See all Bankless transcripts on Youtube

Speaker 1

00:03

Welcome Bank of the Nation to State of the Nation where we dive down into a topic that is currently floating around the world of crypto. This week on State of the Nation we are talking with Dan Robinson, head of research, GP at Paradigm. And recently across my Twitter feed I saw a tweet thread from Dan Robinson about how there are 5 big ways that Uniswap X changes the game for swapping in DeFi swapping in crypto and I learned a ton in this tweet thread and I thought it would be super useful if Dan Robinson came onto the show and explained each point himself here. And so that is what you are about to get here today.

Speaker 1

00:37

Because Uniswap X doesn't just stop at Uniswap X, it also brings with it a bunch of new changes for the DEX landscape that impacts so many other things across DeFi, across Ethereum. It impacts bridges, it impacts roll-ups, it impacts MEV, it impacts market makers. And so there's about to be, perhaps, if you believe, in this new intent-based paradigm, which is something that we will define in the show, it flips a lot of what it means to be a dex, or to be a dex swapper on its head. So you're going to learn about all of these details in this coming new meta for DeFi, as well as what it means for you, the user, you, the swapper, and also perhaps you, the LP, if you are an LP in this world of DeFi as well.

Speaker 1

01:21

And then we also open up some other doors as what does the future of Lping yields in Uniswap look like? What can Uniswap v4 do for LPs? Well, Uniswap X is focusing on swappers and why swappers and LPs are the 2 parts of a DEX that need to be held in the highest regard and why everything else is secondary. And then also we open the door to what Flashbots is working on with Suave, which is at the very end of this episode.

Speaker 1

01:47

Overall, you're going to learn a ton about the DEX landscape that is changing quickly, both with Uniswap v4 and with Uniswap X, as well as some other things in the intent-based world, which is a hot topic in the DEX and dev landscape. Quickly, before we get into our interview with Dan, Uniswap is a main focus of this episode and Uniswap is also a sponsor of Bankless. Bankless also holds a supply of Uni tokens, which you can see at bankless.eth and also bankless.com. Slash disclosures.

Speaker 1

02:15

So let's go ahead and get right into our episode with Dan Robinson from Paradigm. But first, a moment to talk about some of these fantastic sponsors that make this show possible, especially Kraken, our preferred exchange for crypto in 2023. Before you get to Uniswap on-chain, you first have to bridge your money from off-chain, from the trad world. Consider using Kraken, our preferred exchange for crypto in 2023.

Speaker 1

02:34

If you do not have an account with Kraken, consider clicking the link in the show notes to get started with Kraken today. Kraken Pro has easily become the best crypto trading platform in the industry. The place I use to check the charts and the crypto prices, even when I'm not looking to place a trade. On Kraken Pro, you'll have access to advanced charting tools, real-time market data, and lightning-fast trade execution, all inside their spiffy new modular interface.

Speaker 1

02:55

Kraken's new customizable modular layout lets you tailor your trading experience to suit your needs. Pick and choose your favorite modules and place them anywhere you want in your screen. With Kraken Pro, you have that power. Whether you are a seasoned pro or just starting out, join thousands of traders who trust Kraken Pro for their crypto trading needs.

Speaker 1

03:14

Visit pro.kraken.com to get started today. Introducing Polygon 2.0, the value layer for the internet. For too long, the limitations of blockchains have held back app development and stifled user adoption. The internet allows anyone to create and exchange information.

Speaker 1

03:27

What's missing is a value layer that lets anyone exchange, store, and program value. That's where Polygon 2.0 comes in. Polygon Labs has unveiled a series of innovations that will radically alter the Polygon ecosystem and Web3 as a whole. By leveraging groundbreaking ZK innovations such as Polygon ZK EVM, the next iteration of the best-in-class Plonky2 proving system and a first-of-its-kind, ZK-powered interoperability layer, Polygon 2.0 will give users and devs unlimited scalability and unified liquidity.

Speaker 1

03:55

Right now, there is a Polygon improvement proposal regarding a potential ZK-powered upgrade of Polygon Proof-of-Stake. If approved, Polygon Proof-of-Stake would become a layer 2 ZK EVM Validium. So make your voice heard on this proposal by joining the Polygon Discord today. You have a chance to help the Polygon community give the internet the value layer it deserves.

