**A** (00:00):
Welcome to the Building Web3 podcast. Today we're talking about osmosis and how they're tackling the challenges of cross chain interoperability, privacy and user experience. We'll explore multi chain defi bitcoin integrations and the quest to make decentralized exchanges as seamless as centralized ones. Remember, nothing stated here is financial advice.
**B** (00:24):
Welcome.
**A** (00:25):
Welcome to the Building Web3 podcast. I have my good friend Sunny. He is the co founder of, of Osmosis. Sunny, before we get too deep into osmosis, could you give us a brief background into what you were doing before you entered Web3 and what was your come to crypto moment?
**B** (00:37):
Yeah, thank you. First of all, thank you for having me on. I'm excited to be here. Yeah. So I got my start in crypto basically in 2015. I was a student at UC Berkeley and I just like gotten, you know, I was studying computer science and political economy and I got, I learned about bitcoin and I was like, oh, this is, this is perfect. I got to combine my like two interests and like, into doing something. We're using computer science for impacting political economy. And so I joined this. So me and two friends, we had like this like, small group of guys who were like, into bitcoin. We'd meet up every week and just like talk about it. But it was like, you know, like eight of us or something. And we're like, why is no one else interested in this thing? And so we're like, okay, maybe it's because no one else understands it. There's not enough educational material on it. And so we, me and two friends, there's this cool thing at Berkeley where students can teach courses, actually. And so a couple, the three of us, we started our own course at Berkeley about bitcoin and cryptocurrencies and like, very technical, right? Like, talking, you know, not just like, you know, how does the merkle trees work and how does the cryptography work? And we dove pretty deep and got like, I think we got like 60 students in the first semester. And that class is actually even till today, like, you know, however many years later, still being taught. And so from there, that's kind of how I got my like, interest in it. Helped start this club there called Blockchain at Berkeley. And then, okay, so then Fast forward to 2017. I was 18 interning at Consensus, which is, you know, they work on a lot of Ethereum stuff. I got really interested in that. I got especially really interested in proof of stake. The problem though was I was still pretty Bitcoin maxi. Probably. I mean I still am a little bit, but. And so I was like, oh, this consent. Like I'm really interested about like proof of stake and like all these applications. But like, what is this eth shit Coin? Like I thought we were building for bitcoin and that's why that summer I learned about Cosmos and I was like, oh, this is amazing because two reasons. One, they were working on a lot of cool proof of stake stuff with the Tendermint consensus protocol. So I was excited about that. And two, they were working on this idea of side chains of a network of blockchains. And this is how I saw that. Oh, this is how bitcoin is going to scale and how bitcoin is going to get all these applications built on it. Where know, I believed in this like idea of like a minimalist bitcoin blockchain. And then the BTC asset flows onto a bunch of different blockchains and is used as money for the entire crypto ecosystem. So yeah, basically in 2017, I dropped out of school, joined Cosmo, the core dev team of Cosmos, and have been, I guess working on Cosmos ever since.
**A** (03:39):
So I had to ask because you're, you're, you had the early bitcoin experiences and you were a bit of a bitcoin maxi. What do you think about the bitcoin renaissance right now with the ordinals, with runes, with BRC 20s?
**B** (03:50):
I love it. Like I said, I started working on Cosmos to build the app layer for bitcoin and the timing just was never right. For a long time there just wasn't this demand on the bitcoin side to how can we do stuff with this more than just basic payment? And then ordinals came along. One of my friends, Casey, he was the creator of it and came along and just changed the entire. It was a cultural shift more so than anything, I don't think from an actual technical perspective. I don't think ordinal is actually like it's anything crazy. It's actually a pretty bad NFT protocol or BRC 20s are really bad technically protocol. But it's like it causes cultural shift where it's like, oh, there's demand from bitcoiners to do more with their bitcoin. And so that's now, now you see then the kickoff of all these like Bitcoin L2s, you see like, you know, bitcoin staking, you see all this like new demand for like to do more stuff with bitcoin. So I think that this like bitcoin Renaissance has just been like what we. I've been waiting for for, like, you know, since I got into the space.
