SotN #48 - Arbitrum LAUNCH, w/ Arbitrum Team

Arbitrum is one of Ethereum's hottest L2 scaling solutions, and it has LAUNCHED ------ 🚀 SUBSCRIBE TO NEWSLETTER: https://newsletter.banklesshq.com/ 🎙️ WE'RE HIRING AN EDITOR: https://cryptocurrencyjobs.co/marketing/bankless-editor-writer/ 🎖 CLAIM YOUR BADGE: https://newsletter.banklesshq.com/p/-guide-2-using-the-bankless-badge ------ BANKLESS SPONSOR TOOLS: 💰 GEMINI | FIAT & CRYPTO EXCHANGE https://bankless.cc/go-gemini 🦊 METAMASK | DEFI PASSPORT https://bankless.cc/metamask 🦄 UNISWAP | DECENTRALIZED FUNDING http://bankless.cc/uniswap 🔀 KWENTA | EXCHANGE SYNTHETIC ASSETS https://bankless.cc/kwenta ------ 📣 KYBER | DeFi’s First Dynamic Market Maker Protocol https://bankless.cc/kyber ------ State of the Nation #48: Arbitrum LAUNCH Guests: Co-Founder & CEO: Steven Goldfeder CTO: Harry Kalodner Steven Goldfeder is Co-founder and Chief Executive Officer at Offchain Labs. He holds a PhD from Princeton University, where he worked at the intersection of cryptography and cryptocurrencies. Harry Kalodner is Co-Founder and Chief Technology Officer at Offchain Labs, where he leads the engineering team. Before Offchain, he attended Princeton as a PhD candidate, where his research explored economics, anonymity, and incentive compatibility of cryptocurrencies. Arbitrum released its Mainnet for Developers last Friday. This is an EVM-Compatible Layer 2 Optimistic Rollup, which allows for scaling Ethereum's app layer without sacrificing layer 1 Ethereum security & consensus. This is a massive step forward for the blockchain space and a culmination of years of technical research and testing. This is a milestone in effectively scaling blockchains, while maintaining core cypherpunk values. There are tremendous opportunities and possibilities in this new digital real estate. This hub of optimized blockspace keeps the economic security guarantees of Ethereum and poses to greatly improve the DeFi user experience. To scale to a billion users, projects like Arbitrum need to earn legitimacy and demonstrate efficacy as the Ethereum ecosystem continues to mature. In the immediate term, the next few months will be exciting to watch - will we see a DeFi Layer 2 Summer? ------ Resources: Arbitrum: https://arbitrum.io/ Arbitrum Twitter: https://twitter.com/arbitrum?s=20 Arbitrum Discord: http://discord.gg/5KE54JwyTs ----- Topics Covered: 0:00 Buffer 0:30 Intro 9:48 Arbitrum's Steven and Harry 13:00 Shipping A Layer 2 Product 17:51 A Fair Launch, Equal Opportunity 21:36 Migrating dApps to Layer 2 25:43 A Flourishing Ecosystem 29:17 Bridging the User Experience 33:16 Different than a Sidechain 36:50 Layer 2 ETH Fees 41:10 Resources & Scaling 47:03 Delay Period for Exiting 54:11 Complexity of Rollups 58:30 A Digital Nation-State 1:06:23 Ether is the Reserve Currency 1:11:23 Layer 2 DeFi Summer 1:16:30 Chainlink and Arbitrum 1:20:54 Squeezing the MEV Balloon 1:25:28 Predictions, DeFi Summer 1:30:50 Final Thoughts 1:36:38 Closing & Disclaimers ----- 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://newsletter.banklesshq.com/p/bankless-disclosures

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

• 0:34Ryan Sean Adams?

  Bankless Nation, welcome to another State of the Nation episode. This is our opportunity to talk about something big that is happening, zero in on it, and relate it to some of the big picture themes we talk about in other places on the podcast and the newsletter. David, nothing bigger than Layer 2s at the moment. And in the Layer 2 scene, nothing bigger right now than the launch of Arbitrum on Friday. Our guests are going to talk about the launch of Arbitrum. They are from Arbitrum. David, any thoughts on what we're going to cover today?

• 1:07David Hoffman?

  The launch of Arbitrum and optimistic rollups is kind of one of those ground-shaking events in the world of crypto, right? And basically, because there has been so much, just regardless of Ethereum, the concept of L2s is being proven out here, right? L2s are a technologically independent piece of technology that can be on any blockchain that can support it. And now it just happens to be coming to Ethereum. So the fact that we have blockchain independent blockchain agnostic code that is kind of the original thesis or vision of what, how blockchains can scale is now arriving in this cryptocurrency industry. It's also happening to arrive on Ethereum.

• 1:48David Hoffman?

  And so Arbitrum has launched its developer mainnet last Friday, and it's just, it's just a big deal. And so I'm really happy to get into this conversation as to why this is such a big deal and what this means for the future of Ethereum and crypto at large.

• 2:01Ryan Sean Adams?

  Yeah, we're going to go through the task of explaining what Arbitrum is and the context here is we've called for Layer 2 Summer. I think it's coming. Layer 2 is actually here on Ethereum and this is Ethereum's scalability path, so super important. David, let's get to some announcements really quick. We are looking for an editor of the Bankless Newsletter, somebody to help us write, somebody to edit articles, somebody to take ownership of that. If that is you, we will include a link to a job description in the show notes. Bankless editor position, really excited to see some applications. David, we also released a podcast with Eric Wall on Monday. Do you want to give a quick preview of that?

• 2:39David Hoffman?

  Yeah, I've always wanted to get into a conversation with Eric Wall, so really happy that we actually got him on. Eric Wall is what we have called a lone wolf contrarian in the world of crypto, has his own opinions, has his own mental models, and isn't afraid to have sharp corners about his disagreements with other people. Eric Wall talked about, we actually went down a rabbit hole that I didn't expect, which is the concept of blockchain and cryptoeconomic systems as organisms. So that was really interesting. And then also his conflict with the Bitcoin maximalists and how he, and he also had conversations about optimistic, or thoughts about optimistic rollups back in 2019.

• 3:15Ryan Sean Adams?

  Very bullish.

• 3:16David Hoffman?

  Very bullish, very bullish. So a really just overall well-rounded conversation, touching on a number of different things that I think can let you know how to think for yourself and how to think independently in this space.

• 3:27Ryan Sean Adams?

  We also have a DeFi panel coming next Tuesday, next Wednesday, rather, I believe. And this is like almost a, I don't want to say a makeup panel, but apparently, David, and I haven't seen it yet, the video is not public released, I just missed it, I was doing other things. But you did a DeFi panel at CoinDesk Consensus.

• 3:45David Hoffman?

  Right.

• 3:45Ryan Sean Adams?

  And it was a little controversial.

• 3:49Ryan Sean Adams?

  And you know, you want kind of a review, so give us some context on our DeFi panel next Wednesday.

• 3:56David Hoffman?

  Yeah, yeah, there was a panel at Consensus that I was part of on Thursday called DeFi, Do We Need, Who Needs Banks Anyways? The Current State of Decentralized Financial Technology. And there was this, a guy who's like part of a Bitcoin, he's a, it works on the Lightning. Network for Bitcoin and he self-described what his project was as a Neo crypto, a Neo bank that runs on top of Bitcoin and it's quite literally the opposite of what in my opinion the ethos of DeFi is. So it was, it was very, to me, it was very much oil and water is like, why are you bringing a crypto banker onto a DeFi panel? So who else is, is, is best suited to actually do the world's best DeFi panel ever?

• 4:38David Hoffman?

  And that's what we're doing. And so that's next, not this coming Wednesday, next Wednesday. We've got Vance Spencer, Spencer Noon and also Santiago from Parify Capital. Literally, I don't think there could be a better DeFi panel out there. So really excited to really get to the crux of do we actually need banks anyways?

• 4:57Ryan Sean Adams?

  Is that what you're gonna call it? Why do we need banks anyway? Because I feel like that's every single episode of Bankless ever that we've ever produced.

• 5:04David Hoffman?

  Well, why would we change a good thing?

• 5:06Ryan Sean Adams?

  Okay. Why do we need banks anyway? Next Wednesday, guys, tune into that. Also, wanted to let you guys know that Kyber has released something super cool, particularly for liquidity providers. So this is something they call a dynamic market maker. I'm gonna show you what this looks like really quick, if I can. But basically providing a dynamic way to adjust volatility and get liquidity providers the best possible fees. I really love this riff on market making in DeFi. Of course, Uniswap V3 has its, has its own version, its own riff. But you should definitely check this out because what it adjusts is it, it sort of adjusts the, the levers for liquidity provider in real time based on pricing.

• 5:49Ryan Sean Adams?

  So if there's additional volatility, there's ways to increase the fees. And the Kyber dynamic market maker will increase fees during periods of lot, a high volatility. So what's the net benefit of this? If you're a liquidity provider, more fees. That's what liquidity providers want. After all, the other cool thing they're doing, the reason they wanted us to share this with the Bankless community is they're actually doing some yield farming coming up.

• 6:12David Hoffman?

  I've heard people like that.

• 6:14Ryan Sean Adams?

  But soon. Yeah. So yield farming for the KNC token, kinda cool. We don't have information about that today, but What I recommend you guys do is check out Becoming a Liquidity Provider on the new Kyber DMM. We'll include a link in the show notes. You can also go to banklist.cc/kyber and check that out. Just test it out and see what you think and get ready for the liquidity program coming up.

• 6:39David Hoffman?

  Kyber is one of the oldest liquidity pools and oldest DeFi teams in Ethereum, right? They were, they were DeFi before.

• 6:47Ryan Sean Adams?

  Before it was called DeFi.

• 6:48David Hoffman?

  Before it was called DeFi, right? And so always optimistic to see what happens when Kyber, you know, does something new and cool. And they kind of have that. That is kind of the benefit of Kyber is a lot more expressive than what like a, well, now, now all these apps, applications are becoming really, really expressive these days. Like what is Uniswap V3 other than a more expressive Uniswap? But you know, every single application Kyber included, becoming more expressive.

• 7:10Ryan Sean Adams?

  I just, I like the model of optimizing for liquidity providers because liquidity really is the product for these automated market makers. Seems to be what they're doing. All right, David, we're going to get to it in a minute, but I'm going to ask you the question I ask before every state of the nation, which is this. What is the state of the nation today, sir?

• 7:25David Hoffman?

  This one's a good one. So for those that read the Market Monday piece yesterday, which you totally should, really great context for this conversation that we're getting into right now. We are speculating. The state of the nation is speculating and we are specifically gold speculators. We are moving, going out west, California Gold Rush time. We are speculating for gold. And there's a number of conversations and questions I have for the Arbitrum team here in a second about what it's, what is it like when just a bunch of new real estate gets unlocked out of Ethereum all at once, which we already like are speculating that is going to be in really high demand. And so what happens when like a bunch of DeFi teams really want to claim some

• 8:06David Hoffman?

  real estate from themselves? You know, speculating, nice, speculating on like what happens next? And, and I think if you have been paying attention to the Bankless program, we have been speculating as to a DeFi summer 2.0, layer two edition. And I, and we have some questions for the Arbitrum team about how this is going to work.

• 8:24Ryan Sean Adams?

  Oh dude, this totally feels like new property, new real estate has just opened up, new land to explore has just opened up. That's what these layer twos are.

• 8:33David Hoffman?

  And there's gold out there. There's gold out there. That's one analogy. The other analogy, which I like, which is also from the Market Monday piece is like, think of this as a theme park, you know? Think of, ever been to Disneyland, Disney World? You go in and there's kind of the, the Main Street Disney opening. Well, each of these layer twos are almost like sub parks within the wider theme park that is Ethereum, right? And they're all kind of coming soon. So, some of them are open. Polygon's open, not quite a layer two. It's a side chain. We'll get into that. But like on the theme, there's product market fit. People loving Polygon. A lot of traffic being driven there. Now, what does Arbitrum do? It's, it's been under construction up to this point. And now we're at the point where it's, it's going live in main net, which means developers have access to it.