Speaker 1

04:14

Are you planning to launch a token? Is your token already live? And are you granting your employees and contractors vesting token awards? And are you trying to figure out how to take care of taxable events for your team?

Speaker 1

04:24

Toku makes implementing a global token incentive award simple. With Toku, you will get unmatched legal and tax support to grant and administer your global team's tokens. Toku will help you navigate across the lifecycle of your token from easy-to-use pre-launch token grant award templates to managing post-cliff taxable events with payroll. For legal, finance, and HR teams, it's a huge complex task to have to comply with labor laws, payroll, and tax obligations, tax reporting, and crypto regulations in every country that you employ someone.

Speaker 1

04:51

It's difficult, time-consuming, manual, and costly, and it's drawing more attention from global regulators and governments. Toku makes it simple for leading companies in the space, Protocol Labs, Hedera, Gitcoin, and many more. So if you want some help navigating the complex world of token compliance, go to toku.com slash bankless or click the link in the description below. Bankless Nation, I would love to introduce you to Dan Robinson.

Speaker 1

05:13

He is GP and head of research at Paradigm. He, over the years, has done a lot of deep thinking about markets, auctions, and liquidity in DeFi with a particular focus on Uniswap, Uniswap, and Uniswap v3. Recently, Uniswap Labs released Uniswap X, a new Dutch auction mechanism that Dan thinks changes the meta for swapping assets in DeFi and also MEV, chain interoperability, and many more things. The last time we had Dan on Bankless was September of 2020, almost 3 years ago.

Speaker 1

05:40

If you've ever heard Ryan or I say the phrase, Ethereum is a dark forest, it came from that episode. Dan, welcome back to Bankless.

Speaker 2

05:47

Thanks for having me.

Speaker 1

05:49

Dan, you recently wrote a thread which triggered my imagination and was the impetus for bringing you onto this podcast that was titled, 5 Reasons I Think Uniswap X Changes the Game for Decentralized Exchange, MEV, and interoperability. And this already kind of gave me a model, an agenda for this episode, which we want to get into, but just I really want to start at the highest of levels. Can you maybe define the landscape for why something like Uniswap X is needed in the DeFi sphere?

Speaker 1

06:17

What are the current variables or the current things that are producing this need for Uniswap X?

Speaker 2

06:24

Yeah, so I can talk about that. And I think it'll also talk a little about Uniswap V4 and where I see that fitting in. So from my perspective, decentralized exchange research, which is where I've spent a lot of my career and my research focus has been at Paradigm and with Uniswap, decentralized exchange research, in my view, has to be about reducing the amount of value that leaks out of the system, the decentralized exchange system.

Speaker 2

06:50

And so, when you're in a decentralized exchange, particularly with automated market makers, you have on 1 side liquidity providers and on the other side swappers. And swappers are coming in because they can get the most liquidity or the best prices from your decentralized exchange. And liquidity providers are hoping to earn the best returns from trading fees being paid. And a lot of what I would say in research in decentralized exchange design that I've seen happen elsewhere has been focused on trying to tip the balance 1 way or the other between, take money out of the swappers' pockets and put it in LPs' pockets or vice versa.

Speaker 2

07:29

And I think when you see a lot of reactions to decentralized exchange research is often saying, oh, you know, this hurts LPs to benefit swappers or this hurts swappers to benefit LPs. And in my view, I think sustainable DEX research is going to be about reducing the value that leaks out of the system entirely. It's not going to be about, you can't just benefit swappers by making LPs make less money. You can't just benefit LPs by having swappers get worse prices.

Speaker 2

07:55

You actually have to find where are the parts of the system where you can benefit both or reduce the leaks that come out of the system. And almost all those leaks go into MEV. And so I think the types of DEX research, the valuable lines of DEX research correspond to different types of MEV that come out of the system. Now I think there's 3 kinds of MEV there.

Speaker 2

08:19

1 is just EIP-5059 burn, just ETH that's being burned, gas cost from the transaction. And that's being paid by both swappers and LPs effectively. That's I think a really important 1. And Uniswap V4 and Uniswap X both address that 1.

Speaker 2

08:31

But for the other 2, 1 is loss versus rebalancing. And that's losses that liquidity providers suffer to arbitrage. Someone's coming in and they're trading on this pool at a better price than the liquidity provider maybe should be giving them. So the liquidity provider is losing money to ARBs.

