On Ep. 44 of Tokenized, Simon Taylor, Head of Content & Strategy @ Sardine, and Cuy Sheffield, Head of Crypto @ Visa, are joined by Sergey Nazarov, CEO @ Chainlink to discuss Chainlink's role as an Oracle platform for smart contracts, Circle launching their own L1 blockchain and more!
On Ep. 44 of Tokenized, Simon Taylor, Head of Content & Strategy @ Sardine, and Cuy Sheffield, Head of Crypto @ Visa, are joined by Sergey Nazarov, CEO @ Chainlink to discuss Chainlink's role as an Oracle platform for smart contracts, Circle launching their own L1 blockchain and more!
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This episode is brought to you by Visa
A world leader in digital payments, Visa is bridging the gap between traditional financial institutions and innovative blockchain networks, helping players in the payments ecosystem navigate the ever-evolving world of tokenized fiat currencies with confidence and ease. Learn more at visa.com/crypto.
Tokenized is also presented by Avalanche.
With Avalanche’s purpose-built Layer 1s, institutions can tailor digital asset strategies to their exact needs—while still tapping into the power of public blockchain innovation, developer communities, and seamless interoperability. Learn more at avax.network
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We’d also like to remind you that the views or opinions of our contributors today are their own and do not necessarily reflect those of the companies they are representing. Nothing we say should be taken as tax, financial, investment or legal advice, do your own research!
Music by Henry McLean
Sy Taylor 00:00
Tai, welcome to tokenized the show focus on stable coins and the institutional adoption of tokenized real world assets. My name is Simon Taylor. I am your host for today, author at FinTech, brain food, and head of strategy over at sardine. And joining me, as always, is my friend, my colleague, my co host, the man himself, Tai Sheffield, how you doing?
Cuy Sheffield 00:31
I am good. Another legend on the show today. It's been a good run. Let's get into it.
Sy Taylor 00:37
Yeah. We are joined by the co founder and CEO of chain link, Sergei Nazarov, how you doing? Sergey? Doing well. Thank you for having me. Thank you so much for being here. Listen two quick things before we get into the content. We are doing our first ever tokenized live podcast recording in London on the 11th September. Tickets are completely free. Thank you. Sponsors to register, click the link in the description and wherever you're watching or listening, you should find that also, I do need to remind everybody that views and opinions of contributors today are their own and might not reflect those of the companies they represent. Please don't take anything we say is tax, legal, financial or any other form of advice. Do your own research. Folks. Alrighty, let's talk about chain link and the state of it right now. Sergey, for the uninitiated, can we just start with what is chain link? I'm sure people should know, but there may be folks out there that haven't heard of you. So do you want to just define what chainlink is? For folks?
Speaker 1 01:39
Sure, chinlick is an Oracle platform that basically super charges smart contracts to do many more advanced things than they can do on their own. So smart contracts are actually pretty limited in what they can do. They can't communicate or go across chain. They can't access data. They don't know what time it is. They can't trigger themselves against various events, including time or data. And so smart contracts themselves are actually pretty limited until you combine them with something known as an Oracle. And what an Oracle does is it provides them data, identity, cross chain connectivity, integration with existing payment systems, integration with AI models, basically oracles create a relationship between smart contracts and external systems, data systems, identity systems, payment systems, AI systems, as well as other smart contracts on other chains, right? So without oracles, smart contracts on a single chain are kind of a very limited island of contracts that, for example, they cannot do defi without oracles. So in defi case, oracles provide data. Chain link is the largest provider of oracles to defi right now, powering well over 65 70% depending on the day and on popular chains like Ethereum, well over 80 or 85% of all of defi is powered by chainlink. And defi as a good example, is a kind of next generation smart contract where you have the conditions of the financial product written in the smart contract on the chain, but then you have the Oracle providing all the relevant proof of what happened with things like price. And now you have institutional adoption of smart contracts, which creates this even more advanced class of smart contracts known as enterprise smart contracts. And they don't just require data, they require data connectivity, identity, AI integration, integration with existing systems. And so chainlink is by far the leading platform to provide all those oracles and enable all of these smart contracts in the defi context, in the institutional context, to exist.