• 9:18David Hoffman?

  And they're getting the park ready for DeFi users. That's the theme here. Super exciting. I like that one, David. Going west. Bankless graphic designer is just like killing it right now. Is this you? Did you do this? This is me. This is 10 seconds in Photoshop. I love it. I love the theme park theme. All right, guys, we're going to get back to our guests in just a minute. So stick around. But before we do, we want to thank the sponsors that made this bankless episode possible.

• 9:47David Hoffman?

  Synthetix is Ethereum's decentralized derivatives liquidity protocol. What does that mean? Synthetix is a platform for creating and trading synthetic assets, which are assets that are priced via an oracle rather than bids or asks. Traders can use the Quanta exchange, which hosts and trades all of the synthetic assets created by Synthetix. Traders on Quanta can trade synthetic tokens like SBTC, S Oil, or S DeFi. Because Quanta is powered by Synthetix, traders experience zero slippage on their trades. No, I didn't mean low slippage. I meant no slippage because that is the power of the Synthetix platform. No slippage on your trades.

• 10:27David Hoffman?

  You can also easily short assets with iSynths, which are synthetic assets that move inversely to their target asset. Synthetix isn't just for traders. Developers can build on Synthetix to access the infinite liquidity offered by synthetic assets. Or investors can stake collateral to The protocol and earn fees that the protocol collects. If you're a trader and you're looking for a trading platform and not found in the legacy world, check out quanta.io. If you're a developer or you just want to earn yield on your collateral, go to www.synthetics.io where you can stake your SNX or ETH and earn fees from Synthetix.

• 11:06David Hoffman?

  Aave is a borrowing and lending protocol on Ethereum and just recently released Aave version 2, which has a ton of cool new features that makes using Aave even more powerful. With Aave, you can leverage the full power of DeFi, MoneyLegos, Yield and Composability, all in one application. On Aave, there are a ton of assets that you can deposit in order to gain yield and all of those same assets can also be borrowed from the protocol if you have deposited collateral. Here you can see me getting a 200 USDC loan against my portfolio of a number of different DeFi tokens and ETH. I'll choose a variable interest rate because it's a lower rate than the stable interest rate option,

• 11:47David Hoffman?

  but I could choose the stable interest rate option if I wanted to lock that interest rate in permanently. One of Aave's V2 features is the ability to swap collateral without having to withdraw your assets, trade them on Uniswap and then deposit them back into Aave. Aave does all of this for you, all in one seamless transaction. So you don't have to repay loans in order to change the collateral you have backing them. Check out the power of Aave at ave.com. That's A-A-V-E dot com.

• 12:20Ryan Sean Adams?

  All right, guys, we are back. Super excited about this. Arbitrum just launched to mainnet and we have the perfect people to tell us what is going on, what is happening. We have Stephen Goldfetter is the co-founder, chief executive officer at Offchain Labs. This is the company behind the technology of Arbitrum. He holds a PhD from Princeton. We also have Harry Kalodner, who is also a co-founder. He's the CTO at Offchain Labs. He leads all of their engineering, also attended Princeton. Guys, welcome to Bankless. It's great to have you.

• 12:55Speaker 02

  Thanks for having us. Super excited to be here.

• 12:57Ryan Sean Adams?

  You know, where we want to start here is you guys shipped like you made it. It's mainnet now. Super exciting. You know, with so many of these layer twos being pushed back over the years, right? Like dates pushed back and like, there's been quite frankly, for people who've been in this space for a while, particularly in Ethereum, there's been a lot of disappointment with with layer twos, right? It was like, when's Raiden coming? Do you guys remember this? 2016, 2017? State channels are going to scale Ethereum, right? And then it was like, no, that's not the thing. Plasma is the thing, right? And they're like, okay, we'll investigate that. And now it's like, no, that's not the thing. Rollups are the thing. But it's taken so long for us to get to a mainnet solution.

• 13:40Ryan Sean Adams?

  Now you guys are here. You made it to mainnet. How does it feel?

• 13:44Speaker 02

  It feels, I mean, it feels awesome. Obviously, it feels really, really good. And we've been working for quite a long time. Now you speak about these other solutions. I remember when we were forming the company in like 2018, and we've been working it for years before that, we were raising funds and people would say, hey, are you state channels or are you plasma? Like nah, so eventually we just ran with it. We call ourselves state channels.

• 14:09Speaker 02

  Yeah, no, it feels really awesome. And it feels like, you know, despite how long you've been in it, it's like, this is the beginning. Like Friday was the beginning and like, you know, not the finish line by any means. Like we just started and we're doing it. And now it's like, you know, bringing the savings to the users and the all-too experience.

• 14:26Ryan Sean Adams?

  That's hot. Harry, how are you feeling?

• 14:28Speaker 03

  I'm really happy that we had a testnet for a long time. We felt like we really cared about like really having the tech out there and having users using it and like developing experience, running the testnet, like getting developer feedback. Like we did that for a long time.

• 14:46Ryan Sean Adams?

  Since October, right?

• 14:48Speaker 03

  Um, yeah, I think Steven in October. Yeah. So I think that's the reason why we're feeling pretty good right now. Cause like we, we, you know, we, we, we put in the time before we got here.

• 14:58Ryan Sean Adams?

  That's the reason we're both here and rather than fighting fires is because you started, you started in October, really.

• 15:04Speaker 02

  Oh yeah, there were lots of fires we fought since October, but the good news is you fight those on test that and you, you get angry users on Discord and, but you don't actually, you know, that's, that's the time where you, where you want to learn what's wrong with the system and, and get future requests and you know, at this point, you know, we're obviously open to lots of users, but it was really the early users that their future requests got in and they helped us really turn the product into what it is today.

• 15:25Ryan Sean Adams?

  All right, guys. So we're going to spend just a minute or two talking about what was actually launched. So we're going to get into the why, like what is Arbitrum in a little bit, a bigger picture, but I think since the, this launch event, you guys managed to launch on Friday. I think folks want to understand what was actually launched. I'll just provide some context for bankless listeners. You guys are all familiar if you heard David and I talk about layer twos, the difference between a side chain and a layer two is basically this, a layer two is secured by the layer one, in this case, secured by Ethereum. The economic security guarantees transfer over to the layer two. So this is a pure layer two solution. That's one distinction. Also the, the second is that it is EVM compatible, close to it.

• 16:08Ryan Sean Adams?

  So all of the cool DeFi apps that we know and love on mainnet can be transferred to Arbitrum. But let's talk about what exactly was released to mainnet on Friday, because I know it's not like the, the theme park's not completely open. DeFi users can't access. It's mostly a developer launch. Uh, let's start with you, Steven. What was launched on Friday?

• 16:30Speaker 02

  Yeah. So I guess on Friday, we sort of opened the theme park, um, but there, but there are no rides yet. So we opened the theme park and we brought in the builders and said, Hey, uh, come on and like launch the rides. Uh, the thing is that when we put out our announcement, uh, maybe two and a half, three weeks ago now that we were going to do this on, on Friday, uh, I expected maybe 20 projects to want access to it. And we had now growing over 300 projects, uh, I don't have applied for access to this point. So, uh, we couldn't exactly, you know, we, it took us a bit of operational time to let everyone in and we're still rolling, rolling, allowing people in.

• 17:03Speaker 02

  Um, and but yeah, so we obviously we opened up the theme park, people are, are, are building the rides. And you know, when those rides are ready, well, we'll let in the people, uh, let in the users.

• 17:13David Hoffman?

  So it's right now, it's a developer only launch. Is that correct?

• 17:16Speaker 02

  Yeah, right now it's a developer only launch. It's a it's a wide developer launch. We're doing a fair launch. What that means is so operationally, it's taking us a few days to roll out to everyone. You know, we're doing things like we're seeding people's wallets for them and you know, it just there's just some operational overhead with every everyone to bring on board at this point. But what we're guaranteeing users is that even the last person to be on boarded, assuming that they applied before we launched and they they filled out that form in time, will have enough time so that no one, no one will have access to users before anyone else. So everyone will have time to build. Everyone will have, you know, at least a few weeks to build. And then we'll let users in and they'll get to choose which ride they want to run to, but there won't be some to have this advantage.

• 17:52David Hoffman?

  And I think there's a really important through line to talk about why you guys are doing that. Because it's part of the ethos of Ethereum to not make like a kingmaker, right? And so you guys don't want to like allow like Sushi Swap and Ave to get in before like Uniswap and Compound, right? There's this is supposed to be some sort of like fair launch type of mechanism by not giving any specific party some privileged access to this new real estate, right? And so when you guys are launching Arbitrum, the way that listeners should should really like mentally model this in their head is like you guys are like cutting the cutting, using the scissors to cut the the red like, you know, we're open now, but there's just empty land, right?

• 18:33David Hoffman?

  And so like all these users, like people like me who can't code, like Arbitrum isn't really interesting to me right now. I need to wait for developers and you know, DeFi app makers to build the cool stuff, right? And so I'm still as a user, I'm kind of still sitting on my hands, waiting for like whoever, whichever developer development team can move the fastest and start to build out the rides and attractions, right? And also important to keep this metaphor going, the rides and attractions that all these DeFi apps are going to to build, those are going to be like, you know, users are going to have to pay fees to use those, right? Like you use Sushi Swap, you pay the fee, you know, you use Ave, you use Compound, you pay the fees. So that's the incentive for all these DeFi apps to build really as as fast as possible because

• 19:17David Hoffman?

  there's so much demand to use these new rides, these new attractions, because they have very like low All the scalability that we've always been asking for since like the beginning of time. And so I kind of wanted to just like put that mental model into people's heads about why the credible neutrality of a fair launch that you guys did with your guys with a fair launch with Arbitrum is really, really important, right? Because we don't want, we want everyone to have equal access to like all of this new real estate. And so maybe you guys can illustrate like to what degree like how, when you guys opened up Arbitrum like, and I'm assuming we're talking about like floodgates opening. How many like development teams are there? Like who's chomping at the bit to get in here? Like what's that all that activity like?

• 20:03Speaker 02

  Yeah, yeah, that's, that's exactly right. You know, basically the mental model is projects will execute their business models, just like they're doing on Ethereum on Arbitrum, but they'll have significant advantages. But we're not going to be giving those advantages. So if you're a project that's winning on Ethereum, layer one, you'll hope you may, you'll likely win on Ethereum layer two, but it's not because we're giving you priority access. You know, the little guys are having the same access and if they can outpace you on layer two, then it'll be, it'll be theirs to win. Yeah, basically it's really, you know, I don't want to steal the thunder from, from, from teams that want to do their announcements and want quiet, but like a lot of teams have announced already. So obviously Uniswap, Sushi Swap are well known as are, as are a bunch of other, of others.

• 20:45Speaker 02

  You know, the Ave team has been pretty vocal as well and really down, down the line, you know, lots and lots and lots of teams building on us. And we have, like I said, about 300 teams are request access, including some like individual developers that are, and that are working on projects in their, in their garage and that's okay. Some of these teams will, some of these developers, depending on when they fill out the form, they'll get access before, before the, before, before the largest teams, but they'll all be on the same footing. They'll all have time so to build before, before the park gates open. So yeah, it will take through the, you know, I would say through, we're working on it now. It will take into this week, but all those teams will be on boarded this week. So unless all teams that will get access, meaning there are some users that tried to like get in there to Ape and early and we're like, hold up, just, you know, hang on.

• 21:29Speaker 02

  But everyone that, you know, all the legitimate teams will, will get access this week or either have access or will, will get access this week.

• 21:36David Hoffman?

  Okay. So these are the ride builders. They get access. They start building the rides. I'll also let, add some infrastructure projects I've noticed have joined Chainlink for one. Also EtherScan Block Explorer. So we're not only talking about DeFi apps. We're also talking about infrastructure, but Harry, could you give us a sense of like?

• 21:53Ryan Sean Adams?