Speaker 2

08:48

And that all goes basically to MAV in the modern system. And so Uniswap V4, and I can talk later a little about how we think about that, is about addressing those losses to arbitrage and opening up new ways for developers, for AMM designers to reduce that. But Uniswap X, in my view, is largely about the other side, is trying to help the swappers. And 1 way that, a couple ways that swappers lose money, they can be sandwiched.

Speaker 2

09:17

You can have your transaction actually executed at a worse price because somebody traded ahead of you. You can have just ordinary slippage. You're trading at a price, and the price has moved away from you on the DEX, and so you're getting a worse price than you expected. And you could just be getting a worse price than is available somewhere else.

Speaker 2

09:33

And in my view, if Uniswap, the system, is not providing swappers with the best possible execution they could be getting anywhere, then what are we even doing here? And so that's the motivation for me with Uniswap X is how can we actually protect swappers, the swapper side of this from getting worse prices than they could otherwise.

Speaker 1

09:50

I think to reword what I heard from you, research in AMM and just, you know, DEXs on Ethereum and in crypto broadly has 2 players that you think need to be held as first-class citizens of the highest regard, and everyone else should actually be minimized. And these 2 players are swappers, people that want 1 token and have 1 token and want a different token, And then liquidity providers who are providing liquidity. And I think what you're saying is that research in the realm of DEXs in crypto needs to figure out how to optimize for retaining value by the net between these 2 players.

Speaker 1

10:32

And anyone else, MEV arbitrageurs, the Ethereum protocol with EIP-1559, needs to be minimized while these 2 players are maximized. That's how I would reword what you were saying. Is that fair?

Speaker 2

10:45

Yeah, I think that's basically how I think about it.

Speaker 1

10:48

And then Uniswap X is specifically a technology that benefits swappers the most.

Speaker 2

10:55

Yes, largely focused on benefiting swappers. But I think, again, in a way where you're benefiting primarily retail swappers, right? It's not about helping arbitrageurs trade against Uniswap LPs more effectively.

Speaker 2

11:06

It's the people who we care most about actually helping here.

Speaker 1

11:08

OK, so I'd actually like to take this opportunity to start with your tweet thread, and number 1, because I think this is where this goes. Your first tweet in your thread goes, the architecture of Uniswap X opens up a vast design space for DEXs. And so maybe we can talk about, like, I think the secret sauce that Uniswap X is bringing to the table.

Speaker 1

11:26

We might actually need to define what Uniswap X is for people that didn't listen to our episode with Hayden, but I definitely recommend that as well. So what is the new thing that Uniswap X is bringing to the table? What's the new secret sauce here?

Speaker 2

11:38

Yeah, so first I'll say, I don't like to use the term new because I think a lot of, as many people have pointed out, A lot of the ideas in Uniswap X have been around in Ethereum, Dex space, actually some since before Uniswap. And I think some of the concepts, especially around signed limit orders, I think are You can trace back through 0x or even before. And so I think Part of what Uniswap X is about is, are we actually at a time when some of these concepts that have been around for a while really make sense and start to be worth integrating into how DEX is actually done on Ethereum, which right now, again, is dominated by just on-chain flows on AMMs.

Speaker 2

12:17

I think actually that there's a lot to be gained from digging up some of these rich old ideas. So yeah, so the key idea for me of Uniswap X is that we're moving from a system where all transactions created by retail users are expressed as transactions with a specific path. Imagine just like an itinerary of here's, I'm going to take exactly this route on the subway to get from point A to point B to an intent or a limit order. And an intent, if you think about it, is just a statement like, I want to get to point, I'm at point A, I want to get to point B, but I don't necessarily care how I get there.

Speaker 2

12:58

And there's been a lot of discourse on intents, and I think, and a lot prior even just on the more general concept index of limit orders, but I think it's very important that we start actually operating with user intents. I think they're incredibly flexible and powerful. And Uniswap X, the main thing to me that it achieves is starting to move toward users expressing their trades as intense, as limited, or saying, I'm willing to, I wanna trade at the best price possible, no worse than this particular price, rather than expressing I wanna trade on this exact AMM.

