SotN#11 - BUILDING w/ Raul Jordan (Eth2 Testnet Broke? L2 will Save Us! Pro-o-o-tocol Sink!)

STATE OF THE NATION #11 - Tuesday, August 18, 2020 Watch on the Bankless YouTube Channel https://www.youtube.com/c/bankless The State of the Bankless Nation is.... BUILDING! The bankless boys discuss why. ----- GO BANKLESS WITH THESE SPONSOR TOOLS: ⚔️ GODS UNCHAINED - TRADING CARD GAME https://bankless.cc/godsunchained - you own the cards - start a free account, play and trade https://godsunchained.com/! 🧙‍♀️ POLYMARKET - BET ON CRYPTO https://bankless.cc/polymarket - bet your beliefs! - use it to bet on DeFi outcomes https://bankless.substack.com/p/how-to-bet-on-defi-with-polymarket! 🌈 AAVE - LEND & BORROW YOUR CRYPTO W/O A BANK https://bankless.cc/aave - earn some interest! 💸 AMPLFORTH - MONETARY EXPERIMENT FOR BASE MONEY https://bankless.cc/AMPL-MINE - learn about this experiment! ----- TOPICS: 1) ETH2 TESTNET BROKE? 2) LAYER2 WILL SAVE US 3) PRO-O-O-O-O-TOCOL SINK We show: Bankless Medalla Testnet Guide https://bankless.substack.com/p/guide-becoming-a-validator-on-the Official docs for prysmatic labs client https://docs.prylabs.network/docs/ Ethereum economic density article https://www.coindesk.com/ethereums-fees-mean-choosing-between-a-world-computer-and-a-financial-network - Nic Carter Loopring DeFi Dad video on Bankless YouTube https://www.youtube.com/watch?v=hF_e4bx-aiQ OMG network taking Tether settlement https://twitter.com/omgnetworkhq dYdX scaling with layer2 starkware https://integral.dydx.exchange/scaling-with-starkware/ Near bridging to Ethereum https://twitter.com/AlexSkidanov/status/1296139890778726400 Binance staking DAI using Compound/DSR https://www.binance.com/en/support/articles/32f889b8dacd42e28dc16d035ad8f35e Huobi launching Global DeFi Summit https://cointelegraph.com/news/huobi-launches-global-defi-alliance-to-merge-east-and-west --- Episode Actions: Catch SOTN LIVE on YouTube every Tuesday https://www.youtube.com/c/bankless at 10am EST (2pm UTC) Join AMA with Antonio of dYdX live at 2pm EST this Thursday https://bankless.substack.com/p/announcing-bankless-amas-every-2nd Subscribe to Bankless to get Medalla testnet guide then get involved https://bankless.substack.com/ Also...subscribe to Bankless YouTube https://www.youtube.com/c/bankless to watch State of the Nation every Tuesday! ----- Don't stop at the show! Subscribe to the Bankless newsletter program http://bankless.substack.com/ Visit the official Bankless website for resources http://banklesshq.com/ Follow Bankless on Twitter https://twitter.com/BanklessHQ Follow Ryan on Twitter https://twitter.com/ryansadams Follow David on Twitter https://twitter.com/TrustlessState ----- 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 is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time we may add links in this channel to products we use. We may receive commission if you make a purchase through one of these links. We'll always disclose when this is the case.

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

• 0:00David Hoffman?

  The.

• 2:10David Hoffman?

  The.

• 4:20David Hoffman?

  The.

• 7:50Ryan Sean Adams?

  Hey everyone, welcome to State of the Nation. This is episode 11th, our 11th episode of State of the Nation. David, how are you doing today?

• 8:00David Hoffman?

  I'm doing just fantastic. I stepped away for a whole four days and it it cost me in my ability to understand what the hell is going on.

• 8:10Ryan Sean Adams?

  But you know, four, four days is like probably four weeks at least, like in the real world.

• 8:14David Hoffman?

  Yeah, yeah, it's an insane amount of time, but I've spent most of yesterday trying to get back on track. And I think I think I'm there. I think I'm there.

• 8:22Ryan Sean Adams?

  Awesome, man. Well, I'm excited. We've got some great topics. We've got a very special guest, Raul Jordan. He is from the Prismatic Labs team and we are going to introduce him in just a minute. But if you're not familiar with State of the Nation, what we do every single episode is we broadcast this live on Tuesdays now. So Tuesdays at 10 a.m. Eastern Time, we're pushing this live. You can ask questions in the comments, but we have some prepared content that we talk about. And what we really try to do is talk about what's happening related to all of the big picture stuff that is going on in Cryptid, going on in the Bankless Nation. And we try to drop some insights and action items every single episode. So you are constantly leveling up, like using the events that have gone on the previous week to level up.

• 9:07Ryan Sean Adams?

  So every Tuesday, we drop this on YouTube. We also release it on our podcast stream on Wednesdays. So if audio is more your jam, you want to catch this while you're going for a jog, whatever, catch it on Wednesdays that way as well. David, before we dive in, we should talk about our fantastic sponsors. You want to start with Gods Unchained?

• 9:30David Hoffman?

  Yeah, Gods Unchained. I love having Gods Unchained as a sponsor. So for those of you guys that have played Magic the Gathering, or Yu-Gi-Oh, or Pokémon, or Hearthstone, Gods Unchained is a game just like that. It's a trading card game where you kind of duel with another person and hopefully your cards are better than theirs. But the interesting thing about Gods Unchained is that the cards are digital tokens on Ethereum. And so the Magic the Gathering game is great because you can play in real life with physical cards that you own yourself, kind of in the same way that you own cash. And then you can play right across from another person. Hearthstone from Blizzard is also great because you can play on your computer and you can play anywhere in the world.

• 10:13David Hoffman?

  And because it's on your computer, there are some extra cool mechanics that you just can't have in real life. Except you don't own your cards. And so Blizzard has complete control over your cards. If you lose your account, you lose all your cards. Gods Unchained is like the best of both worlds where your cards are tokens on Ethereum. Ethereum, and so you actually own your assets, right? Like, no one can take your God's Unchained cards away from you. But you can also play on a computer with these cool, like, awesome graphics and these cool, awesome game mechanics because of how it's a digital game. So you can check them out at God's Unchained, and you can also play against me every weekend or so. I usually play on the weekends.

• 10:52Ryan Sean Adams?

  Play against you?

• 10:53David Hoffman?

  Yeah.

• 10:53Ryan Sean Adams?

  A mistake? Are you, like, really good at this?

• 10:55David Hoffman?

  Uh, I could be better.

• 10:57Ryan Sean Adams?

  Alright, well, then I might take advantage of that.

• 11:01Ryan Sean Adams?

  Also want to tell you about sponsor number two. So Ave is a long-term supporter of Bankless, just a fantastic protocol. Ave is a lending and borrowing protocol deployed on Ethereum. Some weeks, I feel like I can't even keep up with everything these guys are putting out and everything these guys are doing. They might be competing for, like, the team that ships the most, the DeFi protocol team that ships the most, because they're just crushing it. Um, last, yesterday, actually, I saw Ave, um, not only last week, the week before, they passed the 1 billion locked mark, but they actually became the number one DeFi protocol, uh, in terms of total locked value. So I'm looking at the DeFi pulse charts right now, and they are number one.

• 11:45David Hoffman?

  Number one.

• 11:46Ryan Sean Adams?

  1.44 billion locked in Ave now. Um, I think the Bankless Nation might have a portion of that, um, and they're just ahead of Maker at, uh, who's at 1.43 billion dollars. So if you're new to Ave, what can you do? You can deposit DAI in the protocol or other ETH, uh, Ethereum-based assets that you have, like ETH or other ERC20s, and it returns interest, uh, on top of that deposit. You can also borrow against it, and Ave has fixed-rate loans. They're also rolling out Avanomics. You can take, uh, a look at, um, go to ave.com and see what Avanomics is all about. Um, they also have uncollateralized lending that they are deploying and developing.

• 12:31Ryan Sean Adams?

  We wrote an article about this in Bankless, um, and recently, actually yesterday, they just rolled out a, um...

• 12:39Ryan Sean Adams?

  A way to start onboarding Fiat, at least in the, in the, in the UK directly into the Ave Protocol. So this team's doing a lot. It's a, it's a protocol. If you're, if you're new to DeFi, it's very easy to use. You should definitely check it out. Go to ave.com to do that. All right. Those are sponsors. David, we should get to our main topic today. Oh, actually, before that, just some quick announcements. Antonio from DYDX, he's doing AMA with us on Thursday at 2:00 PM Eastern. So catch that here live on the Bankless YouTube channel. We'll also be releasing a testnet guide for the, we'll talk about how to say this in a minute, but the Madasha testnet,

• 13:19Ryan Sean Adams?

  which is the newest ETH2 testnet. So that's something else that you can check out. On the podcast, we had an episode with Haseeb yesterday, which was just absolutely incredible. And we've got an episode from Framework Ventures tomorrow that we're recording will come live on Monday. So always lots going on in the Bankless Nation, Bankless community. The way to keep up with that is subscribe to the newsletter at bankless.substack.com. All right. Let's get to topic one. And this is all about the Madasha testnet. And we're going to beam Raul Jordan in here, who is from the Prismatic Labs team. So Prismatic, if you're not familiar with them, they've developed an ETH2

• 14:05Ryan Sean Adams?

  client that is live on the testnet called Prism. And Raul is going to help us understand like what the testnet is and everything that's been going on. Because last week, as I understand, it was a pretty active week in ETH2.0 testnet territory. Raul, if you can hear me, how are you doing today, sir?

