**A** (0:00):
Welcome to the Interop. Today my guest is Sunny Agrawal, co founder at Osmosis, the greatest dex in the Interchain. In today's conversation, we'll discuss the Mars Neutron merger and the Osmosis counter proposal. We'll talk about Prop 858 on the Cosmos Hub to provide 900k of Atom Protocol owned liquidity to Osmosis. We'll look at Atom's only chance at becoming a capital asset and saving the Hub and plans for Osmosis 2.0. I'm also dying to find out why he thinks Atom 1 makes sense. Before we get started, make sure to subscribe to get notified when new episodes drop every week. And remember that none of what we discuss here on the Interop is investment advice. And if you enjoy this content, please consider sticking with us. We're validating on EVMOs, quicksilver, osmosis and Juno. Just look for Interop in the Active set. My guest, Sunny Aggarwal is coming up next right here on the Interrupt. Hey Sunny, how's it going? Thanks for coming on.
**B** (1:12):
Thanks for having me on. It's been a while.
**A** (1:15):
Yeah, it's been a little while. It's been a while since we've done any podcasts together. Since. Since you're on your Epicenter hiatus and I think last time you were on was some time. Oh yeah, it was a long time ago.
**B** (1:30):
I was on the 50th. The 500th episode anniversary.
**A** (1:34):
You are going to be on the 500 episodes. Which by the way, I should mention here, Epicenter is celebrating. It's not 500 episodes, it's 10 years.
**B** (1:41):
10 years.
**A** (1:42):
10 year episode on December 20th. And it's going to be a live stream. So anybody who's into Epicenter should definitely check it out, subscribe to the channel, Twitter, we'll announce it there and we'll have all kinds of cool people. It's going to be basically like a call in show. We'll have two hours of reminiscing on 10 years of podcasting. But anyways, I want to get you on to just catch up and there's so much stuff happening and actually we're supposed to do this last week, but you had an alarm clock malfunction. So it's actually good that we're doing it now because there's so much more going on now that I want that is kind of coming together and so I don't know where to start, man. Do you want to talk about the neutron stuff right away or do you have some more general topics you want to cover first?
**B** (2:33):
I don't know. There's so much to discuss. You pick where to start.
**A** (2:37):
Let's do it. All right, so basically today Mars announced that they were going to basically move from having their own app chain, their own app chain with their own valor set to becoming part of Neutron. So basically the Mars hub would be part of Neutron. Now I think there's been some confusion around this because I see people on Twitter saying, oh, they're moving away from Osmosis, which is like kind of not really true. Right. Because like Neutron's home is not really Osmosis. Like Neutron is a sovereign app chain that's sole purpose. I mean, aside from having, I think that kind of their treasury there or their backup, like their kind of stopgap fund is to coordinate different outposts. Right. So they're just moving. They're moving that to Neutron, which makes sense from perspective that like running your own chains, expensive. And I've been talking about this for a while, anticipating that chains would end up kind of not downgrading but going to a more cost effective way of running. And that's what they're doing. But yeah, curious to get your take on this and also maybe expanding on some of the spicy stuff that's been going on on Twitter since they announced that.
**B** (3:56):
Yeah. So, you know, it's funny, it's like the Mars hub as a standalone chain was actually like my idea from like rewind 18 months. Terra just crashed. And like Mars is trying to figure out what to do now. Me and Larry were actually like the ones who came up with this concept of a lending app chain that will unify different markets. So like, what I mean by this is if you look at something like aave, right? Like AAVE has deployments on Ethereum, Avalanche, like a different bunch of different L2s, but these are all like isolated markets, right. So the price of like the lending rate on eth on like different markets is different. And when I have as a, as a lender or a borrower, I have to choose like which market to go to. And so the idea we had was like, hey, why don't we have like a unified lending market where you should deposit USDC to be lent on Mars, but it will have these outposts. That's why they were called outposts originally on every chain. And when you deposit it will move the USDC to wherever there's demand. And if you want to borrow more than what's on your chain, it will just use IBC to pull in more from other places. So it actually builds one unified lending market. So that was the vision behind Mars App Chain. And you know, to launch, they started with just an outpost on Osmosis and then they were going to. While they build up the lending app chain stuff. It makes sense, right?
**A** (5:38):
Because if you're borrowing, like, you don't care who you're borrowing from or what chain you're borrowing from. You just want to borrow. You just want to borrow eth. Or whatever. Right?
**B** (5:45):
Like, exactly.
**A** (5:46):
It shouldn't matter where you're borrowing from and you shouldn't have to reason about what the different lending rates are like if you go to.
