Osmosis Labs with Sunny Aggarwal | ETHDenver 2023 Interview #3

Sometimes, the frontier is at a crypto conference. One of the most prestige being, ETHDenver! We’re back with a handful of exclusive interviews with some of the most fascinating minds in crypto. Wish you could make it to all the crypto conferences, but don't have the time? Don't worry, Bankless brings the frontier to you. In this episode, we’re talking to Sunny Aggarwal of Osmosis Labs and Cosmos. Sunny and David chat about how Osmosis and Axelar are working together, what’s new in the Cosmos ecosystem, and how Cosmos isn’t solely DeFi-focused. ------ 📣 RhinoFi | Makes DeFi Frictionless https://bankless.cc/rhino ------ 🚀 JOIN BANKLESS PREMIUM: https://newsletter.banklesshq.com/subscribe ------ BANKLESS SPONSOR TOOLS: ⚖️ ARBITRUM | SCALING ETHEREUM https://bankless.cc/Arbitrum 🐙KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE https://bankless.cc/kraken 🦄UNISWAP | ON-CHAIN MARKETPLACE https://bankless.cc/uniswap 👻 PHANTOM | #1 SOLANA WALLET https://bankless.cc/phantom-waitlist 🦊METAMASK LEARN | HELPFUL WEB3 RESOURCE https://bankless.cc/MetaMask 🚁 EARNIFI | CLAIM YOUR UNCLAIMED AIRDROPS https://bankless.cc/earnifi ------ Timestamps: 0:00 Intro 3:11 The Interoperability Meta 4:05 Axelar vs. THORChain 5:15 Osmosis & Axelar 6:50 Bridge Risk 8:43 The Cosmos Ecosystem 10:11 AppChains 12:00 Is Cosmos Only DeFi-Focused? 13:00 State of the Cosmos Community 14:25 Sunny’s ETHDenver Agenda 15:08 Sunny’s Sweater 15:30 Closing ----- Resources: Sunny Aggarwal https://twitter.com/sunnya97 Osmosis https://twitter.com/OsmosisZone Cosmos https://twitter.com/Cosmos ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. 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.

• 0:12David Hoffman?

  We are here at the Axolar Interop Summit and we are going to talk to Sonny Augerwald, who, when I hear the word interoperability, I definitely think Sonny. He's been in the Cosmos ecosystem since Cosmos was born, so he is the king of interoperability if he accepts that title. So we're going to go talk to Sonny right after we talk to some of these fantastic sponsors that make this show possible. Kraken is our strategic sponsor for 2023. Why? Because Kraken has been around for over 12 years and has proven itself to be deeply aligned with the crypto industry. Trusted centralized crypto platforms are hard to come by these days, which makes the few remaining ones even more valuable. With over 9 million users and not a cent lost, choosing Kraken as our strategic sponsor for 2023 was a no-brainer. We need exchanges like Kraken to provide the on-ramps

• 0:53David Hoffman?

  to get people to go bankless. And Kraken's emphasis on security and transparency makes us feel good about having them as a sponsor. If you're unsure about your centralized exchange or on-ramp, perhaps open an account with Kraken today. And if you're unsure about the rest of Web3, well then maybe you should get your learn on with Metamask Learn. Learning about crypto is hard. There's no one out there to hold your hand to get into this industry, until now. Metamask Learn is the best place I've ever seen to send someone to learn everything there is to know about Web3. If you're a company trying to onboard employees, or you're a son or daughter trying to onboard your boomer parents, Metamask Learn is the place to send them. Interactive and engaging lessons making learning about Web3 fun and easy. Now, once you're through Kraken's gates and you've taken the Metamask course on what's

• 1:38David Hoffman?

  a DEX, you're safe to make your first stop into the world of DeFi. Where better to start other than Uniswap? Uniswap is of course a decentralized exchange for crypto asset trades and swaps, but it's now also an NFT aggregator as well, making Uniswap some of the best decentralizing trading tech that's out there. Uniswap's big announcement at ETH Denver is their Uniswap wallet, which is waiting to get released to the public as soon as Apple stops being a big old bully about crypto apps in the App Store. Uniswap is basically on every chain that's relevant in the crypto ecosystem, so if you want to use Uniswap... But with the cheapest possible fees, then use Uniswap on Arbitrum. The Arbitrum Layer 2 is the host of Ethereum's most vibrant DeFi and NFT communities. Arbitrum is already surpassing the ETH Layer 1 in transaction volume, and it's not even close to full capacity.