Speaker 1

13:31

So people who have swapped on Uniswap before, you open up with the asset that you have, you open up the asset that you want, and then you click confirm, and then you approve that transaction, you're metamask, you're ledger, whatever. And then you go to Etherscan to watch that transaction get verified. In that, what you're saying is that is a specific, the user has chosen their point A and their point B, and then the app, the web app, actually codifies that into a specific transaction, and then the user commits to that transaction, and then that is committed to on-chain.

Speaker 1

14:03

And then a bunch of MEV happens in the background that the user doesn't really see, but definitely does happen. And so I think that's the current meta of swapping. And what you're saying is there's this new alternative called intense, which is, can you explain like how that actually gets expressed and then how that actually turns into the outcome that the user wants? How is that different from an actual codified transaction and how does it actually achieve the same result?

Speaker 2

14:30

Right. So, the way it works is the user still sees a similar interface on the web interface. And when they go to sign their trade, instead of signing an Ethereum transaction that is, again, constructed by the interface, they sign just an off-chain message. They sign a message in a particular format, but it isn't an Ethereum transaction.

Speaker 2

14:56

And then it's the job of the entire MEV superstructure out there to get this, turn this intent, somehow package it in a transaction that somebody creates and get it included on chain. But this can, you know, intents in general could include anything. It's a more general format than an Ethereum transaction. And the Uniswap X uses a particular format where the user commits to a particular price that they're willing to trade at.

Speaker 2

15:26

Uniswap X supports the ability to do a Dutch order, which is a kind of off-chain Dutch auction where they sign this order. They say, here's my decay rate, and basically it's going to change the price to make it more Basically, get a worse or worse price the longer it goes on until you hit some limit. And that's in order to do it to facilitate some off-chain price discovery for it. And then it also allows the ability to pick a particular filler who gets exclusivity on the trade for a couple blocks.

Speaker 2

15:57

And that's in order to enable them to potentially through a request for quote like system off chain, find someone to fill this quote better. But all these are details about how this particular transaction format works and it's I think how we see sort of the initial way that USOPX helps find users the best price. But again, to me, the key is you're moving into, now I'm signing a message that just says, expresses my trading intent. And it's up to the system to try to find the best price for it.

Speaker 1

16:27

So in the example that say, just for round numbers, Ether is $2, 000. And in the old way is you would have 2, 000 USDC and then you would say, hey, give me 1 ether. And then you would ultimately get like 0.987 ether for a number of different reasons.

Speaker 1

16:45

1 of them would be gas fees, 1 of them would be slippage, 1 of them would be front running, and a bunch of different participants, both humans and protocol, eat away a little bit at that. And I think the way that this intent system works is, you actually, since you don't broadcast a transaction, you actually, excuse me, you do broadcast a message, but you do not make a transaction. And so I would guess maybe this, like this package that you're talking about, you're just saying, hey, I have 2000 USDC. The minimum price that I'll take is 1 ether for that.

Speaker 1

17:18

But if anyone can give me more than that, then you are allowed to fulfill this order. And then Dutch auction is, just to define a Dutch auction, is you set a high price and then over a period of time, that price comes down little by little by little. And I think that's kind of the magic. Can you elaborate on why that's so magical for how that actually reduces MEV?

Speaker 2

17:38

Yeah. Yeah, so the idea there is, but when I want to set a, if I want to discover the price, suppose I don't know at all what the price is. And this, by the way, I use Dutch auctions all over and like every mechanism I know, because I think they're just a fantastic way to get decentralized price discovery. But I think this is what, it's 1 component of a piece of USWebEx.

Speaker 2

18:00

But the way it works is, if you publish this order to the world with some particular starting price, if anyone in the world can actually fill that, they're incentivized to do it as fast as possible. And so you'll actually get included, if they can fill that profitably. So you'll get that included as quickly as possible. If nobody can fill that, then okay, maybe that price is too high, I'm going to start lowering it.

Speaker 2

18:25

And as soon as, if the system is sufficiently competitive and there's enough potential bidders out there and people aren't censoring multiple blocks at a time. And again, I think these are assumptions that are worth questioning. But in that case, basically as soon as this order becomes profitable for anybody in the world to fill, they'll fill it. And we have the assumption that basically once you hit that point, that's the right price to actually fill it at.

Speaker 2

18:50

Now again, there's some possibility you could lose a little of the slippage from the system. Like if the price moves in the other direction at the same time that your price fills, you maybe don't get the best execution possible. And I think that's why there are these other systems as part of it. And to me, Uniswap X, again, is not about just the Dutch order.

