Bridging Rollups, Sidechains, and Ethereum | Hop Protocol

Bankless Nation, meet Chris Whinfrey, CEO and Founder of Hop Protocol. Hop is a liquidity protocol that allows users to transfer assets across different Layer 2's and Rollups, currently supporting Ethereum Mainnet, Polygon, xDai, Optimism, and Arbitrum. Removing the bottlenecks of returning to the L1 is a massive step forward in making Ethereum a modular, scaled ecosystem. Hop has contracts on Layer 1 and Layer 2s, with Hop tokens accounting for the exchanged liquidity across platforms. With an emphasis on Hop's technical capabilities and user experience, we the project from top to bottom and the implications of what composability can do for DeFi. ***** 📣 POOLTOGETHER | DEFI LOTTERY https://bankless.cc/PoolTogether ***** 🚀 SUBSCRIBE TO NEWSLETTER: https://newsletter.banklesshq.com/ 🎙️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/ ------ BANKLESS SPONSOR TOOLS: ⚖️ ARBITRUM | SCALING ETHEREUM https://bankless.cc/Arbitrum 🍵 MATCHA | DECENTRALIZED EXCHANGE AGGREGATOR https://bankless.cc/Matcha 🔐 LEDGER | SECURE YOUR ASSETS https://bankless.cc/Ledger 🧙‍♀️ ALCHEMIX | SELF-PAYING LOANS http://bankless.cc/Alchemix ------ Topics Covered: 0:00 Intro 4:00 Chris Whinfrey of Hop Protocol 7:28 What Does it Mean To Hop? 15:03 Accounting for Assets 21:35 Bank Runs & Incentives 26:00 Non-EVM Chains 29:34 Providing Liquidity & Yield 36:20 Faster, Cheaper, Stronger 40:19 Hop’s Organization & Roadmap 43:20 Other Interests… NFTs & DAOs 46:02 Closing & Disclaimers ------ Resources: Chris on Twitter: https://twitter.com/WhinfreyChris?s=20 Hop Links - Twitter: https://twitter.com/HopProtocol?s=20 - Discord: https://discord.gg/PwCF88emV4 - Exchange: https://hop.exchange/ ----- 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.

• 0:07David Hoffman?

  Hey, Bankless Nation. Welcome to the Meet the Nation. Today, we are exploring HOP protocol with CEO and founder Chris Winfrey. HOP protocol is a cross-L2, cross-chain liquidity protocol, allowing you to hop from one L2 to another L2 to another L2 without having to go through the bottlenecks of the L1. So, the way that this works is that HOP has contracts on the L1. It also has contracts on all the L2s, and it also has these other HOP tokens that are accounting tools. And using all of these collections of technologies, as well as actual USDC, or USDT, or ETH liquidity

• 0:47David Hoffman?

  on all the L2s, it allows users to hop around all the L2s without having to touch the L1. So, we go into the details about how this works, the technical capabilities of the HOP protocol, what it's like for a user. We ask the question, what can HOP go from L1 to L1? Can it also go from L2 of an L1 to a different L2 of a different L1? And then, we also ask about the organization of HOP protocol, how it came to be, what its future roadmaps are. And so, overall, a pretty, I think, thorough, in-depth, and efficient conversation of HOP protocol. So, I hope you guys enjoy this conversation and learn all about HOP protocol. There's links in the show notes with linking to their

• 1:31David Hoffman?

  Discord and Telegram, or if they have one, and Twitter. So, if you want to join the HOP community, you can go ahead and click those links there. So, let's go ahead and get right into it. But first, a moment to talk about some of these fantastic sponsors that make this show possible. Arbitrum is an Ethereum scaling solution that's going to completely change how we use DeFi and NFTs. And now, it's live and has over 100 projects deployed. Gas fees on Ethereum L1 suck. Too many people want to use Ethereum, and it doesn't have enough capacity for all of us. And that's why teams like Arbitrum have been hard at work developing Layer 2 solutions that makes transactions on Ethereum cheap and instant. Arbitrum increases Ethereum's throughput by orders of magnitude at a fraction of the cost of what we are using. used to paying. When interacting with Arbitrum, you can get the performance of a centralized

• 2:13David Hoffman?

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• 2:56David Hoffman?

  Living a bankless life requires taking control over your own private keys, not your keys, not your crypto. That's why so many in the bankless nation already have their Ledger hardware wallet, which makes proper private key management a breeze. But the Ledger ecosystem is much more than just a secure hardware wallet. Ledger is the combination of the Ledger hardware wallet and the Ledger Live app. And if you're used to seeing all of your crypto services and favorite DeFi apps all in one spot, Ledger Live is where you want to be. Not only does Ledger let you buy your crypto assets straight from the app, but it also hooks into all of the DeFi apps and services that you're used to. Using Ledger Live, you can stake your ETH in Lido, swap on DEXs like

• 3:37David Hoffman?

