Doug Colkitt joins us to discuss how AMMs can limit toxic flow, maximize capital efficiency and become primary venue for price discovery. We cover the design of Ambient, the benefits of a single contract DEX, how dynamic fees benefit LPs, strategies to reduce toxic flow, balancing the incentives of makers vs takers, why Unsiwap dominates and more!

And as usual, we start the episode with our analyst bullpen to discuss Polygon's ZK announcement, the Cosmos Hub's momentum, SAP's crypto announcement, the convergence of rollups and appchain design,
- -
Timestamps:
(00:00) Introduction
(00:58) Hot Seat/Cool Throne
(36:20) Interview Start: The AMM Landscape
(44:19) Ambient’s Single Contract DEX
(47:54) How Lower Gas Fees Impact Toxic Flow
(50:17) Ambient’s Dynamic Fee Design
(58:54) The Uniswap v4 Announcement
(59:56) Balancing Incentives for Makers vs Takers
(1:04:20) Surplus Collateral Positions and Gasless Trades
(1:08:41) Will Retail Flow Default to DEX Aggregators?
(1:09:56) Ambient’s Governance Structure and Hooks
(1:16:00) Knockout Liquidity
(1:20:14) On-Chain Price Discovery and Latency
(1:28:42) Why is Uniswap Crushing Everyone Else?
- -
Follow Doug: https://twitter.com/0xdoug
Follow Sam: https://twitter.com/swmartin19
Follow Dan: https://twitter.com/smyyguy
Follow David: https://twitter.com/EffortCapital
Follow Westie: https://twitter.com/WestieCapital
Follow Blockworks Research: https://twitter.com/blockworksres

Subscribe on YouTube: https://bit.ly/3foDS38
Subscribe on Apple: https://apple.co/3SNhUEt
Subscribe on Spotify: https://spoti.fi/3NlP1hA

Get top market insights and the latest in crypto news. Subscribe to Blockworks Daily Newsletter: https://blockworks.co/newsletter/
- -
Today’s episode is brought to you by the Atom Accelerator, now offering grants to build out the ATOM economic zone! It's the perfect time to build with Cosmos and join the thriving ATOM ecosystem. With Interchain Security live, and the power of IBC connecting the interchain, builders are flocking to Cosmos. Join the ranks of Neutron, Lido, Astroport, Gitcoin, Mars and numerous other projects harnessing Cosmos’ leading infrastructure. Discover how to secure a grant from the Atom Accelerator by visiting https://www.atomaccelerator.com/ today! 
- -
Resources:
Ambient
https://us.ambient.finance/
https://twitter.com/ambient_finance

SAP's USDC payment announcement
https://blockworks.co/news/sap-touts-blockchain-solution-payments

Dualty's Cosmos Hub RS proposal
https://forum.cosmos.network/t/proposal-draft-launch-duality-on-replicated-security/10932

Modular vs Monolithic Twitter thread
https://twitter.com/digitalmustafa/status/1672301896584040449
- -
Check out Blockworks Research today! Research, data, governance, tokenomics, and models – now, all in one place

Blockworks Research: https://www.blockworksresearch.com/
Free Daily Newsletter: https://blockworks.co/newsletter
- -
Disclaimer: Nothing said on 0xResearch is a recommendation to buy or sell securities or tokens. This podcast is for informational purposes only, and any views expressed by anyone on the show are solely our opinions, not financial advice. Dan, Sam, and our guests may hold positions in the companies, funds, or projects discussed.

And because it's pretty persistent, usually the 5 basis point pool has done better over the past hour, it's probably going to keep doing better over the next hour.

We can just toggle the fees in our pool to reflect which pool's outperforming.

So theoretically, with pretty good chance, you get the best of both worlds, because fees adjust over time.

So we kind of call that a price discovery vampire attack.

Welcome back to another episode of ZeroX Research.

This show is made possible thanks to our fantastic sponsor, the Atom Accelerator.

If you are a developer looking for a home in the industry, the Atom Economic Zone welcomes you, but you will hear more about the Atom Accelerator a little bit later in the show.

Today is June 26th and we have a great interview lined up with Doug Colquitt, the founder of Ambient.

It's a new DEX that's aiming to reimagine the active AMM.

But before we get into the interview, as always, we're joined by Effort Capital and Westy to discuss the latest market happenings.

Westy, why don't I kick it over to you for your Hot Seeder cool throne?

So I'm not sure if this is a HotSeedr cool throne yet.

We have a lot of time for it to figure that out.

But basically it's a new proposal to make the current Polygon proof of stake chain into a Validium.