**A** (05:03):
Yeah. An innovator, really. Yeah, we just had. We've just done a bunch of episodes. We just had Victor from Boostie Labs. We've had Anki from dlc, btc. So we've been doing a bunch of episodes on that. Let's talk a little bit about Osmosis and the Cosmos ecosystem. So you start working on Cosmos, you end up founding Osmosis. Tell us a little bit about the mission for Osmosis and kind of how your previous experiences influenced the direction of the project.
**B** (05:28):
Yeah. So the mission for Osmosis was sort of two things, right. The original drive was actually a lot of. We were very interested in privacy stuff. We were looking at the state of the space and we're like, okay, what's missing in the space is privacy. And especially because when we looked at. We were like, okay, what are the things that we need to do to make a Dex competitive with a centralized exchange? What are the reasons people use centralized exchanges instead of DEXs? And one of them was the privacy aspect. How many times have you heard of people saying, oh, yeah, I sent my coins from an address to a centralized exchange and then sent it to another address just to try to hide the funds a little bit. So that was one of the like, okay, how do we bring privacy there? The other thing that we were very interested in was making it very cross chain native. So if you look at. I think part of the problem is most Dexs today are very focused on a specific ecosystem, right? Oh, you're the Dex for Solana or you're the Dex for Su or the Dex for Bas, Right. And then even when you have like Uniswap kind of going on multiple chains, it's still like very isolated experiences, right. You're trading on Uniswap on Ethereum or Uniswap on Arbitrum. What. When you look at centralized exchanges, right. Most of the volume is actually on top L1 assets. And so we're like, okay, what we need to do is actually have one venue that people can trade all the assets in one place, not have this super fragmented experience. And so that was the other thing that we wanted to solve was defragmenting the UX of being able to trade everything in one place. And the third was solving a lot of the UX and security concerns. So when you go on, I think they. I actually did like a case study of this where I had a friend of mine who works at Robinhood, like a fintech engineer who like I tried to get him to like I recorded him of like I gave him a task buy one maker MKR on Uniswap and it took him like an hour and a half to figure out how to do it because it's a really complicated process and like for some and this is like an engineer at a fintech company. And so you know, I think there's a lot of like onboarding UX hurdles that, that we have not really solved in defi yet. So I think so, you know, long story short, the goal of osmosis was how do we get a decentralized exchange to offer the same UX and service offering that centralized exchanges do. And then we went down tackling the different things needed to make that happen.
**A** (08:14):
Yeah, I'm always surprised at how bad crypto UX is. And for people that have been crypto native for a while, just think about the journey. For a new experience it's buy a coin on a centralized exchange then transfer it on chain onto some kind of metamask, some kind of new wallet store your seed phrase, hope to God you put it on the right network. Oh, make sure metamask is automatically importing that contract address so you don't feel like you just lost all your funds and it's just like what are we doing here? So let's talk a little bit about how you're working on making that centralized like that centralized exchange UX in a decentralized manner.
**B** (08:53):
Yeah, so like I said, so. Well, one of the things that we did was we started actually with an app chain. So we kind of like looked at the landscape of like different blockchains and realized okay, to get to the end UX that we want, we don't want to be constrained by the platform that we're like the blockchain that we're building on top of. And so by having our own blockchain, you know a lot of the stuff we wanted to do, it requires changing how the blockchain works, like either adding new cryptography or doing things to make it faster or adding native account abstraction so you know, you don't have to use these wallets, you can log in with passkeys or all these like nice UX benefits that we've done. So we started with our own app chain. And the other part that that does is it makes it more neutral where if you are trying to build this multi chain cross chain dex and you want to trade Ethereum assets on Solana and Solana assets on the same place. These communities tend to be pretty tribalistic and so you want to actually provide the Switzerland, the neutral place. By having your own standalone blockchain, you can trade assets from different ecosystems without feeling like, oh, this is a defi protocol built on one of these specific ecosystems.
**A** (10:13):
And then how do you. What's the user experience if someone's never been to osmosis? Like walk us through. I said the life of a transaction for a new user.