  Paraswap, or display your NFTs with Rainbow. You can also use Wallet Connect inside of Ledger Live to connect to all the other DeFi apps that keep coming online. DeFi never stops growing, and the Ledger Live app grows alongside with it. So click the link in the show notes to see all of the DeFi apps that Ledger Live has, and stay tuned as more apps come online. And if you don't have a Ledger hardware wallet, what are you even waiting for? Go to ledger.com, grab a Ledger, download Ledger Live, and get all of your DeFi apps all in one space. Hey, Bankless Nation. Today, we are here with Chris Winfrey, the co-founder and CEO of HOP Protocol, which is one of the emerging inter L2, interchain liquidity protocols that allow you to

• 4:21David Hoffman?

  hop from one chain to another chain without having to go through some of the frictions of actually using the codified gateway between these two things. So, Chris, welcome to the Meet the Nation.

• 4:33Speaker 01

  Hey David, really excited to be on the show.

• 4:36David Hoffman?

  So let's start at the very, very beginning. Where did Hot Protocol come about and what was kind of the initial inception idea?

• 4:44Speaker 01

  Yeah, so our team was originally working on a contract-based account called Ethereum. And so we started that about a couple of years ago and kind of saw an opportunity to really streamline the UX on Ethereum. And we felt like we made a bunch of good improvements, but ultimately when we started, it cost about 30 cents to deploy this contract-based account for users. And by the time DeFi took off and really drove those gas prices up, then it was over $200. And so we had to push this cost over to users and then just to, just for them to get started, it had this just huge barrier of entry. So we started looking for ways to kind of get our users onto Layer 2 and started connecting Ethereum with different Layer 2s.

• 5:27Speaker 01

  But we were still seeing that users like weren't really saving gas. They were kind of moving to Layer 2, making a few transactions and then, and then coming back to Layer 1. And just those bridge costs were more than if they just used something like Uniswap on, on Layer 1. So we realized like, okay, if Ethereum has a future, we really need our users to get onto Layer 2 and to stay on Layer 2. And just to be Layer 2 native citizens, they never touched Layer 1 where they would have to deploy this contract-based account. And so we started kind of iterating on different ideas, put out a white paper and a demo of Hot Protocol or ETH Research. And that started to get some traction.

• 6:09Speaker 01

  You know, at the time, you know, Vitalik was starting to talk about, you know, a rollup-centric roadmap for Ethereum. And we kind of realized that, okay, maybe this has the opportunity to be core Ethereum infrastructure, where we need a way to kind of connect these different rollups and Layer 2s. And just decided to go all in and focus on, on Hot Protocol.

• 6:31David Hoffman?

  So one of the design philosophies that I think you articulated is that it's great if Ethereum has all of these layer twos and you can do all these things on the layer twos. But if we have all these layer twos, then people, we would imagine people be, they would be going between all these layer twos and going back to the layer one to go to a different layer two kind of almost defeats the purpose of having a layer two at all, right? If you still have to funnel through the choke point of high gas fees, low block space environment of the layer one. So the idea of hop is just increasing the experience of what like exactly what you said, which I really enjoyed, which was being a layer two citizen. And so if you can just hop around all the layer twos, you actually completely remove

• 7:16David Hoffman?

  that constraint of the high gas fees bottleneck that everyone has to go through by touching the Ethereum L1. Anything, anything you want to add to that?

• 7:25Speaker 01

  That's exactly right. Yeah.

• 7:27David Hoffman?

  Okay. So, uh, so let's see where, how does it actually work on a technical level? What does it mean to hop from one layer two to another? Maybe we can start with like, what does it feel like from the user perspective? What's that feel like? And then technically, how does that operate on the backend?

• 7:47Speaker 01

  Sure. So from a user perspective, we just expose this very, you know, it's a uniswap like interface. It feels like you're using a cross layer or cross chain AMM where you can just kind of deposit assets in one end and then after some time you'll get assets at the other end. So you can transfer assets in about the time it takes for the source chain to reach finality, which is about five to 10 minutes.

• 8:13David Hoffman?

  The source chain, that is the chain that you are leaving? Or is that the chain that you are going towards?

• 8:18Speaker 01

  The, the chain that you're leaving.

• 8:21David Hoffman?

  Okay.

• 8:22Speaker 01

  So that's basically the user experience and something that we've been very careful to not introduce a second transaction and just make that try to abstract kind of this underlying technology from the user, make it as smooth as possible.

• 8:39David Hoffman?

  So when you say it's like a Uniswap style interface, when I go to Uniswap, I have two tokens that I select. I have, you know, I want, I have Ether and I want USDC. Actually, it's almost always the inverse. I have USDC and I want Ether. If for you guys, is it I am on Arbitrum and I want to be on Optimism? Is that, so we just swap out the tokens and instead replace it with destinations?

• 9:05Speaker 01

  Yeah, that's exactly right. You'll select an asset and then a network that you're coming from and then a network that you're going to.

• 9:11David Hoffman?

  Okay. And then can you also swap, exchange tokens in the meantime? Or is that just a completely different feature?

• 9:18Speaker 01

  Not right now, but it's definitely something that we're talking about addressing in the future.

• 9:24David Hoffman?

  Okay. All right. So very cool. So I have a bunch of USDC or Ether on one L2 and then I want it to go to a different L2. How is this actually facilitated on a technical level?