• 2:23David Hoffman?

  With so many vibrant communities on Arbitrum, Arbitrum is a good place to call home for the era of Layer 2s. Speaking of settling into new homes, the Phantom Wallet is now available on both Ethereum and Polygon. That's right, the number one wallet on Solana is expanding into the Ethereum ecosystem. Phantom is the one wallet for everything: displaying NFTs, making NFT trades, swapping tokens, staking tokens. So if you're a multi-chain surfer or an NFT power user, then the Phantom Wallet is for you. It also comes in mobile. Check it out at phantom.app. Now, let's get into the interview. Back at the station, we are back at the Interop Summit, hosted by AxelR, and I'm here with Sonny Augerwald. And when I hear the word interoperability, I think of Sonny. How's it going, Sonny?

• 3:02Speaker 01

  I'm doing great.

• 3:03David Hoffman?

  Are you just vibing in this conference that is really custom-built for you to vibe in?

• 3:08Speaker 01

  Yes, it is. I'm getting to spread the word.

• 3:10David Hoffman?

  Yeah, so tell me about, as somebody who is largely inside of the EVM world, what is the new meta in the Interop world?

• 3:17Speaker 01

  Uh, the new meta? Um, well, AxelR is definitely helping bridge the EVM and IBC worlds. There are new stuff that they're building. It helps you like send messages between EVM chains to Cosmos SDK chains very seamlessly. So really excited about that coming about.

• 3:34David Hoffman?

  What I've understood with AxelR, and I've only really learned about it in this last like 24 hours, is that it is like the Cosmos between Cosmos and Ethereum. Is that a fair metaphor?

• 3:45Speaker 01

  Yeah, that's right. It's a Cosmos SDK-built app chain that lets... It's a bridge app chain, basically. So, you know, you have like many bridges. They're all like multi-sig-based and stuff, whether it's Wormhole, MultiChain, whatever, right? But it's like, well, AxelR is similar, but instead of being a multi-sig, it's a proof-of-stake-based bridging solution.

• 4:07David Hoffman?

  Okay, so how is that different from other things like Thor Chain, for example? Like there are, or like Ren Protocol? There's a bunch of other proof-of-stake middleware chains. Is AxelR really all that different from all those?

• 4:18Speaker 01

  Thorchain, uh, it uses similar technology to Thorchain, but Thorchain is like, it doesn't let you do bridging. It only lets you use their bridges for Thorchain swaps. And this is part of their whole security model where they don't want you to use it to bridge stuff, right? And it's cool technology, but you know, we can't use it with Osmosis, right? You can think of it almost like Osmosis plus Axlar equals Thorchain. And so we've sort of fragmented these two things out. We were like, hey, at Osmosis, should we be building our own bridges? And we looked at all the bridge hacks that were happening. We're like, that is a responsibility and risk that we don't want to take on ourselves. Let's find a team that is like really solid and understands this stuff really well.

• 5:03Speaker 01

  And that's, we went through this whole decentralized bridge bake-off process. And we kind of came to the conclusion that Axlar is the team that has the best bridging tech in entire space, in our opinion.

• 5:15David Hoffman?

  Okay. And how much of that opinion is shared by others? Is that your opinion or is that kind of the consensus and why there are so many big names here at the Axlar Interoper Event?