**B** (5:52):
Yeah, yeah. Especially for a lender. Right? Like, a lender should just like deposit somewhere and then it will just handle where to, you know, where. Where the best borrower APRs are. So, yeah, that's kind of where we. Where Mar started with. But then over time they kind of like, you know, pivoted towards like, okay, wanting to focus more on leverage trading. And like, you know, they realize also this is like the place where all the volumes are. And. And that's why they built like Mars V2 on osmosis. And eventually they. So basically they realized that, okay, two things happened. One, they realized that, like, once you start diving into the details like this, like, unified Lending Market app chain is actually a little bit more difficult than we originally expected. I still think it's doable, but it's definitely a little bit like, different. More challenging than what was expected. The other is that, like, they kind of want to just focus on this lever training especially, you know, as they mentioned in their proposal, this new PERPS product that they were building. And so, yeah, so, you know, we actually were working together on a similarly structured deal with the Mars team as the Neutron one. And yeah, almost like very, very, very, very similar terms. Like three, like, but ours is going to be from the community pool, right? Like, I think the Neutron is doing it from their foundation. But, you know, for us, like, we were suggesting, oh, it should go through the community pool, like, awesome. Holders should have a say in this and everything. So, yeah, basically we were going to do that, but then, you know, I think what. So basically, I think what happened was Mars got a little bit spooked with the amount of competition there is on Perps on Osmosis already where, like, you know, we have Levana obviously doing like, having massive success. You know, we did inform both the mar. You know, I guess this is a good time to announce this maybe, but like, the Osmosis team is also working on Our perps implementation as well, which ours is slightly different than Levana and Mars design personally. So we're doing like an Oracle based, not Oracle order book based thing. The like Mars and the Vana designs right now are still, are very Oracle based. They're I think simpler, faster, go to market. But like long term I, you know, I'm a big believer that order books are going to end up like being the main sort of thing. And so that's why like, you know, we've spent a lot of time like work designing this order book thing. It's a little bit farther out and you know, our plan is to build that. And I think the more market like the more things there are going on on a single chain, the better with perps like you don't you don't you want multiple markets? People will be arbing between them in general. I just think perps are actually this super new market structure, right? They've only, if you think about it, only have been around for like five years, right? Five, six years. And like they've had like one round of innovation with like, you know, you have Bitmex and I think FTX did a lot of like good improvements. Then you had like GMX kind of doing like different improvements and like you're seeing this Cambrian explosion right now of all these different models for how perps can work. And so I think there's actually just room for a lot of different perps markets. And our goal is to make sure that everything building on osmosis can have this very positive sum thing. The same thing you see on Arbitrum. You have multiple perps markets all on Arbitrum together. And I think it's just good for everyone because it just attracts more capital onto the chain and yeah, you have more interesting stuff happening. So yeah, that was the plan. But I think the Mars team just got a little bit, you know, spooked and would rather just go somewhere where there's less competition, even if that means that there's less users and volume. And I think it was probably that exclusivity clause that like they're like, oh, we don't want to be in a situation where we're stuck on Osmosis and can't go anywhere else. And so that's why they took the neutron. Neutron I guess made a similar counteroffer. But so if you see the proposal, you know, in order to keep Cosmos exciting, John Galt from stride actually just put up a proposal like an hour ago to basically match the Neutron offer but remove any exclusivity so now it's like, okay, all we're asking is like, hey, come bring Mars Hub onto Osmosis. You can deploy Mars your probes protocol on both Osmosis and Neutron. There's no like exclusivity or anything like that. And you know, I think we're going to end up seeing something similar to Levana where Levana deployed on osmosis, say an injective and has like close to zero traction on any of them and all the tractions on osmosis. So you know, I think the best thing for Mars holders to do is probably to take the 0 non compete the 0 exclusivity offer and deploy in multiple places and hedge their bets.
**A** (11:06):
Yeah, but again this is a question of the coordination mechanism for Mars, right? I mean whether that's on Neutron or as its own chain or as a roll up or. Why would that matter if they have deployments, outposts on Osmosis, on Neutron, on Injective or wherever it matters?
**B** (11:29):
Because the Neutron offer is asking for exclusivity. Any new feature has to exist only on Neutron for three months before it can be deployed anywhere else. And I think that's going to hamper them, hamstring them forever. As a Mars token holder, this is like just a terrible deal in my opinion.
**A** (11:51):
Right, okay, got it. Yeah. So which is why I guess like the V2 will continue to exist on Osmosis, but this perps product would only exist on Mars, probably on Neutron on.
**B** (12:05):
Neutron for three months.
**A** (12:07):
For three months. Got it. Okay, yeah. What's your take? Like, you know, sort of like having been close to this project and you know, Osmosis I think was pretty enthusiastic about this project early on and I think Mars was kind of like the first outpost or one of the first outposts on Osmosis. How do you feel about the whole thing?
**B** (12:29):
You know, I mean I always, like, even till now I have like a deep respect for the Mars team. If they're like a team that I've always wanted to work very closely with, ever even since like the Terra days, I think that we'll still honestly get it. Like we'll still be working closely with them on like the Mars V2. And like, you know, Osmosis team, like our team is building a UI for Mars V2 into the osmosis front end so you can do margin trading. So you know, I think we'll no matter what, have to be like, you know, we'll still be working closely with the Mars team, but I think that they're Making a mistake by taking this like exclusivity agreement from Neutron.
**A** (13:08):
So this other proposal, this Osmosis proposal, I just read it, I kind of like read through it quickly before we got on here. But does it have any, does it make a better pricing offer? Because you know there is money involved here.
**B** (13:26):
Yeah, no, I think it just matches the same pricing offer as Neutron.
**A** (13:32):
Okay, and so what's next here? Basically like on Neutron, this has to go to governance. It also has to governance, go to governance on Mars and Osmosis, I guess. And Osmosis will also have a proposal up.
**B** (13:46):
So basically Osmosis, I think, like to me, I think the reasonable order of events is that Osmosis and Neutron both need to make proposal. To be honest, I don't really fully understand how the Neutron foundation is set up. Like it said in the proposal, it says that the tokens, like the Mars tokens, 60 million Mars tokens go to the Neutron foundation, not to the Neutron Dao, which is a little bit surprising. So I don't know from Osmosis aside, I think that everything should go like this should all be done by the community pool. So that way, like, you know, eventually we want to have like pass through voting access and stuff. So like, okay, if you have like, let's say so Osmosis community pool has 60 million Mars tokens. If you own like 1% of staked Osmo, you should have the voting right of 1% of that 60 million Mars tokens. Right. And so yeah, so we'll. So that's why we'll. We would want it in the community pool, not in like a foundation or something. Yeah. So basically I think the order of operation from the osmosis side is we put up a proposal which what John did was put up this proposal asking Osmosis community pool to extend this offer to Mars. And then if that is agreed upon, passed by Osmosis, then we send that, you know, now it's up to the Mars governance process to decide which offer they want to take. I don't know how they're going to decide between the two. Maybe they have to run some sort of like bridge off or something. Like some multiple choice ranked voting or something.
**A** (15:15):
Wow, interesting. We have like high stakes bidding going on here between crypto protocols like hostile takeover and counteroffers. I mean, it's going to be interesting. Do you have any idea of the timelines here? When is this going up on Mars or do we know that?
**B** (15:40):
I believe the Neutron governance process requires it to be on their forum for 14 days. So I think that's at least some timeline minimum. The associate's governance process takes two days on forum and then five day voting period. So I think like you know, technically Osmosis has not created any sort of offer to Mars yet. So we would have to like go through our own governance process in order to extend any sort of offer. It's unclear if OSMO holders even think this is valuable. Right? Like this is saying that like effectively we need to like, you know what we're doing is offering Mars would be offering Mars 3 million USDC which requires us selling 3 million OSMO. There's a lot of buyers of OSMO right now. Like you know, I think there's a couple of funds that reached out about like, interested in doing like, like OTC swap with the osmosis community pool. They're like hey, we want to buy like a few million dollars of osmo, like can we pay the community pool in USDC or bitcoin? So I think that would be a cool way of getting some funds for that. But like it's up to us as well OSMO holders to decide like is the is, is this worth this or let Neutron foot the bill and you know.