Speaker 2

19:06

It's not about the RFQ. It's about this general concept that we actually get a lot more flexibility from Intents. But that's 1 mechanism that Uniswap X uses to try to make a competitive market for filling orders.

Speaker 1

19:17

I think another way, the way that resonates with me and my brain is that the Dutch auction mechanism, say ether is $2, 000, give or take. But like you said, you actually don't know. In 1 single moment of time, you actually don't know what the fair price of ether is.

Speaker 1

19:32

So you start at like $2, 010 and this Dutch auction mechanism lets that decay, you know, 10 cents every second until someone fills it. And I think the idea here is that the most profitable person who can make that trade profitable first at the highest price possible will fulfill that because they can squeeze a profit out of it. And it allows the margins of what you call the system, like this MEV system, the market maker system, it allows the first reasonable, rational person who can make a profit will fulfill that order first. And that's how you're coming to the conclusion that, well, yes, that was the best possible price for the swapper, right?

Speaker 1

20:15

That's exactly right. Okay, And so I think this is why you come into the second tweet saying, it's a better foundation for order flow auctions. Order flow auctions versus, what's the opposite of an order flow auction? What's the other half?

Speaker 2

20:28

Yeah. Well, so right. Well, So backing up a little about order flow auctions. So I think we've seen some systems, and Flashbots has 1 called MevShare, and I think there's some others out there, where the idea is right now when users trade on decentralized exchanges, often they may get sandwiched, they may get front run.

Speaker 2

20:46

And 1 way that you can potentially just make the user strictly better off than they otherwise would be, assuming already that there's so many in a transaction, is instead of just letting anybody in the world front run this transaction, or even maybe instead of just letting this transaction get included and see what happens. We can auction off the right to back run your transaction. And a back run happens because, you know, when if I trade on an AMM, I might push the price. It might be such a large trade that it pushes the price to a level where it's profitable to trade after me.

Speaker 2

21:16

And so I could potentially get a rebate on my transaction by, if my transaction gets included, by basically selling off the right to say, you're allowed to trade immediately after me. That's a right that I, in some sense, have, although it can be hard to facilitate this market between me and somebody who might want to background me. And so if I can get someone to pay me for the right to background me, I will get a rebate effectively on my transaction. So this is how order flow actions have been implemented by Flashbots and others with the transaction model.

Speaker 2

21:47

Now the thing is, it's sort of a hilariously inefficient way to actually pay somebody for the MEV that's being created by their transaction. Because what's actually happening there is I'm trading on the AMM at a worse price than I actually want to trade at. I want to trade maybe at the current price or at a better price, but I'm trading at some bad price on the AMM, such a bad price and causing so much price impact that actually it's profitable for somebody to pay me to be the trader afterward to trade the AMM back in the other direction. And this involves at least 2 transactions on chain.

Speaker 2

22:21

It involves fees being paid to liquidity writers who haven't actually really done anything because what's happening in this transaction is economically is that I, the user, am actually just trading with some back runner. I'm buying a token that they are selling, and I'm buying at such a bad price for me that they can sell it back to the AMM at a price that is profitable for them. And so we should just cut out the middleman here. We should actually just have the user and the backrunner basically trade with each other.

Speaker 2

22:48

But the transaction format doesn't allow this kind of order flow auction. And so that's why when you move into an intent, suddenly, you know, all I'm saying is I want to actually trade. I'm not saying it has to be on this particular AMM so that you have to extract this money from me, by back running and then making a side payment to me. You can just come in and trade with me at a better price.

Speaker 1

23:07

The metaphor that I'm getting here, maybe you'll like this 1, is like it sounds like we're trying to build a ship, design a ship that doesn't leave a large wake. And it sounds like in this, the current paradigm of Uniswap trading where the reasons why the pools get balanced or who we're trading with is because in order to fulfill that order, there needs to be enough wake for arbitragers to come settle the waters. And right now, with this off-chain intent model, we actually are just designing a ship that doesn't disturb the waters that much.

Speaker 1

23:43

Is this a fair metaphor?

Speaker 2

23:45

Yeah, I like that. I think that's the idea, is you're ultimately getting more efficiency from doing it this way because it's just a more flexible format. And so these things that people are, it's so needed that it's actually getting hacked into the current model.