• 5:22Speaker 01

  Um, so I think like part of it is like, this is like a generalized Interoper events where a lot of people have been coming. But I think like Osmosis picking Axlar as our canonical bridge, that helped like get them on the map. And then basically every other Cosmos chain started using them as well. And now they're starting to be used by, you know, I think Polygon Supernets are planning on using them. Uh, they're a partner for the new base, uh, rollup. So I, I, I think they're starting to get more and more traction. What I really liked about them is they're like, they have a lot of functionality, both from the cool features and security functionality that I think other bridges just don't have right now.

• 5:58David Hoffman?

  Okay. So just to really test my knowledge here, it is a Cosmos IBC chain. And it also, by a nature of what it is, can also connect to non-Cosmos IBC chains through its proof-of-sale consensus.

• 6:11Speaker 01

  Correct. Yes. So it uses, um, a more traditional multi-sig style bridge system. Not multi-sig, but like, you know, validator controlled, um, like deposit system to talk to EVM chains. So they've connected to Ethereum, Avalanche, Polygon, Arbitrum.

• 6:29Speaker 01

  BSC, a couple others, Phantom. But then to talk to Cosmos chains, it uses IBC.

• 6:35David Hoffman?

  Okay.

• 6:35Speaker 01

  And what's really nice is that means for something like Osmosis to talk to Ethereum, we don't have to have our own bridge protocol.

• 6:41David Hoffman?

  Right.

• 6:41Speaker 01

  We just talk IBC to Axler and Axler acts like a translation layer for us to talk to EVM chains.

• 6:47David Hoffman?

  Okay, so it's a translation layer. Is there, is there a bridge risk here? So if, if, if Axler is talking to Ethereum and Phantom and then also Cosmos, how much bridge risk is there present in this system?

• 6:57Speaker 01

  Yeah, so it is a, you know, you could call it like a custodial bridge, right? The Axler validators, their proof of stake system is custoding the assets that are bridged from the EVM chain. So there is bridge risk. Part of the things that, the security stuff that, you know, the Osmosis team, we worked with Axler to design like, things like rate limiting. So basically, we have this system where like, only 20% of the Axler bridges TVL can be removed in a six-hour period. And otherwise, it, it triggers a circuit breaker. And this is the kind of stuff, you know, if you look at traditional finance systems, a lot of the security properties come from these circuit breaker-style systems.

• 7:35David Hoffman?

  True.

• 7:35Speaker 01

  And that's what we've been working with Axler team to like, bring these security mechanisms. And that's one of the things that, I don't know, I sleep better at night knowing that like, okay, even if there was some sort of bridge hack or something on Axler,

• 7:46David Hoffman?

  Right.

• 7:46Speaker 01

  the, the losses are capped.

• 7:48David Hoffman?

  Right, stop loss for, for bridge hacks, yeah. Uh, so is the bridge that connects Axler to Ethereum and Axler to Phantom, those are two separate bridges, not one single bridge, correct? So there's not one central bridge that would collapse all the other bridges, right?

• 8:02Speaker 01

  Correct, but it is run by the same validator set.

• 8:05David Hoffman?

  Right, yes, okay. Well, yeah, security by validator set, I feel like is a pretty known quantity. It's that independent bridge from chain to chain that always seems to be the, the weak link in all these systems.

• 8:14Speaker 01

  Yeah.

• 8:14David Hoffman?

  And so Axler still kind of has to work around that kind of risk dependency, right?

• 8:18Speaker 01

  Right. And, and I guess to talk to every EVM chain, it's using a similar implementation.

• 8:22David Hoffman?

  Sure, right.

• 8:23Speaker 01

  So if there's a contract risk, you can imagine that same contract risk probably exists on multiple chains. So, but then Axler is working on non-EVM bridges as well. And that's kind of what they were announcing at this event was like, basically building an SDK that allows more people to Build pluggable bridges into Axolark.

• 8:42David Hoffman?

  Okay, moving on from Axolark, because I know you're actually more of a Cosmos guy, just speaking on Axolark's behalf. Uh, what's going on in the Cosmos ecosystem? What are people really excited about? Uh, what's the, what's the meta there?