**A** (16:53):
Yeah, yeah but I mean ultimately you know, looking at it from the perspective of Mars, you know there is a lot of competition on osmosis like Labana, although it is a different product and I think they have a different vision, is a very similar product competing for the same liquidity. And osmosis now you know you mentioned is working on a purse product so that's also competing for the same liquidity as these projects, as these communities. How should they be looking at osmosis? Potentially there is this term in tech which is to get Sherlocked. And this is when Apple famously built this functionality that had basically put out a business, this software, this very OG Apple software called Sherlock and then subsequently implementing things that kind of put out a business. The apps that were being built on Apple. How do you account for that and reassure those communities that Osmosis will not out compete these protocols?
**B** (18:00):
Yeah, I mean I think for Oracle based perps they're all competing for the same liquidity and it's like, I don't know if I actually agree with that. You. Well yes, we're all competing to steal liquidity from Binance. Right. That's where the actual pools of liquidity are and it's like Dydx Osmosis, Mars, Levana. If we're all just fighting over the same liquidity, that's internal that's already on these chains. That defeats the point. The liquidity we need to get is how do we get liquidity from there? And you look at, I think liquidity begets more liquidity. Right? So it's like you look at Arbitron, like every new perps protocol that launches on Arbitrum actually benefits from the like capital that's like in that ecosystem.
**A** (18:53):
Yeah, that's a good point. Yeah.
**B** (18:54):
And so how do, how do we make sure Osmosis doesn't compete? Right? Like, I mean at some point I think osmosis holders obviously need to do what's best for osmosis revenue generation. But, and that means like retain, that means balancing like internal revenue with like retaining partners. And I think there's a lot of ways that the Oracle stuff like works together with a, with an order books system. Right? The Oracles are much, much better for like, I think faster for bootstrapping new markets before you have like active market makers. The OMX team like is working on this like perps aggregator, which is really cool because what it will do is like you can just say, hey, I want like this position. And, and it will like balance like, it'll like, it's kind of like building a 1 inch for perps basically. So it'll like balance your trade between like I think, I think their initial integrations are Levana, DYDX and OMX GMX on Arbitrum, which is really cool. So it'll like kind of balance trades between them and like, and then what I could see is like, oh, if the funding rate spikes on one of them, it'll close your position there and open it there. So like, you know, I think there will be ways of making sure these things work together. The other thing is I think these Oracle things actually might be able to just turn into vaults on top of the order book. So I think there's a lot of ways for these things to just like be synergistic and I think the chain will continue to support all of them. And like I said right now our focus is not on. We just informed Levana and Mars and Marjan that hey, we are one day we will build an order book system. But right now our focus is on supporting you guys and help. I think there's a lot of stuff that the Osmosis chain needs to work on right now as we saw on the performance side. And I think we're going to be spending the next few months just focusing on how do we make Osmosis be this high performing chain so that way we can actually build, make sure things like Levana work really seamlessly. And you know, making on chain order books is not easy. Like even like serum like failed to really work properly on Solana at like times of peak throughput, which is when you need your system to work. And so we are working on like, we have this like new design for an order book that I think will like make it way more performant than anything else that we've seen.
**A** (21:30):
Cool. I want to talk about that a little bit later on, but we didn't talk about umi. Also the UMI announcement that they would merge with Osmosis. What's that about?
**B** (21:40):
Yeah, so I mean that was, you know, we've been in talks with UMI for a while, sort of somewhat independent from this, but once they heard about the Mars Neutron stuff they're like, hey, we should like accelerate these timelines, you know, if Mars is leaving osmosis, like, you know, UMI believes in osmosis and would like to double down on it. So they kind of like we had this like, yeah, let's do this. And so basically UMI will be shutting down their app chain and migrating into, onto Osmosis. But you know, the thing is their code is mostly written in Cosmos SDK GO modules right now. So they're going to have to be doing a significant rewrite into CosmosM in order to do that. And so, you know, we'll be supporting them in this, like helping them with like as much as we can. But yeah, then integrating a lot of the products and stuff. Like if Mars ends up focusing more on the perp stuff, like I said, we're working on a margin trading ui. Maybe we'll end up plugging that into UMI instead of Mars. Yeah, I know things are obviously everything's up in the air a little bit seeing how things shake out.
**A** (22:49):
Yeah, I mean I think it points to another, to a broader trend that I had anticipated would happen. And this I think is some initial indications of it happening. And that is app chains merging with existing app chains or becoming roll ups or becoming smart contracts on general purpose chains. Right. And so these are two very relevant examples and in a short period of time I think that will probably prompt other, other application specific chains to do the same because cost of security is too high. Alignment with other ecosystems provide value. Like the maintenance also of having to run your like all the complexity of having to run your own validator set and the politics around, around all that and the governance and everything is like a huge overhead for a Lot of teams. Yeah. Do you think this is also something that will accelerate?
**B** (23:51):
Yeah, I mean I think part of what makes Silicon Valley work is like you have this like exit opportunity of like, you know, you don't have to go ipo, eventually you can get acquired by a larger company. And you know, I think it's, it actually allows a lot of like, you know, independent research to be done. But then like you work with a larger project company to like productionize and like, like do help with the go to market. So I think that if anything it's more surprising. We haven't seen as much M and A in crypto. I think the biggest one has been actually like Polygon, like has done a lot of like very successful M and A's, but outside of that like not so much. And you know, once again to be clear, right now like when we, right now there's no talk of any sort of like token merge or anything between Osmosis and umi. Right now it's just a, a chain merge. You know, you have the Osmosis chain, you have the UMI chain. We're like combining the chains. But right now UMI will be a govern, have its own governance token and it'll, it'll still be governed independently and then any sort of like token swaps or anything that Osmosis and UMI want to do together will, can be decided by the, by the respective governance systems.