• 9:36Speaker 01

  Sure. So there's a few layers to hop. And so the very, very core layer is basically this way to scalably send messages from one roll up to the next. And so the way this works is each scaling solution already has a message bridge with Layer 1 Ethereum. So this basically allows contracts on Ethereum to call contracts on Layer 2 and contracts on Layer 2 to call contracts on Ethereum.

• 10:01David Hoffman?

  When you say a message bridge, that is just like the bridge, right? Like when I say, when I want to get my money from L1 to Arbitrum or L1 to Optimism, I use the bridge. Is this, that's the same bridge as the message bridge? Or is that a different piece of infrastructure?

• 10:16Speaker 01

  So we call that the native token bridge and the native token bridges are also built on top of this core message bridge.

• 10:22David Hoffman?

  Okay.

• 10:22Speaker 01

  And so, so if you imagine the message bridge allows contracts to call each other, then what the native bridge is going to do is it's going to allow you to lock up USDC on layer one and then that's going to send a message to emit USDC for you on layer two. And then on the inverse, if you burn USDC on layer two, then it will send a message down to layer one to to release that USDC on layer one. Uh, the caveat is that that for optimistic rollups, the message from layer two to layer one takes a full week uh, for it to be executed on layer one and and this allows time for the the challenge game to play out um, in in order to make sure everything is secure.

• 11:02Speaker 01

  And then with with ZK rollups, the the message can only propagate as fast as uh, that ZK rollup uh, checkpoints. And and so a ZK rollup checkpoint is pretty expensive, so sometimes it will happen every half an hour, sometimes it'll happen every six hours, depending on how scaled up that that rollup is, but but you know, even exiting a ZK rollup can still be um, slow depending on the scale.

• 11:26David Hoffman?

  Okay, and that's an important point to drive home, like even in our fastest rollups that we have, ZK rollups, it's still a 30 minute wait time, which uh, I mean, I get frustrated when I have to wait five minutes for my transactions to clear on Ethereum. So like from a user UX experience, like 30 minutes is going to be even more frustrating. Even if they get used to it, like we can still iterate on this and again, that's the fastest time to go from a layer two to a layer one. Uh, and so like with optimism, optimistic rollups, which are both optimism and Arbitrum, it takes upwards of seven days. Uh, and so if you want to use these bridge, uh, I'm I'm pretty sure, correct me if I'm wrong, but going from the L1 to Arbitrum or optimism, it's it's more or less instantaneous.

• 12:08David Hoffman?

  But getting back out is takes seven days uh, for optimistic rollup. So there's a huge UX problem here, almost no matter what.

• 12:16Speaker 01

  Exactly right, yeah. And so, and so we have these message bridges that we can leverage. And so you can imagine if we want to talk from from one roll up, roll up A to roll up B, then the naive approach would be, okay, send a message down to layer one, and then send that message back up to layer two at the destination. And then we kind of have this communication link.

• 12:36David Hoffman?

  Right, where you bounce off the layer one to go off to a different destination. Yeah.

• 12:40Speaker 01

  And so the problem with that is that this creates this huge bottleneck with layer one. So, you know, if we imagine that our layer two environments are way more scalable, we have lots and lots of messages. And if each of those messages needs to propagate one by one through layer one Ethereum, then it just creates this bottleneck, bottleneck, it's expensive, and it just doesn't really get us the scalability we want. So the core innovation behind HOP is that we will aggregate many messages at the, on the source chain, the chain that you're leaving. And then we will periodically commit those. And so when we commit them, we aggregate all those messages into this really compact data structure. I'm sure you guys have talked about Merkle trees. And you basically just have a single hash that represents all of this data.

• 13:24Speaker 01

  And then we can propagate that hash through layer one that represents, you know, thousands of messages on to the destination layer two. And then we can unpack it at the destination. And then that kind of creates this, this scalable roll up to roll up messaging protocol.

• 13:41David Hoffman?

  Okay, so that is like the, the settling up between two layers, right? And so maybe, maybe there's just a bunch of USDC that flows from one L2 to another L2. That's not settled. A bunch of things happen. Maybe a bunch of things more happen, maybe a bunch of things more and more happen. And like, the analogy here is kind of like a bar tab that everyone uses. And people usually typically use the bar tab analogy to talk about a payment channel, which I think HOP protocol might be, but we'll, we'll talk about that. And then, so what you're saying is like, you, HOP protocol allows for a bunch of economic activity to happen. A lot of, a lot of people going to the bar and asking for a drink without actually a transaction settling to Visa, the Visa network. But then periodically, you do settle up.

• 14:23David Hoffman?

  And the assets do actually flow from like the Arbitrum contract on the layer one to the optimism contract also on the layer one. And allows the actual roll ups to settle up with each other based off of HOP's sort of like off-chain transaction ledger that it has. Is this all correct?

• 14:43Speaker 01

  Yeah, yeah. And so I wouldn't, we have very, a lot of similarities to payment channels. And, you know, specifically that we make a bunch of payments and then we do this kind of batch settlement, but then, but then like structurally, it turns out a little different, but

• 14:58David Hoffman?

  That's where the similarities end?

• 15:00Speaker 01

  Yeah.

• 15:01David Hoffman?

  Okay.

• 15:01Speaker 01

  Exactly.

• 15:03David Hoffman?

  So how does hot protocol actually like account for the net of all of the assets that are transferred cross-chain?

