Kain Warwick, founder of Synthetix, and Ben Jones, cofounder and chief scientist at Optimism Foundation, discuss the current state of Ethereum Layer 2s, Optimism’s new governance structure, why Synthetix chose to build on Optimism, and more. Show topics:
- what Optimism and Synthetix are
- how zero-knowledge rollups differ from optimistic rollups
- why Synthetix decided to build on Optimism
- what makes L2s more enticing to build on than other L1s
- how Optimism’s governance is going to change with the launch of the Optimism Collective and OP token
- what issues Synthetix has had with Discord governance and early token voting, and how they have now solved this by forcing users to consolidate wallet addresses
- what retroactive public goods funding is and how it could create a “flywheel” of development on Optimism
- why whales might be excluded from Optimism’s token grant to Synthetix
- why Ben thinks the future is about the “superchain” rather than multi-chain
- what Kain and Ben think about bridging between L2s and Mainnet
- why Optimism is a staunch backer of EIP 4844
- how the merge could affect Optimism and Synthetix
Thank you to our sponsors!
Synthetix Launching on Optimism
- What are the biggest risks to optimistic rollup chains?
- What is the difference between optimistic and ZK rollups? And why did Synthetix choose Optimism?
Kain’s previous Unchained appearances
- Ethereum killers episode
- How Synthetix became the second-largest DeFi platform
- DeFi summer
Optimism’s Bridging Solution
Hi, everyone. Welcome to Unchained, your no-hype resource for all things crypto. I’m your host, Laura Shin, author of The Cryptopians. I started covering crypto seven years ago, and as a senior editor at Forbes was the first mainstream media reporter to cover cryptocurrency full time. This is the May 10, 2022 episode of Unchained.
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Today’s topic is what is up with layer 2. Here to discuss are Kain Warwick, founder of Synthetix, and Ben Jones, co-founder and chief scientist at Optimism Foundation. Welcome Kain and Ben.
Thanks Laura. Good to be back.
Hey. Thanks for having me.
Let’s start with a brief description of what you and the projects you’re working on do, and then also how your teams came to work together. Kain, you’ve been on the show before, so we will start with Ben. Ben, why don’t you describe what Optimism is, what your role is, and yes, how you have been working with Synthetix.
Sure. So, very excitingly, now I can say that Optimism is something more than just a company. It is the Optimism Collective, which is a very recent, exciting announcement I’m sure we’ll get into. But in short, Optimism is a layer 2 scaling solution for Ethereum. So, basically what this means is it gives you a version of Ethereum that is not constrained by the same, you know, sort of gas fees that you’re constrained with on Ethereum itself, but gives you all the same properties, makes it faster, and it’s much cheaper.
As far as sort of the origin story, you know, there’s like a whole diatribe I could do about public goods and all this stuff that I’ll get into later, but basically we started as a nonprofit trying to solve the problem of scaling Ethereum, and eventually that evolved through a series of technical changes, we improved and improved and improved, and we finally found the thing that we were going to build called an optimistic rollup, and we knew that Optimism was a great name for that, and here we are today.
Great, and Kain, why don’t you describe what Synthetix is, what you do there, and then why Synthetix has been working with Optimism for layer 2.
Yeah. So, Synthetix is a synthetic asset protocol, so it basically gives you access to different assets on Ethereum. So, things like Bitcoin that are not native things, like commodities and forex that obviously are not native to Ethereum blockchain, you can get exposure. And it has, you know, things like _____ 0:03:11, which is just a tokenized version of something like silver, but it also has futures as well, so you can trade, you know, with leverage and other things.
The interesting thing, I think, about Synthetix is that early on we realized that the complexity of the smart contracts that were required to support a system like Synthetix was just extremely high. You know, so I think at one point in 2018 we had the most contracts on mainnet that were all connected together, and that created frustration as gas prices rose over time, because you know, people were like, wait, you know, when I transfer ETH it costs, you know, a dollar and then, you know, I go to make a claim on Synthetix and it costs, you know, ten dollars. Like, what’s going on? And so we identified really early on that we were going to need to find scaling solution, and then eventually we found that scaling solution in Optimism.
So, both of you will probably want to address this question, but obviously there are so many ways that Ethereum can scale. Probably two of the major ones that people talk about a lot are optimistic rollups, which is probably going to be discussed at length here, but also there are zero-knowledge rollups or ZK rollups. Why don’t one of you maybe just kind of describe the difference between those two and then explain why it is that, you know, both of you for your projects focused on optimistic rollups?
I’ll take it. Yeah, so it’s a great question. Basically, what you’re doing when you do something called a rollup is you’re basically taking a big set of transactions that you want to be the sort of scaled, cheaper version of your transactions, right, and you submit them to Ethereum, and basically you can think of this as like a notarization step or like a, you know, recording so that somehow you can enforce the result of those transactions. So, this is the key to how you get scaling with a rollup, regardless of how you build the rollup, ZK or optimistic, is you take these transactions and you sort of notarize them, and that act of notarization is much cheaper than it would be to actually go and execute all of those transactions, so it costs sort of less gas on the L1, right, the layer one to your layer 2 rollup that you’re building.
And then, from there you have some sort of mechanism by which you enforce what the outcome of those transactions should be, and you do that in such a way that is different than simply running all of the transactions through Ethereum, because that would be just as expensive as using Ethereum, and so the ZK and optimistic distinction is basically talking about two ways that you can accomplish this.
So, in one way, you basically do some very, very fancy math involving something called zero-knowledge proof. Actually, what matters more, there is really the S, if you’ve heard of like a snark or a stark before, it’s really the S in front that really matters, it’s not the zero knowledge, it’s the succinctness, so it’s shorter to verify what’s going on in this sort of form of very advanced math that you have to do.
Alternatively, you build an optimistic system where basically you have a contract that someone goes to and proposes the results of these transactions and you open a window of time for which anybody can look at all the transactions that were being notarized, right, because they’re all in that censorship-resistant, you know, layer 1 Ethereum, and they can go and look at those transactions and compare the results that they get from calculating those transactions to what’s proposed, and then they go and have a mechanism by which they can go and dispute any faulty proposals, and so that is the mechanism by which you enforce the ZK.
I think that ZK tech is amazing, and one thing that’s the case is that they’re earlier on in the life cycle because there’s an extreme amount of complexity, both from a security and just like an understanding perspective for zero-knowledge systems, but I actually do think that we’ll see these, like, tend to converge over time, and so what we see today is a dichotomy. You have the ability to do a lot more because you’re not constrained by these very complex, you know, sort of math proofs you have to generate in an optimistic system. So, we have this thing called EVM equivalence, where it’s truly like Ethereum to use our system as opposed to you’re sort of using a ZK system that’s on top of Ethereum, maybe it’s a little bit different, but I do expect those barriers to go away over time, and it’ll be really interesting to see that play out.