• 14:28Speaker 02

  Hey, Ryan and David. Doing great. Thank you for the invite. And yeah, excited to dive into this episode.

• 14:33Ryan Sean Adams?

  Awesome. Okay, well, let's, let's do first things first. So, um, how do you pronounce it? Is it, is it the Medalla testnet? Is it the Medalla testnet? Is it something else? How, how do we pronounce this thing, Raul? You're the expert.

• 14:47Speaker 02

  Yeah, so this is gonna be controversial, but you know, in Argentina, they say Medasha, but in, in the rest of, rest of the Spanish-speaking world, uh, two L's amount to a Y sound. So you call it Medaya. So for, to stick, you know, to stick to the origin story, I'm gonna call it Medasha, and I'll just go from there.

• 15:05David Hoffman?

  I've always learned that two L's is a Y, and when I saw Mariano Conti pronounce it Medasha, I was like, is this not Spanish? Like, I thought, I thought I knew what Spanish was, and it turns out, turns out my inclination was right.

• 15:17Ryan Sean Adams?

  Yeah, turns out. All right. So, um, can we start here, Raul? So, uh, what is this testnet, the Medalla testnet? Like, why, why do we have it? Um, why, you know, how far are we? Is this like the last testnet? Can you give us some context for what it is?

• 15:38Speaker 02

  Sure. So people have been waiting, you know, obviously a super long time to prove of state. Um, everything that we've had to this point, um, has mostly been either like glorified webnets or like smaller experiments that people have. We have yet to, to, we, we had not yet created basically a large-scale testnet in which the, the public would participate, um, at the same scale as mainnet. So, you know, we want, we want to have everything the same as it would look with real money, but using money, testnet ether, right? So the Medalla testnet is basically a culmination of years of work and creating a public, uh, you know, kind of large-scale multi-client testnet. That means that there are multiple implementations of Ethereum 2.0,

• 16:20Speaker 02

  uh, not just our teams, but also there are five teams that are currently on the testnet. So it's a really remarkable milestone. Uh, most other blockchain projects typically have uh, either one, you know, just one canonical implementation. Um, and, you know, we'll, we'll chat more about why having five is important here, but that's, that's kind of what the testnet is, and it's had tremendous participation from the community. Um, it's pretty much entirely by the community. So not the Ethereum Foundation nor the client teams own a large stake in the, in the testnet.

• 16:54Ryan Sean Adams?

  Gotcha. Alright, so some events went down last week, right? So this testnet has been live for a couple of weeks, maybe, a few weeks, maybe?

• 17:03Speaker 02

  That's right.

• 17:03Ryan Sean Adams?

  But last week was a particularly active week. Can you tell us what happened?

• 17:09Speaker 02

  Yeah, so, you know, a- a- as it is a test, you know, the goal of it is to find bugs before we go live with real money. So we want to make sure that, you know, if something breaks, it breaks right now and not when a real ether is at stake. So what happened was, we had probably one of the worst-case scenarios that could have happened. And what occurred was, most of our nodes went down, which were running a significant portion of the network at all at the same time. So what that means is that most validators that were running those, those nodes stopped validating, and the testnet basically didn't have enough participation to, basically, what we call finalize, which means that, you know, a supermajority of validators voted their ETH and the chain is moving affected.

• 17:52Speaker 02

  So what this means is people start losing and start basically bleeding money really quickly. There's a lot of, a lot of stuff is happening in the network, like nodes can't sync. All of this, you know, was distilled to a single, a single catalyst that discovered a series of other bugs that led us to the state in which, in which, in which it was. So, you know, to give a high-level overview, what occurred was that, you know, people typically have, you know, this, like, essentially, we, we want nodes to be synchronized with, with respect to their clock. So, you know, we want nodes across the world to have some sense of time that is somewhat consistent. So as long as your clock is within around, you know, a few seconds,

• 18:38Speaker 02

  then you should be able to participate just fine as a validator. What we were doing, however, was we were using, we were basically adjusting the user's clock if it was off. Nice thing to do. So for example, like, hey, you know, if your clock is off, we're gonna check with some cloud servers, such as Cloudflare and others, and if your clock is off by a little bit, we're gonna adjust it. So it's just a nice thing to do for people, you know, it's totally not necessary. However, this proved to be the downfall because, you know, when, when, when the time servers went crazy, one of the time servers was saying that people's clocks were off by four hours. So this means that people were creating blocks from the future and everyone else was rejecting those.

• 19:19Speaker 02

  Um, so you know, and it's totally unnecessary. Like people always ask like, oh, that means you two relies on a single point of failure, which no, it's not. That was our flawed assumption that we were making. Um, so that wasn't it, you know, that wasn't the end of the problem. So what happened after that was, uh, you know, the problem stopped. So the time servers uh fix themselves and everyone, everything was fine. But in the process, we were, we were desperate to push out a fix that basically uh didn't force users to change their clock. And in doing this, we actually pushed out a critical bug. So we made this worse. Um. So what happened with that, with that, with that fix that we did, uh, basically we told everyone, hey, restart your nodes and upgrade to the latest version. The latest version was broken. So

• 20:04Speaker 02

  nobody could sync and then all of our nodes were, were crazy. Um, so what happens in this case is, you know, a big portion of the network is down. Um, you know, nobody can really sync to the chain head. And when we, when we actually fixed the problem, we told everyone, hey, the problem is ready. It's the, the issue is fixed. Um, hey, restart. So what happens then, if you tell everyone, hey, restart your node, everyone is syncing with the chain at the same time. So it's really hard to find somebody that is already synced. So what this means is that, you know, you're like, you're basically like finding a needle in a haystack of really bad nodes. And like, hey, I want to sync the blockchain, but nobody, everyone else is trying to do the same thing.

• 20:44Ryan Sean Adams?

  Wow.

• 20:45Speaker 02

  Um, so it's really hard that you're going to get out of, uh, because you know, you, you need somebody to sync and those were really rare. So it, it, you know, the whole incident lasted probably around three or four days. And throughout this entire time, it became, you know, people were losing a lot of money. Uh, people were upset. And that's not all. I think the biggest thing that happened from the incident was, remember I told you guys that people's clocks were off by four hours?

• 21:10Ryan Sean Adams?

  Yeah.

• 21:10Speaker 02

  So they were creating, they were creating blocks from the future. So here's what happened. So it was four P M. Central and your node was saying it was eight P M. Right? So when you do, if you do a double, if you do a double block proposal that is conflicting or you do a double vote. So basically that's something you're not supposed to do. It's, it's counted as malicious.

• 21:29Ryan Sean Adams?

  No, that's a slash event.

• 21:30Speaker 02

  That's a really bad thing. Yeah. It's called the slashing. So essentially, you know, you, you, at four P M. You created a block at eight P M. Which was invalid. And then by the time APM was reached, you're, you know, people saw that you already created a block at APM. So everyone was slashed, like literally everyone was attempted to be slashed. Like every single node that was participating during that bug was gonna get slashed. Fortunately, you know, our client ships with slashing protection. So if you're running a node normally, you know, we keep track of the things that you've done before. So you won't get slashed. So a lot of people got saved by this, but a lot of others didn't, such as those that, you know, were running on like ephemeral cloud instances or stuff like that. So yeah, it was like a mass lashing event. So all these things went down.

• 22:15Ryan Sean Adams?

  Wow, it's a lot, right? And like in, in, in one way, it's good that all of these things went wrong that were in testnet. And you said, I just a couple of clarifications. You said, um, people were getting upset. They were losing lots of money. We're talking about losing monopoly money. Yeah, monopoly here. This is not real money, but still it's disconcerting. Um, one other, I guess, point of clarification. Um, you said, uh, you, you said, Raul, that like we went down and things went down. Um, it was only the Prism validator that had the original bug and the original issue, right? Which was, you know, again, we have a multi, you know, client testnet. But Prism was about how many in, in terms of total percentage of validators? It was a pretty large percentage, right?

• 22:59Speaker 02

  Yeah, I would say that it's probably around sixty or seventy percent at the time.

• 23:04Ryan Sean Adams?

  Okay.

• 23:04Speaker 02

  And in terms of validators and in terms of nodes, it was around sixty-five percent of the network, which is very, it's extremely imbalanced.