Speaker 2

23:57

And I'll give you another example, which is just-in-time liquidity or JIT liquidity, which I've been going on like a rampage about for about a year, partly in preparation for anticipation of Uniswap X coming out, talking about how I think So JIT liquidity, the way it works is when somebody's trading and they're going to trade at a bad price, someone can come in and provide concentrated liquidity right around the current tick, right before their trade, and then withdraw it right afterward. And what they're functionally doing is they're improving the user's price impact. They're actually helping the user a little bit by trading against the user. But this too, very gas inefficient.

Speaker 2

24:29

A lot is being paid in

Speaker 1

24:30

1559.

Speaker 2

24:32

And it's not, in this case, like not actually going to liquidity providers. Who's it going to? It's basically just being wasted, or it's going to gas costs, all the inefficiency of the system.

Speaker 2

24:43

Whereas really what we want is, OK, If I'm a user and I'm about to trade at a bad price, can someone just come in and save me? And again, the Intents allows us to do this more efficiently.

Speaker 1

24:51

Your second tweet, your second point in your five-point tweet thread is, it's a better foundation for order flow auctions that return MEV to users. This is what we're discussing, correct?

Speaker 2

25:01

That's right. Yes. So if you want to, right now, the way that those work and the way they fit into the Uniswap model involves this multi-transaction, expensive, and often inefficient protocol for paying someone to back run them.

Speaker 2

25:16

When really, again, when you've got an intent, it's much easier to just batch these together and match them against each other.

Speaker 1

25:21

So maybe to summarize points 1 and 0.2 to the best of my ability, there's kind of 2 birds with 1 stone in this intent model. We get the elegance of the Dutch auction model, which like we said earlier, naturally, emergently finds the most profitable actor who can give you the best trade and still be profitable themselves. And because it's not on chain, we don't have all of this wake in the transaction.

Speaker 1

25:47

So there's not just-in-time liquidity, there's not back-running, there's not 2 trades that help settle a first trade. It is all done off-chain, which helps retain value from going to EIP-1559, and is helped retain by swappers and also, therefore, liquidity providers. So that's my summarization of your first 2 points. Would you say that's fair?

Speaker 2

26:09

That's right. I think I would separate out the Dutch auction point as being Maybe part of, yeah, it's part of 0.1, where it really is like, this is the kind of thing you can do with intents that you actually can't do with ordinary transactions on AMMs.

Speaker 1

26:24

Beautiful, okay, let's go into number 3, which I love, it's so simple. It's still early, which is, you say that we've opened up a new frontier of exploration. So elaborate on like what this new frontier looks like.

Speaker 1

26:39

What's needed in this new frontier? What kind of infrastructure do we need to settle on this new frontier? Like what's left to build here in this new design landscape to help this efficiency become even more efficient?

Speaker 2

26:50

Yeah, so I think part of the motivation for Uniswap X is, okay, we see all this behavior that's happening on chain with, say, like JIT liquidity or people designing order flow auctions of like, you know, back running auctions, right? And thinking, okay, this is a sign that actually there's some serious inefficiency here that should be streamlined, that should be improved. And I think, in my view, the design I think does this and gets users better prices and is more gas efficient in many cases.

Speaker 2

27:23

And I think that's why I think I'm excited about it right now. But really, once you're now we're up in intense space, The sky's really the limit on just like how you can actually match these orders and process them. So for example, right now, the way that USUBEX works every order is, well, there is this RFQ process which I alluded to earlier where you can use, you can choose a particular filler to fill your order and give them exclusivity for a couple blocks in exchange for basically giving you this good quote early on. But right now, the trades are being matched primarily against these fillers.

Speaker 2

28:00

What happens when you actually start to match user trades against other user trades, when you do something more like a batch auction, like Cowswap innovated? I think what happens when you start to do You can do some sort of more interesting math with that, right? Like When you have a bunch of Suppose you have a bunch of user orders. You can execute them all at a common clearing price.

Speaker 2

28:21

There's algorithms for trying to do that. You can do match ring trades where you have multiple assets being traded and you try to maximize the total amount of volume. These can be, you can encrypt these orders, right? Like you can, and I'm not sure how much other, some of these other solutions have done this yet, but you can actually say like, all right, we're going to have everybody do a sealed bid batch auction that's actually enforced by cryptography, where you encrypt your orders, you do a homomorphic computation on it to try to compute basically the common clearing price, or you unseal it using a group or some multi-party computation.