**B** (10:24):
Yeah. So, you know, we're still working on getting this even better and better over time, but today we still require a wallet to connect right now. So the most popular wallet in the Cosmos ecosystem is Kepler. But there are others as well. You can try Leap and we're working on adding MetaMask integr, like EVM wallet integration to Osmosis as well. But yeah, so you start with Kepler. We have like a fiat on ramp built into our website so you can go ahead and buy, you know, connect your bank account or whatever. It'll send you USDC on your Osmosis account from there. So you go to Osmosis Zone and you can start trading on the app. And then, you know, we've done a lot of like, we started this like work with account abstraction where like one of the cool things I like, one of my favorite features is, you know, every time, every time you want to sign a transaction, it doesn't actually make you have to like re pop open the wallet every single time. We created this new feature using the custom blockchain called One click Trading, which like every time you, you know, you, you click the button on the site, it just signs it automatically without needing to like pop open the wallet or especially if you're sitting there with a ledger having to click through constantly when you go on osmosis. It also you'll, there'll be a portfolio page that you can has like deposit and withdraw. Very similar to your centralized exchange experience where you can say, hey, hey, I want to deposit. And you can choose assets from Ethereum, Solana, almost every EVM chain, every Cosmos chain, and deposit the assets here, do all your trading and then you can withdraw them back to whatever chain you want.
**A** (12:09):
Yeah. And let's talk a little bit about how this like we'll call it cross chain trading even works. Is this something with intents? Is this something with the ibc, with how does it work under the hood?
**B** (12:20):
Yeah. So right now the V1, what it's doing is it is actually it's using IBC as well as Other bridging protocols, you know, we use IBC whenever possible, sometimes for talking to some chains there isn't. It doesn't have an IBC integration yet. So we work with other bridges. You know, our, the most popular one that we work with is probably Axelar, but we also work with Wormhole and others as well. And so what that does is it allows assets to come deposit onto osmosis via a bridging protocol. You get a representation of that asset on osmosis and that's what our liquidity pools and are tradable on Osmosis today. We've also done this, created this thing called Allied Assets where there's a problem today of liquidity fragmentation of. Let's say you have ETH on Mainnet, Ethereum, but you also have ETH on Optimism and on Base and on Arbitrum and on Polygon. If you try to bridge those different versions of ETH to the exchange to Osmosis today, they'd all show up as different assets, which is pretty messy. So what we've done is we created this thing called Alloid Assets where it basically creates a basket of bridged assets and turns it into a single unified asset. So you can deposit ETH from Ethereum or ETH from Base and you'll get the same ETH asset on Osmosis and then you can withdraw back to any of them. This is very similar to, you know, you go on Coinbase today, they give you the option to deposit ETH from all these different networks or USDC from all these different networks. But we basically mimicked that capability, but in, in a decentralized way, making it much more transparent where anyone can go on the site and see like, oh, okay, on osmosis this is how much of the ETH is backed by Base ETH versus backed by Polygon ETH versus Optimism eth. But yeah, so this is one of the examples of like, oh, how do we solve this Liquidity fragmentation. That is one of the hardest problems when you're dealing with a lot of this cross chain stuff.
**A** (14:32):
Yeah. And are there any services you guys use? Like I used to work with native back in the day and they used to work on like liquidity fragmentation. Or is it your natively built alloy assets that kind of just rolls these up and be like, hey Ethan, optimism equals the same as ETH on eth.
**B** (14:50):
Yeah, this is our own natively built protocol that's built like built baked into the osmosis chain. And what's nice actually is this actually also secretly acts like a Stable SW for people to. If people want to, you know, not if you're not trying to just deposit and trade on osmosis. But let's say you're just trying to go from Polygon to base. You can actually kind of swap through osmosis where you send Polygon eth to osmosis and withdraw base eth from. From. From osmosis. And this is actually going to be a big deal once we have our native bitcoin integration live in the coming weeks. So we have an alloyed bitcoin on osmosis right now, but. But that's mostly made up of wbtc. But as soon as we have our bridged native Bitcoin as well, we're basically going to have like a stable swap effectively happening between native Bitcoin and wbtc. And so now this will be like the easiest way for people to like go back and forth between BTC on mainnet to wbtc, which is used in the rest of Defi today.