  So again, like a question about layer two is, you know, even layer twos that have launched in the past. The problem is it's taken so long to get actual apps live on them. If I am a Uniswap or an Aave, I've got some EVM code. It's written in solidity, right? What, how do I get it into Arbitrum and how long is that going to take? Because the question is like, when is the park going to actually open for DeFi users? I think we're trying to figure that out.

• 22:23Speaker 03

  Yeah, I mean, I think the, the teams that started deploying on, on Friday are already, I think, basically done. And like

• 22:33Ryan Sean Adams?

  Wait, wait, what?

• 22:34Speaker 03

  I mean, it's not like open, but the contracts are up there. I think there are a lot of like internal UIs that are, that are up on top of them. There's not much to do, which is like the really cool thing of EVM compatibility is like, I, like the, the conversation with like these teams has basically been like, you know, and this is, I'll say like, there are some projects that need special features. There's additional testing to do. So right now, what I'm talking about is like the core, like is, you know, can you do the, can you do the basic interaction or the contracts on chain? Can you do swaps? Can you do that? Yeah, like we, we asked for addresses, we whitelisted them and, you know, we, we funded them with some initial ETH because the, we hadn't enabled bridging of ETH publicly yet.

• 23:19Speaker 03

  And then they messaged back and said, we're deployed. And that was kind of it.

• 23:24Ryan Sean Adams?

  Okay, that is hot.

• 23:25Speaker 03

  That had been on our test net. So they had gotten kind of some experience, but I think that, um, I think that they didn't, I don't think the major, I don't think kind of either between Uniswap and Sushi Swap. I think basically required no code changes, some tiny changes to the front end, but basically very little to do.

• 23:44Ryan Sean Adams?

  When you guys say EVM compatibility, you really mean it.

• 23:48Speaker 03

  Yeah, you know, there are some small, there are some edge cases, but there are edge cases you have to look for. Um, so the vast majority of, of, of DApps are, are not really going to hit any of those. Um, and it's also like, it's, it's any version of solidity, it's Viper or Faye, like it's kind of any of the tooling basically that works on Ethereum. Um, is, is kind of gonna, is, is working on Arbitrum as well. And, and you know, the, the initial wave of DApps are mostly kind of ones that don't have a lot of interdependencies. And so for instance, kind of like some people are going to be blocked for some amount of time on like, chain, on like, you know, chain link getting up and running fully. Um, so there are kind of, and part of the kind of coordination effort of, of this period of time, it's kind of like making sure that like,

• 24:32Speaker 03

  we have this like crazy network graph of like who depends on who mapped out and can like make sure to make the connections the right way and, and got all of that working. So like, the things that are easy to do are the ones that don't sort of, that are kind of the base layer of, of the DeFi ecosystem and tooling ecosystem. And then we're basically going to build our way up from there. But at each, at each level, it's just kind of making sure that everybody knows the right addresses for everybody else. Everybody's talking to the right people. The actual effort is, is pretty low. And I think, you know, anybody who's, who's deployed on our, our test net would agree. And anybody who's gotten the opportunity to deploy on our main net so far would also agree, I think.

• 25:07David Hoffman?

  So I think this does a fantastic job illustrating why people have been so excited about optimistic rollups, right? Just because you can copy and paste your code on, on main chain Ethereum, put it on the optimistic rollups. May, maybe it works right off the bat. Maybe you do some checks, make sure everything's running, but like most likely scenario is that it is going to work as a copy and paste, except for the, the dependencies that you guys just talked about.

• 25:33Speaker 03

  Yeah, it's, it's, um, it, it makes our lives a lot easier because there are a lot of teams that we're coordinating with. And if each one required like a ton of time.

• 25:41David Hoffman?

  Right. What would you say, so we, in, on the main chain Ethereum, we have this very like, I would say like hardened structure that has just gotten used to like, Ave is used to Maker Dao being there, Maker Dao is used to, you know, to Uniswap being there. Everything has gotten used to chain link being there. With all of these dependencies and, and Money Legos that you guys need to recreate on, on Arbitrum, what would you say is like the tallest obstacles that you guys are really trying to overcome to really allow that DeFi Money Lego ecosystem to flourish as we've seen it flourish on the main chain?

• 26:16Speaker 02

  Yeah, I mean, I think things really just started coalescing when we announced that we're launching like until then, you know, we've been we're a small team. We have a dedicated business lead and myself have been like, you know, talking with teams for months and months and even longer. And but it's sort of, you know, it's sort of a snowball, right? So teams, I know there's this dependency graph and you've talked to teams, hey, I really, I really want to come, but I can't come till they're there. I need a DEX. I need a lending platform. I need this specific and then sort of once teams start announcing, there's a snowball effect. So I think at this point, you know, that's really behind us. It's really just getting the team's access, which we're doing and allowing them to deploy. And I think we're really just going to wake up one day when we turn on and basically everyone's going to be there.

• 26:59Speaker 02

  Which is like, I didn't expect that a few weeks ago, but that's just sort of how where we are today.

• 27:03David Hoffman?

  So understanding the trajectory that you guys have seen thus far, like, how fast do you think this whole like user experience is going to come like? When can I, when can I put money into AVE on Arbitrum or any other lending protocol? Like, does it, do you think it's coming faster than you guys originally expected it?

• 27:21Speaker 02

  Yeah, so I don't have an exact date to commit to yet, but you know, from our, from our, from our, these are going relatively fast. Like Harry said, there are about naming teams or teams that said, hey, I need this much time, you know, I need a little longer to test things and, and you know, these are teams that, you know, you know, that other teams depend on. Like we, like we said, we need our oracles up before and we need many price feeds up before, before, you know, users can use those. And that's just an example. All right, there are lots of dependencies. So building up the dependency graph, unfortunately, sometimes it's as slow as the, as the, as the slowest player. For very important ones, but we're not going to wait for everyone, right? So we're going to wait for the, we're going to give everyone enough reasonable time.

• 28:00Speaker 02

  And wait until the, you know, the big infrastructure pieces are in place. So I would really look, I think mostly to the teams building on us for that information. We're coordinating with them, but we're not, we're not really calling, calling the shots on that anymore. You know, my hope is obviously sooner, sooner than later. And I think we'll be relatively, you know, relatively soon, but the first thing that we're doing is, you know, we're going to give everyone enough time to deploy. So that's the thing we're guaranteeing, but that's a matter of weeks and then. Certain teams are going to need a little bit more, but you know, I think, I think we'll be pretty, you know, I, I, I think it's, I, I'm still pretty confident that we'll be the first live layer two with, with apps on it because you know, the process is unfolding and this is a process that everyone's going to need to go through, you know, if they launch in this way.

• 28:43David Hoffman?

  So you guys have just like opened Pandora's box and now you guys are just like, eh, the ball's in your court, DeFi developers, like you guys go figure it out.

• 28:51Speaker 02

  Pretty, pretty much. And you know, obviously we're doing a, a, a large coordination effort, you know, putting people in touch with other, other people, putting different projects in touch. And so we're, we're obviously manning that coordination, coordination effort, but fundamentally, a lot of the balls are not in our court anymore.

• 29:06Ryan Sean Adams?

  That's super cool. Super exciting. All right. I want to put, because a lot of DeFi users obviously listen to this. We're all, we're all in, in, in the process of going bankless and becoming more bankless. I want to get a sense from you guys of what the park is going to look like when it's open. So a lot of people who listen to bankless, they've of course have experience with Ethereum mainchain. So that's one model of operation. Like you have MetaMask and you can use hardware wallets. You have EtherScan and these are the tools that you use and you have the, the, the DeFi apps that you're familiar with. Some have also gone to other sub-theme parks, right? I think like Polygon is maybe one example of this. So this is not a pure layer two, this is a side chain. But what's cool,

• 29:50Ryan Sean Adams?

  when you travel from Ethereum to Polygon, you walk across the bridge, as it were, is all of the tools that used on Ethereum mainnet and a lot of the user X experiences, the UX experiences, like it's the same. So it translates over. So you just get to use your, your Ethereum Disneyland tools in this new sub-world. Can you talk about maybe the similarities and the, and the differences with maybe an Arbitrum and a, a Polygon? So first of all, we talked about the DeFi apps. So I can imagine a, a unit swap or a sushi swap is waiting for us over there, maybe an AVE. And then I think there's compatibility with like MetaMask and maybe hardware wallets. And is there also like a

• 30:32Ryan Sean Adams?

  bridge? So with Polygon, you have to walk, you have to actually go across the bridge. Can you talk about that? Maybe Stephen, you start?

• 30:39Speaker 02

  Sure. Yeah, I think it's a very similar experience from the users. And first thing I'll say is, you know, I have tremendous respect for the Polygon team. You know, they're really killing it now with adoption and, you know, only good things to say about them. But I'll speak about some of the differences and some of the similarities. So the similarities are the experiences. We'll have a bridge. We're an optimistic rollup, so we derive our security from Ethereum. So when you escort your contracts in the bridge, and when you escort your funds in the bridge, they show up on the L2, but again, and then you can move them from the L2 to the layer one. We have this withdrawal period because we're an optimistic rollup. But fundamentally, you can go back and forth over our bridge, and all the tooling will just work. We're bytecode compatible. That's what I like to say.

• 31:23Speaker 02

  So there are sort of this, you know, people have this, oh, aside chains have the Ethereum experience because they just use GAF. L2s are much more complicated. The thing about Arbitrum that I think is unique is we give you the experience of a sidechain because we accept EVM bytecode directly. All the tooling works. And but we give you the security of a layer two, right? The security of Ethereum. And I think that's, I guess, that's our differentiator. But fundamentally, yeah, the experience is the same. You go over the bridge, and your funds just work, you know, and there's protocol level bridge. There will be faster bridges. We have a relationship with OKX. I deal with OKX. They'll be enabling fast deposits and withdrawals directly onto the Arbitrum chain.

• 32:05Ryan Sean Adams?

  Wait, I want to pause right there. So we're talking about fiat going directly from a crypto bank, crypto exchange fiat directly to Arbitrum as well as another way to get into the theme park. You don't have to go through the Ethereum front door main chain. You'd use the side door from the traditional world and bridge that way.

• 32:22Speaker 02

  Exactly right, which I think is super critical. And, you know, one of the things people don't like so much about optimistic rollups is the delay period to get back. And you have projects like that are building bridges to Ethereum to solve that, like Connects and HOP and Seller. And you also have projects like, and you also have these like OKX relationships and these OKX collaborations that will also make that point pretty moot. So I think the user experience is going to be pretty excellent. And, you know, that limitation will be like a small detail that doesn't actually ever show up to users. And by the way, I'll tease that there are OKX as the first, but there are others that are coming quite, quite soon.

• 32:57Ryan Sean Adams?

  Hey Gemini, if Gemini, you're listening, Coinbase, if you're listening, really excited, guys. The reason we're so excited is because Dave and I have been talking about this for so long. And we've kind of like said that this stuff, this sort of thing was going to happen and now here it's happening.

• 33:11David Hoffman?

  Since the beginning of Bankless, we've been talking about how this is going to be coming here.

• 33:15Ryan Sean Adams?

  It's here. Layer 2 summer is here. All right. Harry, I want to get to maybe some differences. So Steven was talking about some of the similarities we've got here, right? So like similar experiences, so maybe something like a sidechain like Polygon. But let's talk about the differences because there are a couple of I picked up on. I want you to validate whether this is true and then talk about some others. So one is if you're on a sidechain like Polygon, right? You're, there are still fees, transaction fees, but those are denominated in the Polygon token, Matic. I think with Arbitrum, they're denominated in Ether, but there are still transaction fees yet. Also, I think with Arbitrum, users should expect those transaction fees to also be higher because you are paying for a portion of Ethereum's economic security.

• 34:00Ryan Sean Adams?

  Maybe let's start with that. Is that a difference that you'd say is accurate?

• 34:06Speaker 03

  Yeah, yeah, absolutely. No, that's a, that's a, that's a, that's a good description. So I mean, essentially, there's kind of two main categories of fee that you pay on Arbitrum. Now, it's kind of to the end user, there's just a single fee, but essentially it goes, goes to two different places.