Cuy Sheffield 03:45
So how do you explain when you talk to folks in tradfi, there's this concept of programmable money and the promise that smart contracts have, and the question that we get sometimes is, can't you already program money? Aren't there already APIs? There's open banking. There are plenty of conditional payments that happen. How do you see what is the big unlock that spark contracts themselves can provide compared to traditional systems, and then completely get how, if you're going to use a smart contract, you need to still be able to have data from those systems that come into it. But why smart contracts? Why are people so excited about them. Well,
Speaker 1 04:21
all of these interactions, the payment side, the asset side, corporate actions and equity servicing, collateral management, all of these dynamics require a certain level of trust in counterparties, and that trust in counterparties creates fraud, and fraud then creates cost. So the reason that you have long settlement times, or you have to pay a certain percentage to credit card companies, or you have a number of different issues in the current systems of payment, clearing and settlement, collateral management, equity issuance and servicing and fund. Is in servicing to the main categories This is being applied to now is that you have to trust a custodian, you have to trust the payment system. You You have to trust the counterparty, and that trust in creates natural risk of fraud. And there is fraud with smart contracts you don't have fraud. So that's basically the simplest way to put it, and it's explained in different ways, because there's different types of fraud. So in clearing and settlement, it's, you know, atomic settlement, real time settlement, the issue with settlement is, if there's a long period of settlement, something can change, and so somebody might not have what you thought they had. And therefore you can be caught in a situation where you thought you were getting something, but you aren't similar situation in payments, in asset issuance and servicing, whether those are equities or funds, similar situations arise fundamentally. It boils down to something called the gap problem. The gap problem is the period of time in which someone can conduct fraud, or, in the terminology of the blockchain industry, do a double spend. So I'll give you an example with real estate and title insurance, because that's one of the more relatable forms of the gap problem. The reason whenever you buy a house that you have to pay for title insurance is because there's a period of time between when you sign the documents to buy the house, and when those documents are memorialized in the official government register of house ownership, and in that window of time that could be anywhere from a day to a month, depending on the recorder's office and how they work in the county where the house was bought, at least in the United States, that period of time is the gap, and the way that you mitigate this problem is you buy title insurance, and you pay a certain percentage of the house's purchase or sale in exchange for insurance, against the possibility that someone will essentially double spend the house. Someone will sell the house twice or three or four times. That's a very kind of consumer example to really understand the answer to this question. You really need to understand how the fraud happens in all these places. So, how does payments fraud happen? How does clearing and settlement fraud happen? How does issuance and servicing of equities or funds fraud happen? Or not even fraud, maybe in some cases, errors. You know, it's it's not all fraud, it's also various errors. So for example, in the equities world, for equity servicing, you have something called Corporate Actions and corporate actions errors cost hundreds of millions of dollars every year, because, you know, it's just error prone. So the answer is, you remove fraud, you reduce the gap in which fraud can happen, and you achieve that through automation and the nuance that you're talking about when, hey, I have an API, why don't you use my API? Yeah, I can give you an instruction via an API, but I still have you as the counterparty risk. And if I have a choice between using an API to use you and have us counterparty risk, or using a smart contract and not having counterparty risk, once you really understand what that means, it means that the API based form of automation is costly, error prone, fraud prone and deficient, and it means that the smart contract form of automation is free of errors, free of fraud, highly efficient and superior.