**A** (25:02):
All right, let's, let's talk about this Prop. 858. You had posted this on the Cosmos Hub forum a couple weeks ago now and it just went up on chain in the last couple days, I think over the weekend. Yeah. What's the deal with this prop? Why do you want Cosmos Hub to provide you liquidity? You're not part of az.
**B** (25:32):
I think Osmosis is the biggest portion of aez. We've been the primary. You know, AEZ stands for Atom Economic Zone. And I think osmosis has been the primary driver of like Atom in defi for the last like you know, two years. So I would actually push back saying we are definitely part of the aez. If you wanted to find, you know, if AEZ just means like set of ICS chains then like yeah, that's true, but that's because like, I don't know, I think ICS as a technology just doesn't make sense for Osmosis in its current form. You know, I think the technology like, I don't think it makes economic sense. I think validators get like kind of screwed via the current economics of ics. I think, you know, part of the goal of Osmosis is we want like our validators to do more and more. So like starting pretty soon validators are going to be running in, in chain price oracles. So that's when we have all validators provide price oracles. But eventually I want them to do a lot more. So we have this routing server that we build like require validators to run that require validators to run front end servers. A lot of the entire Cosmos stack, our Dex is like the chain is decentralized but a lot of the stack is quite centralized still. Right. Like the front ends, the routers, the database indexers, all these things. And I think the best path to decentralizing these is actually like shifting more of these responsibilities onto the validators. And I think just by switching to ICS and like losing, I think like part of the benefit of an option is having this like specialized validator set who's like a great example of this is like secret network, right? Secret network only works how it does because all validators are required to have an SGX node. And I think like putting that sort of requirement on all Cosmos Hub validators will actually limit the amount of people who can like run Cosmos Hub validators, which is I think the opposite of what the hub wants. So I think having specialized validator sets is good. This is why we came up with Mesh security because it's actually the system that allows economic security to be shared while allowing for specialized validator sets.
**A** (27:51):
Yeah, I was just, I was just fucking around when I said that it wasn't part Osmosis, wasn't part of aec. I mean, I think that.
**B** (28:01):
I heard.
**A** (28:01):
Someone say this recently. AZ is kind of like the European Union and the different economic, security and monetary alliances that exist within Europe. There's some that overlap and there's some that don't. Like you have the economic zone and then you have Schengen and then you have, have the eu, the Eurozone and sometimes those overlap and sometimes don't. Like Switzerland doesn't use the, it's part of Europe, it's part of the economic zone, but it doesn't use the Euro. Right. And this sort of thing. So I think for AZ it's kind of similar. Some chains are going to use security, other chains are not, but they're part of the economic zone that makes well, you know, Cosmos and the Hub and Atom more valuable. And like, certainly Osmosis has played like a huge role there. But yeah, we haven't talked about this, like this proposal yet?
**B** (28:59):
Yeah, so the proposal is basically like, you know, for a lot of things we need ST Atom. You know, I think that like Atom is like the base money of Cosmos. So what that means is like it's the base collateral asset, right? And so really people, this all kind of actually ties. It's a little bit related to 8:58 as well, which was the halving proposal. But the general idea is that like, you know, at the end of the day I think people prefer to use LSDs as collateral. And you see this happening in Ethereum where like you have LSDFI is growing very rapidly because people would rather be earning the staking rewards or while earning, while being able to continue to use Defi. And basically right now the Atom staking rate was and still is a bit hot, like really quite high. And what that does is it makes it more difficult for Atom to be used like so economics of LSDs, right? You can use ST Atom as collateral on Levana or Mars or you know, Margin or Membrane or UMI or all of these like places. But you need a way to, you need liquidity for it to be able to convert ST Atom into Atom. Now the problem is that like that liquidity needs to be subsidized. In Ethereum, the ETH staking rate is like less than 6%, maybe less than 5% even. And so you know, if you have the exit, liquidity needs to be sitting in ETH and that ETH is not earning the staking rewards. And you have to assume these are pretty like pro users who are providing liquidity here. They don't want to be foregoing staking rewards. So the thing is that with eth's like 5% staking rewards are made up by the combination of trading fees, volume, lido incentives and curve incentives. So the three of them together can add up to just barely eke out and like make up the 5% yield that compensate the 5% yield that the LPs are like foregoing. Now how do you like deal with this? For Adam, when it was having 15% staking rewards you just couldn't. And that's where Stride came up with this idea of like, oh, let's use protocol owned liquidity to help do this. Where it's like it is in the Cosmos hubs, like it behooves Cosmos hub to like drive demand for Atom as collateral. Because at the end of the day that's what Atom is. It's a meme token, right? It is just like the way Bitcoin is and just kind of like the way ETH is really if you think about it. And so you know you want, but your goal is to drive the usage of your meme token as collateral in like different projects and defi and like have things dominated in it. And so to get ST Atom used as collateral, we needed to inject some atom liquidity so that that ST atom can liquidated into that at some sort of like discount basically. And hopefully this happening stuff will. And if we continue to decrease the atom inflation rate, maybe, you know, the hub doesn't have to be actively doing this pol in the long term. But to begin with, this is like, I think the way that we came up with to like stopgap.
**A** (32:26):
Okay, so the idea here, I think this was also described in, in the Blockworks research, is that if you reduce the staking rate, if you reduce the staking rate, then people will have an incentive to use their atom as collateral and instead of as just like sitting there and being used in liquid staking, basically using the liquid staking tokens as collateral. So we're trying to incentivize people to use Atom as collateral instead of staking it.
**B** (33:03):
No, it's actually different. I still think people are going to want to use Stadom as collateral. What the thing is, in order to enable the usage of STADOM as collateral, you still need Atom sitting in the ST Atom atom liquidity pool and you need to compensate that atom with their foregone statement rewards.
**A** (33:26):
What's been the reaction so far to the proposal?
**B** (33:32):
Basically overwhelming support. I mean, I think it's currently at like, it was surprisingly overwhelming support. Like I think 95% yes right now or something like that.
**A** (33:47):
Yeah, I think it's 72, but I mean by the time this goes out.
**B** (33:49):
On Thursday, 72% yes, 22% abstain. So like only 5%? No right now?
**A** (33:57):
Yeah, yeah, I think, I also think it will go through. And so how much? This is 9. So basically like $9 million an Atom.