• 34:24Speaker 03

  The first is paying for L1 fees. Every Arbitrum transaction gets posted as data to Ethereum. And that's essentially the way that we, that rollups achieve the high level of security that they do is by kind of still heavily leaning on Ethereum. But essentially kind of using it to, using it in order to kind of come to agreement about what's going on in the chain. But in a much, much cheaper way than you would be doing if you were interacting with a traditional smart contract. Because essentially, we're only agreeing on the input data, we're not agreeing on the outputs. And Arbitrum and the optimistic protocol, rollup protocol is what kind of brings us all to agreement over the outputs. And so that was a little, and so essentially we have.

• 35:06Ryan Sean Adams?

  Can you quantify that for us, Harry? It's like, how much of a gas fee reduction is that? How much compression are we able to do here?

• 35:12Speaker 03

  Right, yeah. So I think that kind of roughly speaking, simple transactions, well, transactions with a relatively low amount of call data. So they could do a lot of execution, but with a relatively low amount of call data. Are currently coming in, I'm going to give a wide range because I don't remember the exact latest numbers, somewhere between kind of 1,000 and 2,500 gas. L1 gas for kind of like the L1 cost of kind of just posting the call data.

• 35:41Speaker 03

  And so that's kind of like the, and that's kind of one factor where sort of, there's this trade off. With kind of systems like, commit chain systems like, sidechain systems like, like Matic on Polygon. Where essentially kind of, they don't require data for each transaction. They just post kind of very short summaries. With the trade off being that Ethereum can't actually validate whether or not what's going on in the sidechain is correct. It's instead kind of independently secured. And so essentially what you'll see is this kind of trade off. Where there's a higher level of security, but also higher, but also higher fees in relation that you are paying in order to get that level of security.

• 36:24Speaker 03

  And so kind of we end up on this spectrum where you have kind of Ethereum as the most secure and the most expensive. Arbitrum as close, close to as secure, almost as secure and less expensive, but still, you know, not, not completely free. And then, and then Matic, the Matic chain as kind of significantly cheaper, but with its kind of own independent security mechanism. That kind of doesn't have the same kind of confidence level as Ethereum.

• 36:50Ryan Sean Adams?

  Love it. Okay. So that's the one source of fees is basically the cost to secure a subset of data on Ethereum. And we're talking like a 90, 95% reduction versus doing this on gas reduction versus doing this on Ethereum main chain. Something in that magnitude, in that order. What is, you said there were two sources of fees though. What's the second?

• 37:11Speaker 03

  Yeah, absolutely. And I think it's even more than 95%, I'll say. I'm not going to remember exactly. Like, it depends a little bit on the transaction, but it's like a crazy amount. And the other source of fees is basically L2 computation and state. So essentially, the same reason why Ethereum needs to, needs to charge fees also applies to Arbitrum. That you need to make sure there's kind of not an infinite supply of capacity on the chain, because we still have nodes that need to be able to run user transactions. We can, we can have more capacity and we will, and we will have more capacity than Ethereum, but there are still limits to it. And so there are kind of, and there's still kind of people who need to actually run those transactions.

• 37:51Speaker 03

  And so kind of, there's two sort of major, kind of reasons why there are kind of, there are fees in L2, one of which is in order to actually kind of support the, the costs of the chain and the cost of upkeep, including kind of the cost of state growth, because state growth is something that we think a lot about, just like is kind of a, a serious issue that, that's kind of thought a lot about in the context of Ethereum. And I think that kind of, the solutions that Ethereum is, is looking at are also kind of very similar to the solutions that Arbitrum will pursue over time.

• 38:22Speaker 03

  And the other is essentially a, it, it kind of, the Arbitrum chain with its own gas market that kind of, once enough demand for Arbitrum has come up, there's kind of a, a mechanism that was very heavily inspired by, by EIP 1559 that we'll be using on Arbitrum in order to kind of, when there is so much demand, which I think we're pretty confident at this point is going to happen, to kind of even fill up all of the supply on Arbitrum. If transactions were free, the, the prices, the kind of L2 fee portion will kick in. And I think kind of still be significantly less than the L1 fees, but it'll be there.

• 39:01Speaker 02

  In other words, if we didn't have fees on L2, the users would never get off the ride. Right? So you'd have a bad scenario.

• 39:10Ryan Sean Adams?

  That's what I guess a spam civil attack is, users not getting off the ride. Okay, so like, and both of these fees are denominated in ETH, is that correct?

• 39:18Speaker 03

  Yes, and both of them are kind of, it's a single, it's a single fee that the user suits. In MetaMask, there's one fee. In our Block Explorer, there'll be a breakdown where you actually see like, well, this is the total fee paid, and these are the different kind of places it went.

• 39:32Ryan Sean Adams?

  And is it correct? So I know the fee to settle something on Ethereum in a rollup, that obviously goes to Ethereum miners, validators in the future. But the fee that is Arbitrum-specific, does that go to validators within Arbitrum? Or who gets that fee?

• 39:49Speaker 02

  Yeah, so fundamentally, yeah, that fee is going to pay. We have this notion of invited validators. We can't, because of like civil tax, like you said, the current economic model doesn't allow us to just like, say, okay, you pay everyone this fee because, because, yeah, then there's just not enough to pay people for their costs. So validation, you know, right now, we're writing this in the developer period. Validation, once you open up, will be permissionless. Anyone can validate, and there will be users, validators that will be onboard to basically, as invited validators that can also share fees and get some of that fee revenue. As well as, you know, we're also operating the sequencer, and we'll be taking some of that, some of the fee revenue for us as well.

• 40:34Speaker 02

  But fundamentally, that's where, that's where it goes. It goes really into the operation of the system. And, you know, over time, you know, our goal is to move more. Right now, it's kind of bespoke. You know, we have these, we're going to be working with validators. Over time, our goal is to move more and more of this on-chain. So validators get paid directly on-chain, and the fee revenue, you know, gets mostly, right now, it's sort of going through us. But like, the goal is to move as much of that on-chain as we can. So layer two operators, layer two development is something that, you know, we think should be funded, but it should become, you know, directly on-chain, you know, exactly where that's going.

• 41:10David Hoffman?

  So with Ethereum, the way that we meter resource consumption is we constrain block space. And then with EIP 1559, the way that we meter resource consumption is by just increasing fees to make resource consumption come down. You guys said that you guys have a mechanism heavily inspired by EIP 1559. But what is the actual resource that needs to be metered? Is it data and the state of Arbitrum? And then how is that different from Ethereum? And also, can you guys like kind of measure out how much more resources that we have available on Arbitrum? Which is basically a roundabout way of asking, how much more scale do we have?

• 41:48Speaker 03

  Yeah. So in terms of kind of like the first part of the question for kind of what are the resources? So we have kind of a slightly different system than Ethereum, although it's kind of very similar, which is kind of there are two different resources on Arbitrum that are kind of both paid in gas. One of which is state growth, the other of which is computation. When kind of like designing the system and sort of figuring out like how to best sort of control its growth, for instance, kind of computation can be kind of can remain relatively cheap for kind of long term. Because computation doesn't make the system any more expensive to run a year from now. Whereas state is something that I think we're kind of, you know, there's significantly more concern about.

• 42:30Speaker 03

  Because this has kind of been a problem for quite a while on Ethereum. And it's something that kind of Arbitrum operates within a similar model of. And so sort of separating out those two quantities to be kind of thought of as pretty distinct, gives us sort of the freedom to, for instance, weigh kind of weigh different, like have different weights to like how expensive we want to make state growth versus how expensive we want to make computation. And I think that kind of part of the kind of system over time will be sort of adjusting these in order to kind of find the the most sustainable long-term path for the system. Because kind of most of the concerns with sort of ramping up and kind of increasing the capacity is basically this question of how hard are we comfortable with making it

• 43:14Speaker 03

  be to run a node? And and there's kind of this interesting feature of rollout switches that we need way fewer nodes. Because we don't need 51% honest nodes, we need one honest node. But we want to make be sure that people who don't want to trust the current people running nodes can run their own.

• 43:33David Hoffman?

  So, correct me if I'm wrong, but I just wanted to get this in my brain and also listeners' brains, is that the reason why Arbitrum is scaling Ethereum is twofold. One, you just said, which is that you need a lower number of honest, active participants, and that number is so low that it's just one. And because of that, because we only need one honest participant, then we can scale a pretty decent amount. And the other reason is because we are actually using the power of cryptography, we are able to just compress more transactions into smaller little packets. That's what a rollup is, and that just takes up less space on Ethereum. Did I get that right?

• 44:12Speaker 03

  Yeah, I mean, there's these interesting, kind of, two different questions. There's like, how much load rollups themselves put on Ethereum? And how much load that rollups can handle in L2? And so on Ethereum, there's this kind of like, currently, like, by rough measure, Ethereum can support somewhere around like 4,500 transactions per second through all rollups. And so, kind of, like, that's the amount of, like, that's how much call data we can put. That's how many transactions we can actually post the data of. And then there's this separate question, which is, what will kind of a single individual rollup, what kind of capacity will it have? And that's kind of an area where we're kind of, I think it's going to ramp up over time.

• 44:56Speaker 03

  I think we're kind of going to be relatively cautious at the beginning, and then sort of as demand grows, also grow capacity, in order to kind of make sure that the system is as long-term, kind of, safe and sustainable as possible. I'd rather have kind of the system be a little congested for a short period of time, until we kind of increase the capacity, than be wildly off-base and allow the state to grow a huge amount, and then it becomes impossible to run nodes. And so, we're kind of, we're going to be, we're being cautious about this, but I think that kind of, as we adjust up the capacity, we're going to kind of keep ahead of demand for some amount of time. This kind of opens up to be like, what is the eventual future look like?

• 45:40Speaker 03

  Sort of question, which is a really interesting one, which is one kind of that I've talked about a lot, which is that like... Five years from now, there's not going to just be one rollup. Even if, and I don't think this will necessarily be the case, but even if kind of Arbitrum is the rollup tech, there will eventually end up being multiple Arbitrum chains. Because one cool thing that rollups let you do is they let you parallelize. So a single Arbitrum rollup is very similar to a single Ethereum. Whereas multiple Arbitrum rollups are very similar to sharding. Sharding is hard. We haven't figured it out for these two points yet, exactly. That's still open research. And so kind of this is like the direction things are heading in, rather than the direction they're going to be anytime soon.

• 46:23Speaker 03

  But that's the way that we reach kind of a billion users. Rather than kind of where we're going to be at for the next kind of period of time, where we're still sort of just figuring out the process of having one rollup chain that's really solid and a really good user experience.

• 46:36Ryan Sean Adams?

  This is also the reason you guys called this thing Arbitrum 1. So the technology's Arbitrum, but we're talking about the land that's been opened is Arbitrum 1. There could be an Arbitrum 2, there could be an Arbitrum 3, there could be a bankless Arbitrum, all use the same tech. No?

• 46:51Speaker 03

  Absolutely. And so like the decision to kind of start with 1 is really the decision around like multiple chains being way too confusing. The technology is ready for it, but the coordination challenge is not.

• 47:04David Hoffman?

  I think what's really interesting and what the listeners should take away is that you guys are facing some of the same core battles that Ethereum has been facing, right? Like state growth and resource consumption. You guys are just dealing with this in a, in my mind, like a microcosm, right? You guys have slightly different parameters as to like how you guys have to deal with this issue. Ethereum has 51% attacks to deal with. You guys don't have to deal with 51% attacks. You guys just have one honest validator as like your consensus protocol. And that's kind of where these differences come in. But it's the same problems through and through. And the through line that listeners should really take away from is that let Ethereum tackle the 51% or proof of state consensus issues.

• 47:46David Hoffman?

  That's hard. There's a reason why like a native currency of Ether is important for those systems. Arbitrum doesn't have to fight that fight. It has to.