Anything you want to add, Kain?
Yeah, so I think maybe I can just add the project perspective, right, because you know, there’s a kind of interesting situation going on where you have, you know, a bunch of incredible teams working on the actual scaling infrastructure, right, you know, different versions of rollups, but as a project, you need to decide. You’re kind of the consumer of this scaling, right? Like, we’ve decided that L1 is just not going to scale and we need to, you know, come and consume some new platform where we’re going to build on.
And one of the constraints with Synthetix that was decided very early on by the engineering, you know, squad within Synthetix is that we didn’t want to support multiple different implementations of Synthetix. We could barely support the one that we had, right, let alone trying to support different versions.
And so, when we looked at a lot of the scaling solutions that were available back in 2019, when we started this journey of like, you know, we need to scale Synthetix, the challenge was that a number of them required you to kind of rewrite the contracts or make, you know, fairly significant changes, and even Optimism, back in the day when we first started working with them, still required a number of changes. You know, it wasn’t a perfect EVM equivalence. You couldn’t just press a button and deploy your contracts.
One of the interesting things, I think, over the last maybe year or 18 months, is that Optimism has actually kind of pivoted more towards EVM equivalents, and I think that’s been driven by the projects that, you know, like Synthetix that have been working with them saying, like, this is such a critical component for us, right, that, you know, as a smart contract team, we’re running on L1, but we also need to be able to run almost the identical code on Optimism if this is going to work.
And so we looked around at the market and we said, okay, you know, we’ve got zero-knowledge, you know, solutions in the form of say StarkWare. StarkWare requires you to rewrite code in Cairo, their programming language. Eventually that will change, right, that will shift, I think, and you know, they are moving towards EVM equivalents, but you know, it’s just going to take a long time.
So, for us it was really about ensuring that we had something that was going to not require us to maintain multiple different code bases for different systems, and that we would be able to have that EVM equivalence, and also that it was going to be production ready as soon as possible. As soon as possible turned out to be a little bit longer than we all hoped, but we’re here now and you know, we’re very happy about it. We think that, you know, Optimism is a system that, you know, people can very comfortably and confidently deploy their small contracts to, and we have, and we’re slowly migrating all of Synthetix in all of the staking system over to Optimism right now.
And also, you know, like, it’s not just that people can scale using Ethereum or layer 2 on Ethereum, but obviously we now have all these other kind of smart contract chains that are, you know, some of them are called ETH killers, obviously, Solana has had a lot of buzz, you know, Avalanche, NEAR is one that people are kind of buzzing about now, so there’s kind of these other options as well, and a number of them have EVM compatibility, or Ethereum virtual machine compatibility, which should make it easy to, you know, kind of basically offer Synthetix elsewhere, or even for both of you, Ben, you might want to answer this as well, but you know, I’m curious like why you chose not to even go to some of these other teams that do have EVM compatibility, and actually, well, the question is mainly for Kain, but Ben might want to chime in as well.
Yes, so maybe I’ll answer first and Ben can add anything if, you know, he’s got some color there. I think for us, when we went through this process of determining you know, how do we scale Synthetix, the expectation was that we would stay on L1, you know, for the foreseeable future, right? We would have exchanges and a lot of the functionality that Synthetix requires would exist on L1. We would just move the staking component onto, you know, some scaling solution which we hadn’t determined at that time, right, and the fact that we would be able to retain the security properties of L1 with Optimism by moving our staking over there versus moving to another chain that had a whole bunch of different security tradeoffs, you know, it might be faster, but it might have, you know, other challenges.
And this is the reason why we didn’t choose Polygon early on. Like, that would have been probably the most obvious choice for us, but we had kind of decided that side chains, which you know, Polygon was, right, you know, and obviously they’re moving towards something more like a layer 2, but at the time they were very much a side chain, we just said that’s not going to be sufficiently secure for having our network, you know, operate across these two chains.
And so you know, there’s a few different tradeoffs that you have with Optimism and L1, but it’s still very much within the Ethereum ecosystem, and Optimism and the optimistic rollups are an obvious way for you to stay within the Ethereum ecosystem and to actually scale Ethereum itself because it’s now not just L1, it’s this combination of things collectively which give you scaling, and so that was obviously Optimism, and we saw a lot of promise in that approach, and we kind of, you know, went all in and said, all right, let’s work together.
Because one of the challenges I think you have when you’re building a scaling solution is you have a very different perspective to a smart contract team. Smart contract teams have a whole bunch of different challenges. You know, they’re on the ground, you know, in the trenches, kind of finding it out, and it’s very different to, you know, someone who is building this really, you know, kind of critical infrastructure and very difficult infrastructure to build, and so we kind of partnered with Optimism to help them to understand what our challenges were, and so that they could kind of help us to understand how they were going to tweak things, and I think together, that partnership got us into a place where, you know, we’re both really happy with the result.
Yeah. It’s interesting because it is, sort of…well, I’m not sure, I’d have to maybe do a survey, but it feels like a slightly different choice, just because obviously with Aave or even now like UST or Terra, they’re kind of branching out. So, you know, it definitely feels like kind of a certain bet that you made. Certainly, I mean, I know Solana is not EVM compatible, but we have seen difficulties there, so clearly some of your concerns were valid.
So, now let’s just talk about, you know, why Optimism has been in the news. There’s the announcement about its token and the new governance models, so Ben, why don’t you describe what has been going on with Optimism?
Sure. Yeah. So, I think if you look at recent headlines, and the thing that you pull out is Optimism token, you are doing a disservice and you are reading from the wrong news sources, right? So, really what we introduced is the Optimism Collective, and I think when you look at the core problems that we, you know, sort of face when we want to decentralize things, right, at some point you have to decentralize the governance of a system, and obviously we’ve seen that in quite a few protocols at this point, and something that we have not seen is basically a focus on humanity and humans and non-plutocracy.
And so, very core to what we wanted to do when we set out to decentralize Optimism was basically an acknowledgement that just because we have some very powerful technology doesn’t mean that the incentives will just work out in the favor of people, and if you look at what happened in Web 2, right, the early Internet pioneers were convinced that we were bringing in the utopia, right, and then here we are now, like, trying to say that the evil Web 2 is going to be replaced by Web 3, right? So, we sort of wanted to be very mindful of that.
And so, what we’ve introduced is the Optimism Collective, which is the governing system for Optimism, and it’s basically split into two houses, the citizens house and the token house, and basically together they govern the system and try to put checks and balances on each other. The token house is there to be a plutocratic one token, one vote system. The citizens house is there to be a human-centric one person, one vote system, and so these things together are what will govern optimism, not just the token.
Let’s talk a little bit about the soulbound NFT aspect, which is just so fascinating. You know, just explain kind of what that is and then why it is that you decided to incorporate that piece of it.