• 23:11Ryan Sean Adams?

  Right. And I mean, to your credit, I think that's because you guys have made onboarding super easy. You know, maybe relative to, to some other approaches and you guys put your, put your name out there. But that is why we have multiple clients here, right? So that if we have a fatal flaw in one, we have the others to, to fall back on. Uh, another maybe misconception people have been hearing is that the, the Medalla testnet died. Did it actually die? Like, did consensus stop? Did the chain stop going?

• 23:42Speaker 02

  No, totally not. The only reason the chain would die are a few scenarios, right? It's like if every single node and validator goes down for a very long time and literally nobody is synced to the chain head, uh, and you cannot find a single good peer, everyone thinks different things and maybe, yeah, the chain can die. If there's like a total takeover of the chain, so if someone takes over a huge amount of the ETH and basically turns into a glorified database, then you do you lose all reliance on the blockchain. So, no, the chain didn't die. The chain worked exactly as it's supposed to work, which is great. So that's what what's what we call liveness. So liveness is the property that, you know, even if there's a lot of issues going on, the change should still be able to go on and recover eventually. The problem with this is that, sorry, uh, the problem with this is that, you know, we

• 24:24Speaker 02

  need, uh, around sixty-six percent validators to be online and doing things correctly. And after all these issues happen, people grew frustrated, you know, people maybe turned down their notes, like, we didn't reach that number for a long time. So the chain was still in a bad state, um, and we had to rally the troops and get everyone who was running validators to make sure they're online and doing their job. And that was a really great experiment.

• 24:46Ryan Sean Adams?

  Yeah, so it didn't die, but to be clear, it wasn't finalizing. Is that correct? It wasn't, uh, moving forward at all. Like, if it was live, it wouldn't die, but that it would mean you couldn't, you know, get transactions done. You couldn't deposit into off air or something like that.

• 24:59Speaker 02

  Yeah, the chain was, blocks were still being produced. The chain was moving. Um, yeah, definitely. What it, what it, what it means, though, is that basically not enough validators were voting on, on the chain head correctly. So people were losing money, um, and were consistently losing money, but blocks were still being produced.

• 25:16Ryan Sean Adams?

  Gotcha.

• 25:17David Hoffman?

  So let's talk about like these, what if this had happened in like in a live environment? Because, you know, test nets are test nets and, and live main nets are live main nets. And these are different things, right? And so, you know, in, in this test net world, there's less incentive for people to like fix the problem, right? Because it's a test net. There's less at stake. And so like, and if this were a real scenario where with actually phase zero was up and running, like, I think we would have seen some different dynamics, right? Because Pete, you could have seen people like moving from one client to another. You could have seen people like maybe react sooner. So how did the fact that this was a test net play into how people responded to this incident?

• 25:56Speaker 02

  Yeah, I think speaking of that, there's a few key action items that came out of this that I think are really important and critical for the client team. So like you said, the main thing is being able to switch software implementations if there's a problem. That that is not easy at the moment and it's not well documented. Whereas in mainnet, that'll be one of the main things that is marketed and documented to people, so.

• 26:19Ryan Sean Adams?

  And by that you mean in in an emergency situation, if I had to move from prison to lighthouse, I I should have a very easy way to migrate and move quickly, right?

• 26:27Speaker 02

  That's right. That's right. It should be super easy. It should be easy to find how to do so. And it should be documented by all client teams.

• 26:34Ryan Sean Adams?

  That doesn't require downloading a whole entire new chain, right? You can use your old chain data to to pour over into a new client. Is that correct?

• 26:42Speaker 02

  Yeah, good question. So I think that might be a little bit hard to do for us right now because the the different client teams change data in different ways. But at the very least, you know, it shouldn't take too long to sync. What's more important is that you can do it safely so that you can switch your validators and you know, you won't get slashed or do anything, or nothing crazy will happen. So that's one action item that came out of this. The other action item that came out is basically, you know, having better responses and better external communications. That's something we can learn a lot from the E1 core developers. So a big mistake that we made was tell everyone, hey, your node when everyone is in the crisis mode. And what happens is nobody can sync to the chain because everyone is syncing with each other. So that's another thing to do. Overall, really a ton of things that happened.

• 27:26Speaker 02

  Moreover, we discovered a lot more issues and a lot of client teams discovered other issues and how they how they assume like their assumptions that their their code makes in terms of the chain being crazy. So for example, when there's a lot of forks going on, like CPU and RAM goes up like crazy, right? You're using like eight gigabytes RAM. Some teams were using like 12 gigabytes of RAM. And that's not reasonable, you know, it's like, because a lot of the software was written with the assumption that everything is great. But when the chain is in a really crazy state, you know, we need you need to fix those things. And overall, we pushed out more improvements in that week than I think we've done in the last six months, which is excellent. Every team has done so as well, and I think they're a lot more robust from that situation.

• 28:11Speaker 02

  Yeah, it's it's been it was a really great learning experience.

• 28:15David Hoffman?

  So I think one question that everyone has, myself included, is how does this impact the rollout of Phase Zero? And there seems to be some ambiguity here because like the chain didn't die, chain's still up and running, but there was also like a "critical bug." So has there been any sort of consensus among the client teams as to how this actually impacts the launch of Phase Zero?

• 28:36Speaker 02

  Sure. So there hasn't been like a particular discussion about the timeline. We particularly recommend that the timeline should still be on track. The chain is actually better than before. It is now we have like 78% patients, so it's stronger than ever. And we managed to recover from this and do it in a really, in a really great way and fix a lot of problems. We recommend the timeline still remains the same. I believe there's basically like the ticker since the launch of the testnet for three months. So that's like, you know, three months in which we should release. Yeah, there are likely discussions about like, you know, we should do a lot more like genesis tests or do a lot more maybe private tests on the side, staging environments and

• 29:21Speaker 02

  such. But overall, no official statement. What's currently being worked on is having a timeline checklist for each to launch. So basically, we have a list of big things that need to be done by everyone before we can say, okay, let's launch. And that will help the community a lot to figure out how that's going to happen instead of speculating on dates, right? So if you see that, you know, we're filling out maybe two checkboxes every week and there's like, there's like 10 or 20 checkboxes and that can give you a good idea of what's going on. So that's, that's going to happen and that's being worked on. I think people will receive it well.

• 29:54David Hoffman?

  I tend to think that the probably, the thought in most people's mind is there's a hope maybe that we finish this in Q4, right? That's kind of the hope.

• 30:09Ryan Sean Adams?

  And we get phase zero launch in Q4, but there's the expectation that it could bleed into into next year as well, into the first quarter, at least next year. But I don't think many people are thinking that, you know, this, this would ship as, as late as Q2. Is that about right in your mind? Like without giving specific dates, does that feel right?

• 30:29Speaker 02

  Absolutely, absolutely. We're in a very different place than we were like a long time ago when we're shipping discussions were happening like,

• 30:36Ryan Sean Adams?

  Yeah.

• 30:36Speaker 02

  As I said, there are like pretty much no, there are pretty much no outstanding features like from anyone at this point. A lot of things that are just like make sure that standards are, are met, make sure that we can switch between clients, like improving improvements and such, user experience. So, yeah, definitely. I, I think that un- unless something goes particularly wrong and like the testnet dies and every testnet afterward dies until Q2, then that, that would suck. Uh, but no, honestly, like, you know, there, there are a lot of last minute things that need to be, need to, need to be finished for the users and the, and the stakeholders to be safe. So that's kind of where we are right now.

• 31:14Ryan Sean Adams?

  All right. Well, Raul, it's been a pleasure. I, um, you know, one question for me, David might have another, but one question for me is, how can Thankless Nation help? We are incented to get the Madasha testnet fully vetted and fully tested so that we can have phase zero and start, um, you know, moving to proof of stake. How can, how can the nation help here?

• 31:39Speaker 02

  Yeah, totally. Um, we'd love for you guys to, to just join the testnet. I mean, it's, it's, it's open, it's, it's public. Anyone can try it out. And basically by node or validator, you're contributing to helping us ship this thing faster and safer. So, you know, if you run into any crazy issues or unexpected bugs, uh, you can tell us and, and, you know, you, we might, you might have found something very important, uh, before we go live with real money. So. You can use, you can use, you can go to our docs portal. So you can go to docs.prylab.network. You can go to the ETH2 Launchpad. Maybe you guys can link that in the, in the chat or, you know, for, for your listeners.

• 32:16Ryan Sean Adams?

  You know, so you know what we're doing, Raul. So no one's seen this yet, but we're actually pushing out a bankless guide for getting on the Medalla testnet that we think is super comprehensive. And that's actually happening today. I've got a document in front of me that is a guide to get started on the Medalla testnet, written by some folks that you probably know, Raul, at Consensus, who developed the Launchpad. So walks you through it, I think, in a pretty easy to way, easy to understand manner. At least, like, I would say this is probably intermediate to advanced technical proficiency. It's not going to be like as easy as getting a MetaMask while it working,

• 32:59Ryan Sean Adams?

  but it's still doable for someone like myself, for instance. And it takes you through getting hardware set up to, let's see, choosing a client, like you were saying. Prism is one. There are some others.