Sy Taylor 08:25
I think that instant payments thing the payments world has argued for for a long time, for a lot of these things in nurture payments, we call it NSF returns, risk, the idea that it's an intentional attack, people will do the double spend attack, will fraudsters. And it's often surprising to people new to this industry just how much error there is in the industry and how much paperwork you have to do to do that. So giving this smart contract the ability to come to eventual consistency, to reach consensus about the state of fact is really useful, but it needs some ground truth. And I guess what I've heard you say, if I've understood correctly, Sergei, is smart contracts can agree about things, but they can only agree about the things that they can see. If an Oracle can show them more ground truths and give cryptographic guarantees of those truths, then we can get these workflows that are instant in 24/7 and you're adding superpowers to them. So I think that's really been a helpful description, and I think I understand what chainlink does. We've been around now for a few years, kind of plugging away in the policy circles and really doing a lot of work with digital assets and some of the big FM eyes and major market structures. How significant have recent policy developments been? And what do you think has kind of changed in the last 612, months, that and is that allowing in the larger financial institutions? Have you seen a momentum shift? The
Speaker 1 09:56
shift is monumental and historic. I think it's at a different. Magnitude from what people were even hoping for. I mean, I've been in our industry for 15 years now, essentially since the start of the industry, when the only thing that existed was Bitcoin, and then when the first smart contracts came around, we built many of those. And the industry has been beat up for so long by the regulatory environment various governments. I mean, that's gotten better over the last three, four years with certain governments like Singapore, Hong Kong, Dubai and others. But those are kind of financial innovation hubs that have to be very open, and they don't command the same, I would say, market power as the US financial system, which is by far the largest financial system and the one that everyone wants to align with. So when the US financial system has the President happily signing legislation that makes stable coins legal, and you have the chair of the SEC talking about Project crypto and how the whole financial world's gonna go on chain. And then you have another Chairman, the CFTC Chairman, that hasn't been confirmed yet, but we know is extremely pro crypto. I mean, you basically have, I would say, a kind of perfect storm where the macro environment is very positive, which means the macro environment for crypto is very positive. You have every branch of government in the biggest financial market in the world, extremely pro crypto. So they're all now, before nine months ago, they were thinking, how do we kill crypto? Now they're thinking, how do we undo all the damage that was done, and how do we accelerate crypto to be, you know, the leading economy for crypto, and that's every branch of the government that I've seen. And to your point, we've been dealing with with various governments in the US government for a while, and every branch of government, every single one, the Treasury, the executive branch, congressmen, senators on both sides of the aisle, the stable coin bill passed with a huge bipartisan vote, I think, was 68 some huge number, which is unheard of in today's highly polarized political environment, right? So you have a completely bipartisan issue. Every single branch of government is extremely pro crypto. And I think what people don't understand yet fully, partly because they've heard it so many times, and, you know, they said to them before and didn't happen and when whatnot, is the impact of institutional adoption of crypto. People kind of understand this a little bit through like Blackrock made a Bitcoin ETF, you know? And it's really funny how two weeks before Blackrock makes that, everyone hates them in our industry, and two weeks after, everyone loves them, they're geniuses. They're the best people we've ever seen. And you're just gonna see a ton of that. That's what you're gonna see, you're gonna see people gradually realizing, oh, it turns out, when a 4 trillion asset under management bank takes their clients money and makes it available to buy various tokenized things, those tokenized financial products and systems do really well. Who'd a guest, right? What an amazing coincidence. I mean, from my point of view, this is like one of the most predictable times in our industry, where you have all the factors for institutional adoption, also known as a tsunami and boatload of capital. You know that the industry is driven by net new capital influx. That's true. That's been true since the start of the industry. And you have a huge amount of really high quality teams building better and better tokenization products, tokenized funds, tokenized equities, tokenized commodity. And you have the infrastructure like chain link getting to the point where it can reliably enable trillions of dollars in transactions. So far, chainlink has enabled over 24 trillion US dollars in transactions, and is on track to enable even more than that. So you have the scalability you need from the infrastructure, you have the government support, you have the market dynamics in your favor, and you have everybody that could be building something cool, building something cool. There are points in time in our industry where things are unpredictable and there's doubt. I think this is the lowest doubt period in our industry that I've ever seen. I love that way of looking at it, going back to like some of the roles that chainlink is playing. You mentioned the importance of oracles being able to provide data to defi protocols to enable those to function. There's this other piece of cross chain interoperability, and so CCIP has become more and more well known as traditional financial institutions have looked at a world that is likely going to be multi chain. We did some work together in Hong Kong, looking at through the sandbox that the Hong Kong monitor authority set up with the E HKD project. How could you enable a cross border transfer that led to an investment in Hong Kong? And so we had a bank in Australia, ANZ, had an investor that had an AUD stable coin, but wanted to