So for those that need a refresher, Validium is similar to a ZK rollup where proofs are sent to the L1 for verification.

However, the transaction data itself is not actually posted, but is instead kept on some like internal data availability layer.

This means like a lot higher scalability and lower transaction fees because you don't need to pay to store that data anywhere, but it sacrifices a level of security and censorship resistance because if that data availability layer gets compromised, whoever's in charge of those funds can just freeze them and not allow users to access it.

And the reason why I'm sort of back and forth between whether this is a good thing or a bad thing is because, you know, I think it does solve a lot of the issues that they've had in the proof of stake chain.

But they've had a ton of reorgs basically every day and this sort of solves that issue where they're no longer required to look at a validator set for consensus.

But I'm also pretty cautious about having a generalized chain with a lot of native value and native applications, sacrificing a level of censorship resistance and security, and leaving that power to potentially, like, a few people.

And that was another thing with the proposal itself, is that there is no detail on how the data availability layer would be managed, or what that would look like.

And so we don't know whether that's going to be through a committee or maybe they're outsourcing that to avail, we don't know the details.

I think it's going to take, I think, 8 to 12 months for them to develop this thing.

So yeah, I wonder what you guys think about them switching the proof of stake chain to a Validium.

I mean, if you look at the chain today, you're relying on a whitelisted validator set.

So, I mean, I don't think anything really changes from Polygon as a sidechain to Polygon as a Validium.

And I also think they did mention in the blog post that Mahalia posted on the forum that the Matic token would be used to secure the data.

And I don't think Avail is actually even under Polygon's umbrella anymore.

And that was a really under looked at thing, actually.

I feel like no 1 even talked about that, but I'm pretty sure Polygon's like completely removed from avail, so I don't even think they have really their own DA layer.

So I do wonder if that's kind of their plan for Matic is to have like a DA layer that kind of starts with the proof of stake chain in the form of a Validium.

And then it kind of exports its services to other chains in the future.

Not really sure, but I think in general, it's a good move.

I personally use Polygon a good bit, regrettably.

So anything they can do to make that chain actually work, I'm all for it.

But I guess I'm just confused by the end game of polygon here.

Like, it seemed I like I thought for sure they would have been leaning into the zkvm and like, just focused on promoting the popularity and usage of that.

And if not just transporting everything over from the proof of stake chain, like why?

Why do we still have that chain if the end goal is not to be, you know, Surely the end goal is not a Validium.

So like, I guess this is another short term solution and to Westy, to your point, like, yeah, it's probably an upgrade, but it still doesn't feel like it's the, the end game.

Uh, they're like, they seem like they're focusing on too many things at once, to be completely honest, like, I don't know, they said, now their competitors are doing really aggressive things and like promoting their brands, like the OP stack starting to take off.

Arbitrum has been pretty up into the right in terms of like ecosystem growth recently.

You got ZK Sync that just pushed live the ZK stack.

Like everyone else's seems to be really honing in on their expertise.

And then Polygon just got like fingers in random jars like totally kind of lost.

That's just the way I'm perceiving it, at least.

Yeah, I think it's also pretty annoying how they're doing this whole announcement, this whole transitionary period.

Why can't you just say, here's our endgame, here's our roadmap?

When Ethereum puts out a roadmap, it's extremely detailed.

You'll read a 10, 000 word essay by Vitalik, you'll probably have to take a few days to actually digest it.

Like Polygon's breaking up, they have this whole Polygon 2.0 vision that's a complete rethink of their architecture, a complete rethink of Matic's, the tokens utility in the entire MADX or Polygon ecosystem, and they're kind of doing like announcements of announcements over like the next 4 to 5 weeks.

Obviously, I'm sure there's some type of marketing reason to do that.

They're trying to like dominate the social media airwaves.

So I understand that, but at the same time, you just tell us what your vision is.

Can we get actual better user experience in the proof of stake chain or at least in the Polygon ecosystem?

I'm sure it's great that they're trying to iterate on their product, that they're trying to push this ZK narrative because ultimately it sounds like the end game for on-chain infrastructure is 0 knowledge proofs.

But I would just like to see in 1 cohesive, 1 nice blog post, What are you doing?

Yeah, the other thing here is, if you look at market caps between Optimism, Arbitrum and Polygon, Polygon is insanely expensive.

Arbitrum's around 1, 1 and a half billion.

And then Matic Polygon is trading at around 6 or so billion.

So it's just way overvalued from a market cap perspective.

But if you start looking at FDVs, it's very in line with optimisms and Arbitrum is actually the 1 that stands out looking expensive.