• 15:11Speaker 01

  So that's kind of this next layer. And so HOP has this intermediary asset that we call H tokens. And so it depends on what assets being bridged, but it could be like H USDC, H ETH. And so just like

• 15:26David Hoffman?

  Are these just like HOP IOUs?

• 15:28Speaker 01

  Exactly. And actually, you know, you could think of basically every token on layer two as an IOU, because you know, even with the native bridge, you're locking up an asset on layer one and minting something on layer two. And so basically this is HOP's version of that that's alongside the native token version. We call that the canonical asset. So like canonical USDC, that's going to be the one that's used in Abay, Uniswap, et cetera. And so the reason we introduce our own intermediary asset, the H tokens, is because we need to build this special functionality into them that we can't build into the canonical assets.

• 16:07Speaker 01

  And so specifically, when you deposit into the layer one HOP bridge contract, you'll mint an H token. So if you deposit USDC, you'll mint to H USDC on layer two. And that that function is just the same as the native bridge. But the difference is that when you burn H USDC or another H token on layer two, we have a role called the bonder that can mint H USDC at another destination for you.

• 16:38David Hoffman?

  Because hot protocol needs

• 16:41David Hoffman?

  It needs, what's the right word? It needs its self-sovereignty. It needs its own ability to manage its own currency to account for the differences between the currencies across the different L2s, right?

• 16:54Speaker 01

  Exactly right, yeah.

• 16:55David Hoffman?

  Okay, so like, wait, so is it? So I have USDC on Ethereum and I deposit it into Arbitrum and then I get USDC on Arbitrum. But like you said, that's actually an IOU. So it's actually Arbitrum USDC that is an IOU of USDC on the main Ethereum chain. And then when you mint a HOP USDC, aren't you actually minting H Arbitrum USDC? So it's H A USDC because you are making an IOU for Arbitrum USDC, which is making an IOU for USDC on the main chain? Is that right?

• 17:30Speaker 01

  Yeah, the naming gets a little confusing, but I would think of it as, you know, the canonical USDC is kind of a IOU, a promise to be able to claim USDC from the native token bridge contract on layer one, whereas HUSDC is a promise to claim layer one USDC in the HOP bridge contract on layer one.

• 17:51David Hoffman?

  Okay, okay. HOP bridge contract on layer one. Is the HOP bridge contract on layer one also part of the Arbitrum or Optimism contracts? Or is that something, is that separate?

• 17:59Speaker 01

  It's separate and then it will also be connected to Arbitrum, Optimism, Polygon and

• 18:04David Hoffman?

  Okay, so it's like, it's more, rather than stacking on top, it's more in parallel?

• 18:10David Hoffman?

  Okay, okay, cool.

• 18:12Speaker 01

  And so, so that's kind of how the, yeah, that's kind of how the H tokens exist. And then in terms of, you know, transporting an H token from one rollup to the next, the user basically burns an H token, specifies the destination, and then we have a bonder. And so the bonder is able to fully verify these rollups, you know, in the time it takes for layer one finality. And so with rollups, you kind of have two finalities. You have kind of like off-chain finality, which you can determine pretty fast, in five to 10 minutes, because you can actually, you know, look at the chain. transactions and compute the state and make sure that you're correct.

• 18:55Speaker 01

  But you can't do that on chain because you can't run all those transactions. Otherwise, we wouldn't be scaling Ethereum. And so that's why it takes a week for kind of on-chain finality. But the bonder, they're fully verifying things in real time. They see the event, H tokens were burned, H U S D C was burned. And then they have collateral locked up at the destination. And they'll use that collateral to mint H U S D C for the user at the destination. So now, you know, imagine they facilitate a bunch of these transfers. They've locked up a bunch of collateral and they can't unlock that collateral until they receive proof that H U S D C was burned at the source. Because we want to make sure that the hot bridge contract remains fully collateralized.

• 19:40Speaker 01

  And so that's where the message bridge comes in, the hot message bridge. So, you know, after many people have transferred, we aggregate those into our compact data structure. And then, you know, we propagate this, we call it a transfer route or a message route, you know, through layer one to the destination. Once that reaches the destination, then the bonder can settle up and their collateral is unlocked. So that's kind of how you can move an H token from one place to the next pretty immediately. And then the settlement process happens over time.

• 20:14David Hoffman?

  Okay, so like in my mind, the H tokens are like this shadow token. The shadow that like follows the actual real token. But it has the self-sovereignty that hot protocol needs in order to move like at the speed of light. And so the way that hot protocol allows for like this like near instantaneous transfer of, you know, asset to, from asset to chain to chain to chain, is that you guys actually have the actual assets on all of the change, on all the chains. And so somebody on chain A can go to chain B because hot protocol actually has the U S D C on both sides. And then the H tokens are that communication accounting tool

• 20:57David Hoffman?

  that because hot protocol, the hot protocol contract on the L1, it can manipulate the destination of the tokens as it sees fit. Unlike it how that it's not true for U S D C or Ether. And so it can manipulate the balances on all the other chains to account for the transferring of U S D C or any other token across all of the chains. Is that right?