purchase an asset that was in Hong Kong that was sold. For ehkd, and so being able to coordinate different chains, different currencies, and enabling instant settlement for that purchase was a really valuable demonstration that we're able to do. Can you talk a bit more about CCIP and the vision of the role that you're playing in a multi chain world, and is that a given that they're going to be more and more chains. We'll talk about some of the news this week, what the challenges are with that, and how you all are looking to solve it. Yeah, absolutely. So definitely, more and more chains. The cost and complexity of making your own chain is rapidly dropping, right? So that's not growing. It's like making a database in the 90s. Man, what an undertaking? How complex is it? You need lots of smart people doing a lot of really complex stuff. We were in the 90s. Now we're in, like the 2000s where databases are starting to become more and more simple to deploy, simple to operate, simple to manage. We're not in like the 2010 world of, you know, highly efficient, highly scalable stuff that's cheap and easy to run yet, but we're getting that so the cost and complexity of running a chain or deploying onto a chain that already exists, like a public chain, is dropping like a stone. The value and benefit that you get from launching a chain is going up rapidly for all the factors and reasons I just described, everyone's gonna make their own chain, or everyone's gonna join a public chain and probably a set of public chains, and this creates a problem of fragmentation. So now, whereas you thought you were gonna have to deal with one chain, one public chain, or your own chain, you realize you have to deal with hundreds, eventually 1000s of chains. And so how are you gonna link your systems to these chains? How's that gonna all get linked up? Well, there's this thing called chain link, which is gonna make that easy for you. So if there's 1000s of chains, and you have trillions of dollars that need to interact with those chains, the first problem is how to integrate your systems with the chains, which is part of what we did in the work that you just described with ANZ Bank and fidelity International in the HKMA ehkd framework. The second problem then becomes, after you can interact with chains to begin with, is CCIP, the cross chain interoperability protocol is, how do you move assets across chains? So chainlink has CCIP, has a data standard, has a compliance standard, has a privacy standard. Chain link has a lot of different tools and services and standards that get composed into these complex transactions. The transaction you're talking about is one of the more complex ones, where you not only had to convert a stable coin in one currency to a stable coin in another currency, you then had to get that stable coin to a different chain over CCIP. Then you had to generate a tokenized fund using chain link data oracles to provide nav valuation data on chain so the tokenized fund could issue more shares. You also needed a transfer agent contract where they used a chain link digital transfer agency contract, which is a new standard for on chain transfer agency. That's an example of an end to end solution in the chain link universe. Now you have a tokenized fund enabled by a compliant transfer agent. That tokenized fund then has to move back to the chain from which the money was sent. So you have to do something called delivery versus payment. You have to pay in the stable coin that was converted to from the initial stable coin. The initial stable coin was Australian dollar. The payment stable coin that went over CCIP was e Hong Kong dollar, because the fund is denominated in Hong Kong dollars, right? So you're going to have this huge fragmentation of 1000s of chains, 1000s of different funds, and all these different denominations of the funds, currencies, tokenized cash and different, you know, denominations, different currencies. So all of this fragmentation needs to be simplified down to a single command. And the command is, buy this fund on this chain with this token from this wallet. Send confirmation here, update my accounting system here, and that's what chainlink enables. So chainlink allows you to have that single command run it in something called the chainlink runtime environment. And the chainlink runtime environment will then coordinate the usage of CCIP, the usage of the data Oracle. Also in the case you described, there was the automated compliance engine which sent identity information across the two chains, also using CCIP, it sends CCID data, so cross chain ID data, which is another standard in the chain link kind of stack. And so you have cross chain data, identity and orchestration that needed to happen for this transaction, importantly, all of which chain link provides. So right now, there's no other system that can even provide you two of those four things, much less all four of them. And so that transaction is a very interesting one. ANC, we've been working with for many years now. We've done multiple transactions. Interactions with them, fidelity, international. We power them on production for nav data, but these transactions, I think, are only going to increase in frequency. They're going to start going to production. They're going to become larger and larger, more and more real, and they're going to happen across more and more chains. All the chains will have liquidity from different user bases all that liquidity will want to interact with assets on other chains. You'll need to prove identity between the chains. You'll need to also convey critical information across the chains in relation to the token, in relation to the fund. And all of that not only needs to be done over a cross chain system like CCIP, but you also need a layer where you write the commands to do that, and that's what the chainlink runtime environment is.
Sy Taylor 20:44
Well, there's a lot going on there, but I think it's really important for people in financial markets to know that they have the option to ensure that all of that compliance is taken care of, and all this complexity can be overcome. And I saw you worked with the New York Stock Exchange, parents ice to bring forex and precious metals data on chain. Now, normally I'd read some sort of press release here, but I figure tell me what kind of data they're bringing to which chains and for what use case, because I think it's gonna be really helpful for people to understand the use case here.