**B** (34:07):
900K. Awesome. Not 900k Atom. Basically it's roughly double what the. Roughly. It's exactly double of what the Cosmos Hub already provisioned into Astroport on. Currently the pool on osmosis does about 22x the volume. And so, you know, I think it's just asking for twice as much liquidity. But that twice liquidity is going to go a lot further because of osmosis's contrary to liquidity pools.
**A** (34:38):
Yeah, so you said something earlier which I think is a good segue into this other topic I wanted to discuss, which is, you know that Adam is. Is this meme token and I think you've been pretty vocal about the azics kind of direction that Adam has taken and have argued for the hub to really embody its meanness as a governance hub and for Atom to embody its meanness as a governance token. Can you describe your thesis here?
**B** (35:16):
Yeah. Basically crypto needs like capital assets. Today we only have two main capital assets, which are Bitcoin and eth. Everything else is like leagues away. And to create a new capital asset, I think over focusing on revenue is like not okay to become number three, right? The number three crypto asset is not going to be just like, it's not going to be like a utility token. It's going to be a capital asset. And all capital assets are meme tokens to some extent. Gold is a meme token, right? US dollar is a meme token. And so for Adam, first of bitcoin follows this like unique monetary policy that got people excited around it, right? It was this idea of like fixed supply, like no, no, can never ever change, like 21 million till the end of time. Eth, you know, achieved its moneyness off of, you know, basically the bankless guy shilling eth's money. And. But basically like you have this like double like system of EIP 1559 on one side causing a burn. And then you have this proof of stake, basically causing like new inflation to come in. And so you have, you know, I call it Bitcoin, a digital gold. ETH is the petrodollar, right? It's like its value is driven by its demand. So the more demand for gas there is, like the IP 1559 burns it, but the more demand there is for capital. It like, you know, more people stake it to use LSDs, it will, you know, it will cause a little bit of inflation, I think. But both bitcoin and ETH are like not very dynamic. You know, ETH is a little bit more dynamic than bitcoin, but like it's still pretty stationary. I think Atom can be, I think like a more general take is like, I think to become a third capital asset, you have to do something different, right? Bitcoin had a lot of people try to copy what bitcoin did, right? You had like litecoin and dogecoin and all these like things that played bitcoin's game. None of them worked, right? ETH went ahead and were like, oh, we're doing something.
**A** (37:27):
I mean they're all they're all above ATOM in terms of market cap.
**B** (37:30):
That's true, that's true. Some level of xrp, by the way. That's true. But like, I think ETH went ahead and just played a completely different game, right? It's like, no, this, like, don't. There's like, you know, fixed supply thing is stupid. We're just gonna like do something like a different thesis on money. And you know, I think it worked out well for them. And I think Adam, like, I think everyone who's just trying to play the same game as ETH will never like reach that same level. Right. I think ATOM has this opportunity. I think it is the most decentralized governance token in all of crypto and I think it should lean in on that. And once you actually have a governance system, you can do more dynamic things, such as more active monetary policy, which is what we did. Right. I think that was a great success. Governance said, hey, we think that the inflation rate of Adam is too high and we're not going to follow this stupid code is law thing. We're actually going to like use governance to change the inflation rate. That is like what a normal thing to do, right? Like you should just because it was written into the code once upon a time, like into the white paper, I guess, actually like four or five years ago. No governance should be able to update this. And there's, I think more interesting things Adam can do as well. Like you know, doing things like this protocol owned liquidity or doing like incentives for driving demand of atom. So this is something I've been talking about with the Stride team and a DAO folks of like, you know, we, if we want to like drive more demand for ATOM as collateral, we should be doing rev share with projects for having ATOM as collateral. So if like Levana has a bunch of like ATOM collateral or ST ATOM collateral, it should get a get some like ATOM revenue cut possibly from that like, you know, stride takes 10% off the top of the staking boards. Maybe they can give half of those to LVN holders. Or if Kujira has a bunch of ATOM collateral that can go to Coogee holders. Or if OSMO liquidity pools have a bunch of ST ATOM collateral that can go to OSMO holders.
**A** (39:41):
So basically incentivizing projects and protocols to use ATOM as collateral.
**B** (39:48):
Exactly. So it's like now we can go to Maker and be like, hey, add ATOM as collateral. And if you know your ATOM collateral grows and great, you guys have, here's a free revenue stream for you guys I don't see any reason for them not to take that deal.
**A** (40:01):
I mean, where that revenue come from? Would that be like hub revenue or staking rewards? Staking rewards. Okay, yeah.
**B** (40:06):
So, so basically like, right, like I said, right now Stride takes like a 10% off the top of all the staking reward revenue of ST Atom. Right. What I'm, what I'm suggesting is like they could split that with the projects that drive demand for SG Atom.
**A** (40:22):
Okay. So the idea, like I think the high level idea is, you know, Bitcoin and ETH each have their memes, lots of kind of chains that came about around, you know, 2017, 2018, Cosmos and Polkadot and like tried to scale ETH by sharding state into like different app chains or different domains of state. But like great composability.
**B** (40:53):
In the end.
**A** (40:54):
I mean, in the end it's nothing sort of fundamentally new in terms of creating new memes. It creates new paradigms for building blockchains, but it doesn't create a new capital asset in the same sense that Bitcoin and Ethereum are. And so here the idea is, let's turn the Atom token into this collateral asset by giving it this memeness and encouraging projects to use it as collateral so that it can well gain in demand and also in value.
**B** (41:26):
It also aligns everyone with Atom because now all these projects have a revenue stream denominated in Atom. And like it doesn't have to be liquid Atom right away. Right. It could be like ATOM bonds, for example. So it's like, oh, here's Atom that gets unlocked in six months. And I was like, now all these projects are like, have Atom on their treasury, on their books. And it's like, it kind of makes it so like, you know, the AZ is aligned around what I define as the AZ is aligned around Atom.
**A** (41:57):
Yeah. When you said earlier that Atom is the most decentralized token, were you talking.