But I don't know, just another observation is it's trading quite richly.

I think that's a pretty good point on the valuation.

But I guess that's good if they're going to be using a data availability committee with the Matic token as like a proof of stake model.

But Efrain, who you got in the hot seat or cool throne this week?

Yeah, So on the Cool Throne this week, I actually have the Cosmos Hub, no surprise being the Cosmos Bull here, the Cosmos Hub and the Atom Economic Zone.

So you've seen a couple of chains become consumer chains over the past month or so since replicated security went live.

You saw Neutron, which is this Cosmos and generalized smart contract platform, which is like the execution layer for the hub.

You saw Stride recently get approved to become like a liquid staking provider of the entire Cosmos ecosystem or predominantly the Atom economic zone surrounding the Cosmos Hub.

That's I think going live in I think the third week of July.

And most recently this past Friday, you saw Duality Labs post on the forum, the Cosmos Hub forum to become a consumer chain and launch sometime in August.

So with Duality Labs is building, and I think the Duality Lab team's like super giga brain.

They're on the forefront of MEV research.

Duality is building a fully on-chain order book decks that is fully aligned with the Cosmos hub.

Neutron has their own native asset and they're doing some type of revenue sharing agreement with the Cosmos Hub for leveraging the security of validator set.

Duality Labs is saying let's we want to become fully aligned with the Cosmos Hub provided using Adam as the gas token.

100 percent of me being transacted fees going back to Adam Stakers.

The only fees on chain that wouldn't go back to Adam Stakers are liquidity providers.

But a part of this proposal is actually having the hub provide 500000 Adam which is approximately 5000000 dollars today of hub protocol and liquidity to LP into duality to kind of jumpstart the economic activity in the ecosystem.

But I think it's interesting that duality lives doing is something called like replicated market making.

So what they're able to do is they're able to use contrade liquidity to actually produce any AMM invariant.

So typically how this work with, let's say Curve or Uniswap, If you want to have a stable swap pool or for like state ETH or ETH USDC, the ETH portion of the LP pair is like split up into those 2 liquidity pools.

With replicated market making, what this allows is actually have a 1 liquidity pool for each asset.

So it's all unified into 1 liquidity pool.

And then each type of pool, like stable swap or a regular concept product AMM curve, The liquidity from that unified liquidity pool can actually be used in each liquidity pool as it's needed.

So it kind of creates additional capital efficiency.

A couple other advanced things that I think Duality is supposed to launch with come August is advanced orders like limit orders or fill or kill, dynamic routing to prevent front running.

So the way I think about this is if you're trying to swap like USDC for Adam, let's say there's probably multiple different routes that your USDC can take to be converted into Adam.

And because your trade is being posted to the public mempool, there's obviously going to be MEV searchers looking to front run your order.

And what this does is actually it finds multiple ways to get you your end requested asset and for the best price possible.

And by doing dynamic routing, it's actually able to really calculate at the moment of execution, like what that best route is, and what is like the least likely to be front run.

Overall, it really sounds like a really interesting proposal.

This is like the first consumer chain that's going to be fully aligned with the hub.

This is probably the first time you're actually going to see Atom being used as like the native gas token for a chain in the Cosmos ecosystem outside of the hub itself.

You're starting to see the narrative of Atom value accrual, the thing that I think has prevented the hub from or the Atom asset specifically to really gain, I guess, price appreciate accordingly with Solana and Avalanche and Ethereum over the past cycle was the fact that it was kind of like Cardano where you just stake it and it doesn't actually do anything.

But you're really starting to see a full economy start building around the hub.

And I think if Duality Labs is actually able to create a legitimate product and able to gain market share in the Cosmos ecosystem, that this could be a really good way for Adam, I think, to, I think overall, like a really good story for Adam and the Adam Stakers.

Charles Hawkinson's coming for you for that comment.

No, I think that's, that's a really interesting proposal.

The idea of a fully aligned consumer chain is exciting.

I guess you got to wonder like what's the value proposition for the builder in this case?

But nonetheless, it's a really interesting development to see.

And The first thing that came to my mind was like a more technical question.

So because the hub does not have smart contracts, how is the $5 million of Atom deployed as protocol owned liquidity?

So I think initially, you actually saw a very similar ask from the Stride proposal.

So when Stride wanted to become a consumer chain, they're like, we'll become 1, but we want

Atom of hub-owned protocol and liquidity to be liquid staked on Stride and then deployed on Neutron on Astroport to create like a deep liquid market for staked Atom or Stride's version of staked Atom.