Speaker 1 21:18
Yeah, sure, absolutely. So ice is a good example of increasing direction we're seeing where existing institutional data providers are starting to see the growing institutional demand for their data on chain, which justifies them doing deals and finding ways to go on chain with their data, basically. And we have been talking with these institutions for many years, I think in some cases, over seven years, we've been talking to them as far back, I think, as when Reuters was not refinitiv yet, when Reuters was still Reuters before it got bought by lseg. So I think this has all been in the works and under discussion for many years, and the data providers have always had two big problems. One big problem is the inherent privacy of their data, and the second big problem is the market that would consume their data and whether that is there. And so the oracle system that we've built at chainlink is able to solve those privacy issues in ways that makes them comfortable to share the data and allow it to go on chain certain modified or specific forms. And then there is enough demand on chain that demand initially is from the defi web, three public chain community as they do more and more real world asset tokenization, but I am also seeing now, and this is one of the things that's moving these more traditional data providers with the better and higher quality data I am now seeing, and they're now seeing enough real market demand from institutional users, and I think that is What will move them much more than the web three users, because those users already pay them for that data. And so those users are gonna come to them and say, well, I already paid you $100 million for this collection of data feeds. I need you now to deliver this data to this blockchain thing where I'm doing transactions, where I need the data I already pay you for, and that's a place where chainlink, I think, is gonna fit in very clearly as something that can solve those privacy issues as well as solve the supply and demand issues, because chainlink is so integrated into so many of these chains that once you integrate chainlink as a resource to put your data on chain, you get all this kind of distribution, technical distribution, to all these places, and chainlink has also always been built, not just for the web three community. I mean, chainlink powers majority of defi globally, and the vast majority on certain chains like Ethereum, at over 80, 85% the reason for that is security, reliability, the right features that web three and defi developers need, but in parallel, it has always been built to also meet the demands of institutions, because we in the chainlink community have always believed that the capital from the institutions will be critical to our industry's success, and so chainlink is already able to service this while somebody starting to try to solve this problem will have about 15 problems, 10 of which they don't even know exist yet to solve.
Sy Taylor 24:25
I think that's the one foot in the institutional world, one foot in the where the world's going. And having on chain markets that are mature to kind of test this stuff and battle harden it in production is very good for the folks that are not there yet to see. Look, we could continue on this for a while, but I do need to pause here so we can hear from our wonderful sponsors, so we'll be right back. This episode, if it's not obvious, is brought to you by our friends at visa, a global leader in payments. Visa's tokenized assets platform vtap, uses smart contracts and cryptography to help banks. Bring fiat currencies on chain. Vtap allows financial institutions to issue Fiat backed tokens, improving financial efficiency and enabling programmable finance. You can check out the links in this episode's description to express your interest in vtap. Tokenized is also brought to you by avalanche. Major banks, FinTech challengers and industry leaders are using avalanche to create new business models on a fully customizable blockchain infrastructure. Think of it as more than a blockchain. Think of it as an entire network built for financial institutions to innovate with purpose built layer ones, institutions can tailor digital asset strategies to their exact needs while still tapping into the power of a public blockchain innovation, developer communities and seamless interoperability join the institutions shaping the future of finance on avalanche, and you can learn more at avax dot network. All right, thank you to our sponsors. Kai. It's now time to indulge in some news, if you'll follow me along this one. I don't know if you saw the circle earning release or some of the other reporting out of fortune, but apparently circle is launching its own l1 blockchain, and fortune is reporting that there was a job description for stripe and para the fund paradigm to launch its own EVM one l1 blockchain. So listen, I want to get your perspective on why do you think folks are launching new l ones? Why might it make sense for large companies to do something along these lines? There are lots of chains already.