• 33:13Ryan Sean Adams?

  And installing the ETH1 node, which I guess is a requirement, to getting some Gorley. Is Gorley the actual, what is that? Is that the Monopoly money?

• 33:26Speaker 02

  Yeah, that's like the ETH1 testnet. It's supposed to be similar to ETH1 mainnet.

• 33:30Ryan Sean Adams?

  Okay. And then, and then heading to the Launchpad and actually getting started. So hopefully this will be another one of the ways you can quickly get going on the Medalla testnet. Raul, is there anything else you'd leave us with?

• 33:44Speaker 02

  Yeah, yeah, definitely. Yeah, I sent you guys a link to our docs portal. So we recommend people to, to run on that and your listeners can check that out. And maybe you can cross check your instructions with that. So yeah, that'll be good.

• 33:59Ryan Sean Adams?

  Very good. Well, thanks so much for joining us and best of luck to you and your team. You guys have been putting, I'm sure last week was probably a week without much sleep. But yeah, thanks so much for putting all the time in. We're, we're definitely supportive of everything that's going on and very excited.

• 34:18Speaker 02

  Cool. Thank you guys so much. Really appreciate it.

• 34:20Ryan Sean Adams?

  Awesome. Take care.

• 34:21David Hoffman?

  Cheers.

• 34:22Speaker 02

  Great. Take care, guys.

• 34:24Ryan Sean Adams?

  Yeah, David, I think, I mean, it all sounds really promising. At what point in time are you going to spin up something? Unless you have, I don't know if you have, but at what point in time are you going to spin up a node on the Midosha testnet?

• 34:35David Hoffman?

  Yeah, I'm going, I'm thinking about getting an actual like desktop computer. And when that happens, that's when I will start running, running nodes. And I think like, right, you know, running a node has never really interested me because it seems like a big pain in the butt. And I always had like a laptop, but also running, for some reason, running multiple clients sounds interesting to me. For some reason, running two rather than running zero. And I think that's coming out of like an incentive to make sure, to be like a gatekeeper of the network, right? To be, to be a guard of the network because, you know, if you're running, you're running run node, you're doing a job. But if you're running, if everyone is running two nodes, then Ethereum will literally never, ever die. Because you have such strong redundancy. And so I'm interested in that.

• 35:19Ryan Sean Adams?

  Yeah, it's so for me, it's not something necessarily that I would natively like geek out with. Like I geek out of things, you know, but you know, it's not something natively that I would be super excited about. But I do feel like it's almost there's, there's somewhat of like, it's, it's a patriotic duty.

• 35:36David Hoffman?

  There's some patriotism. Yep, absolutely.

• 35:38Ryan Sean Adams?

  Right? It's just like, like, oh, you know, if you're, if you're a citizen of the Ethereum nation, like you run a node. Right? Like, it's kind of like the Bitcoiner challenge, like Pierre Richard's challenge of like, shut up and like, show me the node you run and like, run the numbers and it, right? Um, yeah, it's not going to be for everyone, but I think that this is an opportunity to, um, to start from scratch, right? And do that. So at some point, I will certainly, um, start running a node as well in the testnet.

• 36:10David Hoffman?

  Yeah. And I actually came into Ethereum via mining, right? And so I had like mining computers like scattered around my house and it felt very cool. Because it was a literal manifestation of the Ethereum blockchain, like in my house, like putting out heat, right? And like, that felt cool. Like, I felt like I am part of this thing. Like I, there's this, there's this like surreal metaphysical like network, nation, community, like blockchain existing just in the ether somewhere in the, in the internet. And like a piece of it is in my house and that felt cool. That felt cool.

• 36:45Ryan Sean Adams?

  And what you're doing, which is super cool, like it's not so much sure on the testnet, but what you're doing with running your mining gears, you're actually like minting money for this new nation, right? Right. Like, how crazy is that? Yeah. So I will also certainly get much more excited when this is the live ETH at stake. And like seeing a validator, seeing the node that you're running, actually minting some of the ETH that you've deposited, I anticipate that's going to be like a crazy cool feeling. So I'm very excited. So Bankless Nation, maybe it's within your patriotic duty to help with the Medalla testnet. Run your node, get in early, figure out how to do it. We'll publish the Bankless guide.

• 37:28Ryan Sean Adams?

  We'll also publish Raul's link to the Prism docs. You can just see how complex or easy it is, see if it's for you. David, we should talk about our second round of sponsors as well. Do you want to start with Ample?

• 37:42David Hoffman?

  Ample4th, king of the rebasing mechanism. We've heard a lot about rebasing from a bunch of different tokens that are now integrating it. And Ample4th was the original rebasing token, right? And so Ample4th is a rebasing monetary experiment. So it's very similar to Bitcoin in the sense that it's non-dilutive. But instead, when there's, when there's demand for Bitcoin, the price goes up because there's, there's an extreme inflexibility of supply. Ample4th is the opposite, where there is extreme flexibility in supply, but inflexibility in the price, right? And so if you buy 1% of all Ample tokens, you are assured to have 1% of all Ample4th tokens in the future.

• 38:25David Hoffman?

  But what you don't know is how many tokens that will be, because the token of supply goes up and down. And so every 24 hours, there is a rebasing mechanism that will add or remove amples from your wallet in order to track $20.19, right? So super interesting mechanism. We've seen a lot of new alternative projects also start to experiment with this rebasing mechanism. They have a liquidity mining incentive program where you can add ample in Ether to the Uniswap pool and then stake that token that you get when you do that to the Geyser and you'll receive extra amples for adding liquidity to the network. So you can check them out at ample4th.org.

• 39:07Ryan Sean Adams?

  You know what else they've added, David? I don't know if you've looked at this, but they've actually added to their geyser Moonaswap, which is new automated market maker from 1-inch. So there's some additional eligible pools that I saw them add recently. Also want to tell you about our second sponsor of this set, which is Polymarket. So Polymarket is a way to bet on your beliefs. It is a prediction market. So it's an information markets platform. And what Polymarket is doing is making it really easy to use your crypto assets to bet on things. If you've ever used prediction markets

• 39:43Ryan Sean Adams?

  like Augur, for instance, or like Omen, gas fees are high, it's difficult to use, the user interface isn't, isn't amazing because it's all kind of on chain. What Polymarket does is it makes the user interface really easy, but still allows you to use your crypto to bet on events. So you can bet on current events like who will win the 2020 US presidential election. You can also bet on crypto comes as well. So we talked about phase zero launching. Will it launch before the end, before the end of 2020 or will it bleed into 2021? Well, you can make a bet and see if that's true as well.

• 40:25Ryan Sean Adams?

  Bet on your beliefs with Polymarket at poly dot market and you'll find out all about that. Also, use the code bankless. If you email them at hello at poly dot market with the code bank, they will cover all of your early gas fees and give you their, their newest features. So early access to their unreleased Polymarket features. So make sure you do that as well.

• 40:51David Hoffman?

  I don't, I don't think there could be a better year to launch a prediction market, right?

• 40:56Ryan Sean Adams?

  Right.

• 40:57David Hoffman?

  2020 has

• 40:57Ryan Sean Adams?

  There's so much uncertainty.

• 40:59David Hoffman?

  We need, we need prediction markets. So perhaps it's also your patriotic duty to go and help and make prediction markets more accurate. Because the more people that use these things, the more accurate they become. At least that's

• 41:11Ryan Sean Adams?

  They become oracles. They become oracles. Very cool. Yeah. All right, David, let's talk about our second topic today, which is Layer two. So ETH gas fees, man, it's been a running topic on Bankless since really we started because gas fees are not really going down. They've gone down a little bit recently. But like everyone's asking the question of like, when scale, when scale? Have you read the article that Nic Carter put out this week? He just published it yesterday. So I'm not sure if you had a chance to read that yet.

• 41:42David Hoffman?

  I have not. No, that's one of the, one of the things I've not yet caught up on.

• 41:46Ryan Sean Adams?

  Okay. So put that in your queue because it's, it's really good, really interesting. So we had Nick on the podcast. A few weeks back, I'm not sure what episode that was, but you know, we'll try to include it in the show notes. And one of the topics among many that we talked about was the topic of economic density, particularly transaction density. You remember this, David, when we talked about this? So I feel like Nick kind of wrote an article with some of the idea he presented in that Bankless podcast that have been kind of a Germany. And it's basically the idea that even on something like Ethereum, right? Because block space is scarce.

• 42:28Ryan Sean Adams?

  What's going to happen inevitably is that those that are willing to pay the highest price for the gas for the block space on Ethereum. Are going to be the economically dense transactions. So I'm willing to spend $20 on gas if I'm making a thousand dollars.