• 21:20Speaker 01

  Yeah, and this is all done completely trustlessly. It's all fully collateralized. It basically is completely relies on the security of Ethereum and the different scaling solutions that you're using.

• 21:33David Hoffman?

  Well, we like that word, trustlessly. What happens? How does, what happens if like all, for some reason, everyone is on Arbitrum? And they want to go to a different L2. So like Arbitrum, I'm just using Arbitrum just because everyone, everyone is on layer two A. And then for some reason, there's a, there's an economic event that means everyone needs to go to a different layer two, layer two B. And all the liquidity flees out of layer two A. How does, how, and then, and then therefore, everyone who's left on layer two is stuck. Because you guys, Hot Protocol has lost all of its available assets because everyone has used up all of like the bandwidth.

• 22:12David Hoffman?

  How does Hot Protocol like redistribute to account for like different bandwidth requirements across all the layer twos?

• 22:19Speaker 01

  So actually, to take a step back, so we have this HUSDC, and this is kind of like the second layer. But, but the H tokens aren't what the users want. They are using these actual canonical tokens. And so that's kind of like the third layer of HOP. So at the core, we have this message bridge. And then we have the second layer, this intermediary asset. And then at the third layer, we have AMMs. So we have an AMM between the canonical asset and the H token. And so when a user is bridging from Arbitrum to Optimism, they'll swap USDC to HUSDC. That HUSDC is burned, and then the bonder will mint HUSDC at the destination. And then that's automatically swapped out into USDC and ends up in the user's wallet.

• 23:04Speaker 01

  From a user perspective, it's just one, one transaction for the whole flow.

• 23:09Speaker 01

  And so these AMMs actually play an important role in terms of like balancing across the chains as well. So if we see a huge flow from, say, Arbitrum to Optimism, then, you know, it will cause the USDC on Arbitrum to start trading at a discount, and then the USDC On optimism to start trading at a premium. And this actually incentivizes folks to rebalance these chains through with like large settlement transactions through layer one. So they can kind of redistribute the assets across the chains and and then profit off that based on the arbitrage opportunities that the AMs present.

• 23:54David Hoffman?

  Right, very clever. That definitely seemed like the right place for economic incentives. How are these AMMs constructed? Are they more like a curve where the actual shape of the AMM is differentiated? Or is it more like Uniswap V3 where you can have concentrated liquidity?

• 24:08Speaker 01

  So it's more like curve, a stable swap. They are like kind assets, you know, there shouldn't be any reason for, you know, USDC and HUSDC to diverge because ultimately you can claim either one on layer one for layer one USDC. And same with, you know, ETH and HETH and all the other assets that we support. So yeah, right now we're using the stable swap construction.

• 24:32David Hoffman?

  Hey guys, I hope you're enjoying this conversation with Chris about HOP protocol thus far. Coming up in the second half of the show, we go into more details about the technical details of the HOP protocol as well as the future roadmap. And also just a more casual conversation about what Chris thinks about the current state of DeFi and where we are overall going. And also talk about yield and how HOP can offer just a sustainable source of yield for all those stablecoin yield seekers out there. So we're coming up in the second half of the show, but first a moment to talk about some of these fantastic sponsors that make the show possible. Matcha, everyone's favorite DEX aggregator, has just launched an open beta for gasless trading. So if you're trading more than $5,000 in common ETH and wrapped Bitcoin pairs,

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• 27:19David Hoffman?

  Can hop bridge non-EVM chains?

• 27:23Speaker 01

  It can, yes. And so we haven't supported them yet. It would just be a matter of re-implementing our Layer 2 Bridge contract for whatever the scaling solutions. But you know, we do plan on supporting Starkware and ZK Sync and other ZK rollups. And then eventually we'd like to support like disjointed Layer 1s as well. But that's kind of a different problem set than what we're addressing right now.

• 27:53David Hoffman?

  Okay, so it seems to be that any rollup EVM or not that settles to Ethereum, that seems like a relatively

• 28:02David Hoffman?

  A surmountable obstacle because there's only one canonical HOP contract on the one canonical Ethereum L1. That seems like a task that can be overcome. Getting from 1L1 to a different L1, or an L2 on 1L1 to a different L2 on a different L1, that seems like a taller task because now there has to be two different HOP contracts on two different L1s. Is that, am I on something here?

• 28:33Speaker 01

  Yeah, that's exactly right.

• 28:35David Hoffman?

  Can you describe how that, how that problem works?

• 28:37Speaker 01

  Yeah, so it's a very different problem set. It's something that, that, you know, we wouldn't use the core, the core technology behind HOP for this. We would kind of develop something new. And so this would probably involve some new validator set to, to basically attest that, okay, you know, tokens, each tokens were burned at the, you know, some disjointed layer one, and we can release the token on layer one Ethereum or on, or emit each tokens on an Ethereum L2. And so, so this validator set, you know, won't share the same security as Ethereum. It will be as secure as that validator set.

• 29:17David Hoffman?

  It'll be like a multi-sig validator set of sorts.

• 29:19Speaker 01

  Yeah, but, but that's kind of, you know, the best that you can do. Yeah.

• 29:24David Hoffman?

  Right. Listeners will be reminded of our episode with Rune Christensen, who had a lot to say about security assumptions across layer ones using multi-sigs.