• 8:52Speaker 01

  Yeah, so I think the biggest thing of the last one month now probably is the Mars launch. So Mars is a lending app chain, uh, and they just sort of launched recently. And so, you know, in Cosmos, they're, they're having a couple lending applications, but none of them had, had real product market fit yet. Until like Mars launch and they hit their, you know, they have these borrow caps, uh, for security reasons. And I think they hit their borrow caps within three hours of launch. And so, you know, they're slowly upping that, but like, you know, so far in Cosmos, we've had a lot of DEXs. Obviously Cosmos, Cosmos is the biggest one, but lending and borrowing and margin trading is sort of the next big DeFi use case that needs to come. And, uh, we've been working very closely with the Mars team

• 9:34Speaker 01

  to enable that. And I'm really excited because like, one of, there's a lot of cool things that we're able to do with Mars because of how closely our teams are working together. Um, one of the things that makes like margin trading on Ethereum not as efficient as it could be is that the AVE protocol doesn't know about Uniswap. They act as independent protocols. But in our case, the Osmosis DEX knows about the Mars protocol. The Mars protocol knows about the Osmosis DEX. And this allows us to do a lot of cool capital efficiency sort of things, a lot more efficient liquidations, um, also to Cold Stone.

• 10:11David Hoffman?

  And so, okay, so like the, these things can be like oracles for each other just because of the on-chain state that's passed between each app layer or app chain. Is that a, is that a feature that is unique to app chains?

• 10:22Speaker 01

  Um, it's not unique to app chains. It's unique to collaborating apps.

• 10:28David Hoffman?

  Okay.

• 10:29Speaker 01

  Like.

• 10:30David Hoffman?

  I love the nuance on that one. That was good.

• 10:31Speaker 01

  It's interesting. What's like, so for example, yeah, Mars uses Osmosis T-WAPs.

• 10:35David Hoffman?

  Sure.

• 10:35Speaker 01

  It allows you to use Osmosis LP shares as collateral.

• 10:38David Hoffman?

  Uh huh.

• 10:38Speaker 01

  It's liquidations instead of doing an auction system similar to what Maker, Compound, AVE do. They actually execute against on-chain liquidity on Osmosis.

• 10:48David Hoffman?

  Cool.

• 10:49Speaker 01

  And the coolest thing is this thing called credit accounts. Where what you can do is you can borrow, so in Aave today, right? Let's say to borrow a hundred dollars of USDC, you have to put down a hundred fifty dollars of ETH.

• 11:03David Hoffman?

  Right.

• 11:04Speaker 01

  In Mars, with the credit accounts, you can put down fifty dollars of Atom as collateral, and you can borrow a hundred dollars of USDC. How is this possible? Isn't this under collateralized?

• 11:15David Hoffman?

  Right.

• 11:15Speaker 01

  The trick is that it's borrowed into a special credit smart contract account. Think of it like a smart contract wallet that you're only allowed, all you can do with it is do certain margin trading on certain pools. And the Mars protocol has the ability to liquidate

• 11:29David Hoffman?

  Right.

• 11:29Speaker 01

  from the credit account directly.

• 11:31David Hoffman?

  Right, and so you're giving it into a custodial account that limits what you can do, but you still have more capital available to you.

• 11:37Speaker 01

  Yeah, smart contract custodial, right? It's like it can only pull from your account if a liquidation is triggered.

• 11:43David Hoffman?

  Right, so you get to, it's under collateralized lending, but with constraints on what you can do with that.

• 11:48Speaker 01

  Exactly. This is how margin trading works on centralized exchanges, right? If you have a margin account, you can't withdraw money off of the centralized exchange.

• 11:56David Hoffman?

  Right, right. That's, that makes a ton of sense.

• 11:58Speaker 01

  Yeah.

• 11:59David Hoffman?

  So I heard a take recently that Cosmos is really DeFi focused. As in, there's most of the innovation in the Cosmos land is DeFi. There's less gaming, there's less identity. How does that ring, how does that take ring true for you? And are there other, what are the other non-DeFi parts of Cosmos?