Sure. Yeah. So, a soulbound NFT is a terminology that Vitalik took from World of Warcraft, hilariously, as one does with major, you know, important things in Ethereum. It is a basically a nontransferable NFT, that would be an easier way to say it, and another way to say it honestly is an identity, right, because if you have a non-fungible token that is also not transferable, not only is it not fungible, it’s attached to the owner of that token, and so this is the concept of the soulbound NFT.
And really, what we’re saying is just a cool World of Warcraft word for an identity system, and what we are basically saying is that the citizens house should be governed by sets of identities as opposed to sets of tokens, and so if you could, you know, buy and sell and transfer identities, then you wouldn’t have that property, and so the soulbound nature of it is what helps us achieve that.
And then, so just talk a little bit about how that will work in terms of governance. So, there will be kind of the plutocratic side where tokens will probably determine the vote. I must say, am I wrong in thinking that even there you’ll institute quadratic funding which will weight the votes of, as Kevin Owoki of Gitcoin likes to say, it’ll optimized for the poor and the many over the preferences of the rich and the few, is that what you’re going to do in the token house?
Yeah, so we’re exploring with that. It is not currently how the token house will be structured. We have done…in the experiments that we’ve done so far on this sort of token house side of things, even before this went live, we gave away a million dollars in our first retroactive public goods funding experiment. We’ll probably talk about retroactive public goods funding later, but definitely what I’ll say is that core to what we’re doing here is going to be experimentation, and so realistically, this is an amazing vision, but it’s a tall task, right? We want to do a whole identity system, it’s like a real, real thing to tackle, right? And so we were not naive enough to think we would get it all right on the first try.
So the initial governance doesn’t have quadratic funding on voting on the token house side. We’ve experimented with that in our experiments so far on the citizens house side, but core to what we’re doing is to continue to iterate, so we will go through some cycles and some experiments and basically lay out a set of hypotheses that the Optimism Foundation is going to test and run experiments to see if these things accomplish what they want. So, we’re big fans of quadratic voting, and I suspect that that will answer some of the hypotheses in the positive, but it’s all about experimentation for us right now.
Okay. Well, then I’m a little bit confused, because I thought in the citizens house, that’s one soulbound NFT, one vote, so I don’t understand how you would use quadratic funding there, because I thought it was if somebody votes with many, many tokens, but if you can only ever have one token when you vote, I don’t get how…
Yeah, so I think that’s…so maybe one token, one vote is too simple in that regard.
So, for example, you can have…the mechanism of quadratic voting requires the one token, one vote concept basically as a way to determine whether this is one person giving out, trying to, you know, fund something for one hundred dollars or two people trying to fund something for fifty dollars. So, you can basically have one soulbound NFT that people then have an allotment of quadratic votes for, so it’s kind of like splitting up the one person into a few different votes so then they can allocate quadratically over different outcomes.
Oh. It’s like each person gets some, like, portion of money or something to allocate.
Yeah. You can kind of think of that as like a vote-specific set of tokens, and the fact that those tokens are associated with the soulbound NFT will restrict how you can spend them in this quadratic manner.
But then one other thing is, I mean, how do you really make it soulbound? Because people could just sell their NFT and you wouldn’t know. I mean, they would just have to sort of promise, like, I’m not going to use this, or you know, whatever it is.
Can I answer that question? Because we’ve actually done a lot of these experiments for a long time, right? Like, we’ve been playing this game for, you know, three or four years now, right, at Synthetix, and in the early days, particularly when we were using Discord voting instead of using tokenized voting, you know, maintaining this one person, one vote system was hard, right, and people started to try and game it, and there are systems and checks that you can put in place to kind of prevent this.
But I think the interesting thing about soulbound NFTs is the only way that you could potentially sell that NFT is effectively to transfer your private key, right, to like give access for someone else to have your private key, which is very problematic because, you know, as most people are kind of aware, as soon as I give Ben my private key, he can’t know that I’ve destroyed my access to the private key, right? And so, now he’s in this situation where he’s like, well…
You should still do it, Kain.
I’ll send you one of my private keys and we’ll play that experiment.
But you know, like, we don’t know then whether the transaction is being created by Ben or myself, right? Like, it’s unclear, right, because we both now have like this dual ownership of this address, right? We can both sign transactions in theory, right? Now, if I, you know, really, really promise that I’m going to just destroy the private key and then like stumble across it and be like, oh, actually, this would be cool for me to…
So, there are things that you can do that make it harder, or you know, add layers of protection on top of the system like this, and Synthetix has been experimenting with this, and I’m super excited to see the way that Optimism goes because the more individual experiments we have, the more we have, like, cross-pollination of ideas, right? Like, we’re watching very closely to see what Optimism does so that we can say, oh, actually, that’s a good solution to one of the challenges that we’ve had, and vice versa, you know. So, I think right now we’re getting into a place where, like, there’s a lot of governance experimentation, and it’s very exciting because the more experimentation the better.
So, Ben, when you guys set up this system, were there specific problems with governance that you were trying to solve? I mean, you talked a little bit about kind of how a lot of DAOs nowadays are sort of like plutocracies, but were there other ideas that you had about things you wanted to tackle with this?
Yeah. One hundred percent. I would say the biggest one, as big as the plutocracy issue, is the challenge of resource allocation. So, I mean, this goes back so deep in our history, like literally to the start of everything. So, before we were Optimism, right, we were a nonprofit called Plasma Group, and literally what we set out to do was basically just do a bunch of research to solve sort of an earlier version of rollups called plasma, right, basically look at the set of problems in designing these plasma systems, figure out solutions, publish those to the world, and this was very valuable. We actually had, like, multiple people that went and then took those, you know, specs and writeups, and pushed those to their, you know, systems and built them out.
But what we faced was a few problems. One was funding, right? We were basically going and pleading for donations from people, and that was something that we could do, but it made it hard to scale the team, right, and it wasn’t always very easy. And things didn’t seem ripe. So, even when we moved to do with the startup with Optimism, right, we incorporated as a public benefit corp. So, Optimism was not, you know, a limited liability corp, it was a public benefit corp. Literally in the charter, in the founding documents of the PBC, we talked about the idea of public goods on the Internet and enshrining fair access.
We’ve just seen this time and time again. If you look at the amount of resources that say Ethereum has given as a protocol to miners, right, if you look at all of the revenue that has been generated by Ethereum mining, right, and you compare that to the revenue that’s gone to the people actually building the protocol that everyone is using, right, there’s a massive mismatch, right? Like, if you do the bar, you can like barely see the sliver of the pie or the little tower for the…right? So, this is a big problem.
So, that is the other thing that we’re setting out to do with the Optimism Collective, is to make public goods profitable. It should be the case that you can build free open source software and be rewarded for it if it has a positive impact. So, that is the other big piece that we’re trying to solve here.
