route orders to Abbe, we need to get some kind of fee cut from this, right? The same way that you would expect in any, you know, right? So who's going to give us the most fees, right? And then the next step is, okay, we're still not getting enough fees. What if we just fork it? If there's enough market power there, you could get to a point like, and I've always been so anti this like fear of forks, right? Like, oh, don't do open source because, you know, people will fork you. Because we've never had anything with that much market power. But it could very well get to a point where, given the state that we're in now for next cycle, if, you know, a DeFi aggregator of some kind has enough power. I mean, One Inch kind of got there for a while.

• 53:32Speaker 01

  Where like, if One Inch decided to route things to your private pools, like you remember they had those private pools, right? You would make a lot of money. If it didn't, you wouldn't. And so you have to imagine that like, that needs to be controlled. You know, it's a very dangerous thing in terms of concentration of market power.

• 53:47David Hoffman?

  Yeah, the, the centralized front end should not be top heavy with the power and strength of the foundation of the underlying protocol.

• 53:56Speaker 01

  But that's the reality in most of the world, right? The, the front end is the valuable thing, right? And, you know, like, this conversation's happened, you know, I can't remember what the, the specific phrasing was. I think it was like Chris Bernisky, you know, talking about.

• 54:15Speaker 01

  Fat protocols or something like that.

• 54:16David Hoffman?

  Yeah, fat protocol thesis.

• 54:17Speaker 01

  Yeah, the fat protocol thesis, right? You know, well, maybe that could flip it on its head, right? Whereas it's actually the fat UI thesis, right? Like the UI is-

• 54:25David Hoffman?

  Well, it's fat protocols, so Ethereum-

• 54:26Speaker 01

  Yep.

• 54:27David Hoffman?

  Not like, it didn't make a statement about the app layer. And then like, who knows about the centralization layer?

• 54:32Speaker 01

  Yeah, so, you know, there's a whole bunch of things that could play out. Like, we're still so early. And these things are still so unsolved. And so it's really not clear what happens there. But, you know, we're already seeing things that I hadn't even contemplated in terms of like, you know, this UI layer, right? Because it had never been important in synthetics. Synthetics was always infrastructure, right? We had too many infrastructure problems to worry about the UI layer. It was an afterthought. All of a sudden, we're now thinking about this and thinking, well, hey, there's a lot of leverage here. If you can get this right, all of a sudden, it's like, well, let's just four Kube. We've got, because it's always been the demand side, right? We, like, the supply side, we've been so focused on it. We haven't been able to get the demand side. If you control the demand-

• 55:16David Hoffman?

  Right.

• 55:16Speaker 01

  You have a lot of power over the supply.

• 55:18David Hoffman?

  Especially in crypto, my god. Whoever's got demand has it all.

• 55:21Speaker 01

  Exactly.

• 55:22David Hoffman?

  Yeah, yeah, yeah. Well, okay, so, thinking about this, like, idea of like, a top-heavy, powerful app, the, kind of the solution that I was talking about, like, cross-change execution via shared sequencing is a check on that power.

• 55:36Speaker 01

  Yep.

• 55:36David Hoffman?

  And like, one of the goals I think we should all aspire to in crypto is like, we want to get everyone on chain. We want a billion people on chain.

• 55:41Speaker 01

  Yep.

• 55:42David Hoffman?

  Infinix, you know, sorry, Kane, doesn't actually solve that problem.

• 55:45Speaker 01

  Yes.

• 55:45David Hoffman?

  It actually is intercepting that problem.

• 55:47Speaker 01

  Yes.

• 55:48David Hoffman?

  And so, putting on your synthetics cap and your on-chain maxi cap, then we should be hopeful about the power of cross-chain shared execution, because that is a powerful tool of making, you know, in the synthetics instance one, composable with synthetics instance two.

• 56:05Speaker 01

  Yeah. So I think where the disaggregation potentially happens, right? So we might have an aggregation period where these UI layer solutions, you know, that are abstracting away complexity and making the user experience and onboarding experience better, right, aggregate a lot of power, right? The disaggregation comes from us learning the lesson of this abstraction of complexity is really powerful. At the moment, it's just an idea, right? Like, people might not even care. Like, being able to sign in with the username and password might not be that beneficial, right? We're seeing in FriendTech that it's kind of beneficial, right? Like, that's a good early indicator that, like, this is actually useful, because there's a whole bunch of other things that are horrendous about that app.