• 47:55Speaker 02

  Fight similar fights, but the main fight of just like 51% native currency consensus is taken care of. And that lets you guys focus on what you guys core competency is, and that's where a lot of the scale comes. So a decent amount of Arbitrum scale comes from the fact that Ether is securing Ethereum under a proof of work and a proof of state network, and you guys just don't have to deal with that already. You guys are kind of riding on those, riding in the wake of Ethereum and its super strong settlement guarantees. Just want to throw that out there.

• 48:26Speaker 03

  Exactly. Yeah, couldn't, couldn't have said it better.

• 48:29Ryan Sean Adams?

  So we're, we're off to talking about the differences. We talked about the similarities and that was all a discussion about like, actually, gas fees, which brought us there. So the difference between something like Polygon and Arbitrum is that if I'm in Arbitrum, I can expect to pay a bit more in terms of gas for these additional security and settlement guarantees, right?

• 48:51Ryan Sean Adams?

  Let's talk about another difference, which I think is the case, withdrawal period. It's been a lot of talk about a withdrawal period in optimistic rollups. A one week withdrawal period has been floated. And the way I'm envisioning this in my head is like, so, once you cross the bridge, I send my Ether, my tokens over the bridge. Like, we know how that works, and I'm now in this, this other sub-theme park, right? If I want to get back, it's going to take a week to get back. Now, maybe I can exit via OKX, Gemini, Coinbase, like in some sort of the side door that we were talking about earlier. But if I want to go back to the Ethereum main chain, there is a delay period that something like a Polygon doesn't have. Can you talk about that? And maybe, Stephen, give us your take on this withdrawal period?

• 49:36Speaker 02

  Yeah, so, so one thing to say is, you know, the reason we have it is because we have a protocol level bridge that gives you the security of Ethereum, right? We could build an escrow-type bridge in Arbitrum 2 that has no delay, but then that you don't get the security of the rollup. So it's fundamental to the security of this bridge. It's not that we can't build a fast bridge. It's just that, you know, you won't have the security, right? We could build a multi-sig bridge, for example, to Arbitrum that's fast both ways. It's just if you want the security of Ethereum, you have to use this bridge. And the reason why you have this delay is because optimistic rollups rely on fraud-proof technology, and you have to give everyone the ability to basically post fraud proofs, right? So the, the, the failure case here is I say, hey, look, this withdrawal is valid. I'm taking all my money to...

• 50:20Speaker 02

  To Ethereum and it's invalid and someone knows that's invalid, but the period is so short that they can't get, they can't get the, you know, the, the multi-round process on chain. So that's why this period exists. But the thing I want to focus on is two things. Number one is as the ecosystem and Arbitrum becomes much more and more and more vibrant, there are going to be users that just want to stay there. So this, I'm not saying this is not an issue. I'm not saying users won't want to go back, back to Ethereum or won't want to go cross roll up. But there are a lot of users that are just going to stay and park their money in Arbitrum because that's where the cheaper DeFi is going to be. And, and lots of, you know, most of the big DeFi projects are going to be there. So this is, again, this becomes less of a problem over time. And the other thing is, like I said, I alluded to before, this is the protocol level bridge. Your application

• 51:04Speaker 02

  layer bridges like Connect, Hop, Seller, Sebridge, and, and a bunch of others in this space as well, that are, that are, that are basically using liquidity, what's called liquidity exits to, to get around this issue. And the core idea here is you have an ETH on Ethereum, I have an ETH on Arbitrum. I could put mine over the bridge, that will take me a week, or we could just swap our assets quickly. So you get my ETH, I get your ETH, I just got a quick exit and yeah, I'll pay you a small fee for that. And, and a lot of people are building out technology along these lines, which means at the end of the day, to users, to users, this, this won't come up at all. And, and a typical user might just want to, you know, just again, go on and off the OKX too. So that's another

• 51:46Speaker 02

  path, right? I'm on Ethereum, I want to get an Arbitrum, I'll go to OKX.

• 51:50Ryan Sean Adams?

  Yeah, I think that's such a nuanced, a much more nuanced take of how it's eventually going to evolve because there's not just one bridge over to Arbitrum. Like there is one protocol-supported bridge that is secured by the Ethereum military, with the most secure bridge that's never going to go down, right? But we also have all of these other bridges. Then, you know, some of them might pay, like there might be a toll to use it if you want to get there fast. You know, others like, but, but it would be much shorter. There's also going to be like sideways to get into Arbitrum 2 directly from the fiat world, traditional finance and exchange. So in your mind, I mean, I know a lot of people are talking about this, like, oh, the withdrawal period, it's like a long, arduous

• 52:32Ryan Sean Adams?

  process, but it feels like it's not going to impede UX. It's there in case we need it, right? But there will be all of these other ways to get liquidity in and out of Arbitrum that don't like require that bridge. Is that the case?

• 52:48Speaker 02

  Yeah, that's exactly the case. Yeah, it's the combination of that, that there are lots of really, really smart teams building application level layer solutions that just get you in and out quickly. And the fact that I think that, you know, it's a really great park we're building and users have wanted to get for a long time.

• 53:03Ryan Sean Adams?

  What other drawbacks are we missing, guys? So, gas fees, it's a bit more expensive than a sidechain. There's this withdrawal period for the primary economic security. Are there any other drawbacks?

• 53:15Speaker 02

  I think those are the, you know, the main drawback. I don't even view math fees as the drawback, because any system that tells you they don't have gas fees, no, it can't work, right? If the gas, you know, some metering, some fees are fundamental to a system just to, you know, resource control and resource allocation. So I think the main drawback is the delay period that we have. But again, I think, you know, really smart teams are working on this. The one thing I'll mention, you know, just to round this out. The one place where all these solutions that I mentioned don't work for withdrawing are NFTs. So if you want to withdraw an NFT, you're actually going to have to wait for it to go over the bridge. Generally, you don't necessarily need such fast liquidity over your NFTs, like you keep your NFTs there.

• 53:56Speaker 02

  Maybe you want to move to Ethereum, but it's not like, you know, generally people don't need to do, you know, I think the the delay is not going to be that much of an issue considering what NFTs are used for. But that is something that, you know, I should mention, which all these solutions are really, really focused on fungible assets.

• 54:12Speaker 03

  I guess the other thing that could be mentioned here, which, you know, is it depends on how you, depending on how you think about it, it's, you know, I think it's a short-term downside, long-term doesn't matter. Is essentially kind of complexity. All rollups are significantly more complicated than sidechains. Like, this is just kind of what they're trying to do is more complicated. This is why we wanted, we were on testnet for a long time, because like, that's what it took in order to, I could, I could launch a kind of simple sidechain tomorrow with a couple hours if I want to do.

• 54:50Speaker 03

  Like, kind of like that tech is just sort of like, simple enough and kind of been built long ago enough that sort of with things like 10 It's it's like really easy. Rollups are, you know, are as as kind of a pure L2 are doing something kind of much more interesting and much more complicated. And so like, you know, it's like, this is the reason why kind of we've we've taken a long time to build on test that. Why we're kind of like going to be sort of like grad kind of gradually decentralizing the system more and more until it reaches kind of its final fully decentralized form. And and that's kind of like, you know, it's it's a necessary, it's a necessary journey to go through, basically, in order to kind of really hit the the kind of full promise of L2.

• 55:33David Hoffman?

  Gary, do you think that in the future, deploying an optimistic rollup chain will be as easy as what you just described a sidechain to be?

• 55:44Speaker 03

  Um, yeah, absolutely.

• 55:46David Hoffman?

  Sick.

• 55:48David Hoffman?

  Cool.

• 55:49Ryan Sean Adams?

  I we got a we got a break for sponsors, Harry, but it's like one quick question on that. So where is the complexity? And give us like the really short, like, is it in this fraud proof game? Is that where the complexity is with optimistic rollups?

• 56:01Speaker 03

  And basically optimistic rollups and ZK rollups. The the complexity is in like how you're actually proving to Ethereum that that what you're doing off chain is actually correct. For ZK rollups, it's it's like fancy cryptography. For optimistic rollups, it's fraud proofs. That's like this magic thing that like all of the rollups have to have to do in their own way. Um, that kind of, you know, is is where sort of like the added, like, the added complexity is compared to sidechains.

• 56:29David Hoffman?

  All right, guys.

• 56:30Speaker 03

  And I think that Arbitrum like has like a pretty good form of this, that what we're the complexity kind of is controlled. It's mostly in the node, and I think it's kind of like in a pretty good place where we can get where we can be pretty confident in it.

• 56:44David Hoffman?

  All right, guys, so if any of the Bankless listeners have read my my Market Monday piece yesterday, it was all a speculative version of the future about a possible DeFi summer round two, where all these DeFi apps come to these L2s and they start liquidity mining incentives to really entice users to come to their DeFi app. So that is the conversation that is coming next in the state of the nation. But first, before we get there, we have to take a moment to talk about some of these fantastic sponsors that make the show possible. Bankless is proud to be supported by Uniswap. Uniswap is a new paradigm in asset exchange infrastructure. Instead of a cumbersome order book system where trades are matched with other humans, Uniswap is an autonomous piece of software on Ethereum, which is what Ryan and I call a money robot.

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• 59:44Ryan Sean Adams?

  All right, guys, we are back. We are here with Stephen and Harry. We're talking all about Arbitrum. That was a fire first part of this. Guys, we are going to get into Layer 2 season, whether you think that is happening. But first, I want to run this analogy by you because so I was listening to the Zero Knowledge Podcast. I think you were on that, Stephen, with maybe Ed, right? And it's a fantastic podcast, but by the way, Bankless listeners, if you want to hear the history of Arbitrum, some of the more technical details, go hit up that podcast. We'll try to get it included in the show notes. But I was also thinking like, all right, how do we make this thing easy to understand if you don't know much about blockchains and cryptography?

• 1:00:26Ryan Sean Adams?

  And like the terms that we throw around like Layer 2 and rollups and optimistic stuff and validators and all of these things. So I want to see if this analogy kind of lands with you. So we've often talked on Bankless about Ethereum being almost like a digital nation of sorts. So the analogy is it provides defense. It has a currency. It has an economy. Like what is defense? That is the economic security ETH as an asset, right? That is the crypto economic security that backs the entire system. Has a military miners, validators in the military, has a tax system. You know, you consume blocks, you get charged a tax, gases. It has a Supreme Court. It's the court of law, Ethereum. Code is law, right?

• 1:01:11Ryan Sean Adams?

  It has to compile somewhere. It has to be code on mainnet. That is the Supreme Court of Ethereum. So Ethereum mainnet, as I know, we said it was a theme park, but it's also almost like a digital nation state, right? And where I see rollup chains going with Arbitrum is Arbitrum is almost like an economic zone. I'm like that uses that nation state to provide. It's economic security, so it's not completely independent. I almost think of it as, you know, sort of the US. If you think of the US has a federal government. And then it has the state economic zone. The states don't need to have their own military force. They don't like, they don't, we, I live in Virginia. We don't have a military in Virginia. We rely on the Fed for that.

• 1:01:53Ryan Sean Adams?

  But it does have a court system, right? And so I think Arbitrum does, and Optimistic Rollups do have like a court system. But if there is a dispute in the economic zone, in the state court system, in kind of the state-run circuit courts. Then what happens is that eventually gets all of the way to the federal court system. And that happens at kind of the nation-state level, if we're talking about a nation, a crypto nation, right? So with Arbitrum, that happens in Ethereum. So Arbitrum as this economic zone doesn't have to bootstrap its own security because it gets that from its parent nation-state. But it is connected to the Ethereum nation-state as this.

• 1:02:35Ryan Sean Adams?

  And here's the cool thing, like, so we know how courts of law work on, you know, circuit court in state court. But I think with Arbitrum, what you guys are saying, this is a gleaning from the previous podcast. Is all it takes is one validator, one defense witness to say, hey, here's our evidence in the circuit court, right? This code, like, somebody cheated here. There was some fraud detected here. The code didn't run as it should have. And that just gets escalated, if that happens, that gets escalated to the nation-state Supreme Court on Ethereum. And then the court just decides on Ethereum, like, whether that's true or not, right? Anyway, it was a helpful analogy for me to try to understand this.