Cuy Sheffield 26:52
As Sergey just said, more more chains. There will only be more chains, more chains, more problems. I mean, this is a theme that that we've talked about on the show going back probably six to eight months, where, I think anytime it's natural that you have a new set of participants that are coming into the ecosystem, in traditional institutions and payment companies that have large existing distribution bases, that have existing businesses. I think there's this question around stable coins are here to stay, but stable coins require blockchains to be able to do anything with them, and which blockchains are payment companies and institutions going to want to use? And I think that there's been one argument to say blockchains are both technology and distribution platforms. So if you want to meet customers where they are today, and there is an existing customer base in crypto that's on chain that has wallets, then being able to create products that live on those same chains that customers already have access to, I think you see some companies going down that path. On the other hand, if the primary goal of a product that institutions are building is for their own customers, I feel like it seems a little weird for many companies to say, let's use this blockchain that while it already exists in crypto, it may not necessarily be optimized towards my use case, and then they get concerned about things like the noisy neighbor problem. What happens if there's a bunch of activity on that chain, there's an NFT bit, there's something else that could then impact my customers? How do I think about paying gas fees? I think that's still a very new behavior for a lot of institutions to say, let me go and buy a native token, or require my customers to buy a token to then make a transaction, there are questions around on chain. FX, are there ways to more deeply integrate that into a chain? So I think that there will be more and more motivations that you'll see of different payment companies and institutions that want to see, are there certain features privacy as another one that you could have a chain built from the ground up that could support and I think that even though these chains will exist, it doesn't mean that nobody's gonna use an existing public blockchain. I think we're gonna see a world where you have operators like circle are issuing across 25 chains already. Then they're also creating their own chain. And you're gonna have the option, depending upon which use case, which client, of whether USDC is going to be on the new chain arc, or whether you're going to use USDC on an existing chain. And I think it's way too early to tell who's going to win, but I think we'll see a lot more competition of new chains coming in from payment companies looking to optimize towards their use cases.
Sy Taylor 29:37
You know, it's funny, in the 2017 cycle, Sergey, you may remember this. And in 2021 I remember this period of, oh, just another chain, just another ICO. And for a lot of those folks, it's true. Maybe there was never any volume, maybe, maybe that project never took off. But one of those was Solana. And now I think people quite uncontroversial that that's a major part of the ecosystem. I mean. One of them, of course, was Tron. And whether people like it or not, that has a large proportion of volume of stablecoin activity happening on it, but so does Ethereum. So I do think that it's very easy to poo poo these efforts and say there's no need to have your own chain. Actually, I can imagine there would be. But when I saw the circle light paper, they mentioned a few things that you've mentioned there Kai that I thought was interesting. So you'll be able to pay transaction fees or gas fees in USDC, regulated institutions will run the validators. They're aiming for throughput of somewhere between 3000 transactions per second to 10,000 that compares with base from Coinbase at about 100 to 300 or Solana, about 3000 so, you know, it's pretty quick, and it sort of speaks to why they've done their own l1 is you get this benefit of speed and this trade off of decentralization. And their roadmap includes some really interesting features, like on chain refunds, on chain attachment of invoices. I think there's a lot of things that when you're as deep in the payment space as you are, I have been chi that maybe make more sense in the chain than they do in so a lot of complex smart contract logic. So I agree with you. I think this space is far from done, and there's going to be lots of development. Sergey, are you seeing in your own space that corporates and institutions are looking at their own chains? Are they primarily looking to adopt chains? Are you seeing a spectrum of that in your worldview?