• 29:33Speaker 01

  Yeah.

• 29:34David Hoffman?

  Okay, so can one, is, who can provide liquidity in HOP right now? Is that like a closed environment? And then what's the long-term game plan for that?

• 29:46Speaker 01

  Yeah, so, so we think of, there's two types of liquidity in HOP, and we call this passive liquidity and active liquidity. And so passive liquidity is basically liquidity in the AMMs. You just kind of set it, you have very low risk of impermanent loss, and you can just kind of earn trading fees and then maybe stake it if there's liquidity mining. And then we have active liquidity, and this is the bonded process. It's, it's a lot more like running an ETH2 validator. Where you kind of set up your server, you have some process that's constantly listening for events and making transactions. And so right now, the bridges are set up, just one bonder per bridge. And so the worst a bonder could do is be offline.

• 30:27Speaker 01

  And when the bond is offline, the transaction will still propagate as fast as the exit time of the source rollup. So the rollup that you're starting on. So even though there's just like one party that's doing this right now, they don't, they're not taking custody of funds, they're not presenting additional risk, they can just be unavailable, basically. And in the next version of HOP, we're going to support multiple bonders per an asset. And then after that, we're going to have a completely decentralized bonder network. And so what's really cool about when we get to that point where we have this decentralized bonder network, or even multiple bonders, is that it becomes a one-of-n trust plateau. And this is just for being available.

• 31:12Speaker 01

  You know, right now, it's trustless in terms of custodianship. But then in terms of like, you know, is your asset going to move, you know, very, very fast, or is it going to kind of move at the slower pace? You know, that is still now one of one, but it's going to become one of N, which is, you know, you just need one honest bonder for it to go through.

• 31:34David Hoffman?

  Very cool. Do you have any sort of like metrics that you've been able to discover over the last few weeks or so, or actually months, now that HOP protocol has been alive for a while, about like the level of yield that liquidity providers are getting from this?

• 31:47Speaker 01

  So it fluctuates a lot. We just launched our ETH bridge last week, you know, on like a daily basis, some people were making, you know, 15% plus on ETH.

• 32:00David Hoffman?

  Oh my, 15% in a day?

• 32:02Speaker 01

  No, no, no, sorry.

• 32:04David Hoffman?

  Oh, yearly compounded, okay.

• 32:06Speaker 01

  Yeah.

• 32:06David Hoffman?

  That's what I'm saying, like, hey, hang on, just take all my ETH.

• 32:09Speaker 01

  Yeah. But yeah, based on a very like short window, and so I would expect that to be competed down. But so far, you know, the yields have been good. And yeah, you can also earn, you know, stablecoin yields. And again, there's very low risk of impermanent loss. So I don't think there's many opportunities to earn the kind of yields that HOP LPs are earning, at least for ETH.

• 32:36David Hoffman?

  Right. Extrapolating this out into what me and Anthony Susano call the nexus of Ethereum, where there's many, many L2s and there's many, many economic actors hopping between all these L2s. This is going to be like a, kind of like Ethereum's economic heat, where all the transferring around is causing a bunch of just like fees and yield to occur. Do you have any like long-term thoughts about how L2 transfers will impact yield in DeFi?

• 33:10Speaker 01

  That's a good question. I mean, I think, you know, ultimately we'll just keep attracting capital, and I say we, I mean Ethereum, until, you know, yields start to make more sense for the risk that people are taking. And so right now yields are very high, risk is very high. As, as, you know, Ethereum becomes more mature and HOP becomes more mature and, you know, Urin becomes more mature, like all these different yield-producing protocols, I would expect yield to kind of settle into more in line with the traditional finance ecosystem.

• 33:50David Hoffman?

  Is Urin something that can be a liquidity provider for HOP?

• 33:55Speaker 01

  So we have talked about, so back to like active liquidity and passive liquidity. So with the, one, passive liquidity is much cheaper than active liquidity. There's lower barriers to entry. You don't have to run the server process. And there's a lot of folks that are just mercenaries will throw yield, you know, it's very, very competitive. And ultimately with the passive liquidity, you need those pools, because if you don't have the actual asset for people to bridge into, then, you know, they can't bridge, there's no way to kind of eliminate that, that type of liquidity. But this bonder liquidity, it just is essentially collateral. And so right now, the bonder uses the same asset that's being bridged. But ultimately, we could, or

• 34:39Speaker 01

  we plan to move to a future where the bonder could kind of hold a basket of assets. Those could be yield-bearing assets, or, you know, they could be ETH, they could be, you know, whatever basket of assets that the bonder wants to hold. And they just use that as collateral while earning yield on it for bridging assets across HOP. And that's where I think we'll get some big improvements in capital efficiency.

• 35:04David Hoffman?

  Very cool. How are fees determined in HOP?

• 35:08Speaker 01

  So right now, the bonder sets a fee and then the AMMs take a 0.04% fee, so four basis points. And then, you know, once we get to the multi-bonder model, then the bonders will basically compete for lowest fees and that will kind of drive them down to a minimum.

• 35:30David Hoffman?

  Do you kind of think that over the long term, over the many years, that fees will kind of just collapse to the absolute minimum while also speed between L2s kind of increases? Is that the outcome for this?

