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There were lots of teams that thought about building DeFi in Cosmos and just never launched because the hurdle rate was so high. Lots of DeFi applications in Cosmos just don't make sense if you don't have Liquid Seiken tokens.

What's up, everyone? Welcome back to another episode of ZeroX Research. This show is made possible Thanks to our fantastic sponsor, the Adam accelerator. It has literally never been a more exciting time to build in the cosmos. So if you're a contributor looking for grants between $10, 000 and $1 million, be sure to check out Adam accelerator.com, or you can check out the link in the show notes.

Today is June 5th, and we have an awesome interview lined up with the 2 co-founders of Stride. Actually, there's 3 co-founders, but we get Aiden and Riley on today. It's a fantastic conversation. Liquid staking is obviously a prominent industry in the Ethereum ecosystem, so we're expecting the same thing in the Cosmos as well. But before we get into the interview, as always, we're joined by 2 Blockworks research analysts, Effort Capital and ZeroX Pibbles, for a little bit of a hot seat, cool throne to discuss the latest market happenings.

Dan, how about I kick it over to you this week to start out?

Yeah, absolutely. Well, unfortunately, the talk of the town today has been the SEC's entrance back into the crypto space. This time, bringing the Binance cartel, CZ, and all of the entities into their purview, essentially. So the SEC has kind of joined the fun here and alleged Binance, BAM Trading, which is the operator of Binance US and CZ, the 3 of them are those groups and individual are in violation of the US securities law. So among the charges was essentially the idea that Binance and BAM Trading sold unregistered securities, Binance commingled customer funds, similar to what we saw with the FTX debacle, Binance operated as an unregistered exchange, And there was wash trading on Binance US.

And lastly, Binance and CZ solicited US customers, which is kind of if you're soliciting the US customers, then you know, breaking securities law, that kind of compounds compounds the dilemmas that they're facing. So for the people in the space, you know, this has kind of been rumored to be happening for quite some time now, it's almost like it feels like 2 months ago, the first talks of whispers of, oh, you know, like, CZ is in trouble. He's been commingling customer funds, kind of started becoming a thing. You know, there was some sketchy relations with FTX when that all was going down back in November. And then just honestly, just weird cryptic tweets have been coming out from different individuals in the space.

So this didn't come as like a total surprise. But it is indeed here, you know, I saw asset prices fall anywhere from like 5%, 5% on the initial pullback to around

10 12%

on the lows of the day. So the market definitely wasn't thrilled to see this. The coin-based stock, coin got absolutely smashed. I think that wick down to like minus 15% on the day. So people really just like unsure of what to think of this outside of the fact that it is bad news.

As you know, my initial gut reaction was, again, not too surprised. Just like, OK, we kind of heard whispers of this, but now it's here. So what are the aftershocks of this? And I was looking for some copium on Twitter. And sure enough, Matt Hogan was able to provide me some of that.

Basically saying, you know, the Silk Road got washed out and that ended up being a net positive for crypto. And we'll put the link in the show notes. I'm blanking on a couple of those other points, but basically saying, you know, things that are net negative for the space, but exist, getting washed out, ultimately are positive. So that's kind of the way I'm looking at this. And maybe some of the, like, if these things are true and there was co-mingling of customer funds and things of that nature, then like, okay, that's, again, we can't avoid, we can't keep having these overhangs kind of fall over us.

But so it's nice to wash these things, these bad pieces and bad actors out of the space, even if that is kind of some short-term pain. You know, this was, I guess, a FTX in and of itself was similar to that thesis or that idea as well. But Pibbles, I know you had a couple other things that you wanted to point out on this.

Yeah. So first, I think it's interesting because we don't know if this is the end of Chokepoint, if this is the last stone to fall or if this is the start of Chokepoint

2.0

and then we start seeing even worse things happening for the industry. Another thing to remember is that Binance converted about a billion dollars of BUSD to different crypto assets, probably mostly majors in March. And that helped drive a lot of this recovery rally. But if they have to pay a fat fine, there's a solid chance that maybe they have to liquidate those and now there's way less liquidity. So I mean they can nuke us back to the shadow realm if they wanted to.