Speaker 1 31:31
I'm seeing that creating the chain is becoming cheaper and cheaper, easier and easier. So a lot of corporates are going to make their own chains. My view is that the chain dynamics right now, because chains are a data structure, just like databases are a data structure, are similar to dynamics that you saw in the early to mid stages of the first databases emerging onto the internet. And also in that world, you had a certain amount of fragmentation, where databases weren't sufficiently connected. This is where companies like Cisco and others came out of it, and they started to coordinate all of the systems. So my view is that if it's very cheap and easy for me to create my own block space, and if it's cheap and easy for me to take my block space and connect it to your block space. Then I will choose the cheapest, most efficient block space I can find, as long as the ability of my block with my requests and my transactions, as long as that is able to interact with your blocks. And that is what cross chain technology does, similarly to how TCPIP did that for the Internet, where it became a highly efficient way for you running one database technology, me running another database technology, Tai driving and running another database technology. And none of us care, right? Like none of us have to know what database we use, because we have a way for my database and your database and his database to interface with each other efficiently. So once the problem of how to efficiently interconnect all of these chains is solved, the question of is my block space better than your block space better than public block space will be driven by other considerations. It'll be driven by cost and efficiency of that block space. It'll be driven by the other contracts and tools and systems on that block space that it is more costly or can't interact cross chain very well. And it'll be driven by distribution, in the sense that here's a bunch of wallets that are already integrated into that block. So here's a bunch of wallets that can talk to Ethereum. Here's a bunch of wallets that talk to Solana. And the tribalism of our industry, I think, will reduce. So my view is that the cost and complexity of running a chain is going to continue to drop rapidly. The benefits and value of having a chain are going to continue to increase. There are going to be more chains. There's going to be more tokenization on public chains, and eventually it should be a solved problem where you can put your clients money on your chain, and your client's money on your chain should be able to interact with 5000 other chains as efficiently as the contracts on your chain. That's the world I think we're gonna end up in. So how does
Cuy Sheffield 34:31
this impact the layer two thesis? Because it's also interesting. It seems like one of the reactions to this announcement there was this on the Ethereum side, this question of, wait a minute, why are these all layer ones? Why aren't these layer twos? And so hasn't there been this idea that if you have everything as a layer two, then everyone gets their own chain, but it's interoperable, because you have access to Ethereum that you could bridge back to, and you've got these Stan. Words like op stack competing with arbitrum. But now, if you've got more layer ones, how do you think about the differences? Does it matter having more layer ones versus this world of it's all l twos that are all anchored to Ethereum in some way. I
Speaker 1 35:16
think what I'm seeing from the Ethereum side is that they're trying to consolidate the L twos into an interconnected web of an extension of the l1 through cross chain intent standards, like 7683 which we think is interesting and that we're collaborating on with them, and then I think has a interesting and bright future. And so what you're seeing is they're trying to weave together the L twos together with the l1 into an increasingly well composed, well connected, well orchestrated, singular ecosystem. So now you will have the l1 and the L twos essentially representing Ethereum, and then you'll have L ones other than Ethereum, separately from them, like
Sy Taylor 36:03
a Solana, for instance, would be a separate to Ethereum, something that's not on the EVM stack. Would that be an example?
Speaker 1 36:10
Yeah, that'll be separate from Ethereum. That'll definitely need reliable cross chain, and for institutional purposes, it'll need a different form of cross chain. So the form of cross chain that works for me, sending you my three cat coins, and you sending me your five dog coins, for me to stake dog coins, and for you to stake the cat coins, and for us to get yield, because the price goes up. That is a very simple form of cross chain. If we want to take an asset manager client's on chain money, and we want to send it from your chain to another chain in another jurisdiction, like the work we did with you and the HKMA and an ANZ and fidelity International. Now you have two jurisdictions. You have identity you have various compliance requirements, you have various data requirements. It becomes very complex. So you need a different form of cross chain for that, which is what CCIP is built for it's built to do both, but it's really built for the second one. And you basically arrive at a world where, I think the Ethereum community has kind of a shared ecosystem that you can join from different angles. You can join it from the l2 angle. You can join it from the l1 angle. I think there's debate within the Ethereum community, you know, where they want people to join the L twos are good to join. In some instances, in some cases, they want the Ethereum communities. I think figuring out how they want to join, how they want users to join that community, that kind of collection of systems and services, and I think a lot of that is also going to depend on how the fees from the L twos roll back up to the l1 so I think the whole l1 l2 thing is an interesting approach to scalability, and it's definitely accelerated the trend of everyone creating their own blockchain. For example, Coinbase made a Ethereum l2 because the ability to make an Ethereum l2 was simplified because the L twos as a technology existed, and I think that accelerated them, which is good, but there is eventually going to be questions about, hey, how do the L ones and l twos interact with each other? How does the l1 and the l2 interact on a fee basis? Beyond the very basic question of, how does a sequencer work, and how does that sequencer get certain guarantees from the main chain? Like that is just one of many questions. That question, I think, is sort of resolved. I don't think that a lot of the other questions are completely resolved yet, which is fine, because our industry is evolving and it's and it's solving completely new, previously unheard of, previously even undefined problems. And so there needs to be a period when everyone gets together and comes to, for lack of a better word, consensus on how to solve these problems. But it will be cheaper and cheaper to make your own l1 or your own l2 in some cases, you might be better off even making an l3 which is a type of chain that fits into an l2 ecosystem, and then that l3 rolls up to the l2 and the l2 rolls up to the l1 and as long as your capacity to do transactions is properly served, as long as you get a form of block space that meets your cost, reliability, control, location and compliance requirements. I'm not sure it's gonna matter a ton, because all this stuff is gonna get hyper connected. So if it all gets hyper connected, you can choose block space type one, block space type two, block space type three. If all those three types of block space can inter operate very seamlessly, low cost efficiently, then it's kind of just like a very specific technology choice you made, which for the purposes of liquidity, for the purposes of accessing all the things you want to access, which is usually the stuff in the other blocks, you're going to be in the same position. You're just going to have to be into some technology you.