• 56:48Speaker 01

  And yet, the onboarding process, and like, I love it, right? I'm on there, like, I, you know, but like, it fucking barely works, right? And yet, you know, people are onboarding. It's like, there's some things that are working, some things that are not, right? So the interesting thing for me is, okay, you know, waves of aggregation and disaggregation. And so if it turns out that this idea of the onboarding process being streamlined and, you know, abstracting the signing process away and all of this stuff becomes very powerful, it's easy for people to replicate that. Right. Like, Infinix is still going to be open source. You can fork Infinix and go and do it a different way, right? And so, you know, like, yes, the aggregation could be problematic for a while,

• 57:28Speaker 01

  but if there's too much power aggregated in a too, you know, concentrated group of, you know, whatever, controllers, token holders, whatever, whatever the governance process is, the market will kind of disaggregate it, right? At least in crypto, because everything's open source. And it's like, oh, that's the tactic that you need to use, right? You need to remove the signing, and you need to have account recovery, and you need to do all this stuff, and then that'll become table stakes. And everyone will start doing it, and then, you know, it'll kind of spread back out again. Sure, okay.

• 57:56David Hoffman?

  All right. So I feel like we've done a pretty good job like laying the landscape of the problem statement and talking about potential solutions, where to look for solutions. Where are you focused? Like where are you? What kind of solution area are you focused on the most? Are you most optimistic about just solving some of these problems? Or where is Synthetix specifically going towards?

• 58:12Speaker 01

  Yeah, so I think Synthetix is looking at how do we do kind of one and two, right? As we talked about.

• 58:18David Hoffman?

  Can you define one and two again?

• 58:19Speaker 01

  Yeah, so one and two would be like, how do we get on as many networks as possible? And solve the governance problem, right? So like deploy distinct instances and let's test out if that even works, right? And if it works, then just solve number two, which is like the shared governance fee movement sort of thing, right?

• 58:37David Hoffman?

  Importantly, allowing the free market to balance doing the job of the free.

• 58:41Speaker 01

  The supply side liquidity, exactly. Yeah, yeah. Like balance the liquidity via the market, right? And then figure out a way to stitch together that, you know, fee sharing process or whatever, right? Don't worry about fungibility. Don't worry about cross-chain communication. Don't worry about unified liquidity. Let the liquidity flow where it flows and then figure out a plan for fees, right? Figure out a plan for governance and how you modify the thing. That's the, I think, short-term Synthetix plan.

• 59:05David Hoffman?

  Okay, short-term Synthetix plan. Do you have any sort of like semblance of time around this?

• 59:10Speaker 01

  Well, I mean, there's nothing really stopping us from deploying to base, right? Like it's really about getting consensus within the community about that. You know, so I would imagine that deploying to base at this point, given how close Probes V3 is, should probably wait for Probes V3. The same thing that Infinix is doing. You know, Infinix could deploy Probes V2, but then, you know, the contracts change massively. So we were just waiting for Probes V3. Probes V3, the last I heard, is in audit. Whatever that means, you know, Synthetix, right? You know, so like, my guess is that Probes V3 will be deployed probably in like October or maybe November.

• 59:49Speaker 01

  And once that's done, then it makes sense to test out this base, you know, thesis, run the base experiment.

• 59:56David Hoffman?

  Cool. Well, just like neck and neck with optimism, the people that you have teamed up with such a long time, actually straightforwardly pushing the frontier in. Into the unknown and it's always one thing I've admired about Synthetix and then what you've been doing like taking on the hard problems head on. Are there any other parts of this conversation that I haven't unpacked yet that are that are worth pulling out about Synthetix or compositability or anything else you guys are working on?

• 1:00:21Speaker 01

  I think, you know, we do have this other component in V3, which is permissionlessness, right? So, you know, Synthetix has always been a permission liquidity protocol in the sense that governance controls what can be deployed, right? You can't deploy a novel instrument, no one can turn up and, you know, it's not, it's not an open protocol in the sense that someone can deploy some new asset, right?

• 1:00:43David Hoffman?

  You're talking about the new output of Synthetix, like a new synth.

• 1:00:45Speaker 01

  Yeah.

• 1:00:46David Hoffman?

  I would like to create a synth around some, some particular asset.

• 1:00:49Speaker 01

  Some novel, you know, like a volatility of Bitcoin index, right?

• 1:00:52David Hoffman?

  Okay.

• 1:00:53Speaker 01

  So, you know, you want to like have the BTC VIX? Okay, cool. No.

• 1:00:59Speaker 01

  Great, go to UMA.

• 1:01:00David Hoffman?

  Right.