Speaker 2

28:58

And that gives you a more decentralized or potentially fairer auction. You can match it against on-chain liquidity using a particular algorithm. You can put it in trusted hardware, which I'll talk about in a moment. But it's much easier potentially for trusted hardware to operate on orders, because they can include basically all the information you need about them right in the order, without having to involve interaction with a bunch of Ethereum state.

Speaker 2

29:24

Like, for all these reasons, they're just more tractable. And so I think, like, in the long run, I have no idea, actually, what these things will look like. But I think I know, I'm pretty sure it's going to look like some kind of intent, some kind of, when users express their desire to trade, it's going to look more like an intent I think than a particular on-chain transaction. And that's because they're just so much more flexible.

Speaker 2

29:45

So there's just a lot more room to explore.

Speaker 1

29:47

It's the flexibility of the expressivity of an intent, as in it's very, very open-ended. I think maybe another way to help define an intent is it just provides like kind of the bowling alley guardrails as to like, here's everything I don't want, but anything inside in this specific, specific landscape of what I do want, you're allowed to give me. And so basically saying you're, you just write the rules of like, Hey, you can't give me less than this.

Speaker 1

30:13

And then the mechanism will naturally give you as much as possible. But not codifying it, I think, allows for a lot of expressivity. And I think that's 1 half of the magic that I think you're talking about. The other half is that like, since it's off chain, the costs of computation are 0.

Speaker 1

30:32

If there's no gas costs to matching orders of user A to user B to user C, you can compile every single order together all at once. And all of that computation that it takes to clear those orders doesn't have to actually run on a blockchain that can run on some local market maker's server. And all of a sudden we get really good order execution from not having to be encumbered by blockchain computation. That's my intuition, Is this right?

Speaker 2

31:04

That's right. I think just off-chain computation is incredibly powerful. And we actually saw just with the rise of the professionalized Mav ecosystem, just a tremendous amount of ingenious work being an optimization being done off-chain.

Speaker 2

31:19

And I think this is something where a lot of people see Mev as a threat, but as a protocol designer often it is. You know that if you leave some opportunity open to be optimized for MEV, someone is going to take it. And so, like, you can't be lazy as a protocol designer, maybe as lazy as you could have been maybe in, like, 2018. But it also is a huge opportunity.

Speaker 2

31:40

It's a massive support. And I think of it as, like, a swarm of nanobots that's always in the air around us. And if you just were to like leave out an apple on the table it suddenly just in your, it becomes a core, right? Like because the nanobots like to swarm and eat it.

Speaker 2

31:57

And if you, you know, this is scary because it means like you can't leave your food out lying around, but it also means, okay, like this is useful. It's like, if I want to like, you know, clean something I can just like spread, you know, spread some jam on it or something, and you know that the nanobots are going to come eat that and do that task for you. And that's how we rely on this system with Dutch orders, right, in Uniswap X, is you say, okay, we know that with a Dutch auction, if we auction this, it's an efficient enough market that someone's going to take it. Someone is going to pick up this money that's lying there, and as a result, we can rely on this.

Speaker 2

32:30

And the user, it helps the user, right? That like this opportunity for profit is not going to be left unclaimed. Because if it were, then the auction might clear too late at a worse price than the user would otherwise get. But because you know that this is efficient off-chain, you can rely on that.

Speaker 2

32:45

And that's like, that's something that I think is really has changed in the past couple of years, where there were a lot of protocols and people were talking about in 2017, 2018, where you couldn't actually rely on just there being every efficient arbitrage being taken and, oh, someone is incentivized to challenge this thing, so they will. That's something that today is actually much more realistic than it used to be.

Speaker 1

33:08

Who are these nanobots? Who are the players that make up this swarm of nanobots? When we open up this new frontier, what are the verticals that actually compose this swarm of nanobots?

Speaker 1

33:20

I'm sorry, we got market makers, we got MEV bots. What composes this swarm?

Speaker 2

33:25

Yeah, so I think there's professional market makers. There's a lot of, especially for Atomic Mev, a lot of amateur Mev searchers, who I think, it's just like the It's just sort of amazing how you've seen this actually happen, where by lowering the barrier to entry to becoming a Mev searcher, you actually just found that basically all Atomic Mev gets extracted pretty quickly by often people who are in high school or in their basement somewhere. I really don't actually know.