Sy Taylor 40:00
I think this idea that we are not in a static market, that over the last four or five years, since the last cycle, the technology has matured to be usable for a lot of use cases. And we've seen the stable coin cross border use case come in. We've seen the beginnings of real capital markets activity really start to catch fire in the past couple of years, and the convergence here is not everybody has the same database requirements, but this interesting parallel of the EVM the Ethereum virtual machine, seems to be this network where l1 versus l2 is a little bit of a holy war, but it sort of doesn't seem to matter as much to the Ethereum Foundation, who are trying to figure out a path between all of them and technologists like to argue about design choices. They like to argue about lots of little different things. But from a business person standpoint, you really look at it and you go, Well, what problem am I trying to solve? Am I trying to solve for speed and certain features? Am I trying to solve for distribution. If I can start my customer problem, then generally I can work back from that. Kai, I saw this, and my observation is that, how many organizations like a Robin Hood, like a circle, like others, end up building internal infrastructure and probably build a lot of everything else they do on something like an AWS or a GCP. And I honestly think there is no AWS or GCP for payments. You have these almost hyper scale payments companies that are very, very large, that do trillions in payments, but there's not an infrastructure that enables developer velocity that's as close to the metal in many of these cases. And I wonder if these l ones become like the AWS, then of some of that sort of stuff. So that was just my two cents. Well, listen, Kai, any other thoughts on this one before we close out today? Yeah, I
Cuy Sheffield 41:53
think it'll be interesting to see as these new chains emerge, there will be some that just end up as databases for the company that's creating them, and there'll be some that become new global, open loop networks. And so it's almost the same thing as we talked about with stable coins. Of if you have a world where everyone has a stable coin, everyone has a chain, it's unlikely that every stable coin and every chain is going to be a global network. You could have some chains and some stable coins that are really just purpose built on the back end, it's a new database. It's a new typing of bank as a service for a single entity. And then you'll have some chains and some stable coins that end up as powerful global networks that 1000s of entities use. And where we fall in between. I think we'll see multiple examples of of each, but it'll be fascinating to watch how it plays out.
Sy Taylor 42:40
It's definitely that's why we do this weekly show. We could go daily and never stop with the news we've run out of time. But I did want to give a shout out to BAM at mesh, yet another guest who's announced a raise not long after being on the token ice podcast. So you know which podcast you want to be on. Founders, so mesh has secured $130 million in funding led by PayPal ventures and Coinbase to expand their payments infrastructure and APIs. So shout out to those guys, Kai. Anything you want to throw in on this before we close out,
Cuy Sheffield 43:12
no huge congrats to bam. Highly recommend listening to the episode and his vision and the role mesh is playing in stablecoin payments.
Sy Taylor 43:18
And whilst you're listening to our episodes, the last episode in this feed was with SEC Commissioner Hester Pierce. Do definitely check that one out if you want to know where project crypto is going and where the SEC thinking is going. Sergey, if people want to learn more about you and everything you're doing at chain link, how do they do that a chain not link?
Speaker 1 43:37
Twitter is chain link. I think those are the best places we keep the Twitter pretty updated, and definitely lots going on in both the web three side, growing that part of our community successfully in the global crypto community, and even more institutional stuff now, including with central banks and all the folks we discussed on this call. So very exciting stuff going on now.
Sy Taylor 43:58
Kai, how about you on x at Kai Sheffield and visa.com/crypto you'll find me s y Taylor on Twitter. You'll find me Simon Taylor on LinkedIn, or FinTech brain food.com and check out sardine if you get a minute. If you haven't done it already, go ahead and subscribe spam all your friends about this show. It really helps us, and don't forget to come see us in London. If you're in the UK. We'll be coming to the US Soon as well. Bye for now.