**A** (15:56):
Yeah. And let's talk a little bit about. So we've talked about the life of a transaction for someone looking to do a swap on there. What's kind of the. You guys are. Would you consider yourself a Dex?
**B** (16:08):
Yeah, we're a Dex.
**A** (16:11):
So what would be the liquidity provider experience? Is it very similar to a Uniswap or.
**B** (16:17):
Yeah, it's pretty similar to a Uniswap. If you go on our site there's a pools page. You can see all the information with liquidity volume on different pools aprs. Some pools have incentives given by the. By the core protocol. But if you actually go to the concentrated liquidity page, I think we've done a lot of really good UX improvements where I don't know if you've ever tried LPing on Uniswap V3 it's kind of really hard to know what's going on. So we kind of stepped back and tried to reimagine what should the UX of LPing in a contrary liquidity look like. And so I think we've actually done a really good job. It's a little bit hard to explain on verbally, but if people just go on the site you can see that like, you know, it's based off of it shows you, hey, this is how the price has moved historically. This is how, you know, we suggest setting your liquidity ranges so that you're always in range based off of historical price movements.
**A** (17:20):
Yeah, absolutely. And could you talk to us a little bit about like these seem. Seems like a Very complex project to build from, like, you know, all these almost doing chain abstraction and then also doing account abstraction. Can you talk a little about some of the challenges you faced while building Osmosis and how you guys work to overcome them?
**B** (17:38):
Yeah, I think the biggest challenge that we've faced is like getting liquidity of different assets on to Osmosis. One of the problems that we realize is liquidity tends to be sticky and liquidity stays on where it's minted. So if a chain has a native DEFI ecosystem, they want to keep as much liquidity on their chain as possible and don't want to send it to Osmosis. Right. And so this is kind of where we are. This is still in development, but like this chain abstraction that you mentioned that we're basically turning, working on an aggregator product that will then basically say like, hey, if you want to buy bonk, let's say. Right. And we don't have that much bonk liquidity on Osmosis, but what we do have is we have a lot of sole liquidity. What we'll do is we'll buy the soul for you on Osmosis and then dispatch that trade to Solana, buy that bonk and then return it to you. If you have a Solana wallet, we'll keep it for you in that. We'll just send it to your Solana wallet, but if you. Or we'll return it back so it's sitting in your Osmosis account. So basically what we're pivoting to or shifting to is not being solely dependent on only osmosis liquidity, but rather tapping into the larger global liquidity. So you'll see more information about that coming out in like the coming months as we kind of launch more into this liquidity. Let's call it liquidity abstraction.
**A** (19:16):
I like that term. So given that liquidity is a bit sticky in the place that was originally minted, talk to us a little bit about who are the users? Is it mostly Cosmos Ecosystem users that are your primary use case who's currently using Osmosis and what are you hoping to expand to?
**B** (19:37):
Yeah, so I would say definitely right now the Cosmos Ecosystem was our go to market. Right. We were closest with the Cosmos Ecosystem and so with a lot of assets like Atom and TIA and Injective, and we are like the primary decks for these things now where we're expanding is, like I said, finding the markets that have under tapped defi, under utilized DEFI ecosystems of their own. So the big one that we're focused on is like bitcoin, like I told you, I've been a bitcoin maxi. And so this is like, finally it's the time where it's like there still isn't a great bitcoin dex today. And so that's what we're working on. Oh, we have like an order book we allow you to trade bitcoin and solve this like bitcoin liquidity fragmentation via the alloy system. So you'll be able to deposit BTC from Mainnet or WBTC from Ethereum or like bitcoin from a lot of these, like Bitcoin L2s, like SBTC from Stacks or, you know, from Botanics or Merlin. And so we'll have this one unified bitcoin liquidity hub that people can trade against. So bitcoin is probably the other big focus that we're doing as well as working with a number of different, you know, blockchain ecosystems that are a little bit isolated right now and want to tap into a larger, for example, Cardano. Right. Cardano is a very. We've been working with the Cardano foundation for a while of like they have a high market cap coin, but they're kind of off in their own little silo, not connected to this larger defi ecosystem. And we'll be working with them to how do we bring, you know, liquidity, cross, cross chain liquidity from Cardano to this larger crypto world.