How that's going to be done is through a multi-sig.

So I think the Atom accelerator team, at least in the interim, is going to manage that atom on behalf of the hub.

And I think the same thing is gonna be done for duality, but the longer term or mid to long term solution to this is the interchain allocator that I know TimeWave Labs is building.

And this is going to be essentially like a module written in Go, deployed on the hub that allows the hub to trustlessly deploy protocol liquidity really wherever it wants as long as a governance proposal says on behalf of the community, like, yes, we want to deploy this amount of Atom to a certain community pool or certain liquidity pool in the interchain.

So right now it's gonna be more of a trusted setup, but I think the interchain allocator is supposed to go live sometime in Q3 or Q4 this year, and then that'll really be the solution to do this moving forward.

Yeah, because like this, Stride's use of interchain accounts I find really fascinating because like that way they can still control EOAs on the Cosmos Hub to like stake and unstake their assets.

But yeah, going the other way is much harder, right?

You can't make sense you need the trusted setup, just given the lack of a better solution and just really the inability to have smart contracts on the network.

Yeah, my 2 takeaways from this are, I mean, the first is the Cosmos Hub is kind of back.

Like, there's a lot of momentum for the hub and its economic zone.

Like you said, Neutron and now Duality, like a lot of people are choosing to build within that zone and I think yeah the momentum is building.

We're going to see a lot of other cool projects continue to build there and it's super exciting to see because you know Adam's had that sort of existential crisis over the last couple years and it's good to see it sort of forming itself and like you said competing with the likes of other layer ones and whatnot and then the second is that osmosis has some like really really tough competitors coming.

Duality like you said has a great infrastructure, Astroport as well building on Neutron.

There's a lot of decks that's being built within the Cosmos ecosystem that are going to give them a run for their money.

And I'm excited to see those wars begin to see what are users using, where is liquidity going.

I think that's going to be a really exciting area within Cosmos over the next year or so.

Yeah, I think just to, I guess, end off, I think 1 of the things that have held back the hub over the past cycles were this meme of like, you got to be credibly neutral.

This whole Gravity Dex debacle that happened where the hub had a dex, but the hub didn't want to provide liquidity to the dex and it created this whole cold start problem where it was not able to create liquid markets and ultimately Osmosis won that.

And then the Gravity Decks moved off-chain, off the hub.

And I think this existential crisis, especially at the Atom 2.0 failing, the community really looked themselves in the mirror and was like, well, we can't just be staking out of all the time and the hub actually has to have a purpose.

We love to talk about sovereignty in the Cosmos ecosystem, but it's funny that we love sovereignty, but at the same time, if the hub doesn't actually start not being neutral, And if it doesn't have smart contract capabilities, it needs to actually be subjective.

It needs to start picking winners and losers in order to actually maintain its own sovereignty or else it's going to fall to the wayside, fade into irrelevance, and then ultimately go to 0, even if the Cosmos thesis is right, even if the Cosmos SDK and the tech stack is the best out there and can compete with the OP stacks of the world and arbitrums.

So you're really starting to see the community kind of take initiative, try to drive value back to the hub, actually throw this idea of credible neutrality by the wayside and start to just have initiative in building an economy around the hub.

What does this mean for Osmosis with Duality coming online, taking a very innovative approach to what an AMM is and moving towards that order book model and neutron coming online and bringing AstroPort and getting that initial allocation from Stride to get their liquidity going there.

What is the outlook for Osmosis in your opinion?

I still think the majority of this space is still brand and like whatever is Lindy.

So I think the best tech doesn't always win.

I think we've seen this time and time again, not just in crypto, but I think technology in general, Betamax versus DVD.

People say that we're experts back then, Betamax is better tech, but DVD had better distribution and ultimately everyone used DVDs.

Obviously, we don't use either of those anymore.

But Osmosis still has the most IBC transfers, still has the second largest user base in crypto.

It is still the thing everyone thinks of.

When you think of Cosmos DeFi, you immediately think of Osmosis.

They're kind of growing beyond the decks at this point.

They're becoming a full-fledged DeFi hub with lending markets and I think decentralized stablecoins launching in a couple of weeks, a perpetual futures market.

So there's a lot of good things to look forward to Osmosis and they're launching concentrated liquidity themselves in their next upgrade.

It's good to see DeFi starting to potentially flourish in the Cosmos ecosystem.

I still envision Osmosis probably being the dominant player, at least for the foreseeable future, But it's really their game to lose.

But even if liquidity does migrate to other DEXs, I still think like the brand and the overall, I think, lenientness of Osmosis as a community, they have a really strong community as well.