**B** (42:02):
About in its distribution, in its governance processes and distribution? Right. Like Bitcoin and eth, definitely more decentralized, but they're not governance tokens. Every, like, you know, Adam only gave like Adam's ICO was like 80% of the supply. Right. That's like quite high relative to, you know, the standard for projects today. Right. Today you look at like the token distributions, it's like okay, 5% for an airdrop, you know, 20% for the team, 20% for operations, 20% for VCs. Like, you know, it's like. And you kind of. And just like none of these processes are set up as such, right? You see, if you saw what happened with, like, the arbitrum vote that happened, like, probably six months ago, where, like, the foundation, just, like, the treasury was in the hands of the foundation. The foundation just executed a trade. And then the community was like, what the fuck? Like, we never voted. We never agreed to, like, vote on that. And so then they're like, oh, sorry, we'll put up the proposal now and.
**A** (43:05):
Bitch, we have the keys.
**B** (43:07):
Yeah. And. And then what happened was the community was if they put up the proposal and the community was super against it, and then at the last minute, a VC just came in and just like, swung the vote entirely. Because you see the same thing happen with Uniswap, right? I know this because I once tried to vampire pre Osmosis days. I tried to vampire. I tried to governance attack Uniswap for fun. And I realized it's impossible because Paradigm A16Z and Uniswap Labs together can block anything. And so, you know, I think people often say, like, oh, look, Cosmos Governance is so centralized because of the validators. But I think that's like, similar to, like, people's misunderstanding of how mining pools work as well, where it's like mining pools. It's like miners can switch about, switch pools whenever they want. It's the same thing here, right? Like, all delegators actually do have their own, like, stake. And I'm actually very open to decreasing the power of validators in. In, like, Cosmos Governance. But yeah, so I think that both in terms of distribution and just like, governance culture, right? The fact, you know, I saw these, like, I saw a tweet from. But, like, you know, the fact that the founder of a project could, like, want one thing and the community, like, the founder of the project, like, oh, this was my vision. But, like, the governments were like, nope, we don't care, we're gonna, like, do it this way instead. And I think that's like, that's definitionally like, the how good governance should work.
**A** (44:42):
Speaking of which, we can also bring up. We can also talk about Adam. So I do want to ask you just one more question about this. So basically, like, what needs to happen for this vision to come to fruition? Like, what? I know you've sort of, like, made this claim on Twitter that this should be the case, but yeah, what's the. What's the plan to get there? What does the hub need to do? What does the community to vote on and action on?
**B** (45:12):
So I think, I think honestly, 858 is a 68. 68 is a good first step because it's the causes Hub governance agreeing that like, hey, ICS is not what defines az, right? It's like we're not going to be favoritist towards Neutron just because it's using ics, but rather like, hey, if osmosis is where demand for Adam is, we're going to help like foster that demand for Adam on osmosis by providing liquidity. So I think that's honestly a really good first step. I think the next thing to do is. The other good step was the happening proposal, right? It's like, okay, the governance is saying, no, we are in control of monetary policy. I believe that like the happening was only the first step. There's a lot more changes to be made to the monetary policy going forward. I think the next one is governance should probably demand that Stride implement some sort of rev share like this. So that way it helps achieve that goal to an extent. I think it's just like a narrative thing as well. Right? I think everyone in the community has to stand behind this is the direction. And now let's all rally around this and we need to be shouting this from the rooftops right now. There's just so much money. Adam is money. Right? Right now there's just so much internal confusion on what the purpose of Atom is. I think maybe some sort of GOV prop that's like, hey, this is setting the direction of Atom and we're going to. Let's all rally behind this.
**A** (46:54):
Are you going to do it? You're going to make a GOV prop?
**B** (46:56):
Once I Finish the other 5, 10 gov props in my backlog, yes. But I'm working with like effort capital and like a DAO folks and stuff to like help shape this generally.
**A** (47:10):
I mean, I'm on board. I think that AZ is a good attempt to try to give the hub some legitimacy. I mean, it's the best attempt we've had in a long time. Right? But the thing is that there's increasing competition to the hub. So like Celestia and now like Eigenlayer and all of the other L1s, whether it's Polygon or whatever, these are all competing for developers and for applications to go build there. And a lot of them have liquidity and a lot of them have lots of people who are excited about them, like Celestia for instance, and. And narratives that are very strong. And so the hub's AZ narrative and this whole idea of like a hub of applications that kind of serve each other's purpose and sort of builds this Ecosystem. It's not, I mean it's cool, but it's not like super exciting.
**B** (48:02):
Right.
**A** (48:02):
It doesn't like rally. It hasn't really rallied the community. I think, I think like, you know, if you're like, okay, cool, AZ great, you know, like it's not like a rallying cry for all atom holders. And I think that's kind of what. What we need. We need like this rallying cry. Yeah, yeah. And this is, this is a rallying cry. I mean like it could, it could work. It could also not work, but I.
**B** (48:31):
Think it's like a route. It's so like simple. Right. That's what I love about it. It's like, it feels like to me, it feels like that bell curve meme. It's like ics. All this stuff is like. No, no, it's just like out of his money. It's governance backed based money and I think there's value to this. Bitcoin and ETH are just too dumb. Humans can actually make good decisions. Let's build proper. And Cosmos Governance is far from perfect. Right. I think there's a lot of improvements that Cosmos Governance could be doing, but let's start making those changes and double down on this as the direction. The Gov module is probably currently the most under resourced module in the Cosmos SDK from the Hub side and it should probably be the most important one. It also suspended a, a big revamp to the Gov module, so hopefully the hub will be able to reuse a lot of the work that we've done.
**A** (49:39):
Yeah, I mean the governance module should have like all of Daodao's functionality basically. Right. It should have like a whole bunch of extra functionality that's been built later. Right. In CosmosM, but just doesn't exist in the Gov module.
**B** (49:53):
Yep.
**A** (49:54):
So yeah, we briefly discussed the idea of a founder being out of favor with the community. So coming back to the passing of 848 and the subsequent fork threats or I don't know if they're threats, but this Atom 1 idea that, I mean Jay was talking about Atom 1 back in the Atom 2.0 days. I think this proposal is a little bit different, but. Yeah, what's the high level idea with Atom 1 and what's the current status of this potential fork?
