Ethan was a guest on DeFi Decoded last year, where he spoke on how Cosmos is creating an “Internet of Blockchains” and his vision for Regenerative Finance (ReFi).
Article adapted from last year’s podcast interview with Alex Tapscott.
What is DeFi to Ethan?
- The “D” should stand more for Democratise than Decentralise because it’s more about democratising access to financial services and products and making everything more accessible to the average everyday person.
- In the space today, many of the problems we are seeing are many replicating patterns of behaviours from Wall Street - the speculation, the casinos, the “get rich, get richer” schemes.
- It’s not all old money. There is new money, but this not really sufficient for Ethan, if that’s where we end up.
- There's an incredible amount of innovation, and it’s essential. The notion of us being a bunch of degenerates is fun in the short term, but if we’re to achieve our goal of a sustainable, equitable civilisation, then we can’t be degenerates forever; we’ll have to grow up at some point.
- The idea is to go from Degen to Regen.
- We need to figure out how to use these tools for real-world impacts and to start to address the significant problems that we face in the world, such as climate change, inequity and land use. It’s a very trying time for our species.
- We need to take what we’re learned and use that towards a more Regenerative approach to heal the earth.
What can we do to make ReFi more regenerative?
- We need to focus on projects that deliver real-world, socially impactful outcomes.
- Everyone is global; everyone is trying to build the one proper solution to solve the world’s problems. That mentality, in itself, is a bit troubling. Ethan hopes that we can focus more on local issues within geographically local communities, to better support systemic issues around globalisation, the supply chain, and so on.
- Instead of trying to be that one grand global financial solution to X, we can instead have more diversity across solutions, with more region-specific focus. “Be true to the culture in that area, rather than everything just being this global hodgepodge.”
- In a world of unrestricted capital flows, there’s only so much you can do to limit the kind of influence of capital on the protocol and the outcomes. That’s the challenge that we’re facing.
- A reasonable amount of value and fun is being created in the degenerate communities. It’s catching people’s attention and onboarding a lot of them.
- But there's risk involved. If we don’t clean it up and bring it to something impactful, these technologies and crypto economies could just get entirely co-opted by the big institutions.
How can innovations if DeFi be applied to some of these problems? How can one ensure that a lot of economic activity is happening at a local level?
- The origin of the AMM (Automated Market Maker) concept was Bancor. They were building local currencies and tackled the problem of how to create liquidity between small-cap tokens. This resulted the invention or discovery of the AMM design that unleashed this explosion.
- We should bring it full circle. Back to actual local currencies - we have all these techniques in a whole new field of research and engineering that’s been created. It's time to bring them back to the ground and see how we can use them for real-world local currencies and support local trade.
Where are we at right now, in knitting together blockchains, compared to where things were four years ago? Are you surprised by what’s happened?
- “Four years ago, we were heretics.” Talking about application-specific chains and how everyone’s going to have their own chain - there will be millions of chains, and we’re going to have a general-purpose interoperability protocol for all of them to connect. Then everyone was like, “no, you guys are dumb. You don’t understand. Everything’s going to be built on Ethereum, on the global computer and we’re going to figure out charting.”
- The world computer vision that Ethereum and other projects are pitching is a lot like a pre-internet vision of talking about it like a world mainframe. As if IBM or Dell will run the one computer to rule them all. No one else will need a computer; no one will need a personal computer; we’ll have one big supercomputer mainframe in some basement by some big company. And everyone’s computing needs will be taken care of by that thing.
- Instead, we had a proliferation of computers, with everyone getting their own computing machines.
- We connected them all using a highly generalisable interoperable protocol. The TCP IP protocols are the foundation of the internet.
- What’s critical is that every individual who owns a computer is sovereign over their needs. And they can connect to everyone else. Each of these people is sovereign in their own right, using their software, so you have this sovereign interoperability.
That then became the crux of the Cosmos vision. That we would bring the same kind of thing, the same evolution, to the blockchain space, where instead of this world computer solving the world’s computing needs, every community or individual would have their own blockchain, there would be sovereign over it.
- It started to pick up with the launch of Osmosis, which is the first major IBC enabled application in the cosmos ecosystem. They’re currently doing well over a million IBC transactions a month across all these different chains (at the time of this interview, in Nov 2021).
- Map of Zones shows all the chains and the IBC connections and how much activity there is.