**A** (21:31):
Yeah, I want to go to the bitcoin example because I think it will be evident to people on how wrapped bitcoin would get in there. Let's talk about bitcoin from the main net and how are you guys building? Is there some bridge then that's locked up and then a token is minted on osmosis. Talk to us about how that works.
**B** (21:47):
Yeah, so there's a bridge. Basically it's a set of validators. It's by a project called nomic, which is actually someone. It's by a team that I used to work with back when I was at the core Cosmos dev team. And so they started working on it. They've been working on this for like a while and it's probably one of the most sophisticated bitcoin bridge designs I've seen. And so yeah, they have their own validator set that's secured by proof of stake. Will be working on adding more security to that via this, like via restaking mechanisms basically. But yeah, so they have this giant multisig basically. But by multi sig, we're talking about like a hundred, like signers basically. And then you need two thirds of the signers to basically, you know, approve deposits and withdrawals. And so, yeah, they'll. You send Bitcoin to their address, to the multisig address, and. And then they mint you a. They call it NBTC on osmosis. And one of the cool things we've actually done with Nomic is we've structured an agreement, a pretty novel rev share agreement in crypto where, you know how bridges normally work is they want to charge fees on deposit on like the bridging. Right. Problem is, for us, that's the opposite of what we want. We want to make the friction for coming to osmosis as low as possible. So, you know, by. So what we've actually done is Nomic will charge no bridging fees to and from osmosis, but in exchange they'll get a cut of all the bitcoin trading fees on osmosis. So now instead of them trying to charge our users on the way in, we actually have the same aligned incentives, which is maximize bitcoin trading volume on osmosis.
**A** (23:45):
That makes a lot of sense. And now let's talk about some of the advice. Because you've worked for several blockchain companies, what advice would you give to aspiring founders? Because we're trying to get more people building in the ecosystem, what advice would you have for them?
**B** (24:01):
I think there's a lot of things to learn from different ecosystems. I think when you get too pigeonholed into like one, at least for me, I think the. My. One of the things I've done is I try to just absorb from everyone. Right. Like, I think there's cool stuff going on in Ethereum, in Solana, but even in places you don't think about, right. Like, you know, the eos, right. This is like a. Have you heard. You probably haven't heard of Eos in like years. Right? But it's like you actually go through their white paper. There's like some. There's actually some really cool ideas in there. Or if you look at like, what's been going on in Cardano, there's like some, they. Some cool ideas there and. Right. And so the idea is, you know, you should be able to keep an open mind and learn from everyone and then be able to consolidate and combine ideas to, you know, create a synthesis of the best ideas from everywhere to create something new.
**A** (25:02):
Yeah, kind of the. A thousand flowers bloom. I remember once speaking on a podcast and someone was telling me like, blockchain was a scam and like, Kind of just like fell off. And I'm like, well I mean if you even just look at it from the, if there's a thousand new ecosystems and it's like, what is the chances that the 172 countries we have settled on the best financial ecosystem for us blockchain, we're trying a new one like almost every day. So pros and cons, let's talk a little bit about some of the biggest challenges you guys have faced as founders of. What you see is it marketing, is it fundraising, community engagement, working with other ecosystems.
**B** (25:40):
I think there's a lot of projects out there that use pretty sketchy tactics when it comes to marketing or sometimes even market manipulation and stuff like that. And it's like, how do you, we really don't want to do that kind of stuff. But then it's like when you're in this hyper competitive market, how do you remain authentic to your values? And I think that's definitely been one of the most challenging parts. But I think you just have to have faith that avoid over stressing about the short term of things and make sure you're like, okay, do you really believe in the product you're building towards? If so, things will work out and just focus on building the best product for the ecosystem or what the users want.