**B** (50:35):
Yeah. Okay, so here's my, you know, let's call it a little bit of a charitable view on like what Atom 1 is. So I'm like, you know, actually the discussion for Atom 1 actually came out on a call with me and Jay and A couple other people. And it is like before any of the happening and everything. But it basically came from this perspective of like I was telling him about this like governance like view of like Adam and he's like, yeah, this makes sense. Or his take was governance needs political parties. And he effectively saw that like his take was. Or I forgot whose take it was. It was a combination of Dave, me, Jay and Chango. But we were basically going down this route of okay, if we believe that most capital of Adam is actually going to be held in LSDs, right, because that's what's going to be used as money Everywhere, then these LSDs actually have massive voting power. They're going to be the biggest owners of governance power effectively. And these actually probably serve as good shelling points to build political parties around. So instead of having a single and you know, it behooves Adam to not have a single solely dominant LSD but actually have a couple of competing ones. But what caused, you know, you see this happening on Ethereum, the problem with lsds is the economic incentives of lsds drives towards centralization because you want as much liquidity aggregation as possible. But what leads to some fragmentation on lsds is different political views. So like Rocket Pool has a pretty different political stances than Lido, like when it comes to like Ethereum governance ideas. And so it's like, okay, let's actually leverage that and build political parties around LSD is enough. Okay, now this is where like Jay is like, you know, paranoia comes in. He's like, oh, Stride is like the representation of like the informal ICF cabal that's like trying to destroy the Hub. And so we need to build a competing political party called Atom 1. So and build an LSD around that which. Okay, you know, I'm actually, I actually quite like the Stride team. I think that's a little bit of a mischaracterization of that. But the general take of like, okay, let's build an LSD that is, you know, is based off of a specific political viewer. That's why it actually, you know, I'd go so far as to say it actually kind of makes sense. So if you choose like the habiting prop as like your decide to build your political party, you want to like send it like coordinate the people who like have a shared political view. And I guess Jay's take is that everyone who voted no on this is like pro conservatism of the Hub and that's, that's the goal of the political party is to be the hub conservatives, then like, you know, distribute your political party membership token membership cards to the people who voted no on that proposal. That is my like high level charitable view of like what is happening now. The problem with Jay is that like he's so isolated from the rest of crypto that he doesn't know the standard terminology that everyone else uses and so struggles to explain his ideas in a way that most people understand. I think if you explain this idea of political parties, LSDs as political parties, I think it's actually this like very, very interesting insight in like crypto political economics. Right. And like, I just think he's not very good at explaining it, but I think high level, it makes sense.
**A** (54:21):
What do you mean? He's so isolated he doesn't know what terms people use.
**B** (54:25):
Look, I don't think he actually understands the term. Like I had to explain to him what an LSD is like. Or like, yeah, like, I mean he.
**A** (54:35):
Doesn'T he know what liquid signatures are?
**B** (54:38):
Not really. He's like, it's weird. Like you know, so even, okay, so like even like this whole like photon thing that he had from a long time ago, it was basically this. But like I don't think anyone got that. I mean obviously. And there are some things he did differently. Like he want, he wanted it to be like, oh, you photon is sort of this like thing like LSD ish thing that like gets minted and burned on a bonding curve like based off of atom. But like I was like, oh, that makes it so the photon price isn't equivalent to that. What you can instead do is make it so like you do a variable like unbonding rate and then you let the market figure out the actual proper rate between the two. So there's a lot of like things that like, like you just like I don't know, I don't know if you know really like I'm sure he maybe knows these terms but he doesn't realize he like there's standardized terms that everyone. There's a shared vocabulary that we use to share our ideas. And if you're not plugged into that shared vocabulary, it's very hard for other people to understand your ideas, even if they.
**A** (55:45):
Maybe it also just is that the shared vocabulary that everyone uses doesn't accurately represent what he thinks, what he wants to build. Right. So you can, that's true.
**B** (55:58):
But at the very least putting it in terms of some shared vocabulary and then say, okay, this is the diff of what my idea is from the standard.
**A** (56:08):
Yeah, yeah. So what's the current kind of status of. Is Adam going to have a fork? Is this going to happen or.
**B** (56:18):
So I don't know what the current status of Atom 1 is. Like, this is all, like, from a discussion that happened like, over a month ago at this point, before the happening and everything. And I was like, yeah, this sounds great. I mean, that sounds like a cool idea to, like, build a political party lsd. So I don't know what. I have not even read, like, the current Atom 1 proposal or anything, so I don't know how much it's diverted from that original idea.
**A** (56:42):
Yeah. Well, those who are interested should go back and listen to my episode with Jay from over a year ago when we talked about Atom 1. But probably I should try to get him on and just like, discuss this in detail. This is kind of a. It's kind of a weird episode because it's not like a proper interview. We're just kind of going. Going all over the place. But it's interesting. I actually like this because we can just talk about things that are happening right now. What's going on with Atom 2.0? You guys announced this smart account at Cosmoverse, and I'm still waiting for my smart account. I still want to ditch my ledger so I can use pass keys and. Yeah, osmosis 2.0, when intents. When CL hooks, when. When beat sexes.
**B** (57:29):
CL hooks, I think should be in the next chain upgrade, which definitely should be happening by end of year.
**A** (57:34):
So what are CL hooks? Maybe let's. Yeah, what's a CL hook?
**B** (57:38):
CL hooks is a thing that allows developers to add custom logic to concentrated liquidity pools. So this is very similar to what Uniswap V4 does on top of Uniswap V3, where it's basically saying, like, hey, you want, like, for example, examples of what you can use this custom logic for? You know, the Provenance Team wants to use this to add a whitelist for like, trading. So they want to, you know, they want to take some of their assets, list them, but they want to say, oh, only like this white list, who has passed RKYC can trade or LP in this pool. So what it will do is every time you try to execute a swap, it. It'll use their custom logic to go check your address against the whitelist, and if it's not in there, it'll just say no, it'll reject the swap. Another one would be adding an additional fee. So this is something that we're discussing with actually a couple of Teams, the Apollo team Astroport team, where it's like, hey, you can do a swap, but you can add a customer hook logic where it adds an additional swap fee. So you know, currently osmosis already takes like a 10, 10 bips like protocol fee. But like Apollo might be like, hey, anything that's like traded on these pools that we're adding liquidity to, we want to add an additional 5 basis point fee that gets sent to the Apollo Dao. So we can like do like these custom things like that. And you know, there's all sorts of other use cases of these custom logics as well. So that's what the CL hooks are.