Yeah. Famously, I mean, you guys know I just wrote this book that, I don’t know if people will be able to see it because I know this will be cut up into smaller screens, but anyway, people know that I wrote about Ethereum, and early on, people were kind of concerned about what they viewed as low salaries in Ethereum, and not that long ago people were still discussing this, and it’s kind of years since that happened, so clearly, you know, that I think there are some issues there with, you know, notions of fairness and how people have been compensated.
But one thing that I, you know, would definitely want to highlight is that one of the philosophies that you want to incorporate into the way that Optimism functions going forward is something that you call retroactive public goods funding. So, can you define what that is and why it is that you’ve decided to do it this way, retroactively, specifically?
Sure. Absolutely. So, look. We just said that we have this hard problem, right, and that problem is funding public goods, right, or you know, the fair allocations, so what do you do to make that fair? Obviously, you have to fund those public goods, right? Pretty straightforward.
What we realized was incredible was that these L2 protocols basically give you a revenue source in the form of fees to be able to actually distribute, right? So, we now have a revenue source that’s not just donations, it’s meaningful usage leading to fees, and so the question becomes, how do we take these resources and allocate them to public goods? And you know, in some sense, there’s basically two ways. You can either do it before the fact or after the fact, right? Proactively, or retroactively, you know, sort of like, this is the obvious two choices that you have.
And historically, a lot of public goods funding is done proactively, right? You have grants that are, you know, given out and a bunch of people apply, and they say, I’m going to do this grant, and you know, please accept me. This is challenging, one, because it requires that you’d be able to very accurately predict who the right person to get this grant is, and that can be hard as a singular grant-giving organization, and you might be wrong. And so the reason that we want to fund retroactively is basically because it’s much easier to look at a bunch of people who have contributed public goods and identify which one of those have been the most impactful. And so one of the, like, sort of guiding principles if you go to Optimism.io/vision and check out is this notion of impact equals profit, the idea that the protocol should reward people proportionately to their impact.
So, that’s retroactive public goods funding in an essence, is you look after the fact at a set of public goods that you wanted to be improved and be created, and you retroactively reward the people and projects that have contributed the most to that.
Yeah. This is so fascinating how you’re taking this notion of a public benefit corporation and translating it into a Web 3 version. You know, when I was looking at public benefit corporations, I saw, like, Warby Parker is one, or Allbirds, and you know they donate eyewear, or you know, I actually don’t know what Allbirds donates, but the point is that, you know, this is really interesting because you’re doing, I mean, I don’t know what all the different things are, but it sounds like open source software will be one of them, so it’s very similar, in a certain respect, to what Gitcoin is doing, which is really interesting, but I feel that, yeah, it’s just like something to watch in the Web 3 space, because I feel like it’s sort of a new animal that’s being born.
Out of curiosity, do you have an estimate for how much you’ll be earning that you would be able to give out in these kind of retroactive grants?
Yeah. So, that will be a part of governance, will be, you know, determining how we parameterize. So, like right now, we basically, as Optimism, break even, and that’s, you know, basically because we want fees to be as low as possible. The interpretation of break even changes a bit under different conditions. For example, like, congestion of the chain, you can’t break even because you have to charge people more to prevent the chain from sort of filling up too fast, so there will be sort of fundamental stuff that will go to the protocol no matter what.
It’s a long run. It’s hard to predict. It’s been on the order in the past, you know, when we had a margin of you know, millions of dollars a month, and I think the key is that the retroactive public goods funding should make the flywheel that makes that number go up, basically, right? The idea is that if you put the money generated by the protocol into funding the public goods that make the protocol better, that will make the protocol better, and then there’ll be more people using it and more fees generated and so on. So, you get this nice, you know, sort of flywheel effect. So, that’s part of, you know, the core thesis, is that whatever that number is, it will continue to go up if you fund the public goods that made it a number in the first place.
Yeah. I find it really fascinating, so we’ll have to see where all this goes.
In a moment, we’ll talk a little bit more about governance and what this means for Layer 2, but first a quick word from the sponsors who make this show possible.
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Back to my conversation with Kain and Ben.
Kain, you have talked about how Synthetix for a while now has been DAO first. So, what do you mean by that and why has that been the philosophy?
So, we decided back in 2020 that we believe that having a foundation and having legal entities was a drag on our ability to, you know, kind of lean into community governance, and so we made a decision that we would shut down all of those entities and that we would hand over control to the community and to the token holders.
But this transition was interesting. You know, it goes back to the point that, you know, I made earlier where we had a form of one person, one vote governance which was basically, you had a role within Discord that you earned over time through participation, et cetera. It actually was totally decoupled from your token holding, right? So, we had, you know, people that had ten tokens and people that had ten million tokens that had the same voting power.
And then we realized, well, okay, this doesn’t scale because, you know, Discord is really easy to Sybil attack, and we started seeing people try, you know, play games with voting, buying, voting collusion, et cetera, and so we said, okay, we need something that’s going to be better and more scalable for, you know, the next five years or whatever of governance, and so we changed to this form of representative democracy where instead of having one person, one vote, you would have one token, one vote, but it would be quadratically scaled, so it would scale back the voting power of each of the participants within the network.
And we have kind of a built-in anti-Sybil system, which is that Synthetix is really complicated and expensive to use and expensive to stake, and so it’s really hard to maintain multiple wallets. You can, but like, it gets exponentially harder the more wallets you have, right? Even if you’re writing scripts, you need to do a whole bunch of things to kind of maintain that, and so we had this system where actually what was happening is most wallets were consolidating. So, people who had three wallets were actually consolidating them down into a single wallet. We built this, like, you know, debt consolidation system, and so we saw over time we went from, you know, about 10,000 addresses that were staking down to about 6,000 as people from the early days kind of brought these wallets together.
And then, the way that we helped to kind of reduce this plutocratic influence was to basically say, okay, you have one address and it has a certain amount of raw voting power, and then we’re going to scale that quadratically, but then you only get to vote for one person on this eight-person council, and so you can vote, you know, your favorite person in, but the other seven, you know, members of the council, you have no influence over, right? And what that meant is that, like, on the margins, as you went further and further down the council elections, it got much more competitive, and so it became very hard for, you know, a few whales or a single whale to really dominate any vote, and we’ve seen that play out really well.
And actually, we’re about to see this play out in a very interesting fashion due to the, you know, announcement that happened yesterday where Optimism basically said that they are going to allow for projects who have been building on Optimism to make a claim for tokens to reward their users and their community for transitioning to the Optimism network. So, now we’ve got this really interesting, contentious vote, and it’s already playing out within the Synthetix Discord to decide how do we allocate those tokens, right? What’s optimal allocation? Do we allocate them retroactively to people who transitioned early to Optimism, who kind of helped test out the network? Do we, you know, allocate them to future people?