• 1:03:19Ryan Sean Adams?

  I don't know if it works, if you guys like resonate with this, but it was my way of explaining how Arbitrum and Ethereum are linked. And how these systems work without using like cryptography words that people don't understand. How's it land, Stephen?

• 1:03:35Speaker 02

  I think it's great. I really do. I like it. I may actually start using it, to be honest. I'll credit you, don't worry. But actually, it's funny because one thing this, you know, reminds me of is the Arbitrum name. So Arbitrum actually dates back to the days where Ed was in the project and I was before he, where I was back in, you know, early 2014 days. And Arbitrum comes from like Latin for arbitration. And this is what the idea, right? So you have these sort of economic zones that sort of set up their own rules. And they basically do this arbitration and you don't really need to fall back to the federal and the state, you know, the larger systems, but they're there. And the reason they, and the reason this works is because you know they're there. Because it can fall back to that and because you have that enforcement if you need to. So yeah, I think that, that, that, that's exactly right.

• 1:04:18Speaker 02

  And, and you can have many of these zones that all rely on the, on the, on the same federal military and the same federal Supreme Court resources. And it can scale out this way. And, and whether that's many Arbitrum chains or whether that's other rollups as well. We can all basically use those shared resources and set up our zones, our own zones, which will be able to scale in ways that one larger operation is sort of just wouldn't be able to do. So I think it's really awesome. I don't know, Harry.

• 1:04:47Speaker 03

  Yeah, totally agreed. I mean, my, my only worry is about word overloading. Like now we're talking about economic zones, but then there's also like Cosmos has their notion of zones.

• 1:04:55Speaker 02

  Yeah, I know. I know.

• 1:04:57David Hoffman?

  Well, we're all trying to come to consensus about with the right like ways to, to use these words in this space. And, and so at some point, we kind of just have to make a mess of it all to, to really figure and settle things out. I'm reminded of our podcast that we did with Joel Menegro, where we talked about how like, you know, the consensus inside of the United States, when I swipe my, my credit card to get my morning coffee. Ultimately, the reason why that works is because there's F-35 jets, you know, somewhere that will enforce me to do the right things, no matter what. And at the end of the day, like proof of stake Ethereum with staking Ether is actually way more efficient than F-35 jets. And ultimately, that's what Arbitrum comes to be settled by is proof of stake Ethereum with Ether, the asset.

• 1:05:39David Hoffman?

  And so, and also importantly, like if there is a dispute about my coffee transaction that goes all the way to the Supreme Court.

• 1:05:47Speaker 02

  Oh my God, I hope not, David.

• 1:05:49David Hoffman?

  Think about like how many just like. Your order is too complicated. Think about how many like just months and like jury members and lawyers and litigation and think about how crazy expensive that is in both dollar terms and time terms. Versus a settlement of a dispute on Arbitrum, which it can happen in theory like atomically because of the power of cryptography. We are moving into a much more efficient, much more powerful world that is no longer secured by, you know, guns and militaries and rather just proof of stake Ethereum.

• 1:06:21Speaker 02

  Absolutely. I totally agree there.

• 1:06:24Ryan Sean Adams?

  I also have another quick question for you, like with that metaphor, one interesting design of the Arbitrum, which I didn't realize until you guys had the announcement post is that you're actually planning to use the currency of the federal government, as it were, Ether. Within your system, which is kind of like federal versus state. Why that decision? Right? So why, why adopt Ether as the, the reserve currency of this economic zone?

• 1:06:49Speaker 02

  I think the, the basic answer is that our goal all along was, and you know, it's taken us a long time to figure out what this means and how we get there, but our goal all along is to reduce friction, not add friction. And fundamentally, if you're a roll up, you get your security from Ethereum, which means you're posting transactions on Ethereum, right? For every transaction on the roll up, there is something denominated in ETH, because that's, that's the currency of Ethereum. So if we were to introduce our own currency here to pay those fees, we'd basically just need an oracle for ETH, because that's the real, that's really what's happening underneath the hood. There's also the L2 fees, which we can dominate natively in a different currency, but fundamentally, it's that and also like you, users want to use a system. Do they really want to get handhold of another coin that could be volatile to use a system? Absolutely not.

• 1:07:32Speaker 02

  And, and one of the things, you know, trust me, there were many, many people along the way, you know, we, when we start, we started Arbitrum before 2017, so we went through all the cycles. There were many people along the way, and we tried to raise funds early on, you know, for our seed round, there were people that were trying to get us to do different things. And, you know, I'm happy we, we really stayed, stayed where we are, because I think today that's one of our major advantages, the fact that we can be ETH native and you don't have to. You're a user that has ETH, you're a user that loves ETH, you, you, that's what, that you have the tools you need. Developer, whether you're a user, you have the tools you need to use Arbitrum. And yeah, we believe fundamentally, and then that's, you know, obviously ETH is volatile enough. We don't need to introduce another new asset here that users have to have to sort of interact with our system.

• 1:08:15Speaker 02

  I think that would be pretty bad for UX and it's exactly the opposite of what we're trying to do. We were always UX first, you know, everything else second.

• 1:08:24Ryan Sean Adams?

  Was the design destination always Ethereum as a as a layer one?

• 1:08:29Speaker 02

  So definitely not, because as you know, if you mentioned the ZK podcast, as we mentioned, Arbitrum predates. You can look on YouTube for the first Arbitrum video and it wasn't me. I was in that class and also doing a different project in Threshold DCE, which I did some work on back there in my PhD. But this was Ed leading this project and this predated Ethereum being live. So this was, you know, the videos from early 2015, it was a 2014 class. And, and, you know, these ideas have been percolating in Ed's head for years before that. So Ethereum wasn't a thing and it took us time to really, to really, you know, watch Ethereum grow and understand, hey, this is the ecosystem. Where everyone is, where all the mind share is, where, you know, and this is where we want to be. And this is the thing, the experience we want to improve.

• 1:09:14Speaker 02

  You know, again, like we were raising funds initially, you know, right after the 2017 hype. The best and easiest thing we would, we could should have done back then was ICO. But I guarantee you, we wouldn't be here today if we did that. So, no, definitely it took us a while to understand that, like, we want to build an L2. I mean, we've been doing this for years, for years at this point.

• 1:09:32Ryan Sean Adams?

  That's the crazy thing is like, it feels at some level, I think to some people that Arbitrum just came out of nowhere. But like, really, you guys have been skating to where you thought the puck was going this entire time. It just happened that like, we got to rollups, right? You were doing rollups before, it's called rollups.

• 1:09:47Speaker 02

  Absolutely. And, and, and, you know, and what, yeah, absolutely. We've been in this relatively early, and I'll also say, you know, credit to all the other great teams building out there. The competition brings ideas and, you know, it refines our ideas. So our ideas are definitely refined over time and, and, you know, other, you know, really the community, Ethereum community as a whole. Take out, take down the competition for a second because we're all working towards the same goal. Ethereum community has a goal, has basically gotten to, you know, Design goals we want, as you mentioned, we've gone past the like initial scaling solutions and understand this is what we want. And I think we've been pretty close to that all along. We've definitely refined our vision and understood the, for example, the importance of EVM compatibility like 100%. That's something which we understood, you know, it took us a few more years to understand and we've definitely been skating along for a while.

• 1:10:31Speaker 02

  Uh, I think, yeah, a lot of people probably didn't hear about us till, till, till quite recently, but we've been, uh, you know, building, uh, building, you know, this is one of the benefits of, you know, I've seen this in Ed. Ed is, you know, a 27 year Princeton professor, not now full time in the company, but this is, and I've seen, you know, I've had the ability to interact with many such types. And one of their, one of the things that these people have is the ability to see the future basically, and to realize what's going to be hot. And, you know, Ed really, um, has, has been very visionary in this and I credit him for a lot of, of seeing and scaling way early on as, as an issue.

• 1:11:03David Hoffman?

  So you guys have, uh, read my, my DeFi L2 summer posts and I've already been citing it a bunch of times so far in this podcast, but now I want to, uh, go in and attack this question directly. Uh, we already, we've already heard that like there are a ton of, uh, DeFi apps that are trying to like move into Arbitrum. Because it's, it's theorized by these DeFi apps that the real estate that Arbitrum offers is really, really valuable because of the low fees and scale, right? And so all these DeFi apps are like rushing it, rushing out the gate to start building their attractions. Their attractions are going to charge fees towards the DeFi apps. That's why they want to be there. Because they are assuming that all of these users are also about to become following the DeFi apps. Uh, and so my theory about this, this summer, and maybe it's longer than the summer, maybe it goes into the fall.

• 1:11:47David Hoffman?

  But like the whole DeFi summer round two or L2 summer round two is kind of an attractive meme. We like memes of bankless. So I want to get your guys' take on this. Uh, do you think that there's going to be like a rush towards extreme, not maybe not extreme, but like awesome liquidity mining incentives by DeFi apps? Because, you know, Sushi Swap is really aggressive with their integrations and they like to build, build, build, build, build. And they also like to do liquidity mining. Afe, Afe is doing the same thing, like same sort of like ethos, like build really fast, incentivized with liquidity. Uh, do you guys think that we're like on the cusp of like an L2 DeFi summer?

• 1:12:23Speaker 02

  Yeah, I think, you know, I totally think we are and to, without leaking any specifics, I'll tell you, I'm aware of a number of teams that are planning on doing liquidity mining directly on Arbitrum. And again, these are teams that are going to introduce new tokens that are Arbitrum native. And these are also teams that are, you know, have live ecosystems and already have lots of experience here, and they want to bring usage to Arbitrum. Because again, it really comes down to the economics for the teams, and that's what's going to make the system work. If they believe that there is a better market for them in Arbitrum, and they'll be well served by being on Arbitrum as opposed to some other ecosystem, they're going to attract users there. So, yeah, I can't spill any of the details today, but other than to say is, I have, we have knowledge of lots of liquidity

• 1:13:07Speaker 02

  mining programs that will come online once Arbitrum opens up to users. You know, you mentioned the summer, the fall. I think the big question here is, and the one which I know we discussed before, but still some uncertainty about is exactly when we open up to users. You know, I don't, but I think once we open up, these liquidity mining programs are going to be ready, are going to be ready from day one, and we're going to see a rush of liquidity. There's just also a lot of excitement about it, which is, you know, there's even forgetting about these, these, you know, obviously, this helps and will bring a lot of users, but there's just so much excitement, you know, we get pings from people all the time that just want to put liquidity into Arbitrum. It's like, first, let's put it in, then I'll figure out what I'm doing, if they know why it's there. So, yeah, I think there's going to be a gold rush.

• 1:13:50David Hoffman?

  So like 10 projects with liquidity mining, 12, 15? Like, what's the ballpark number that we were talking about?

• 1:13:59Speaker 02

  So, you know, I'm aware of a handful. I'm sure there are more, but I'm, you know, I'm personally aware of a handful, yeah.

• 1:14:08David Hoffman?

  Because they don't even have to tell you if they're going to do it or not, right? Like, maybe they have told you, but like, they could do it without telling you regardless, because that's what it is.

• 1:14:16Speaker 02

  Yeah, these are like matter-of-fact conversations. I'm on the phone with teams, like, hey, by the way, you should know, thanks for giving us access, because we plan on driving lots of users to Arbitrum. And then they, you know, this is not something we ask, this is not something that they have to tell us, this is just, you know, some, we speak with teams all the time, and, you know, some teams have told us this, and of course, we're not going to say today who those teams are, because we don't want to break anyone's confidence. But we're talking to enough teams, the anonymity set is large enough that I'm comfortable saying that you'll see, you'll see at least a few of these, and likely more.

• 1:14:48Speaker 03

  There's one super interesting kind of thing to throw in here, which is that there's kind of like two reasons you might want to do liquidity mining kind of in this way. One of which is to bring users from Ethereum to Arbitrum. The other of which is to have the users who are coming to Arbitrum come to your DAP over your competitors. And so I think that like, oh, I think the users are coming. I think there's going to be a lot of kind of like where, who becomes dominant in the new L2 landscape. And I think there's kind of going to be a lot of fighting over that. So I think a lot of kind of the reason for doing all of these new programs is kind of fighting for dominance kind of in this L2 landscape where people are going to be.