**A** (59:22):
Ultimately it's a developer tool. It's a developer feature that allows developers to add extra functionality when interacting with a concentrated liquidity pool. Exactly. Cool. And yeah, smart accounts.
**B** (59:37):
Smart accounts. So we decided to break down smart accounts into like couple segmented things. So the first thing that we're doing is the one click trading. So this basically means that you'll be able to, instead of having to sign every single transaction you make, when you log in, you authenticate a key. It generates a key in your browser which is typically very insecure. But we'll get into why we're okay with this. And then you can do your trades and you can just click just like on Binance or Coinbase. You just click and it does the trade. You don't have to like do an email confirmation for every trade you want unless you're doing a big trade or unless you're withdrawing assets or something like that. Right. Then it asks for these confirmations, which is what we're doing as well. So there are projects out there who've already done one click trading. Like DYDX even has it. But the way they do it is actually quite insecure because all your funds are on this browser hotkey. And what we're doing is like, no, let's put rate limits on these things. Where it's like, okay, when you, when you log in it says, oh, you can trade with up to like 5. The initial one we're doing is like trading with up to 5% of your portfolio. And that means that you can like, you can like trade back and forth as long as the balance of your portfolio doesn't go down by 5%. That means you could be like, if you're paying too much in trading fees that could cause your bounce go down or if you're going from a high cap token to a low cap token. So if you're just trading sitting There trading Bitcoin and Ethan Atom, like that's okay because no one can really steal your money from doing that. Right. They all they can do is basically cause you to pay a lot of trading fees. But if you're trying to go from like Bitcoin to like some random shitcoin that you created, we our thing will be like no, no, no, that's like that's effectively a loss of money. And so like that's capped at like 5% basically. So we're doing that. We're also working with a company called Blockade to build a co signer which is like so Blockade they do some stuff, they work with wallets. They're like they have this like machine learning based or actually yeah, I'm gonna use the new buzzword, you know, they probably call themselves machine learning last year but now AI is all the hype so AI powered thing that like it's a security check basically where like they do all sorts of things like check where the history is coming, like transaction patterns, they check which server you're accessing the site from and all this stuff and it will like what they do today with wallets is basically give you a warning like hey, something seems wrong. You should probably be careful when signing this. So what we're working with Blockade on our smart accounts is being a cosigner where you can optionally say that hey, if I generate this key, this hotkey and I want to sign a transaction, what it does is it sends it to Blockade as well. They evaluate the transaction you're doing and if they think it's so safe they will co sign it as well and then submit it to the chain. So that way you have this like, you know, if Blockade thinks something is sketchy like it can, they can block the transactions from going in using your hotkey.
**A** (1:02:55):
Amazing. I'm happy I don't have to go every time.
**B** (1:02:59):
Yeah. So one click trading is the first thing we're doing next we're probably going to work on the pass keys and the onboarding and stuff. What we realized a lot of the stuff that was complicated the UX closed was for new user onboarding because you have to deal with how do people create a smart account when they don't have any tokens at all? And it looks like you end up in this weird, crazy, all these edge cases and we're like okay, let's ship something that makes our life better for our existing users. And that's why we're starting with the one click trading.
**A** (1:03:32):
That's great. I Mean, one of the most annoying things about using DEFI is just like every transaction having to, I mean, if you use a ledger, right. Having to flip through all these pages and if you're doing many, you're restaking, you might be moving some assets, you might be doing a bunch of trades, you spend a lot of time sort of on your ledger doing this. Any way that we can use, I presume this uses Auth Z to simplify certain types of transactions. That would be great. I was talking to a team this week that is building kind of like a governance tool where basically you give Auth Z authorization to their key for governance votes only. And every time a new governance vote comes up on the chains that you're subscribed to, it just pops up as a message in your telegram with like four buttons. Yes, no, no, veto and abstain. And you could just vote right there in Telegram without having to whip out your ledger, open up the Kepler wallet or any of that. You just vote in Telegram and it's like, I mean this I think would just improve and increase governance participation if everybody was using this.
**B** (1:04:48):
Yep.
**A** (1:04:49):
Which osmosis apps are you most excited about?
**B** (1:04:54):
I mean, the obvious answer is Levana because they're launching their token next week. So that's exciting. Yeah, you can buy, you know, at the launch all you can do with it is buy socks. So that's a utility token for buying socks. But you know, they might, they might, they may or may not add more utility over time and then. But I don't know, I think otherwise pretty excited about. I think margined is quite cool with like the squared assets, you know. Yeah, it, it's actually like one of my, like best friends, Zubin, like open, they came up with the idea of squared assets. They did it for eth, but then, you know, they went through some legal issues. But you know what's cool about margined is that they're doing it for all sorts of assets. So they have Squasmo and SquadM and I think Bitcoin and soon TIA as well. So that's really interesting.
**A** (1:05:52):
The margin is just basically like this, leveraged long or leveraged short that you take and it. Yeah, sort of like this pre programmed like the leverage long and leverage short is programmed into the asset price.
**B** (1:06:09):
Yes, exactly. And it does this like square of the assets. So If Adam goes up 2x, your position goes up 4x. If Adam goes up 3x, your position goes up 9x. So it's just like really good position. The thing is you have to pay a funding rate, a relatively high funding rate for this position. That's where the shorts take the money. Because in a pure payoff, the shorts are kind of like not making that much. So it's more similar to an option. Right. When you buy an option, it's the premium that you're paying for or that the other side is earning. So that's kind of what margined is. Membrane. There's this new project called Temporal that is doing, like, fixed rate interest loans. So there's a lot of cool stuff happening right now.
**A** (1:07:01):
All right, well, I got to check all this stuff out. Cool. Well, thanks for coming on again and shooting the shit, as they say, and sharing your thoughts on all this stuff. And yeah, I really look forward to seeing your proposal for Atom as money. Yeah, it's kind of weird, right? Because it doesn't really require the community to agree on anything or like to action on anything other than just get behind this idea. And then from that we might get some stride having part of the fee go to protocols that utilize Adam as collateral. So things like this. But it starts from an agreement that this is the vision, and it's a fairly simple vision. This I kind of like about it, but yeah. Well, thanks again and we'll talk to you soon. I guess you can come back on in a couple of months and we can do this again.
**B** (1:08:03):
Yeah.