But we’ve got an eight-person council that needs to now make this decision, and they actually have quite a wide range of opinions about this, and interestingly, I think the majority of the people on the council are on Optimism already, and so the people who are on Optimism have kind of this vested interest and alignment with all of the other Optimism users who transitioned, you know, over the last year or so, whereas the people who are still on L1 tend to be whales, right?
So, we’ve got this very kind of tense balance between the, you know, the plutocrats who are still on L1 and you know, the vast majority of stakers that have migrated to L2 because the costs were too high on L1 and they were kind of forced to go to Optimism in order to be able to save gas fees, and they’ve saved a ton of gas fees and they’ve got a much better experience, but we’re going to need to work out how we kind of, you know, decide this decision.
But in older forms of governance, this would be just not even…like, this would be trivially easy, right? Like, some VC would turn up and say, give me all the tokens, and they would press their vote button, and they would get all the tokens. The end, right? But in Synthetix, you’ve got this, you know, multi-layered governance system which makes that decision much, much more interesting, and it’s going to take a lot of debate and you know, and kind of compromising, I think, between the community to reach some, you know, consensus around how we distribute these rewards, basically.
Yeah. Yeah, and it’s fascinating because typically whales have a lot of power, so yeah, that was one of the things that shocked me when I did research for my book. I didn’t realize just how influential they were, but yeah, it’s interesting because normally, the whales would be the ones who would get a lot of the tokens, but since they haven’t already migrated, I’d be interested to see how this gets decided.
But one thing that I did want to note is that Synthetix does have pretty high participation in governance, and I wondered how it was that you thought you were able to accomplish that.
I think coming from Australia, even though I grew up in in the US, I’ve got an interesting perspective. Whereas in Australia, you’re forced to vote, if you don’t vote, you get fined, and that is something that I think, you know, in a lot of Western democracies there’s some form of that. In America, you know, people are like, oh my God, that’s the most horrible thing I’ve ever heard, you know, how…
I don’t know. I don’t think it’s horrible.
Yeah. Fair enough.
I have voted in pretty much every election, but anyway.
Right. Right. I think there are a lot of people who see that as problematic, right, forcing people to vote. You know, there’s always concerns around people just, you know, pressing a random button, and you know, they’re not informed or whatever, and so what we’ve done is we’ve actually set up a system where in order to vote, you need to be a participant in the ecosystem. You can’t actually just vote your tokens.
So, first of all, you need to be a staker, so that already creates a pretty hard filter. If you’re a staker, you are a stakeholder in the decisions that are being made because you’re taking a risk in participating this network, as opposed to, you know, you just have a bunch of tokens sitting on Binance, right, and you know, you don’t really care, but every once in a while you come out and you vote for something because it’s in your best interest. I think that’s kind of the first thing.
And then the second thing is the fact that, you know, again, we’ve got this, like, quadratic weighting and you know, in order for you to be able to claim your tokens, the fees that you get and the rewards you get are basically weighted against your token holding, and you can’t actually access those fees during a vote process unless you exercise your voting power, so you need to vote your voting power, which is based on how much you’re participating in the network, and if you don’t, you can’t claim the tokens.
So, it creates this kind of forcing function for people to engage, and in our experience, most people do genuinely engage, right? You know, it’s once every three months they have to turn up and they have to say, okay, you know who are the people that are available, who are the candidates, who do I want, who I think will represent me, and we do see that the vast majority of people are quite engaged around that period. Even if they’re not that engaged in governance in the other three months, during that one to two week period, people do come in and start asking questions and want more information about governance.
So, it does tend to work fairly well and you know, gets fairly high participation rates, you know, in the order of like 60-70% of people end up voting.
Kain, I know that you had this theory that you were calling L222, so why don’t you describe that, and then it involves tokens, this is why I’m raising this issue, and I just wondered if you felt that it is turning out to be the year that you thought, if you are thinking that, you know, having tokens on Layer 2 is drawing people back to Ethereum who might have left to other chains.
Yeah, so I think we had a period within the Ethereum community where we became quite complacent, right? There was really almost no, like, realistic competition for Ethereum as a smart contract platform.
You know, a lot of people forget that, like Binance Smart Chain existed for like a year and was just like a total zombie chain, right? Like, every block was empty. They didn’t even bother to, like, fill up the blocks because it was just so obvious that this thing was, like, not actually functional and no one’s going to use it, and that went on for a really long time. And so, you know, all the people who were within Ethereum, you know, were very pleased with themselves, and you know, patting themselves on the back about how successful, you know, Ethereum was and how, you know, it’s so hard to compete with Ethereum, et cetera.
And then we got to DeFi summer and gas prices just spiked to a point where it was cost prohibitive for, you know, the average new entrant in the ecosystem to come in and actually use Ethereum, and really, you know, not just transfer ETH or you know, buy tokens like we did it back in 2017 where you just participated in an ICO or something like that, but genuinely, you know, to use DeFi, it was extremely expensive. You had these continuous transactions, et cetera.
And it opened up a window of opportunity for other smart contract platforms that had been in the works for a long time, things like Avalanche, things like Solana, to really take, I don’t think the existing market share of Ethereum users, I don’t think there were that many existing Ethereum users that really transitioned over, because most of the original Ethereum users, you know, the people who kind of stuck it out through the last bear market, could afford gas fees, but new entrants, that new person who’s coming in and is like, I’ve heard about crypto, I’m heard about DeFi, I’ve heard about all this cool stuff, you know, and even NFTS to some extent, right, they were like, where do I go?
And then they, you know, experienced Ethereum gas fees and they’re like, well, obviously not here. I can’t afford this, right, and then they would go to Avalanche or even Binance Smart Chain, and so Binance Smart Chain went from a total ghost chain to a chain that actually had some, like, organic activity, and people, you know, were copy pasting, you know, Synthetix and Maker Aave and all of these projects over, and you know, people were like, this is much better.I’m paying a dollar to use this, right? We also had Polygon emerge, you know, and so there was this emergence of competitors in an environment when I think most of the Ethereum community was fairly complacent about this.
I think the dynamic is actually flipped on its head now, where a lot of these alt L1s have had only competition among themselves, really, and they’ve had, you know, the vast majority of users have been coming in and they’ve been picking one or two of these chains, and so they’ve had this amazing user growth over the last, you know, 12 months with very little competition from Ethereum itself, right?
And now, all of a sudden, the Ethereum has multiple scaling solutions that are production ready, and once again the coolest stuff is being built on Ethereum. So, you have things like Lyra, you have things like Polynomial, which is DeFi protocol built on Lyra built on Synthetix. You’ve got these multi-layered DeFi protocols with all of these cool things and cool functionality, and so the builders who’ve been, you know, building in Ethereum for the last you know, two or three years are starting to build some really cool stuff that couldn’t exist on L1 but can exist on Optimism, and we’re going to see people look around and say, well, wait a second. Like, Optimism costs less than, you know, this other random chain that I’m using. Why am I over here when there’s all this cool activity here?