• 35:43Speaker 01

  Yeah, HOP definitely scales up a lot better than it scales down. So, you know, basically, the larger amount of assets that we're transferring for each of these settlements through Layer 1, then the cheaper we can get fees. So, right now, we're at, the bonder charges 0.18%, so 18 basis points. Pretty soon, we're going to be, you know, we just scaled up the ETH liquidity. We're going to do the same with USDC. We're going to be able to drop that down to nine basis points. And ultimately, I think we can get it to, you know, around four basis points or lower for the bonder fees.

• 36:19David Hoffman?

  Now, that seems to fit into the model of L2s that I've come to understand, where the more users and the more assets and the more economic activity that's happening on these L2s, the actual cheaper the fees actually are because they're amortized across all the users. And so not only is this true of the actual L2s themselves, but this is also true of HOP, as in the bridges between these L2s. Can you just riff on that for a second? Do you think like this L2 environment is just going to become faster, cheaper, stronger as more and more people just adopt it?

• 36:51Speaker 01

  Absolutely. Like, even for myself, you know, I've been using DeFi on Layer 1. I just rebalanced a bunch of positions and I just realized, what am I doing on Layer 1? I'm just losing a huge part of my yield to transaction fees. Layer 2 is here today and so, yeah, I really think that soon here it will be very, much, much more rare, especially for users that aren't dealing with, you know, anyone who's not dealing with like hundreds of thousands of dollars is going to be on Layer 2 and just stay on Layer 2 because Layer 1 is just too expensive.

• 37:23David Hoffman?

  It makes a ton of sense.

• 37:26David Hoffman?

  Are there any significant differences between how HOP is constructed versus how Connect is constructed that are worth talking about?

• 37:33Speaker 01

  Sure, so there's a few different bridge models. So we already talked about HOP. We developed this technology and so right now we're kind of alone in this category. And then another category is hash time locks and so this is kind of a game where you know you have one party lock up assets on one chain with the secret. The party, another party locks up assets with the secret and then someone reveals the secret on one chain. And then the other party can use that revealed secret to unlock on the other chain. And so hash time locks, they've been around for a long time. This is the same technology that underpins the Bitcoin Lightning Network.

• 38:16Speaker 01

  And there's, you know, they work well in some scenarios and then there's some difficulties and you know, these difficulties are ultimately why we chose not to take this approach when we were looking at this problem with Ethereum. And so one is that, you know, you have to wait for two rounds of finality. So, you know, the, you can't move too fast when you're doing kind of the second prepared transaction. And then you can't move too fast when you're, when you're revealing the secret. Otherwise you're at risk of a reorg. And then the other one is that whoever goes first in this game is kind of locking up their assets without any promise of the other party kind of locking up their assets.

• 39:01Speaker 01

  So if you have one party that has like reputation, then things work really well. Because, you know, they're reputable and you know that they're not going to kind of like, you know, take, you know, lock up your assets without fulfilling the game or something like that. But then it gets harder to, to like really decentralize that network. Because once things get competitive, then, then, you know, you have to like layer in some kind of reputation layer. So to make sure that, you know, you don't have parties entering and then just locking up people's funds. So that, that, you know, that, that more assets route through their router or something like that. And then the, the third type of bridge.

• 39:43Speaker 01

  Is kind of this externally verified bridge and that that's kind of what I was talking about with with. You know, it could be a future direction of hop. Um, but ultimately it introduces this, it introduces a new trust model and and with with hop, you know. Uh, for going across layer twos, we we want to just rely on Ethereum's trust model and and see that as as. Kind of the the best way to scale um in the near term. Um, but then for kind of addressing, you know, disjointed layer, layer ones, that's something that's that's better suited for. Um, hash high much or for these externally verified uh bridges.

• 40:18David Hoffman?

  Very cool. Let's let's talk about um the organization behind hot protocol. How is the the protocol actually? Who who are the people around hot protocol and how did they become organized?

• 40:30Speaker 01

  So uh we launched uh hop towards the beginning of the year. Um, and and since then, we've kind of had this community grow. Um, and then, you know, we we have um a company that that kind of facilitates the development of the protocol. Um, and yeah, so so, you know, as we move forward, we're we're going to be kind of becoming more and more community. Uh oriented and and uh we're already starting to see, you know, community members that that have developed like analytic dashboards or or like. Uh Twitter bots and and stuff like that, which has been really cool to see.

• 41:03David Hoffman?

  Is there an actual formal hop Dow?

• 41:06Speaker 01

  There is not.

• 41:07David Hoffman?

  Will there be?

• 41:09Speaker 01

  There could be.

• 41:10David Hoffman?

  There could be. Is there a hop token?

• 41:12Speaker 01

  Uh, there's not.

• 41:13David Hoffman?

  Will there be?

• 41:15Speaker 01

  It it could be.

• 41:16David Hoffman?

  Okay, awesome. Well, okay, what what if I uh? I don't know if there is an official hop roadmap, but what is left on the roadmap?