With Cosmos and IBC being what it is and where the potential lies to realistically have 200 chains connected within this year, how would that affect the native token, ATOM, and what is the role of the Cosmos Hub?
- IBC is like the TCP IP protocol at the internet layer.
- Cosmos Hub is competing on an equal footing with everyone else. It leads people to say that they don’t need the Cosmos Hub to use IBC; what’s Cosmos Hub for and the value proposition of the ATOM? We’ll connect over IBC. And that’s fine, and it will work. “We did that intentionally.”
We care a lot about building the right thing. Not having economic or financial interests getting in the way of actually building the most valuable thing at the time.
- So at each stage of their evolution, we have built what we thought was the most valuable thing for the world - for the community. First, it was Tendermint, then it was the Cosmos SDK, and then it was IBC. And now, they believe the most valuable thing they can focus on building is the Cosmos Hub itself.
- What we are building with the Cosmos Hub is a blockchain application to service all of those other blockchains. There are hundreds of blockchains coming online, and they’re going to require service out of this new interoperable network known as the Internet of Blockchains.
- The Cosmos Hub is being designed to be a service provider for all those other blockchains as a place where people can come first to: Discover other chains; Source security for launching new chains; Custody their assets; Integrate with other service providers.
- It’s the place where new IBC features are likely to land first because that’s where the core team is.
- One of the most in-demand or compelling features coming to the Cosmos Hub soon is Shared Security. It’s the idea that one can use the Hub as a place to launch new blockchains from or expand the functionality of the Hub.
- The idea now is that we can use the Cosmos Hub to recruit the initial validator set and use the staked ATOMs so that the new chains that want to launch don’t have to go through the complex process. You can go straight to the Hub and say, “Hey, I’ve got this application, and I want to launch. Can I leverage your validators to launch this new application?”
- That will bring more activity, fees, and rewards to the staked ATOMs.
Does the so-called “trilemma” between speed, security and decentralisation inform your thinking?
- "The reality is everything is a trade-off."
- Any technical solution you make, you're not going to be able to solve all the problems you need to. You need to sort of find a suitable space in the trade-off landscape.
- Cosmos has always erred on the side of simplicity and practicality, and it's something that works and is a foundation for people to build on.
- Tendermint has become the basis of so many variations on consensus and so many projects.
- There is a very aggressive roadmap to improve the speed and execution capacity of Tendermint.
- Right now, the Cosmos Hub would say 150 validator blocks are created every six or seven seconds, so they expect to be able to bring that down quite significantly over the next two years with several advancements that are coming to Tendermint, such as Pipelining and Aggregate signatures
- The trilemma's factors will be less binding over time as technology and cryptography continue to improve.
It implies again "one global system to rule them all" way of thinking. So we have to figure out where we are in the trade-off landscape that makes the most sense for the one global system that's going to support all the world's economic activity - Ethan
- The Cosmos approach is to go outside the triangle and say, "well, we're not building one network; we're going to support the creation of a thousand, or a million, or even a billion of these chains. We want them to interoperate."
- You can then route around some constraints around the throughput and decentralisation. You get a much higher throughput because you have so many networks, and they're all running in parallel.
- Arguably, there's then a security trade-off because they're not all secured by the same set of validators. Now the trilemma rears its head again.
But security is a very complex, nuanced topic. And it means a lot of things to a lot of people.
- Security must also include the social fabric and political landscape and all these other things. There's so much more to take into account than purely how big your validator set is or how much stake is on the line.
Tell us more about your company, Informal Systems
- The company has 3 areas of focus: Core Cosmos work, Formal verification work and making all of that accessible, A cooperative, a more democratic environment to nurture people and the planet and not just a pure product single objective sort of company.
- It’s one of the core developers within Cosmos. One of the main things we’ve been working on is making IBC work. So we built a piece of the technology called the IBC relayer that’s responsible for relaying packets from one blockchain to another.
- Informal Systems also has a strong focus on formal verification and on building tools that are accessible to average developers.
- We are building tooling that allows you to, from a small amount of a simple specification language, generate an infinite number of tests that you can run against your software.
- This is called model-based testing—a very, very powerful technique for getting quality assurance out of your software.
- The company has begun doing security audits, and people have been engaging us to apply these tools to their blockchain technology.
- We also run the Cephalopod equipment validator, a proof-of-stake validator on several Cosmos networks on the Cosmos Hub, Osmosis, JUNO, Regen and many more.
- So if you’re looking for a secure place to delegate tokens, we run that as well.