• 42:48David Hoffman?

  Right.

• 42:48Ryan Sean Adams?

  But I'm not willing to spend $20 on gas if I'm making $10.

• 42:53David Hoffman?

  Right.

• 42:53Ryan Sean Adams?

  Like I would be losing money in that transaction. So the idea is that this all because block, block space is scarce, this all consolidates. So that even something like Ethereum, you know, the main chain consolidates only the most economically dense transactions. And those tend, by the way, to be money types of transactions, or in a speculative fervor, it's something like farming yams, right?

• 43:16David Hoffman?

  And this is, we talked about this with Haseeb on our last podcast, right? Where he gave us the model of like DeFi, there might, there likely will be the DeFi shard, which will be like the Manhattan of crypto, which. It's expensive to live in Manhattan. It's costly. Rent is high. Food is high. And, and that's because that there's just a lot of reward for living there and it pushes a lot of people out. And that's why like not everyone lives in Manhattan.

• 43:40Ryan Sean Adams?

  And so he makes this statement, David, I want to see if you agree with this, or I've got it highlighted. So he says, all of this, everything we just talked about is sobering for some Ethereum's because it's punctured some of the more expansive visions of what Ethereum could be, like the world computer, other things, at least in its present form. With high fees, the most economically dense transactions come to occupy block space to the exclusion of all else. Do you, so do you agree with that statement, David? What like, what's your take?

• 44:08David Hoffman?

  Yeah, I, I agree with this because like the Ethereum is the values that have kind of been baked into Ethereum is trying to be like as equitable and inclusive at as possible, right? But at the end of the day, there are things that get included in the blockchain and things that don't get that things get excluded. And unfortunately, if you don't have the capital to pay your way into the blockchain, you get excluded. And so at some point, like we can all like love our kitties and rainbows and unicorns, but some people aren't going to be able to play. And that's just a fact of life, right? People with more capital tend to be able to play longer than others. Uh, and, and so I, I think like it's we, we are starting to now realize that like,

• 44:51David Hoffman?

  you know, the, the main L1 chain of Ethereum might be closer to a whale chain that we need than we originally thought, which is sad, but we also have solutions for this, so it's okay.

• 45:01Ryan Sean Adams?

  Well, that's what I want to talk about because I agree with I've probably the central thrust of Nick's article that, hey, Ethereum's have to come to accept, and maybe this is sobering for them, that higher economically dense transactions are going to reign supreme on the main chain. He also said this, which I probably agree with a little bit less. Vitalik Buterin once referenced Bitcoin that the internet of money should not cost five cents a transaction. It's safe to say his attitude to fees and that of Ethereum's more broadly has moderated with time. I'm not so sure that that is true because, and here, here's the reason why, that might be true of Bitcoin.

• 45:39Ryan Sean Adams?

  I think it kind of is true, but Ethereum has a slew of, you know, apart from ETH 2.0 scalability, a slew of layer two. Solutions that are coming to market right now and that are fixing this kind of problem. Right. So it's basically the internet of money more broadly is not just Ethereum main chain. It's also something that you can do in a layer two, like a loop ring, for instance, or an OMG network or something like that. So I'm not sure that he uh. Yeah. So I'm not sure I agree with that statement because I don't think Vitalik. The, the reason, the reason Ethereum is embarking on this entire scalability thing is because

• 46:22Ryan Sean Adams?

  the internet of money shouldn't cost five cents a transaction. Bitcoin might be more limited in that it's got lightning and kind of nothing else. It scales with crypto banks really right now. But Ethereum has never been okay with that. And that's why, that's why scalability exists.

• 46:37David Hoffman?

  Yeah, I think Nic Carter's Bitcoin or a hat came out when he wrote that sentence. Because I, I think he, what he's missing the nuance of the optionality that Ethereum has with how to scale. That Bitcoin does not have like Bitcoin has the ability to scale with lightning and that has not worked out at all. And that, and that's about it. That's about as, as many options as Bitcoin has. And, and then the other option is to scale with crypto banks. What, what Nick may be missing here is the fact that, you know, Ethereum, if you, if you are a person who has, you know, thirty dollars on Ethereum, you're a very low capital individual that doesn't have, you don't have much capital on Ethereum. And you are at point A and you're trying to get to point B.

• 47:20David Hoffman?

  If that, if getting from A to B costs you five cents and it didn't actually end up touching the L1 blockchain. Like, that's cool. We're cool with this. Like you got your goals achieved and like it didn't happen on the L1. But you still got your goals achieved. Like that's, that's where like I think Vitalik and Nic Carter are differing here. Where Nic Carter thinks or is baking into that sentence, a commitment to use the L1. And things like CK rollups or like side chains like Omisego or Starkware. Like you don't touch the L1, but you've still achieve your goal. And importantly, you still get all the insurance, the assurances of the L1 presence. Like the, the L1 security is still present in these types of transactions.

• 48:03Ryan Sean Adams?

  Absolutely. Yeah. And what you made there, that Lightning Network is, is not working, right? It's not to say technically it doesn't work. It's just it hasn't hit product market fit at all yet. And like, there's evidence of that. I, I feel like, you know, God bless Bitcoiners, but they've been trying to mean the year of lightning. Since like, you know, 2016. Yeah, right? It's like, next year's the year of lightning. Next year's the, so this year was going to be the year of lightning. It is number 22 in terms of like, if you look compared to some of the DeFi protocols, another layer twos on Ethereum. We've got Loopring, that's ahead of it now, right? Which is just one isolated Ethereum layer two solution.

• 48:46Ryan Sean Adams?

  In terms of usage, which you can really like, use capital, amount capital deposited, that's, that's the true usage of an application. So it, it hasn't hit product market fit. It hasn't worked. And to be fair, a slew of Ethereum layer two experiments haven't worked either, right? They've been hyped and then dormant. Raiden comes to mind, for instance. But the beauty of Ethereum is, it's like,

• 49:11Ryan Sean Adams?

  optionality. It's like a science lab. We've got, you, you can run hundreds of different experiments concurrently. Whereas Bitcoin has kind of put all of its eggs in the lightning basket. Like, there's really not much else.

• 49:22David Hoffman?

  Well, no, it, it put all of its eggs in the L1 basket and it locked down L1 expressivity to reduce, reduce, reduce. And then all of a sudden, like that reduces any, all of your optionality. And so like, they basically have now two options. One's Lightning Network and the other one is crypto banks, which I mean, if that's what you want, okay, that's fine.

• 49:44Ryan Sean Adams?

  Yes.

• 49:44David Hoffman?

  I, I think it, it has been interesting to note, like, if we were having this conversation with like a Bitcoiner, they would, they would, like a year ago, they would say like, you know, no one can actually know the supply of Lightning Network because it's private. And, and that was like their deniability. It's like, you don't know how much like DeFi Pulse, Lightning Network, like DeFi Pulse doesn't know how much Bitcoin is in the Lightning Network. Because the, the channels are private. I don't hear, I don't hear those arguments anymore because everyone knows, like, like, it doesn't matter. Like, no one's, still, no one's using it. And so by proxy, we know there's not that much there.

• 50:13Ryan Sean Adams?

  Absolutely. Yeah, so, so let's talk about, I guess, the positive of this because to be fair, Ethereum has been saying Layer 2 is coming forever, right? I remember, do you remember the OMG hype? You're, you're a child of 2017. You remember the OMG hype of 2017?

• 50:26David Hoffman?

  I was part of the OMG hype, yeah.

• 50:28Ryan Sean Adams?

  Were you?

• 50:29David Hoffman?

  Yeah, I was a big OMG.

• 50:30Ryan Sean Adams?

  You had the skateboard?

• 50:33David Hoffman?

  I didn't have the skateboard, but I definitely had the tokens, that's for sure.

• 50:35Ryan Sean Adams?

  Okay, alright, so you had the tokens, right? And I'll assume that you bought some too, they weren't just a gift airdropped to you.

• 50:41David Hoffman?

  I was not there that, actually, I came around right after that airdrop.

• 50:44Ryan Sean Adams?

  Okay, so, it's, but, but Layer 2 is actually starting to happen, right? It's not like this utopia of everything works in Layer 2 yet, but it's starting to happen. So Loopring, like we mentioned, is a, an exchange. Here it is, it's fully built on ZK rollups in Layer 2. So it's secured essentially by the Ethereum blockchain. You can use it today. So this is a fully fledged exchange. In fact, DeFi Dad just published a fantastic 3 Reasons You Should Be Trading Loopring Dex video to Bankless YouTube yesterday. So, you know, check that out and go through it. That's a flavor of you, what Layer 2 is. Basically, one transaction to kind of deposit your ass, to, to set up your account.

• 51:28Ryan Sean Adams?