I think, again, they're probably going to be the market leader for the foreseeable future.

It's going to be fun to kind of watch this play out.

It feels like, you know, there's finally a battle for Cosmos DeFi and competition tends to be a good thing, so it'll definitely be a fun 1 to watch.

And I have a cool drone from late last week, this came out after our last episode, but massive news that I felt went really like under the radar.

And it's that SAP is testing their SAP digital currency hub as they're calling it.

When this thing like allows customers to make international payments using USDC or the Circles Euro version, Euro C.

And this, their blog announcement directly calls this the future of cross-border payments and cited expensive, slow, and non-transparent as issues with the current accepted infrastructure in the cross-border payment space today.

This is exactly what we've been yelling about and how blockchains can be used to solve these problems and how real stable coins that can be reliable are the perfect solution to the problems that we're dealing with today.

And no 1 like there's not a better possible company to be leading this charge than SAP.

And the reason why that is is 9 out of the 10 companies in the Fortune 500 use SAP software already.

So they're already ingrained in some of the most important players in the space.

And their customers actually generate 87% of total global commerce that equates to around $46 trillion annually.

So there's not a better player in the space of the modern world today than SAP to kind of be taking the position of, hey, cross-border payments suck today.

Blockchains and stablecoins are solving this.

We're going to be the ones to integrate it.

So it feels like this is absolutely a massive news.

And what's pretty interesting about this is they're still in the test phase and they're currently integrated with Ethereum's Gurley testnet, which allows people to send like essentially play money back and forth just so users can see, oh shit, this used to be a 7 day process that cost me $75 to wire from bank account A to international bank account B.

Now it takes a matter of seconds and finality in a matter of minutes.

And how cheap is it to send an Ethereum transaction compared to that?

This is a monumental upgrade in my current infrastructure.

And so they haven't released exactly where they're going to go live and fully integrate with when they move out of this testnet phase.

But it is very, very interesting that they are appearing to be Ethereum aligned.

Usually, I feel like last bull run, we'd get these types of announcements where like, wow, this is like a major player investigating the space.

And then it'll be like integrating with random blockchain a instead of like, you know, the market leader, Ethereum.

So this is like a really exciting development in my opinion.

I think this 1 went way under the radar, honestly, because like they have such a sticky software amongst like some of the biggest companies in the world.

Like I remember using some of their products in college and undergrad like 5 years ago and just thinking, man, this tech is absolutely terrible.

But then I think back to like Microsoft and Microsoft Office and how slow moving I felt like they were as a company.

Like, I don't know, I think there's interesting parallels to draw there.

And just the fact that they touch so much of the world's global commerce in some kind of way is very, very exciting.

And the fact that they're actually using curly, Like, that's just wild to me.

The interesting thing to be, we'll see if they launch on an L2 or Ethereum mainnet right out of the box.

Like, I already know what Effort Capital's chomping at the bit to say here.

I just like it's crazy to me that we can say they chose USDC and they seem to be choosing Ethereum like that is electric news.

But let's hear the let's hear the base theory.

Now, I was gonna say, imagine they announced like they were using Tether.

No, I think if Coinbase announcing their base L2 that's going to go live at the end of this year.

I'm hoping as a coin shareholder that they learned their, you know, they took lessons learned from their NFT marketplace.

You're seeing the same applications, the same DEXs and lending markets and Ponzi schemes launch on every single L2, every single Alt L1, and what is going to make Coinbase's base different?

I sincerely hope because obviously nothing made Coinbase's NFT marketplace different.

It was a really bad look on their overall product strategy and roadmap.

And I'm hoping with L2, with BASE that they come to it guns blazing.

They come to it with partnerships, from legitimate industry market leaders like SAP.

And ultimately, Brian Armstrong's original thesis for crypto was to really be like a global remittance platform, get rid of the bank, get rid of the Western unions of the world, like let's just make payments easier.

The economy runs on B2B and B2C and P2P payments.

And I think SAP would be a ideal partner for Coinbase to launch when BASE goes live later this year.

And BASE is currently running on Gurley Testnet.

That doesn't mean SAP is going to be using base.

Obviously, I'm kind of like, I guess, hoping that they're able to launch on base.

But I think it'd just be crazy if they...

This is incredibly bullish for on-chain rails.

Imagine the amount of interest income that Circle would get.

If $46 trillion in B2B payments are using SAP, how much money is Circle going to print?

See all 0xResearch transcripts on Applepodcasts

Ambient: Building The On-Chain Venue for Price Discovery | Doug Colkitt