• 1:01:01Speaker 01

  Right, like that's really like go to UMA and build it there, right? Or, you know, whatever. And, and so now with V3, we're going to be opening up, maybe, maybe not this year, but probably early next year. The ability for someone to turn up and do the financial engineering without needing to do the token engineering, if that makes sense, right? So you can turn up and you can say, hey, I've got this oracle. You know, this is the way that the price feed works and I want to pump it in and get liquidity. And I think that that really kind of shifts the game in terms of like the ability to do novel financial engineering. It doesn't solve any of these other problems we talked about, but, you know, it maybe makes them worse on some level because then you have like different instruments that exist on different chains and, you know. It's like, well, I want the BTC VIX, oh, I'm sorry, that's only on Arbitrum.

• 1:01:47Speaker 01

  David's. You gotta go to a different store, yeah. So, yeah, you know, it really puts a bit of pressure, right? When you have permissionlessness, because then it's like, you could have some protocols that decide to just deploy on Synthetix V3 on a specific chain. And people are like, I heard that you could trade this thing and it's like. Yes, but, right? And so, you know, being able to abstract that away and saying, you know, okay, well, on Arbitrum, we've got these weird instances. On Base, we've got these things. And then on Optimism, we've got these separate other things and finding a way for users to be able to like grok that is, you know, gonna be challenging, right? So that's another level of complexity that we need to deal with, unfortunately.

• 1:02:24David Hoffman?

  Oh, man, complexity.

• 1:02:25Speaker 01

  Always making our jobs.

• 1:02:26David Hoffman?

  Yeah, right. What about just even outside the Synthetics ecosystem, broader crypto Ethereum, 2023 regulation? Is anything else floating around in your head?

• 1:02:35Speaker 01

  Yeah, I mean, look, regulations and regulators, I think, are pretty fucked at this point. Like, there's no other way to put it.

• 1:02:40David Hoffman?

  Taking the L's, you mean?

• 1:02:41Speaker 01

  Yeah, I, you know, like, it's, it's at a point of, um, sort of adversarial attacks on crypto that I really didn't think that we would get to. Like, I wanted to believe that, and maybe this is a bit naive, right? But like, I wanted to believe that the regulators genuinely were operating in good faith. And I actually think we've crossed the line where they're no longer operating in good faith. It's actually a pitched battle and they're just trying to win.

• 1:03:10David Hoffman?

  And you're talking beyond Gensler.

• 1:03:12Speaker 01

  Oh, yeah, like the CFTC is now, you know, like, it's, it's way beyond that, right? And it's, you know, even into Congress and, you know, different things come out on any given day about the agendas that various people have. And crypto's become, unfortunately, a partisan issue as well, right? So you've got partisanship, you've got point scoring, you've got, you know, adversarial regulators. Like, the US is not in a great place. And I love America, you know, I've spent half my life here. But, you know, it's, it's not amazing. That said, like, if there's one industry that you don't want to become adversarial with, it's crypto.

• 1:03:45David Hoffman?

  It's the industry that's built inside of an adversarial environment.

• 1:03:49Speaker 01

  We've been doing this for much longer than you guys and we will absolutely not lose that battle, right? So, um, you know, it, I think, again, there was an assumption for a long time that it was misguided, but, you know, in good faith acting. And now it's become more obvious that it's actually not misguided. It's not in good faith. It's a very, you know, clear attack on what we're trying to build, um, which is sad because, you know, my My genuine view is that crypto is a new enabling technology like the internet that will make the world a better place. And of course, it can be used for bad things and it can be used for good things, but like on a fundamental level, it is a new technology that will enable new innovative solutions to existing problems that will make the world a better place. It's just unequivocal in my mind, right? So.

• 1:04:34David Hoffman?

  Okay, so are you saying that like maybe in the era of 2021, we were harmonious-ish with the regulators, playing by the rules, good faith regulation? And then swapped to 2022, 2023, all of a sudden it's no longer good faith. It's like now it's the game of chess, now people are playing dirty. And you're saying that that environment is actually favoring to crypto because.

• 1:04:55Speaker 01

  For sure, yeah, like you, you know, I think we were kind of psyops into like being like, oh, I think, you know, we just need to educate them.

• 1:05:01David Hoffman?

  Right.

• 1:05:01Speaker 01

  Right? So you spent a bunch of time educating people that did not want to be educated, actually knew what they were doing and were doing it in a very deliberate fashion. And we were just wasting our time trying to educate them, right? You know, it's the kind of now, you know, then like then they fight you sort of thing, right? We're in the then they fight you, you know, first they psyops you and now.

• 1:05:20David Hoffman?

  Forgot the psyops.