  It's about $12 in gas right now, right? But once you get past that, you can do trades, basically secured by Ethereum, for like a couple of cents a transaction. You can even send things from one Loopring wallet to another, again, secured by Ethereum for a couple of cents. Not 5 cents, Internet of Money, it's like less than a cent for many of these transactions on Loopring. So, that's one example of it already being here. There are some others too, we should talk about, David.

• 51:55David Hoffman?

  Yeah, and actually, before, before we talk about the others, I do want to talk about, like, why this is so cool in a, in a way that I don't hear many people talking about, right? And so, and one of the bearish things about all these different L2 solutions is that they break composability, right? And so, like, now, if you're on Loopring, it's harder for you to interact with something that's on Starkware, or even the main chain for that matter. And maybe you, like, want to trade on Loopring, but your value's on the main chain and, like, When you buy your ether on Coinbase, you have to go through the main chain to get to Loopring. Now, L2s like Loopring, or like DYDX we're about to talk about, and their L2 with Starkware, they all have incentives to build onramps right into their L2, right?

• 52:38David Hoffman?

  And so, instead of everyone going and getting an on-ramp right onto the main chain, you can on-ramp right into the L2. And again, you don't actually ever touch the L1, but you still get the settlement assurances of the L1. And now, instead of just like all these capital onramps going into the main chain, we have all these additional capital onramps going into their respective L2s, which can then also go right into the L1 if necessary. But I think we're about to see not only an explosion of L2s, but an explosion of onramps directly onto these L2s, because each individual, because of the lack of composability, there's more incentive for all of these L2s to actually build out their own onramps.

• 53:20Ryan Sean Adams?

  Now, that's super cool. I didn't quite put that, a fiat on-ramp together with that, but that is a missing part of the puzzle. So to, I guess, maybe connect some dots to what David is talking about. So this is DYDX. They are a, an exchange specializing in, you know, synthetics and options and that sort of thing, just sort of the BitMEX of DeFi, if you will, deployed on the mainnet now. What they're going to be moving to is their entire kind of trading engine, including perpetuals and options, are going to be moving to a StarkX Layer 2 by the end of this year. So, again, like, we're just talking a few months away. And what you're saying, David, is so DYDX, they started on mainchain,

• 54:04Ryan Sean Adams?

  now they are migrating to a Layer 2 that's secured by mainchain. And all they essentially have to do to become as powerful as a BitMEX, or like a Coinbase or something like that, is connect in fiat on-ramp, essentially.

• 54:20David Hoffman?

  Somehow, somewhere, whether that's through wire, or, I mean, wire would be a great choice. Like, now every L2 has their own incentive to make it easier for you to just go straight into the L2. And then people can be, find out that they're using Ethereum without even knowing what Ethereum is. Like, that's where that line comes from.

• 54:37Ryan Sean Adams?

  Right, and so they can own their own assets essentially that they don't have to give up custody to a BitMEX. They own their own assets and they can see the trading activity on a public chain. So it's not like a black box, right? So it's a much more banking alternative. And I also read this, so DC Investor put this out, which is super cool. Is the idea of, so Diversify, they've been a sponsor as well, but Diversify is another exchange that has built on Layer 2. DYDX are both running on separate, they're going to be running on separate rollups, but they're going to create interoperability between them. So another incentive in addition to adding fiat gateways to these Layer 2s is actually to start having the Layer 2s

• 55:21Ryan Sean Adams?

  talk to one another themselves where it makes sense, right?

• 55:24David Hoffman?

  Mm-hmm, absolutely. And I'm just so excited to get Antonio into the Bankless AMA on Thursday because I have so many questions of this nature to talk to him about. That's going to be really, really enlightening as to some of the details going on here.

• 55:39Ryan Sean Adams?

  Yeah, you know, another thing that came out, so I do feel like, you know, maybe it's not the year of lightning, maybe it's the year of Ethereum Layer 2s, right? It's all starting, right? This stuff's, you know, that we're talking about OMG didn't ship anything in 2017. To be honest, I thought it was like, I thought it was dead.

• 55:57David Hoffman?

  I thought it was dead.

• 55:58Ryan Sean Adams?

  So I thought it was dead, and it just came out this week with a really fascinating kind of use case that's live in production. This is their PR about it. I think the tweet sums it up a little bit better. But basically OMG is a Layer 2, it's built on Plasma, so not optimistic rollups. If you don't know what that means, don't worry about it. But it is still secured by the Ethereum network in the same way that Loopring was. Now Bitfinex, so they are the originators of the popular, the most popular stablecoin by far, USDT, Tether, stablecoin.

• 56:37Ryan Sean Adams?

  They are now connecting directly, not to, not to, directly to OMG Networks Layer 2, right? Where they can get, you know, transactions and Settlement for like fractions of a penny. Whereas on Ethereum right now, wow, I should pull up the gas station here.

• 56:54David Hoffman?

  It's bad.

• 56:55Ryan Sean Adams?

  Right. Yeah, they're this is what.

• 56:57David Hoffman?

  They've always been up there. The fact that actually Uniswap has trumped them is relatively new, but Tether has always been guzzling the most gas on Ethereum for years, for years now. And like a large, and that's just now starting to be like DeFi transactions, which means that like they, some of that tether is going to have to remain on L1. But a lot of this is just simple ERC 20 token transfers, which are costing traders between five and $20, depending on gas fees. To send, you know, their tether, just exchange arbitrage, just exchange arbitrage. There's no reason why that needs to be on the L1.

• 57:32Ryan Sean Adams?

  It's costing that, it's costing Bitfinex, the company that basically, and like this is a 30 day period of time. So Tether, Bitfinex, Tether traders, anyone who does settlement with Tether on Ethereum. They're paying close to 6 million a month for that, right? So I mean, you know, what is that? Almost 70 million annualized per year?

• 57:55David Hoffman?

  Right.

• 57:55Ryan Sean Adams?

  That's a pretty steep line item.

• 57:57David Hoffman?

  Right. Yep. And it's only going to go higher as DeFi expands and expands.

• 58:02Ryan Sean Adams?

  Right. So what I love about this is it's an example of, like, the market doesn't always fix things, but sometimes the market does fix things. If you're spending 6 million a month on Tether gas fees, it doesn't make sense to spend that when you've got something like the OMG network. And it's the market working to remove lower economic density transactions, Nic Carter was right. From the Ethereum main chain to the layer twos, and it's starting to happen. And as that activity happens, the layer twos become more incented to actually build. Not to build just to pump a coin like OMG coin, but to build because there's real value and real cash flows associated with becoming like the king of the layer twos, right?

• 58:47David Hoffman?

  Right. And this is the, perhaps the end of this conversation goes back to like the bankless vision, right? Because this is how we retain banklessness, right? Can't scale on layer twos, then you therefore scale on centralized exchanges. And so every time we see a layer two, a layer two crop up to solve an L, an L one problem that retains the trust minimization and settlement assurances of the Ethereum L one. That is the bankless nation like spreading into new fields, right? Like that is the bankless thesis like growing. And so anytime we have this like L two growth and adoption story, I, what I hear is a removal of the need of centralized intermediaries. That's what I see.

• 59:29Ryan Sean Adams?

  Yeah, absolutely. And you, you know, the other thing I see is it's sort of an interesting. I guess when we were talking to Haseeb, you asked him a really pointed question on the podcast earlier this week. You asked him, hey, if we have layer twos, why do we need

• 59:46Ryan Sean Adams?

  ETH killer chains, right? Other, other main nets essentially. And he had an answer for it. I'm not necessarily persuaded by it because what I see is something like OMG could be hugely bullish for the ETH killers, bearish, excuse me, and, and bullish for Ethereum. Because what it means is the ETH killers aren't really competing with Ethereum mainnet. They're competing with all of these layer twos.

• 1:00:12David Hoffman?

  Yep.

• 1:00:12Ryan Sean Adams?

  That are evolving super fast, number one. They're already integrated natively with Ethereum and they already have security figured out. Like they don't even pay for it. Ethereum pays for it essentially, right? So it's like outsourced security. That's pretty hard to compete with. And what we're seeing is even chains that Haseeb mentioned, like near, what, what's near doing? It's building a bridge. Like, like last week, it's building a bridge to Ethereum because it has to, because it has to compete with the other layer twos to get some of that economic activity on, on its own chain, or it fails. So we'll see how that evolves, but I think it's pretty, it's probably pretty bullish Ethereum.

• 1:00:53David Hoffman?

  So like, I think there's going to be a very strong blurring of the lines between what is an Ethereum L two and what is a ETH killer that, that then builds a bridge? Cause they're, they're starting to become like closer and closer this. Same thing and I can I can like rattle off like five or six different ETH killers, right? And I think there's going to be this game theory between them is like, who's going to defect first and start to rebrand and reorganize themselves as like an Ethereum bridge sidechain like L2 like

• 1:01:23Ryan Sean Adams?

  Right.

• 1:01:23David Hoffman?