And I think there’s a little bit of complacency because of the lack of competition from these alt L1s, and I think that, you know, Optimism and some of the other scaling solutions for Ethereum are really going to blindside them, and they’re going to be so surprised that all of their users that they thought were super loyal are going to come kind of flooding back to L2 on Ethereum because that’s where the cool stuff is happening, and by the time we get to the end of 2022, which is where, you know, L222 comes from, by the time we get to the end of this year, we’re going to have a mass migration of people back to the Ethereum community and back to the Ethereum network, it’s just they won’t be on L1, they’ll be on rollouts, and that’s where all the cool, fun stuff will be.
Wow. Yeah. Like, I find this very fascinating. You know, I would be curious to see by the end of the year if this plays out the way that you have described.
But that brings me back to Ben. I mean, Ben, you know, was part of the motivation for Optimism to roll out governance, which includes this token, to be, you know, one of the places to kind of try to draw in new users? Because obviously, going forward you will also have this ongoing air drop, you know, I don’t know exactly when you guys use that term and what that will look like, but you know, I don’t know if that was kind of part of the motivation to launch this now.
Yeah. I would say definitely growth is an aspect of governance that’s important, right, and so it’s also important to turn over decisions around growth to the community. So, that’s something that we’ve been doing now, so that’s definitely the case.
I would say that the other piece of this, really, for us on timing, was just that we were finally able to turn to this. So, in a few months, we’ll release the next version of Optimism, which is called Bedrock, and Bedrock basically is actually very similar properties to what you use on Optimism now, but it’s basically us having fixed everything that we learned with Kain, with Synthetix, with everyone else over years of building this protocol and getting it right, and Bedrock will basically be this technical foundation for what we’re doing, and it has very low technical debt, it has very low lines of code, it is extremely similar to the Ethereum code base, it’s very EVM equivalent.
And so, I would say that also, quite frankly, it is also a matter of bandwidth opening up, because we’ve always known that governance needs to be a part of this, and we’ve always known that we want to fund these public goods with this new revenue source that Layer 2 presents, but quite frankly, we were so busy building it, you know, we had to keep our priorities straight.
So, definitely growth is an aspect, and definitely, definitely, I do believe that there’s a responsibility not to sacrifice the values that Ethereum brought forward, and I think what a lot of these alt L1s do, quite frankly, is they look at the, you know, story that Kain just laid out, a new person comes to Ethereum, they see $100 fee, and they seek elsewhere, and I think a lot of other alt L1s have taken advantage of that basically and just sacrificed on a bunch of, you know, decentralization qualities to get low fees, and so that is certainly a very important imperative for us, and it always has been, is to maintain the security and decentralization.
So, now that we’re ready to do that, sure, it is super important to grow, because the reality is that the values which brought us here in the first place are that decentralization, censorship, resistance, security.
Yeah, and you know, I couldn’t help but notice there’s these other Layer 2s that are also going to be launching tokens such as Next, there might even be, I don’t know if this would directly compete with you, but there was a talk of a Hop token for L2 cross chain transfers, so we’ll see, but I was curious, like in general, do you feel that when people are on Layer 2s that it will then be easy for them to communicate with other Layer 2s, or will the Layer 2s compete with each other?
Yeah, so the question is one that basically talks about bridging, and so I know, Laura, even you talked about like the cross L1 bridges, like the wormhole hack, I think I saw it pop up on the podcast feed recently, so what you’re talking about there is bridging, right, and definitely it’s the case that in the future, users, to Kain’s point of using Ethereum, meaning that they’re using L2, will never even touch Layer 1, even if they have to move between chains.
So, there’s a lot of really good bridge protocols out there. Hop is a great example of one of them that basically, you know, leverages some mechanisms to be able to move funds directly from one L2 to another, and that’s actually pretty important, because if you had to go up to L1 and down to another L2 every time you wanted to use some other application on the other L2, you don’t have any scalability because you’re doing a transaction on L1 and it would be just as expensive to get there, so that is the case.
I will also say, though, that I think the multi-chain narrative that we see today is a little bit different from the one that we see at Optimism. So, the one that we see at Optimism is basically that the multi-chain aspects that we see today are very much a property of the space being so early that we are thinking about these things as chains, and we haven’t built good abstractions.
So, I will go even further, which is to say that in the future, users will be using L2s and it will appear to them as one thing, we call this the superchain at Optimism when we’re talking about this stuff, that even if there’s sort of multiple chains, you know, under the hood, it’s really going to seem to be one thing. It’s going to be like the new Internet, Web 3. And so the answer is yes, but I’ll take you a step further, you’re not even going to realize that you’re moving between, you know, a chain, because that will be a very under-the-hood thing, and you will think of it as just using Optimism.
Yeah, but I have to admit, I think that’s quite a ways off in the future, because anytime I try to use something where I’m using multiple chains or whatever, I mean, it’s just…I mean, granted, I am not a sophisticated user, but I find it very challenging.
Well, you know what the issue is, right, Laura, is there’s no good money in giving you a better experience there. If only there were a way for the public good and helping Laura Shin bridge between chains to be profitable.
All right. All right. I will wait for that retroactive public goods funding to kick in.
So before we, because I do want to touch on kind of more security stuff and some other questions, but before we do that, actually, Kain, I did want to ask you, because Synthetix is going to be launching its version three governance model, and I was curious, like, you know, what problems you were trying to solve with that, and also curious about the fact that you have talked about how you would like for this to become its own protocol, and so I just wondered what the vision was for that as well.
Yeah. So, I think what we found through our, like, constant iterative governance experimentation over the last four years, is that we are slowly iterating towards something that’s fairly stable. You know, it’s not perfect, and we’re definitely watching other protocols like Yearn, you know, who are working on different things. You know, there’s a bunch of you know amazing experiments that are going on across the Ethereum ecosystem in terms of how to govern things.
But one thing I think that we are very aware of is the fact that no one has really nailed like full-on chain governance, right? You know, so there’s things like the compound governance module thing, there’s variants of that, but it still requires like some level of tradeoff, and it makes it hard. Either you’re kind of giving up too much power to large token holders, right, and we’ve seen that in a few recent votes, or you still have some kind of discretionary aspect which is off-chained via multisig or something like that.
And so, what the new synthetic governance module, the V3GM, does is try to find the right compromise between those two things, right? So, it tries to be fully on-chain but anti-plutocratic, and it does that by basically removing any need for multisigs and allowing for all transactions to be executed fully on-chain, but it does this via this representative democracy and via an election process where token holders still have full control of who is elected, and then it puts a second layer of protections on top of this elected body, this council of eight people, such that if they collude or go rogue or do something, you know, or stop doing anything, stop actually, you know, executing governance, that there are multiple checks and balances where the token holders can actually turn up and say, we need to remove this specific person on the council, or we need to dissolve the entire council because something is broken.