• 1:05:21Speaker 01

  Yeah, we forgot the psyops part of that, right? But, um, you know, like, I think we were kind of psyops, right? Like, we were like, no, no, no, like, you know, like, I really believe in the American system, right? Like, I genuinely believe that the American system is a market-driven, very powerful mechanism for improving the world and has been for a really long time. And so, you know, like, I was kind of psyops to myself and being like, you know, people are not anti-innovation in America, right? Like, you know, like, you've got some people that are maybe conservative, right? And who are like, oh, let's, you know, de-risk this, let's not do something rash, let's slow it down. But, you know, the idea that someone is just against innovation in principle, that's a weird, it's a bit foreign.

• 1:06:05David Hoffman?

  Never been seen in America.

• 1:06:06Speaker 01

  Yeah, it's kind of strange, right? And so, you know, the idea that you have regulators and, and, you know, people running these regulatory bodies that are just absolutely trying to stifle innovation, that's a dark place to be in, right? But at the same time, the nice thing about crypto in my mind is. That if you were to design a system, right? The fact that we've been able to do regulatory arbitrage to such a powerful extent. If you were to design a system that is resistant to this exact type of thing, it would be crypto, right? So we have the tools to resist this, right? And we know how to use them.

• 1:06:39David Hoffman?

  We are the tools.

• 1:06:40Speaker 01

  We are the tools, like the tools to resist this kind of overreach are, it's crypto, right? And so unfortunately, you know, they picked the wrong fight.

• 1:06:50David Hoffman?

  Right.

• 1:06:50Speaker 01

  That's the reality, right? They picked the wrong fight. We didn't know we're in a fight, now we do. And it's like, okay, well, unfortunately, this is going to go pretty badly for you now. And so, you know, that's just the situation that we're in. And, you know, I wish that it weren't. And, you know, again, it's, it's become a partisan issue and maybe that shifts. And, you know, the, the battle lines, you know, kind of shift. But at the moment, my approach is that we need to actually, you know, be adversarial in it. Clearly adversarial.

• 1:07:17David Hoffman?

  Bullish.

• 1:07:17Speaker 01

  Yeah.

• 1:07:17David Hoffman?

  Bullish, yeah. Well, the, the idea just that crypto, who is full of just like relentless innovators, builders who are scrappy, like absolutely chewing glass as an industry going up against like status regulators who are just like, I know where I'm picking my.

• 1:07:34Speaker 01

  Yeah, I would like, you wouldn't want to take on, you know, like the valley, right? Like, you know, you wouldn't want to say like, if you're gonna, if you're gonna say, okay, I'm gonna go pick a group of people like startup founders, right? You know, in Silicon Valley, like those are the people I'm gonna go after. That's a dumb thing to do. They're insane. Like you're talking about, you're taking on insane people. Then crypto founders, it's like an order magnitude beyond that, right? Like you, uh, yeah, you might as well take on a zombie horde. It's gonna go just about as well for you. So, yeah, that's, that's my kind of take at the moment. And, you know, as I said, it's a bit unfortunate that we're here. But it's nice at least to know that this is the situation we're in, right? And, and really have a clear eyed view about, okay, if this is gonna be the next five years of how we play this out, then let's play it out.

• 1:08:18David Hoffman?

  Well Kane, this has been great. Is there any message, any of the Bankless listeners, the builders out there pointing towards Synthetix or Infinix or any part of that ecosystem? Or even just broadly, any message you have for them?

• 1:08:27Speaker 01

  Just broadly, I think keep building, right? You know, the bear market, noise floor has dropped. It's really much easier to get attention for novel valuable solutions, you know, and innovative designs of systems. Like, this is the time to build those things. This is the time to get momentum. And, you know, I'm already seeing a ton of interesting stuff. Like, every day, you know, you just, the vibe in terms of building is amazing at the moment. It's, which is kind of a bottom signal, unfortunately, right? Like, the peak of when you feel like, wow, we're really getting stuff done and making progress is like, unfortunately, that's the peak of bottom, and then it's gonna get crazy again, because the momentum starts to flip, and then the noise is there, and, you know,

• 1:09:10Speaker 01

  you get all kinds of craziness. But it is what it is. I think we've got, you know, a solid six to 12 months of building in front of us, and, you know, just keep building and keep grinding.

• 1:09:19David Hoffman?

  Well Kane, your commitment to grinding is admirable. You've been grinding since last, the prior bear market, through the bull market, and once again through the bear. So I'm very glad to have you on the same team as I am, the crypto team, of course. So, thank you for coming over to my apartment and doing this podcast with me. This has been fantastic.

• 1:09:35Speaker 01

  Yeah, thank you. Thanks for having me.

• 1:09:36David Hoffman?

  Bankless Station, you guys know the deal. Crypto is risky. The cross-chain composability world is a fog of war, yet we are going into that frontier nonetheless. We are glad you are with us on the Bankless journey. Thanks a lot.