• 1:15:25Ryan Sean Adams?

  What do you think about that fight for dominance? Is it going to be about like the protocol design of the individual L2 or like optimistic roll up? Or do you think it's more about this coordination game that you said was particularly difficult? How do we get all of these, you know, protocols to kind of migrate over here?

• 1:15:43Speaker 03

  So I even, I was really just talking about within Arbitrum, that you have kind of a lot of the Ethereum ecosystem deploying in Arbitrum. And there's going to be, you know, the same fights that have played out, or I shouldn't say fights even, but the same kind of friendly competition that's played out on Ethereum. You know, I would expect to also very similarly play out on Arbitrum. That fundamentally, that's the place where kind of the users are going to want to be, the liquidity providers are going to want to be, it's going to be cheaper, it's going to have fast transactions, and the DAPs are already planning on being there. And so kind of getting a strong hold on that landscape is going to be very valuable for the DAPs that are deploying there.

• 1:16:22Ryan Sean Adams?

  I hope people are ready for Layer 2 vampire attacks. It sounds like that's what the prediction is. Go ahead, David.

• 1:16:29David Hoffman?

  So guys, the Chainlink Army will have my head if I don't ask about Chainlink. And I do know that there's something intrinsic about the relationship between Arbitrum and Chainlink that I'm unfamiliar with. Can maybe you guys can explain like I'm five, the relationship between Chainlink and Arbitrum, and why the Link Army is so excited about this?

• 1:16:49Speaker 02

  Yeah, definitely. You've done them a favor because I keep seeing my Twitter notifications begging me to speak about this. And we've done it before, but here goes. Yeah, so first, I'll speak about the history of our teams. I did my PhD at Princeton, as you mentioned, but I also did a postdoc at Cornell, and I was fortunate to be advised by Ari Jules, who is Chainlink Chief Scientist and Advisor, currently there at Chief Scientist while he's on leave for the year, but also, you know, a longtime advisor and really just an amazing person to work with. And Chainlink is so fortunate to have him. And so that's like the initial tie of our teams to Chainlink. And through that, you know, through, over time and events, I got to know Sergey as well,

• 1:17:34Speaker 02

  as did my co-founders and the rest of our team. And I would say that both the Chainlink team, as well as the Chainlink community, really were like early believers in us. The Chainlink community on Twitter has been really fantastic. And now we're sort of, many, many other people are aware of us as well. But if you go back to like, go back a year or two and like, look who's retweeting our tweets. And it's like, it's like all Chainlink folks. And it was encouraging. And you know, they're a super valuable part of our community and we really, really, really value them very, very much. In terms of the technical integrations and how we've kind of worked with Chainlink. So there are lots of collaborations that we're working on or exploring, some deeper than others.

• 1:18:18Speaker 02

  And I'll give you some insight there. And number one is the most basic, Chainlink price fees on Arbitrum. And with the fees lower, the demand for these fees, with the fees lower, the demand for these feeds is going to be higher. So I expect to see lots of them on Arbitrum. And I know, you know, this is one of, you mentioned before, how we built, how did we get to the point where we opened up to users? So Chainlink has to be on the ground floor, right? This is one of those pieces of infrastructure that so many teams want and so many teams are relying on. So, you know, they're a critical piece of infrastructure. There's also something else, and this gets, I don't want to open up another can of worms here, but it sort of needs to be said to answer your question. There's this all, there's this question about MEV, um, transaction ordering and how that works on layer two.

• 1:19:03Speaker 02

  So, uh, when I was at Cornell Tech, uh, working with Ari, I had the privilege to work with Phil and Ari. Uh, I was a co-author on the initial MEV paper and, uh, together with-

• 1:19:12Ryan Sean Adams?

  Wait, Ari, the Flashboys paper? We just had Phil on, so I ask.

• 1:19:15Speaker 02

  Yes.

• 1:19:16Ryan Sean Adams?

  Didn't know that, wow. That's cool.

• 1:19:18Speaker 02

  Uh, I was, uh, I, I co-authored that paper, primarily Phil's work, uh, but I was a, a co-author with Ari and Phil and some others. And, uh, and then Ari and I and a few others, led by a, a really, uh, great student, uh, Cornell, Mahimna Kalpar, um, worked on another line of work called fair, uh, um, fair, fair, fair ordering consensus, right? Consensus systems that, that, um, uh, guarantee fair ordering and I'm, and, um, you know, there's lots of, I'm not going to w- wait into these debates now, there's lots of, I don't know, you might have seen Ari had an op-ed and Phil responded and, you know, my thinking is, is, is, is along the lines of, you know, I tend to agree with, with this, uh, notion of as much as we can, we should design protocols that don't have MEV or don't incre- don't increase MEV.

• 1:19:58Speaker 02

  To the extent that MEV is there, I think flat, you know, Flashbox is awesome, we should democratize it, like, for sure, but we should also try to minimize it as much as possible. So, um, how do you do that in an L2, in a layer two? So, I don't want to lose, lose users here, but just to say, uh, so Ari and I and some others wrote, uh, I co-authored this paper, uh, led by Mahimna on fair ordering and Ari's building that out at Chainlink this year. And there's definitely a use of, of, of this service and arbitrum to decentralize the sequencer, to make a, the sequencer is the one in the layer two, the one in arbitrum to get to choose the transaction ordering. Right now, we're running it and we won't reorder transactions, but to get it to a good guarantee, uh, you need a system, a system like this. So there's definitely points of collaboration that we're exploring there as well, on how to introduce this, this really new technology.

• 1:20:42Speaker 02

  You know, it was an academic paper last year, um, and they're, they're, they're really building it out and, and how do we introduce that? Uh, you know, this is not finalized yet by any means, but I think there's, there, that's another collaboration point, uh, there.

• 1:20:54Ryan Sean Adams?

  Okay, so Stephen, since you brought it up, we got to talk MEV for just a second, all right? Could just because like two weeks ago, we had an MEV episode that came out with Phil and some others. And we talked about MEV is kind of like we're just squeezing the balloon. Now we're squeezing the balloon and like the MEV problem is on roll up chains. So I want to ask you this question. So like there is this role, this task, kind of like a sequencer in the roll up chain, as he said, and Arbitrum might operate that. My understanding is like, and this might be a distinction with optimism versus Arbitrum, which I'm curious about because as I understand it, optimism might be trying to sort of auction off the value of MEV. And if anyone listened to the MEV episode, they know MEV is super valuable.

• 1:21:37Ryan Sean Adams?

  But you're talking here about potentially decentralizing the sequencing function. Not to get super geeky, like we don't, don't want to get super geeky. But like, what is kind of your take on MEV and Arbitrum's take on MEV versus maybe optimism? Because I think they're different.

• 1:21:56Speaker 02

  Yeah, they're quite different. And this is, you know, a, not one of the differences that people like to focus on, but this is a pretty critical core difference in our vision. So to my understanding, the last I've seen, you know, of their writings and their thoughts on this is, just like you said, they pretend to auction off, MEEVA or MEV auction, auction off the right to, to collect MEV. We view that as a bad thing because that increases MEV, right? So the question is, who's the sequencer? So you want to, if you want a benevolent party, and again, this is differences and whether MEV is good or bad. We think that you should try to limit MEV. But if you auction it off, fundamentally, if there's a million dollars of MEV to be collected, and there's someone in the world that's willing to collect that, then they'll pay $999,000 for the right to do that.

• 1:22:38Speaker 02

  And you could basically guarantee that the maximal MEV will be extracted if you auction it off, right? Because I, as a person who don't want to extract that MEV, simply can't compete with the person who will, I'll lose the auction unless I'm operating at a loss. So, so that will basically, in my view, not only, it actually makes MEV worse than Ethereum Layer 1. Because Ethereum Layer 1 is sort of, a miner can control MEV for a single block. And Layer 2, the sequencer can control MEV across multiple blocks. Also, a miner doesn't even know that it will have the ability. If this blocks mine, then it gets this right for this one block. Whereas a sequencer can win the auction and then it gets, you know, I don't know. I've seen them talk about 10-minute periods or who knows, but significant periods, maybe even longer, where the sequencer can go ahead and basically. Just reorder transactions within that period.

• 1:23:23Ryan Sean Adams?

  It's god mode. We talked about that. It's like god mode.

• 1:23:27Speaker 02

  Yeah, and we view that as dangerous. So the way that we want to do this is we say, hey, right now, we're running the sequencer and you got to trust us on this, which is not something we want to do long term, but we're not going to reorder transactions. We're just, we're not looking at competitive transactions. We're just going to post them. But we don't want you to have to trust us long term. We also don't want to incentivize MEV extraction to the point where like, you know, people are auctioning, paying for the right to get every last dollar out of it. So what do we do? We use a fair sequencing where we distribute the sequencer or not. So it's not, it's not just us running the sequencer. It's many people running the sequencer, including potentially chain link Oracle, chain link nodes as part of this coalition. And, and the idea is that as long as the consensus

• 1:24:07Speaker 02

  property holds up, they won't be able to reorder transactions. Traditional consensus algorithms care about one thing, agreement. So if we agree on the order and it's the exact opposite of the fair order, it's the exact opposite of the order they came in, traditional consensus is satisfied. We've agreed on an order. We can produce a block. Everyone agrees that's the block. Doesn't really care about ordering. Is this fair? Did we leave something out? Doesn't, do we reorder? Doesn't matter. The innovation of the paper that I mentioned, our second paper was designing a consensus system that can reorder transaction, that can guarantee fairness that if enough of the nodes are honest, you won't be able to reorder, to reorder transactions. And just so we don't confuse users, we're still using Ethereum consensus. We're talking about replacing the sequencer with this, with this thing, just, just for ordering.

• 1:24:52Speaker 02

  And the fallback case, the worst case is, so I've heard the argument, oh, this, this might not work. The worst case is that it just falls back to, to maximal, to maximal reordering. If, if, if this consensus doesn't work. But the best case, and the case that I think is, if you get enough parties in this decentralized sequencer, you'll have a situation in which you really can't reorder transactions and MEV is, is all but eliminated basically on the layer two.

• 1:25:16Ryan Sean Adams?

  Super cool guys. I'm so glad you guys are thinking about this and like the thought going through my head is wow, these guys are smart. I'm glad they are working for a decentralized money system. I'm glad they're in the Ethereum ecosystem. Super cool. All right. Well, we got to talk about like future predictions. So it seems to be the case that we've seen experiments like Binance Smart Chain. We've seen experiments like Polygon, EVM with some empty blocks. That is called product market fit. Once you add the right DeFi apps, the DeFi apps are coming to Arbitrum. They're coming to other rollup solutions. How fast do you think this is going to play out now? Remember the intro context here is like, we've been waiting so long for Ethereum scalability in layer two. What's the total locked value going to be like? What's the liquidity going to be like?

• 1:26:01Ryan Sean Adams?

  Take us through three months from now and then maybe a year from now. You want to start, Steven?

• 1:26:07Speaker 02

  Yeah, yeah, and I'll start. And yeah, that's a good. Yeah. So the answer is, of course, I don't know, but I'll play this game, you know, and take some guesses. I think it's going to be. It's very much a game.

• 1:26:17Speaker 02

  I like, let's start with three months from now because, you know, I'm very confident that in three months from now, we'll be live and open for users with significant liquidity, you know, with quite some, with quite some time and for quite some time. That I can say with, you know, everything I mentioned before about who goes first, you know, three months from now is for sure, you know, we'll be, we'll be, we'll be, you know, doors will be open and doors will be, you know, well oiled already. People have gone in and people will already had enough time to go out with that seven day period. So fundamentally, I think we're going to see a lot of, a lot of value locked very quickly. I think, you know, like I said, this is the beginning. I think we, we might start seeing some of the limits of, of, of really like, you know, congestion in our system and we're going to have to work on, you know, increasing the performance and getting the, you know, the, the cost down because right now we can run several Ethereum's worth and we're, we're, we're keeping that, you know, pretty, we're keeping the speed limit pretty conservative.