And that is a system which currently is really hard to implement on-chain, because a multisig, once people have the keys to the multisig, you kind of can’t get rid of them, right? So, you know, if there’s a multisig which is 3 of 5, and three people decide that they actually don’t want to relinquish control of the multisig, you can vote all you like, but they’re not going anywhere, right? You’d need to fork the protocol and deploy a new multisig, et cetera. And so this system actually says, no, the multisig signers have voting rights, but it is all and constantly at the discretion of the token holders, and that at any time, the token holders can turn up and say, I’m sorry, you’re not doing a good job, we’re removing you from your ability to execute governance decisions on behalf of all token holders. And it’s fully on-chain.
So, that’s something that we’re really excited about, and I think that one of the things that we’re doing is making it modular so that other protocols can come and say, okay, we like this as a platform but we don’t necessarily like your voting strategy, right? We think that a voting strategy of, you know, quadratic voting weighted based on your participation in the network is not good. We want to give every token one vote and not quadratically weight it, and we just want to see how that plays out. And so this platform will basically allow for a lot more governance experimentation, so we’re really excited about it.
It’s going to launch on Optimism natively, obviously, and we think that it’s going to be a place that a lot of Optimism native projects are going to be able to experiment with governance.
All right, so I know we’ve talked plenty about governance, but I did want to circle back to an issue that we touched on briefly, which is security. So, obviously now Synthetix does have this cross chain bridge due to being both on Optimism as well as a Ethereum Layer 1. Obviously, I’m sure you are very well aware, there have been a lot of hacks of cross-chain bridges, so I was curious to hear your thoughts on how security was handled for this bridge.
Yeah. I’ll speak to this. So, it’s a really interesting question, and one of the things that makes it so interesting is that in some sense a rollup is a bridge. I know that sounds very weird and nonsensical, but it’s actually true. The mechanism that we talked about earlier, in which for a period of time someone can come and dispute the results of the transactions that were notarized through the Optimism system, right, these _____ 0:55:05, that mechanism is itself a bridge, right? Basically, that takes a week, and if a week goes by and nobody disputes the results of the transaction, it’s accepted by L1, and you can then, for instance, complete a withdrawal that was included in the output of one of those transactions.
So, the risk of cross-chain bridges is in fact basically the impetus for Layer 2 existing, right, because these bridges that go between one distinct L1 and another, right, say Polygon and Ethereum, these are the things that require some other mechanism like a multisig or a vote or whatever, because these protocols don’t directly talk to each other in the same way that a rollup talks to L1, right? A rollup sends all of its transactions and gives L1 a place to dispute the result of those transactions.
So, there are tradeoffs, right? Sometimes less secure bridges are actually cheaper, and so we do expect a world in which some of these bridge designs continue to exist because you can basically take more risk if you want to and increase capital efficiency, but fundamentally, a rollup kind of is a bridge. That’s kind of all that the rollup dispute contract is, is serving as the, you know, secure way to bridge withdrawals. So, there’s a little bit of an answer on it, and maybe a counterintuitive take, is that rollups are bridges and the entire chain is built to have the most secure bridge possible.
Well, so I did see that Optimism tweeted recently that bridging on and off Optimism just got a major power-up and that is now cheaper, faster and easier to move assets between Optimism Lay 1 Ethereum, other Layer 2s, as well as centralized exchanges. How did you accomplish that, and does that also change the fact that when you withdraw from the native Optimism bridge, that would normally take seven days?
Great question. So, the answer, the way that this got improved is basically we acknowledged that those other bridges have a place, and I should really clarify that there are kind of two types of bridges. Even as a nonnative rollup bridge, there’s like a collateralized bridge and a non-collateralized bridge, and so there are actually protocols that are as secure, they sort of introduce this capital efficiency, and Hop is a great example of this, that give you the ability to move these assets around faster and cheaper without sacrificing the security guarantees.
So, what we accomplished there was effectively we basically updated our UI to add some of the bridges that we think are reliable enough and secure enough to be using, and we basically gave users the option to use those when the asset and the source and the destination of the bridge works, but a lot of those are still secured by the native rollup Optimism bridge, it’s just that they have a smart contract system on top that removes that one-week window.
Okay. So, yeah. I mean, there’s so many changes, and I think we’ll see just how the tokens that you’ve introduced and also now the governance, how that’s all going to play out.
But looking ahead to the future, I did also want to raise this Ethereum Improvement Proposal 4844, which you mentioned to me, you know, you felt was also going to kind of have a big impact on Optimism. Why don’t you describe what that is and why you’re looking ahead to that?
Sure. So, I guess to sort of set the stage, I think it’s about a year ago, a year and a half ago that Vitalik put out this post called a rollup-centric roadmap for Ethereum, and basically what that was was an acknowledgement that the rollups that are being built today are clearly the future of scaling, and they’re clearly the future of Ethereum because Ethereum needs to scale, and therefore we need to focus in on that.
Okay, so what does that mean? Basically, that means that we need to design Ethereum to be as amenable to rollups as possible, and basically, the way in which we do that notarization process that I talked about earlier, right, it’s also literally called rolling it up, like that’s where rollup came from, is this notarization, but if you say rollup, no one knows what the heck you mean. They think you’re talking about a fruit snack.
So, in any case, the way in which we introduced that mechanism into Ethereum was really not with some special sort of like notary rollup function that Ethereum had. We kind of hacked it in, and it was cheaper, but not as cheap as it could be, and so EIP-4844 is one of the first examples of hopefully, of course it hasn’t passed yet, but the Ethereum governance system becoming more amenable to roll-ups. Basically, what it is is it is a new transaction type that basically makes the notarization really cheap and imposes less restrictions on the L1 nodes around what they have to do with that notarized data.
And so, the TL;DR of all of this is that if 4844 passes, rollup fees will go down another 100x, right? So, they’re already, like, 20 to 500x cheaper on L2 than L1 depending on the app. This will plummet that number to, like what, 0.02 to…whatever, you get the point. It will get much, much cheaper, about 100 times.
And so, 4844 is one step along the path to what’s called data sharding, which is basically the long-term play that will allow Ethereum to scale to literally hundreds of thousands of transactions, with those transactions being rollups.
Okay, so I don’t know generally for EIPs, when they come to a vote, is it just there’s sort of a general consensus, but the conversation is done or…
Yeah. I mean, I’m laughing because you know, I was part of like the early 1559, like, consensus-building process which went all the way back to like 2019 or something like that, maybe even like early 2019, and so you know, with major changes to, you know how transactions are processed, obviously everyone is extremely concerned that we ensure that that does not introduce, you know, any issues for the functioning of the system, and so I think that there will be and already has been a fair amount of scrutiny on this EIP.