• 41:25Speaker 01

  Um, so so there there's a lot. So so uh right now, we kind of have the first version of our bridge. Um, the next version of the bridge is is very similar, uh but enables uh multiple bonders for an asset. Um, and and so we're excited about that, and it also allows us to kind of consolidate like kind assets. So right now, we have a separate bridge for. Um, you know, each of our stable coins. Um, in in the next version, we're going to be able to kind of have like a single stablecoin bridge, which is going to be much, much more. Efficient and like I said, you know, it scales up really well. So so it should allow us to to drop the fees by a good amount. Um, and then, you know, we we want to head to, uh, you know, we're heading in a direction where we're making kind of the

• 42:06Speaker 01

  this like core messaging protocol more generalized. Um, and and that's going to enable some really cool stuff uh in the future. Um, and then beyond that, we want to address um the the disjointed layer ones and and you know that that's going to be a big R and D effort to kind of figure out, you know, uh, what what's the best way to do this in in a in a really decentralized way, um, even if we can't, you know, leverage the security of Ethereum for for other uh disjointed layer ones.

• 42:34David Hoffman?

  Okay, well, Chris, thank you for having extremely like powerful and concise answers. And so I think that's everything that I I need to know about HOP. Is there anything that I missed or forgot to ask?

• 42:46Speaker 01

  Um, I I think that's it. You know, we're we're really excited about um the way you you know, everything's going. We're really excited about the way Ethereum is going and and to, you know, we've been waiting for layer two for so long. So it's it's it's been awesome to see that it's like actually here and it's usable um and and that we're seeing more and more layer twos kind of come online and get traction. Um, and yeah, if you if you want to try the protocol, I'd recommend uh visiting hop dot exchange or or um follow us on Twitter at protocol. Um, and yeah, really appreciate you having me on the show.

• 43:20David Hoffman?

  Chris, before you go, uh, outside of HOP, uh, when you are done with work, done with developing, uh, what else about Ethereum excites you or do you pay attention to?

• 43:31Speaker 01

  Um, oh, that's a good question. I I I mean,

• 43:37Speaker 01

  it's a hard question. Um, I I I, you know, dive into DeFi all the time. Like, that's been super fun. I like oftentimes like my entire Saturday is eaten up by just, you know, making uh, you know, jumping around these different protocols, trying out new stuff. Um, I I uh admittedly uh missed, I think, a lot of the NFT craze. Um, it's been so awesome to see like Like how mainstream it's gone and like I, I, you know, was so kind of had my head in, in DeFi that, that I really just didn't see it going the way it did. And I was like, I, I see your poster behind you. I, I know that you guys have been

• 44:15Speaker 01

  big believers in it. So, uh, it's been awesome to see it and, um, but yeah, I, I, um, I've been following closely, but, but not, not too involved on the NFT side of things. Um, and then, you know, DAOs have been a huge interest for, for a long time. So like just seeing, you know, uh, you know, Mole kind of kick things off and then, then Uniswap and, and Compound really start the, the, you know, more organized, uh, uh, or, or not more organized, but, but kind of the protocol DAOs, uh, has, has been awesome to see it, it, it like, and so, you know, uh, excited to see more and more people like working for DAOs and, and having that be like a legitimate side, legitimized, uh, type of organization.

• 44:58David Hoffman?

  A hundred percent, a hundred percent. It's funny, it's funny that, that you think I'm an NFT person because I definitely like align myself as a DeFi person. Uh, it's like, it's also funny to see like all the DeFi people like not really be, there, there's a separation between the DeFi people and the NFT people out there.

• 45:16Speaker 01

  Yeah, yeah, yeah. And, and like, it's so cool. Like the, you know, the NFT communities are really taking off and it's just like, it, it's so hard to keep up with everything these days. Like it, it really is crazy how far it's come.

• 45:27David Hoffman?

  Is there room in the hop protocol for cross L2 NFT transfers? Or is that own, is hop kind of only for fungible tokens?

• 45:34Speaker 01

  Absolutely. Um, you know, Vitalik put out a paper, uh, about a month ago for, for a cross-chain NFT bridge. And we, we think that, that the, the messaging piece of, of hop protocol is very well suited to kind of facilitate this, this type of, um, NFT bridge. And, and so like, actually, he doesn't talk too much about how that, that communication would, would work in there. And, and so like, we see this as kind of a missing component and, and would love to kind of implement that in the future.

• 46:03David Hoffman?

  Well, there's a lot of things to be optimistic about with the future of hop protocol. So Chris, thank you for coming on and, uh, telling us all about it.

• 46:09Speaker 01

  Thanks, David. Really appreciate it.

• 46:10David Hoffman?

  Uh, so I, I think you mentioned this, but just to reiterate, uh, what do you want listeners to do? Go try out hop exchange, follow hop on Twitter, join the Discord. What else?

• 46:19Speaker 01

  Yeah, jump in the community. You know, we're always in Discord. So if you're looking for something to help, just start chatting and you know, we'd love to find something. And yeah, follow us on Twitter and get your assets on Layer 2. There's real stuff happening and it's a lot cheaper than Layer 1.

• 46:39David Hoffman?

  Very cool. Well, all of those links will be in the show notes if listeners wanted to hop into Hot Protocol. Chris, thank you for joining me.

• 46:45Speaker 01

  Thanks, David.

• 46:46David Hoffman?

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• 47:24David Hoffman?

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