• 1:27:09Speaker 02

  It has Harry mentioned because of state growth, but I think we're going to have to confront these issues quickly and say, hey, how fast, you know, how fast do we get to that world that Harry mentioned? We have multiple rollup chains. I, I, a week ago, I would have told you, you know, we're at least one to two years away, but. You know, I think it might actually come sooner. I don't think that's three months. I don't think it's six months, but I think in a year from now, we'll be thinking about, hey, maybe we separate and have the NFT chain and the DeFi chain, or whatever new vertical comes up, because the idea is, hey, if I'm a DeFi project, right? And I don't really need to synchronously compose with the NFT projects. Some of them do, but if I don't need to, why am I paying for their state group?

• 1:27:49Speaker 02

  So let's sort of, you know, shard in some sense via multiple chains. So I think that's my prediction. That will come sooner than later. I I do think, you know, this year we'll see billions of dollars locked in, in, in, uh, in a roll up, uh, chain, which I think will be, uh, Arbitrum one. And, um, and I think we'll see, um, a massive, massive onslaught of users, right? Users will just be coming and for the first time. And we're also going to think about how, how do we, how do we cater to these new class of users, right? We love EVM, um, but fundamentally, you know, the, the main reason why we're using EVM, you know, people argue all the time, hey, this thing is better than EVM. As, as maybe it is, but all the developer and all developer interest now is in EVM. That's what developers know. That's what they use. You might have a system that's better, but no one knows how to use that.

• 1:28:32Speaker 02

  So step number one is getting EVM, the full EVM compatibility. Step number two and three is saying, how could we go beyond that even? Can we get, can we, can we cater to a larger class of developers that, that are, that are entering the system for the first time and have traditional uh, language skills. And that's something which we're going to be thinking about, uh, on Arbitrum as well. Uh, but I think, uh, yeah, sort of just rambling. I don't know. Those are some, some predictions that will come.

• 1:28:55Ryan Sean Adams?

  Super good. What would you add to those predictions?

• 1:28:59Speaker 03

  Um, yeah, I mean, I think, I think, uh, I'm, I'm pretty on board with that. I mean, I think the, the one like kind of prediction that I would add to this is I think that like, we're gonna, I think we're gonna see the number of Ethereum users grow a lot. That kind of one of the, that, that roll up solve a number of different problems, but the one that at this point I'm kind of most excited about isn't even lower fees. It's faster transactions. Having made a lot of Ethereum transactions on Friday, when deploying a system and like staring at EtherScan and refreshing for long periods of time. The, the, you know, Ethereum. is awesome, but it's not exactly like the best user experience ever. And, and you know, I think it's, you know, daunting to a lot of users that like haven't really kind of,

• 1:29:45Speaker 03

  you know, once you get, once you truly understand the value, it's totally worth it. But until that point, without the ability to really kind of dip your toes in the water and get a feel for it. There are a lot of users who are just being kind of pushed away right now by, by the fees, by the slowness and, and kind of, it's going to be a huge opportunity. So I think like, total value locked and total value locked has obviously been going up all over the ecosystem massively. But the thing that hasn't been going up that much is user count. And so I think one of the really interesting things we're going to see is a lot of new users coming into the ecosystem, uh, which to me is so exciting and, you know, a, a big, a big part of getting to that bankless world.

• 1:30:24Ryan Sean Adams?

  Bankless nation is about to grow, I think. Got a suspicion this is going to be layer two summer as well. David, you feeling like it's layer two summer after this conversation?

• 1:30:33David Hoffman?

  Oh, it's, it's around the corner. I already got my, uh, my beach hat and beach towel ready to go.

• 1:30:39Ryan Sean Adams?

  Oh my God, I'm just feeling like

• 1:30:40David Hoffman?

  I'm literally moving to California because I want DeFi summer.

• 1:30:44Ryan Sean Adams?

  It's happening, like it's happening.

• 1:30:46Speaker 02

  Not the beach.

• 1:30:47Ryan Sean Adams?

  Yeah.

• 1:30:50Ryan Sean Adams?

  Guys, uh, super exciting stuff. Um, man, thanks for working on this for as long as you have. I know a lot of hard problems needed to be solved to, to get to this point. Uh, you know, it does feel like we, we have some of the smartest folks in the world engaged on helping to create a bankless money system and get it ready for the billions, uh, and trillions of value and the millions and hundreds of millions of people who want to go bankless. So thank you for spending some time with us and for your contribution on these tough problems.

• 1:31:22Speaker 02

  Yeah. Thanks for having us and for all the amazing work you do and helping building out that nation and really, really great to be here.

• 1:31:27Ryan Sean Adams?

  Gosh, yeah, it's a lot of work ahead, a lot of education work ahead. Hey, can I, can I ask, so if a developer wants to start building rides in the Arbitrum one theme park, what, what should they do and where can folks find out more about Arbitrum in general?

• 1:31:42Speaker 02

  Sure. So if a developer wants access in our when Arbitrum post, we had a link and they can come to our Discord and we'll share it as well for a Google Drive forum. And they should sign up. Again, we're onboarding teams. For those that sign up now, it might take a few days to get them on board. You know, but they should sign up and we will accommodate them and get them in the system. And to learn more about Arbitrum, my favorite resource is you can find it in our developer docs, which is developer.offchainlabs.com. It's called Inside Arbitrum. It's a really deep dive into Arbitrum that's I think pretty accessible.

• 1:32:19Speaker 02

  And also just join our Discord, join our community. You know, we're happy to answer questions and we have a vibrant community that will answer questions as well. And really, you know, get involved. And if you really, really want to get involved in Arbitrum, hey, fill out an application, DM me. We are hiring for every position.

• 1:32:37Ryan Sean Adams?

  It's all that.

• 1:32:38David Hoffman?

  So I actually have one last question that I want to get to before we completely sign off here because I was about to thank you guys for just contributing just really important knowledge into the public domain. As perhaps free open source software developers, but I actually don't know if that's true. And so that leads me into the question. Is Arbitrum kind of, how does Arbitrum view itself as like an open source software development team or as like a commercial? Commercial team that is looking to have like a business model. Where does this conversation go?

• 1:33:08Speaker 02

  Yeah, it's a really, really great, great question. And fundamentally, I think we really view ourselves as part of the Ethereum ecosystem. You know, like I said, this is the beginning. So funding ourselves and making sure that we continue to remain funded is important. And this is something I realized early on. Some people shy away from having a business model in this space, but. When I speak to teams, sometimes in some of the most sophisticated teams, the first question they have is, how do you make money? And I say, and it's because I want you to make money because I need to make sure you're going to be here and this thing doesn't go away. So, you know, like I said, the L2 fees are something that's important and something that. You know, it's for L2 operators generally, but you know, we're part of that. We're operating the sequencer and we're developing the protocols. So I think there definitely is a business model there. I think.

• 1:33:52Speaker 02

  Over time, we'd like to like to basically disappear. Um, you know, as the technology, I I love to see Arbitrum become an open source project. Right now, it needs a central team, a central team pushing it. Uh, my dream would be that like, um, you know, I can go on vacation and like, there's just like a, uh, I haven't done that in a few years, but there's just, um, there's just a, uh, you know, a, a team, uh, uh, you know, an open source community, right? If we have like, uh, you know, the, the guest team or whatever, pick up the, the Arbitrum node, that would be like my absolute dream. And, um, but there's also the other thing I should mention is another thing of this bankless nation. Something that all people might not know is we see all this like enterprise money flowing into Bitcoin now. It's like the big story.

• 1:34:33Speaker 02

  It's like potentially Ethereum as well, but what, but what I see and talking to teams all day long, it's not only the DeFi teams I'm talking about. It's a Fortune 500 companies that are reaching out and they're also like, how do we get into Ethereum, right? So whereas the money's flowing into Bitcoin, uh, and other assets, the enterprise engineering, lots of it is flowing into Ethereum. And I think you're going to see, uh, and I know you're going to see, um, lots of, uh, um, of big, big, big companies move into and offer services on Ethereum uh, as well. And, um, and so, you know, the, these are things, these are models where, you know, the, these companies like to have support teams and teams that they, that they, that they work, that they work with, you know, uh, sort of more enterprisy. So we view ourselves as, as pretty native, um, yeah, hoping to become an open source project. But I do think that there will also be an enterprise story to this as well.

• 1:35:18Speaker 02

  Again, bringing them into the Ethereum ecosystem, not as a separate offering, not as becoming, you know, a, a hyper ledger, but really bringing them into the, you know, the Ethereum ecosystem. No offense to hyper ledger.

• 1:35:28Speaker 03

  And that's, and that's probably going to be like the four, the first place we see sort of more Arbitrum chains. Is because that's kind of like the, that, that's kind of the, the first, the question with more Arbitrum change is always like, who wants to have a fiefdom? Um, and, and that's kind of like, and that, and the answer is the first people to want to fief them are going to, are going to be sort of the, the, you know, the, the corporate, the companies that kind of want to have sort of that, that, that landscape to themselves and, and kind of then invite people in as opposed to kind of this like very shared landscape, which is the Arbitrum one chain.

• 1:36:00Speaker 02

  And it makes a lot of sense also, right? Because, you know, we mentioned in the beginning, we have EtherScan supporting us, we have Alchemy supporting us. Now, if I'm just a user that wants to spit up my own roll-up chain, so there's a lot of work to get to get the support from the infrastructure, you know, chain link. Chain link's not going to support, if I, you know, if random user decides to launch an arbitrary roll-up chain, chain link's not going to support that. However, if like Fortune 500 company, you know, has supports their chain, they'll be, they'll have, they'll have an easier job getting the infrastructure on board. Which is why I think those will fundamentally, I think will be community-driven long-term, but I think some of the next arbitrary chains you'll see are really some enterprise chains.

• 1:36:37Ryan Sean Adams?

  Well said, guys. This is an open financial system for the world. If you are Wells Fargo, JP Morgan, a big bank, you can get involved by spinning up a roll-up chain. Why not? We just don't want our core protocols, base layers to be corruptible, but you are certainly invited to the party as well. Hey.

• 1:36:53David Hoffman?

  You just have to swear fealty to Ethereum and Ether.

• 1:36:57Ryan Sean Adams?

  But why not spin up a central bank digital currency and something like roll-up? There's a really interesting canvas of opportunities in front of us. Steven, Harry, thank you so much for joining us and exploring this with us. Congrats on the, on the launch. We're looking forward to cutting the tape on that theme park and having DeFi users enter soon.

• 1:37:17Speaker 02

  Likewise. Thanks so much for having us.

• 1:37:19Speaker 03

  Thank you.

• 1:37:20Ryan Sean Adams?

  Thanks, guys. All right. Risks and disclaimers, of course. ETH is risky. Crypto is risky. Those rides we were talking about, DeFi, they're risky as well. You could lose what you put in, but we are headed west. This is the frontier. It's not for everyone, but thanks for joining us on Bankless.

• 1:37:35David Hoffman?

  Hey, we hope you enjoyed the video. If you did, head over to Bankless HQ right now to develop your crypto investing skills and learn how to free yourself from banks and gain your financial independence. We recommend joining our daily newsletter, podcasts, and community as a Bankless premium subscriber to get the most out of your Bankless experience. You'll get access to our market analysis, our alpha leaks, and exclusive content, and even the Bankless token for airdrops, raffles, and unlocks. If you're interested in crypto, the Bankless community is where you want to be. Click the link in the description to become a Bankless premium subscriber today. Also, don't forget to subscribe to the channel for in-depth interviews with industry leaders, Ask Me Anythings, and weekly roll-ups,

• 1:38:18David Hoffman?

  where we summarize the week in crypto and other fantastic content. Thanks, everyone, for watching and being on the journey as we build out the Bankless nation.