But I think one of the cool things is that, you know, Ethereum is responsive, like the Ethereum community, I say Ethereum, like not the network but Ethereum the process, right, this rough consensus process, tends to be fairly responsive to things that are effective and that there’s clear demand for, and so I think that if we’re in a situation where more and more of the transactions that are happening on L1 are these notarized, you know, L2 transactions, it will become more obvious to people who are, you know, building consensus around whether or not we implement something like this that this is needed, right?
At the moment, it’s like, oh, we can probably get away without that because, you know, it’s not that high of a percentage of the transactions are rollup transactions. As we do a better job, and you know, as more people transition to L2, and as there’s more activity there, and more cool apps being built, it will become more and more obvious that this is something that just needs to happen because of the competitive advantage that it would give both L1 and L2 as a combined, you know, consensus system and smart contract system, is going to be so huge that we just have to do it. So, I think it might take a little while, and then I think, you know, we’ll be able to kind of get to consensus.
We are also, as Optimism, we are working very hard. Like, literally, our engineers are writing code to prove that 4844 is safe and works and like, get it implemented. So, it impacts everyone, but this is the mother of all rising tides lifting all the L2 boats, so we’re ready to make it happen.
Okay. Yeah, and I was chuckling too when we were talking about how it’s not clear when and EIP is done being discussed, because I discovered that also through writing my book, but anyway.
Let’s also now look ahead to the merge. Clearly, this is going to be a huge undertaking, you know, moving all the economic activity on Ethereum over to this new proof of stake chain, and I was curious what that means for, obviously L2s like Optimism, but also protocols like Synthetix that are built on Ethereum. You know, what’re you doing to prepare and kind of how do you think it’s going to go?
I think this is something that, and maybe even on like a previous show that I was on, right, we kind of discussed this, right? It might have been back in, I don’t know, late 2020 or something like that, right, and I think it’s one of those things where you need to spare some cycles for it, right, because it’s definitely a thing that is going to happen, but there’s still not like 100% a sense of what this is going to mean for us, right, you know, as Synthetix.
I think a big part of our focus is obviously transitioning to Optimism, transitioning as much of the code over to Optimism, and then probably redeploying some new code to L1 to support this, like, Optimism-centric version of Synthetix. And so, I think right now, like, we’re still thinking about it and it’s still something that, you know, we’re obviously monitoring, but the vast majority of the resources within Synthetix, the engineering resources, are going towards building V3, which will be deployed to Optimism, and supporting our current version transitioning to Optimism.
Well, wait. No, but I was talking about Ethereum’s merge.
No. No. Sorry. I get it.
So, like, but I’m saying, you know, if we’re on Optimism then it’s less our problem what happens with the merge, right?
He’s saying it’s my problem.
It’s his problem.
I’m saying it’s his problem. If we transition to Optimism, then, like, Ben is, you know, going to be the one who’s working out how the merge and you know, Optimism works, and we can just kind of cruise along on Optimism and not worry about it that much, right?
Put your feet up.
Exactly. Exactly. Exactly.
Yeah, so that’s the natural segue, right? I would say actually, the biggest thing that has happened to Optimism as a result of the merge is that we have adopted it. So, this is like, sort of more of a technical answer, but it’s really, really cool. If you think about the relationship between the notarized transactions that go onto L1 and the state of L2, basically, what happens if you’re running an Optimism node, is you’re watching those sort of transactions appear, be notarized on L1, and then you’re sort of pushing them into your local version of the world, your node, and executing those transactions, right? They weren’t executed on L1, they were just notarized, but you want to execute them on your computer.
What’s fascinating is that this is extremely similar to what happens on the Beacon Chain with the merge, and this is literally called, in Ethereum it’s literally called the Merge API, and the idea is basically that you watch transactions occur on the Beacon Chain, and you basically send them to, and that’s a new sort of node software that’s tracking the proof of stake, and basically you look at what transactions the proof of stake finalizes, and you send them to the Ethereum guest node that sort of executes the smart contract Ethereum virtual machine side of things.
So, we are all about making the thing that we are doing, not just scaling on Ethereum, but scaling Ethereum itself, and that means across the board, we use code everywhere that we can that exists on L1. This is an incredibly useful example of that. The relationship between the Beacon Chain, or what’s called the consensus layer, and the execution layer, or like Geth, is exactly the same as the relationship between Layer 1 and Optimism, which is really fascinating. So, this has been incredible because it has allowed us to basically delete thousands of lines of code and use something that’s already being battle tested and is up to the standards of the Ethereum, you know, process to be able to merge it into the main L1 Ethereum chain.
So, I think that’s the most interesting thing that happens to Optimism as a result of the merge, is we get to become even more like Ethereum, which is super cool.
Practically speaking, the merge is being handled very well so that you don’t have to do much on the application side, and the biggest thing that honestly we do is…we don’t have to worry anymore about blocks coming like one after the other right away, or like very slowly, because with the merge they come in a regular cadence, so that’s like a nice edge case that we can kind of delete the code that we have to worry about that.
Other than that, it doesn’t do much. It just moves right over.
Oh. Okay. Well, I definitely learned something there because I thought all the applications and Layer 2s were sort of, like, white-knuckling it through this part, but I guess it’s really for other people to worry about.
All right, well, this has been a super fascinating discussion. I’m so glad that you both came on the show. Where can people learn more about each of you and your work?
Twitter.com/ben_chain. My stage name is Weird ETH Yankovitch. When I’m not working on scalability governance, I am working on Ethereum parody songs, and you can check out Optimism.io for all the lovely stuff that we talked about today.
Oh my God. I just realized that’s you in the video that I saw at the top of your Twitter feed, because you’re in profile, so I just thought it was some random person. Okay. Anyway. It’s you. People should check that out. It is his pinned tweet and it’s very funny.
Kain, how about you?
Yeah, so for me it’s Twitter and my handle is KAIYNNE, so you can find all my posting there, and then Synthetix.io, and mainly Discord, right? The Synthetix Discord is the place where governance happens, where all the discussions happen, so if you want to come in and weigh in on distribution of these OP incentives that are coming up to the Synthetix community, come into Discord. It’s going to be a fun place for the next couple weeks while we debate this, and you can kind of see what decentralized governance in action looks like.
I’m going to lurk.
All right. Well, thank you both so much for coming on Unchained.
Thanks so much for joining us today. To learn more about Layer 2s, Optimism, and Synthetix, check out the show notes for this episode.
Join me this afternoon for the second book club for my new book, The Cryptopians. We’ll discuss the news, the surprises I found while writing, and all the drama from the early years of Ethereum. There are a few NFT tickets left, so head over to Bits.ki/laurashin and see you later.
Unchained is produced by me, Laura Shin, with help from Anthony Yoon, Daniel Ness, Mark Murdock, Shashank, and CLK Transcription. Thanks for listening.