Speaker 2

33:56

That's part of the beauty of it. And that's, when we're talking about the Ethereum as a dark Forest Post before, that was this realization that we had that actually the bots are a lot smarter than you might even have anticipated. And so you actually, you know, someone has, if there's some behavior out there, like, you should suspect or worry at least that somebody's written a bot to take advantage of it. But again, once you get to this, once you're in this world, yeah, you can sort of just treat it as a force of nature, the kind of efficient market hypothesis here that, okay, if we're creating MEV here, then it's going to be claimed.

Speaker 2

34:33

And we rely on that, for example, in like Blend is a protocol that I worked on with the Blur team, where we also use Dutch auctions, because again, I love Dutch auctions. But you might get your NFT liquidated if there wasn't an efficient market here. Because if somebody closes out a loan, what happens is there's a Dutch auction to continue it. And if nobody was out there just looking for opportunities to lend at a profitable interest rate, then like potentially someone loses their NFT.

Speaker 2

34:58

But you can kind of rely on, do a trust fall onto the MEV searcher ecosystem and just know that somebody's going to actually claim that.

Speaker 1

35:05

Are you a Metamask user? Well, you're listening to Bankless, so of course you are. The wallet you know and love just got a whole lot better.

Speaker 1

35:12

Metamask Portfolio is the ultimate one-stop shop for all of your crypto needs. It gives you a holistic view of your crypto portfolio across multiple chains and multiple addresses all at once. You can easily view and manage all your coins, tokens, and NFTs in 1 convenient place just by connecting your wallet. Metamask portfolio goes beyond just viewing your portfolio though.

Speaker 1

35:32

Inside the portfolio, you can do all the incredible money verbs that make DeFi so powerful. You can buy, swap, bridge, and stake your crypto assets with ease. It's like having a powerful battle station for all your DeFi moves right at your fingertips. So if you're looking to do more in Web3 your way, MetaMask Portfolio is the answer.

Speaker 1

35:48

I already know that you have MetaMask wallet, so go check out your MetaMask portfolio. Learn more at metamask.io slash portfolio. Mantle formerly known as BitDAO is the first DAO-led Web3 ecosystem, all built on top of Mantle's first core product, the Mantle Network, a brand new high-performance Ethereum layer 2 built using the OP stack, but uses Eigenlayer's data availability solution instead of the expensive Ethereum layer 1. Not only does this reduce Mantle Network's gas fees by 80%, but it also reduces gas fee volatility, providing a more stable foundation for Mantle's applications.

Speaker 1

36:21

The Mantle treasury is 1 of the biggest DAO owned treasuries, which is seeding an ecosystem of projects from all around the Web3 space for Mantle. Mantle already has sub communities from around Web3 onboarded like Game7 for Web3 Gaming and Bybit for TVL and liquidity and on-rails. So if you want to build on the Mantle network, Mantle is offering a grants program that provides milestone-based funding to promising projects that help expand, secure, and decentralize Mantle. If you want to get started working with the first DAO-led Layer 2 ecosystem, check out Mantle at Mantle.xyz and follow them on Twitter at 0xMantle.

Speaker 1

36:54

Arbitrum is accelerating the Web3 landscape with a suite of secure Ethereum scaling solutions. Hundreds of projects have already deployed onto Arbitrum 1 With a flourishing DeFi and NFT ecosystem, Arbitrum Nova is quickly becoming a Web3 gaming hub and social dApps like Reddit are also calling Arbitrum home. And now, Arbitrum Orbit allows you to use Arbitrum's secure scaling technology to build your own layer 3, giving you access to interoperable, customizable permissions with dedicated throughput. All of these technologies leverage the security and decentralization of Ethereum and provide a builder experience that's intuitive, familiar, and fully EVM compatible.

Speaker 1

37:41

I'd like to add an important player in this role, and this is it brings us to your fourth point in your tweet thread, which are bridges. In your fourth tweet, you say, seamless cross-chain and especially cross-chain swaps will be revolutionary. So how does Uniswap X in this intent-based meta change the game for the nature of Ethereum's roll-up-centric roadmap? How is this a player here?