• 12:14Speaker 01

  Yeah, so I mean, obviously, I spend my time focusing on the DeFi side of things. But there are things going on. So Stargaze is like this NFT platform. You know, there's a couple of, you know, you mentioned the Bad Kids. I think when I mentioned it on the Bankless episode start, Bad Kids had this like huge uptick in popularity since then. And there's a couple of projects working on a lot of cool gaming stuff. So like, there's a project called Argus. Scott, he was a friend of mine, he was one of the builders of Dark Forest. And he realized that like, hey, Because SDK actually gives us the ability to build a lot more powerful like on-chain, fully on-chain gaming things. And so he's building this project called Argus that will enable a lot more like gaming app chains and stuff. So we're starting to see the initial

• 12:58Speaker 01

  proliferation of other use cases as well.

• 13:00David Hoffman?

  So how does, because of Cosmos, of what it is, the whole like app chain mesh layer, in contrast, you have Ethereum with the central shared security. The Ethereum community, as a result, I call it kind of more coherent. And Cosmos is a little, what's like, what is the state of the broad set of the Cosmos app chains community? Are they like, is each community, is each app chain its own community? Is there one broad Cosmos community? Like, give us the topology of the Cosmos like social layer.

• 13:25Speaker 01

  Yeah, so there's definitely this like meta thing where it's like, people are often community members of specific popular app chains, like Osmosis has its own community, Kujiro, which is another popular DEX, has its own community, Juno will have its own community. But then, at the same time, we're all like citizens of the Cosmos as a whole. And it's kind of like, you know, I'm a citizen of, you know, I grew up in New Jersey, so I'm a New Jerseyan, but I'm also an American, right? And so it's just like, you kind of have both layers going on.

• 13:55David Hoffman?

  Cool. And then Sunny-

• 13:55Speaker 01

  And so there's always a little bit of like, people are often like, oh, there's so much drama in Cosmos. But like, I think people, it's a little bit overblown, actually, to be honest. Like, I think there's often a lot of drama within Ethereum as well, right? You had Uniswap, SushiSwap, Fy, you had Compound Ave, you have, today now you have Optimism versus Arbitrum, right? And so you see similar things, but I think at the end of the day, everyone is still like, very tied with this larger Cosmos vision and community.

• 14:21David Hoffman?

  Yeah, like sports teams are still all watching the same sport, right?

• 14:24Speaker 01

  Yeah.

• 14:24David Hoffman?

  Yeah. Sunny, we got a lot left in the ETH Denver Conference. It's just Tuesday, and it goes all the way until Saturday. What's left on your schedule? What's left on your itinerary?

• 14:32Speaker 01

  Uh, yeah, so, uh, when, tomorrow, really looking for checking out WalletCon, just, I don't know, just interested. I recently downloaded a new browser, and I'm like, this is an opportunity to try out some new wallets. And so I've just been playing around with a bunch of different wallets and exploring like, wow, there's so much cool innovation that's happening. So decided to go check that out. Thursday, there's like this shared security summit hosted by Eigenlayer and Babylon. So I'll be giving a talk there about mesh security, and how that's like the future of Cosmos shared security. And then, on the weekend, I'll just be hacking at the hackathon.

• 15:07David Hoffman?

  And Sunny, could you walk us through your sweater, please?

• 15:09Speaker 01

  Uh, yeah, this is just our- Osmosis Christmas sweater. We did a test batch run this year just for the, you know, core development team. I figured, you know, why wear a Christmas sweater only one month a year? I'm gonna wear it in February, who cares? But I think, you know, we definitely want to figure out how to get these on-chain, something more like Unisox by next year.

• 15:30David Hoffman?

  Sure. Sonny, thank you for always walking me through this interoperability world, which again, I definitely need a guide and you are always a good one, so thank you so much.

• 15:37Speaker 01

  Thank you.

• 15:37David Hoffman?

  Cheers.