**A** (26:30):
Yeah, absolutely. And on that note, how do you envision osmosis contributing to the broader adoption of Web3 technologies? It seems like DEFI is an obvious cross chain interoperability, but where do you see it contributing the most?
**B** (26:44):
Yeah, so I think obviously, you know, I think the cross chain interoperability is probably the main one, but I think we're going to do, we're doing a lot of stuff on the account abstraction that I think will have more people will sort of adopt it. Another thing that we kind of innovated that I think a lot of people have started adopting is we, we created this concept of super fluid staking which was this idea that you could stake liquidity positions in the proof of stake system. So instead of just taking the native token, you can stake your OSMO BTC LP share. And now you actually see a lot of new protocols starting to do that, like Barachain with their proof of liquidity. And you could even argue that this was honestly even one of the earliest forms of restaking. And that sort of has obviously restaking has become a very big thing now. And so yeah, being able to reuse things other than the native token in your staking system. So that's probably been one of the most impactful things that we've done so far. That's definitely had impact on the entire industry.
**A** (27:58):
Definitely. And could you tell us about some of the notable partnerships and collaborations you guys have formed? Obviously there's Cosmos. You mentioned Wormhole earlier.
**B** (28:08):
Yeah. So like I said, we're working pretty closely with a number of different Bitcoin L2s in order to. They want to get liquidity onto their chains as well. And they know that by providing liquidity into this bitcoin alloy, it'll make it easy for people to come via WBTC into their chain. So we've been working pretty closely with Stacks and Botanics Citria, number of these big Bitcoin L2s. We've been, I mentioned like the Cardano Foundation. We've been. We're now talking with the Tron foundation about bringing over some like, you know, I think USDT on Tron is one of the biggest, like probably one of the things in crypto that has some of the most product market fit but is still very isolated from the rest of the defi world and so working to actually let's unify that. Yeah. So I think there's a number of things that we're doing on liquidity partnerships and then there's development level partnerships as well. Like I mentioned with like Nomic, we're working with another team called Evmos to bring the EVM to Osmosis. Yeah. So. And then we are from here what we're going to be doing is now getting the osmosis liquidity now integrated into more wallets. I think that's sort of the next thing step from here, like, okay. Into like trust wallet and different wallets. That way if you're trying to swap between assets from different ecosystems, it will, it'll route those trades through osmosis.
**A** (29:46):
Yeah. It's funny you mentioned Tron. Tron is always one of these. I got to get the founder on the podcast, but me and my friend tried to buy some TRX the other day to pay for some proprietary Instagram API and it was incredibly hard. Like we went to 1Dex, it didn't work. We went to another. I was like, how is there this much volume on here? And we could, me and my like other crypto native guy, I could barely figure out what's going on.
**B** (30:08):
But yeah, yeah, so we'll definitely be working on improving that because yeah, we, we've been, you know, like I said, we're working on dispatching trades and so we're gonna, we already have integrations ready for you know, Solana, evm and Tron was the third one we did right after Solana and Ethereum.
**A** (30:31):
Okay, so those are some of the milestones coming up. Are there any other milestones you want to mention that people can kind of look forward to from osmosis?
**B** (30:40):
Yeah. So, you know, EVM into, like native EVM integration, the new Dex aggregator that's gonna be launching. We're working on bitcoin staking as well. So, like being able to stake bitcoin onto the osmosis chain to provide security but also liquidity. So that's like a. It's the next version of superfluid staking. So we'll be sort of providing more details on that as it comes.
**A** (31:07):
Awesome.
**B** (31:08):
And just growing liquidity on the alloys.
**A** (31:11):
Nice. And where can people learn more about osmosis? Get involved, do some trading, shout out to social media.
**B** (31:17):
You can. You know, our website where you can get started is Osmosis Zone. You know, like I said, Kepler Wallet is what to use. And you can follow us on Twitter. It's also Zone. Or you can find me at sunny A97.
**A** (31:34):
Awesome. And I'll put all the links in the description. Sunny, thank you so much for coming on here and all the builders. Let's get back to creating the future of Web3SA.