  Like if if near near build a bridge to Ethereum, well, then it's like basically Ethereum's L2, right? In a sense and like perhaps you in in if you use the the near perspective, you could call near the L1 and Ethereum the L2 on like just by reorienting how you perceive things because like if you want to take the near perspective, well, then near is the L1 and Ethereum is the L2. But let's be real here, like which one's bigger, like which one's the real L1 here?

• 1:01:49Ryan Sean Adams?

  But what but you're right there. The game theory is what near is trying to do, right? Um, is they're trying to pull all of that economic activity from Ethereum back to near. And essentially, um, I guess leave sort of Ethereum a skeleton chain and become the main chain, right? So like the sidechain wants to betray its master and like do a Sith Lord thing where it's just like it becomes the master.

• 1:02:16David Hoffman?

  Ultimately, like the value of near, I don't think will ever be able to be larger than like exactly how much value it produces for users. And again, like then you have we have to compare near to all the other L2s out there. And so like, it's really just like, it's Ethereum's game, dude. And it's all we have. It always has been like we've always done this.

• 1:02:37Ryan Sean Adams?

  Yeah, well, yeah, maybe. I mean, I'm just I come away from that getting more bullish about Ethereum. But, um, you know, who knows? I, you know, could be wrong on that. We'll see. But let's talk about another thesis of the bankless nation. This is our our third topic and then we'll turn it over quickly for if anyone has any questions, um, who's watching this live. And that is David, the protocol sync thesis. It feels like every week we see more evidence that the protocol sync thesis is directionally correct. And I feel like last week, like I couldn't even keep up with we we used to almost catalog like a back and forth of Twitter. You'd be like, hey, is this protocol sync? This is Ryan. Like last week, I couldn't even keep up with it because there's so many things that were happening.

• 1:03:22Ryan Sean Adams?

  Maybe, do you want to talk about the protocol sync thesis, just a quick recap and then like talk about what's going on?

• 1:03:27David Hoffman?

  Yeah, quick recap. The protocol sync thesis, when I say a sync, I want you to think of like a basin, right? Where things tend to fall down to the bottom. And in this basin are different protocols. And there are, according to the protocol sync thesis, there are different characteristics or qualities that make things fall down to the bottom of the protocol sync. And those characteristics are the things that we are in crypto to begin with, right? Like trust minimization, censorship resistance, you know, decentralization, sovereignty would be one. And so these protocols that have more of these characteristics fall down to the bottom of the protocol sync. And that's because they act as really good infrastructure.

• 1:04:10David Hoffman?

  Things that are dense, that are dense because of their trust minimization, because of their credible neutrality, because of their decentralization, they become dense and they become very stable foundations to build on top of. Like Bitcoin is a great example of something that's really, really dense in the protocol sync. Because you have assurances that Bitcoin is never going to change. You have assurances that it's always going to keep on producing blocks. And therefore, as a perhaps an entrepreneur, you feel stable in building your business on top of Bitcoin. And Ethereum is the same thing. And not only is Ethereum the same thing, but there are Ethereum protocols that are the same thing. Like everyone is basically built on top of Uniswap at this point, right? Like Uniswap is one of perhaps the densest protocol on top of Ethereum. And now everyone's building on top of it, right?

• 1:04:55David Hoffman?

  And we can also layer in like MakerDAO, Compound, Aave. They have different like respective amounts of density in the protocol sync thesis. And then as people build on top of them, they become more dense. They literally become heavier and they fall down lower into the protocol sync. And so the concept of the protocol sync thesis, the main predictive quality of this thesis is that centralized companies will never ever be able to have as much density as a protocol on Ethereum. And they will ultimately come to build. Their own products on top of protocols that are dense in the same way that like we are all like Google, Apple, Facebook, like whatever.

• 1:05:35David Hoffman?

  Like they are all are all building on top of the internet. The internet is also really dense. The internet is at the bottom of the protocol sync. And so like companies can build on top of this like stable dependable infrastructure. Because of how like no one owns it, no one's rent seeking, it's like it's going to exist in the into the future. And so therefore it becomes infrastructure for everybody else.

• 1:05:57Ryan Sean Adams?

  It's the most credibly neutral. It says the most credibly neutral protocols will win, basically, right? And it's cool because it's kind of the thesis for why crypto can be successful like Bitcoin and Ethereum. So why DeFi protocols are successful? And what I love about Protocol Sync is, as you said, David, it does have these predictive qualities, basically. Like you can use the framework to round about make predictions. So this is a a podcast that we put out in May 18th. And it was based on a post that I wrote in February and based on some talks that you gave at Ethereum in like April. Right? Which just talked about the critical sync and it made this prediction.

• 1:06:39Ryan Sean Adams?

  It made the prediction that crypto exchanges will start adding DeFi protocols to them. Again, because DeFi protocols have more density. So they sync to the bottom of the critical sync, right? They're more credibly neutral. And what we're seeing is every single week this happens more and more and more. So what we saw this week, for instance, is this was big. Binance, right? So like the the action I think we made in the podcast, David, was this. A major exchange like a Coinbase or a Binance would incorporate the dive savings rate by the end of 2020. That's what Binance just did here. So what what they're doing is they're launching DeFi staking with DIES.

• 1:07:23Ryan Sean Adams?

  So you can deposit your die, you have to give custody to them, of course, because it's Binance, it's a crypto bank. And what they're doing, if you read the, if you read the fine print, um, let's see here. What they're doing is they're actually depositing that die or they have the ability to deposit that die. Into Compound staking, okay? Compound staking is backed by the DAI savings rate, right? So again, DAI and Maker is more, has more density, so it sinks to the bottom. And then Compound is built on top. And then exchanges are built on top of both of those. And all of it's built on top of Ethereum.

• 1:08:00David Hoffman?

  Right.

• 1:08:00Ryan Sean Adams?

  The, the most dense protocol of them all, essentially, right? So that's what they're doing here, um, which is essentially our prediction.

• 1:08:09David Hoffman?

  Right. And, and, and what's really important here is like, uh, it's actually pretty cool that they just explicitly say where, where that DAI is going, which is, which is important. But also like, they could have just said, you know, you get 12% and like, you just give it to us and then you get 12%. And in the background, they could submit it to Compound. In the background, they could submit it to.

• 1:08:29Ryan Sean Adams?

  They don't have to tell anyone.

• 1:08:29David Hoffman?

  They don't have to tell anyone. And I, I, I hope that they take a cut because they're a business.

• 1:08:34Ryan Sean Adams?

  They are. They totally are.

• 1:08:36David Hoffman?

  They totally are. And like.

• 1:08:37Ryan Sean Adams?

  That's why they're able to give 12%, right? And the DAI savings rate is only like, it's zero right now or something close to that.

• 1:08:43David Hoffman?

  Right. Well, so I don't think the DAI savings rate is actually integrated here. I think it's only Compound, like the DAI savings rate.

• 1:08:48Ryan Sean Adams?

  Compound is, Compound is built incorporates the DAI's rate, though.

• 1:08:51David Hoffman?

  Does it?

• 1:08:52Ryan Sean Adams?

  Yes.

• 1:08:53David Hoffman?

  Okay. Interesting.

• 1:08:55Ryan Sean Adams?

  Yep.

• 1:08:55David Hoffman?

  Okay. Anyways, so Binance takes a cut as a profit-seeking like venture, which is why they're doing this. And this is good for the users because then you get centralized exchange UI UX, if that's what you're into. And then you also get a shirt, like some amount of insurance, right? Because like if Compound blows up, like Binance is on the hook, right? And like, Binance has paid debts before for things that they've lost. And so like you, it may be you enjoy like 12% in Compound, but you don't like that, that contract risk, which is real. And so then you can go to Binance and give them a percentage cut of what the interest rate is. Because you know that if Compound blows up, Binance will pay back the DAI that it owes you. I'm a big fan of this. Like, take a, take a cut.

• 1:09:40Ryan Sean Adams?

  What's cool, so, so some people, um, some people were upset at Binance doing this. They basically said, look, it's another crypto bank, like taking a, um, basically centralizing a, you know. Something like like die, the die savings rate, right? I don't think that's true. And the reason is because of the protocol sync essentially. Die and compound are below finance. Anyone can tap into it, right? Finance is trying as hard as it can to add its value add that additional like, whatever, 10% so that it can give by doing other things within Binance. But Coinbase can add the same to its platform. And essentially what finance becomes is kind of like a, an onboarding layer to the world to DeFi, right?

• 1:10:24Ryan Sean Adams?

  It is the thing that becomes commodity, not DeFi. It is putting more total locked value into compound and into maker and into Ethereum essentially, not the other way around. So that layer becomes the commodity. And essentially, the fat DeFi protocol thesis, or protocol sync, as we kind of call it, like that becomes the thing that accrues value. At least that's the idea. That's the thesis. So I love this. I don't hate it. I love it because they're building on top of it. And they're not able to usurp it. And everyone has access to it. Any bank in the world has access to these protocols. And so do you as a self sovereign individual on the bankless journey. This is pretty exciting. That was the only thing, David.

• 1:11:07Ryan Sean Adams?

  So like, Quoby is a major.

• 1:11:11David Hoffman?

  Knocking them down.

• 1:11:12Ryan Sean Adams?

  Exchange.

• 1:11:13David Hoffman?

  Knocking them down.

• 1:11:13Ryan Sean Adams?

  Right? What are they doing? They, this week, are launching a DeFi alliance to merge the East and West. Who's part of this alliance, Compound, Maker, D by DX.

• 1:11:25Ryan Sean Adams?

  I didn't even look at it. That looks like a finger.

• 1:11:30David Hoffman?

  They're playing cat's cradle. It's a metaphor, I guess, for the East and West, like, playing with you, or whatever.

• 1:11:36Ryan Sean Adams?

  Is that it? Okay.

• 1:11:38Ryan Sean Adams?

  All right. So that's what they're doing. I don't, I don't understand the image, but they're also incorporating AVE directly into the Huobi wallet. So again, AVE is kind of a DeFi protocol, more credibly neutral than these others. And they're just incorporating it. So.

• 1:11:53David Hoffman?

  And this is just the beginning, man. Like, we're starting with like the crypto native companies, right? We're starting with Binance, Coinbase, who will be like, but PayPal is going to integrate Bitcoin and Ethereum like in the next like 12 months, probably. Like, we know this is coming. And then they're going to come to it. And then it's just your actual crypto banks are actually going to be doing this, right? Like, we're starting with a low hanging fruit, but then it's just going to become like, you know, your Wells Fargo, like deposit your cash into like DeFi with Wells Fargo, get 7%. Like, that's coming.

• 1:12:26Ryan Sean Adams?

  Yeah, and pretty soon.

• 1:12:27David Hoffman?

  Not this year, not next year, but like, it's coming.

• 1:12:30Ryan Sean Adams?

  It's coming, right? It's, I mean, Bitcoin is the original, like, sort of, you know, fat protocol that's sunk to the bottom. And now entire banks are built on top of it, right? Like, all of these banks are built on top of it. So it is coming. And what's going to happen, it seems like, is there's going to be a gradual swapping out of the base layer, the base settlement layer, for fiat-based traditional systems with crypto-based systems. And why is that good? Why do we care? Well, we're just replacing one with another. Well, this base system is internet native, it's programmable, it's digital, and it belongs to the people. The rules can't be changed, right? But like, there's no, you know, like, people are

• 1:13:12Ryan Sean Adams?

  so sick of politicians these days, David, because, and those in power, because they act like the rules don't apply to them, right? Like, they do something against the law, and they'll just get some attorney that gets them off the hook, or they'll bribe someone or know someone in power, right? This is Epstein. This is everything that's going on today.

• 1:13:33Ryan Sean Adams?

  The laws always apply to everyone equally in crypto systems. If you're using Ethereum, if you're using Bitcoin, the laws apply to you equally.

• 1:13:43David Hoffman?

  There's no subjectivity in cryptography.

• 1:13:47Ryan Sean Adams?

  Exactly. There's no subjectivity. There's no, you know, special person who gets to bend the rules or like skirt around them. And that's why. It's a more credibly neutral money system for the world that belongs to the people. It's still like, I mean, it's not fair, right? Not everyone gets. You know, if you have more capital, there's advantages to that, but it is credibly neutral. The rules apply to everyone equally. There's no Cantillion insiders, as you know, Nic Carter might use the phrase. So that's why this is important.

• 1:14:17David Hoffman?

  That's why this is important. And like, yeah, and this is how cryptography sneaks in and pulls the rug on like the whole world. Right? Like, all of a sudden, like, every, everyone answers to cryptography equally. And turns out like, oh, all the value has flowed away from like this, this pen and paper accounting system of the nation state into this like crypto, cryptographically secured like internet protocol that like is one single protocol. And it starts with ProtocolSync thesis.

• 1:14:46Ryan Sean Adams?

  Absolutely. Very cool. Man, we covered a lot. We went through test nets, Medasha, layer two, into ProtocolSync. Anything else, David, we should cover?

• 1:14:55David Hoffman?

  Yeah, you guys, in the YouTube comments, if you have any further last questions, any last topics you want to hear from, like now is the time. I don't, I currently see some chatter. That's, that's pretty cool. Glad to see some, some chit chat, but I do not yet see any, any questions. And so.

• 1:15:09Ryan Sean Adams?

  There's some in Bankless Discord, David. I just flipped to it. One is about Aave's new license. Did you see this yesterday? It's another thing.

• 1:15:17David Hoffman?

  Yeah, I did see this announcement. Apparently it's a really big deal, but I didn't understand it too much.

• 1:15:22Ryan Sean Adams?

  Yeah, it's, it seems to me, it's basically like you were saying, right, earlier about the layer two and the fiat on ramp. So this gives Aave away, Aave, the entity, not the protocol, of course, the protocol is not owned by any individuals, but the, the, the entity, the Aave company, has the ability now to onboard users directly to Aave using their own fiat on ramp in the UK. They have the same sort of licenses that Coinbase or other exchanges have in the UK. So it's a big step, I think, for on, for, for continuing to onboard folks into, into DeFi. And it's interesting that DeFi protocols themselves, or at least the teams behind them, are becoming big enough to, to actually do that.

• 1:16:06Ryan Sean Adams?

  They're all incentivized to get more people into, into DeFi. This is like the DeFi flywheel effect. So.

• 1:16:14Ryan Sean Adams?

  It's exciting. I mean, some people are worried that this could introduce some sort of AML KYC, right? Into kind of the mix is is is AVE going to like cozy up with regulators and banks? So that's an outstanding question. I it's in general, it's an outstanding question to me if which of these DeFi protocols become a bit more like banks over time and which preserve maximal credible neutrality like a Uniswap, for instance. But overall, I think it's good for the space. It's a good step in that direction. So.

• 1:16:47David Hoffman?

  Absolutely. Leon on YouTube says, asking about AVE moving over to L2, or excuse me, to Ethereum 2.0. Is there an ETH 1.0, if there is an ETH 1.0 AVE loan, does that translate over to ETH 2.0 seamlessly? Or does it have to be paid on off on ETH 1 first? I'm pretty sure you're going to have to pay it off on ETH 1 first because the AVE protocol on Ethereum 2.0 will be different than the AVE protocol on Ethereum 2.0 or vice versa.

• 1:17:17Ryan Sean Adams?

  I do think that's the case, right? If you want to transfer early. However, at some point in time, like after ETH, like 1.5, right? There's a couple of phases to this.

• 1:17:28Ryan Sean Adams?

  On the roadmap, there's the plan to just forklift everything ETH 1 and just move it over to ETH 2.

• 1:17:34David Hoffman?

  I think, I think as an execution environment, but not account balances. Account balances have to the to move over like manually, like through the bridge, right? I don't think we're going to be able to carbon copy account balances. We can carbon copy like the execution environment, which means like people can use the AVE protocol with the assets that they have migrated over. That's that's how I understand it.

• 1:18:00Ryan Sean Adams?

  That would be a good follow up. The good news here is, I guess, well, you know, the good news, but don't worry about that now. Like, don't even worry about it.

• 1:18:08David Hoffman?

  So much. There are much smarter people who are solving these problems.

• 1:18:11Ryan Sean Adams?

  Don't worry about it. And it's just a long time away. You know what I mean? It's like when ETH 2 comes out, it's going to come out in phase zero, right? And there it's going to be a long way from using AVE 2. So just, you know, stay tuned with things to bankless and other channels. And you'll figure it out before then.

• 1:18:27David Hoffman?

  Those are all the questions.

• 1:18:28Ryan Sean Adams?

  Alright man, it's been State of the Nation, episode 11, David.

• 1:18:31David Hoffman?

  Episode 11.

• 1:18:33Ryan Sean Adams?

  It's been great, thanks a lot man.

• 1:18:34David Hoffman?

  Alright, let's wrap this up. Thanks everyone for tuning in. Make sure you subscribe to the YouTube channel so that you guys get notifications as to when we go live. Uh, we do this every Tuesday morning, uh, 7 a.m. Pacific time, 10 a.m. Eastern time. Whatever that time is for you if you're in Europe and Asia. So make sure you stay tuned for this. And then again, it gets dropped as a podcast on the next day on Wednesday. But if you're watching the video, you get to look at the screenshots, look at the data, look at the graphs, look at our faces. So it's much more rewarding if you come to, come to the YouTube.

• 1:19:07Ryan Sean Adams?

  Yeah, much more rewarding, absolutely. Alright, so, uh, risks and disclaimers, guys. Everything we talk about, all the DeFi protocols we talk about are risky. ETH is risky, Bitcoin is risky. You could lose what you put into these DeFi protocols. But, uh, we're glad you're with us on the Bankless journey. Thanks so much for hanging in there, sticking with the Bankless YouTube channel, State of the Nation, episode 11.