Let's hope they don't. Another thing is the SEC came out and specifically said that Sol, Cardano, Matic, Filecoin, Atom, Sand, Mana, Axie are all securities. Effort Capital pointed out probably earlier this morning that these are actual assets that Hong Kong whitelisted to go live for trading. So I just think that's funny.

Yeah, I didn't read the entire lawsuit or claims against Binance from the SEC, but just being a Cosmos goal, I did look into seeing like what their take was, like specifically why Adam might be deemed a security. And it kind of just shows that, I don't know how quickly they put this whole legal document together, but they clearly are poorly researched on, I guess, the history of some of these assets. So specifically for Adam, just to give you an example, Jake Kwan, who's 1 of the founders of the Cosmos ecosystem and of Tendermint, he recently created a new legal entity called New Tendermint that is supposed to do some core development work for the overall Cosmos ecosystem. It really spews from this other legal battle that's happening internally in the Cosmos ecosystem. But long story short, New Tendermint, which is this new development company, has not done any dev contribution work to the Cosmos Hub.

Yet in this paperwork, on their GitHub, New Tendermint hasn't done anything for the Cosmos Hub for core development. In this legal document, they specifically call out New Tendermint as this new entity under JQuan and said that this new entity has done significant contribution efforts to the Cosmos Hub. And they also claim a whole host of like other falsehoods about like the atom token how it's distributed to its entities upon the initial allocation for back in

2017

So it just feels like it's like poorly researched That is I'm only speaking about the the atom asset in particular But I mean as we've seen time time again, the SEC is going about this from like a regulation by enforcement. It's actually coming up with like a good framework. 1 thing that is more on a positive regulatory development point of view is 2 house of representatives, Andrew McHenry and Thompson, who are 2 house reps. They created this new market structure bill specifically for crypto assets. It is still in draft stages, but it's kind of making the rounds on crypto Twitter and other legal entities out there, it really comes up with a framework for like how to, even if a crypto asset is a security, like on day 1 when it is initially launched, what is the pathway for a certain asset to actually become a commodity?

And what is the framework required for that asset to kind of make that transition? I'm not a legal expert, but a lot of legal experts that are on crypto Twitter are saying that, like, it's not perfect. I think what the EU is doing with MICA is It's coming out with like a whole new regulatory body just to focus on crypto assets. Whereas this bill would kind of say like, where do crypto assets fall in the current regulatory framework of the United States between like the CFTC and SEC. So it kind of does a little different spin than what like Mike and the EU is doing.

But overall, like a lot of crypto forward legal and legal experts are actually saying that this is a potential big win for crypto in the United States, assuming it passes. Again, it's still very early stages. It's still in draft form. But, you know, in lieu of what we're seeing today with the SEC cracking down on Binance, there are potentially like a light at the end of the tunnel to look forward to in the coming quarters, assuming this eventually makes its way to the House floor and ultimately the Senate.

Yeah. And on that note, it feels like this has been the first time where we have a moment that we can kind of step back and be like, okay, like, this is actually this is kind of a win for crypto when it comes to regulation. So that's kind of my view of on on that bill, you're mentioning effort. And I love to see that I saw Lex Node on Twitter, Gabriel Shapiro, I believe his name is did a great analysis of this. And there's still of course, a couple unworkable things in there, just in but again, this just feels like the 1 of the first moments that we actually have something that we can like use as a positive tailwind when we look at things from the regulatory lens.

So that's at least a positive development.

Yeah, I strongly agree. I just wonder how many, how much like legs it actually has. Cause obviously our timelines are filled with crypto focused people. Like I wonder if people who pay no attention that are active in politics, like if they support the bill, like I have no idea, but the best we can do is cross our fingers, I guess. It just, yeah, I mean the regulatory landscape just doesn't look great right now.

Obviously Canada, I think Australia has had a lot of pushback. I think they're even, I think Canada made it like illegal to buy or trade crypto at all. So that's obviously really bad. So I hope that's not a path that we embark on. But at the end of the day, like I always say this, I think it's kind of inevitable.

Like it's, you can't put the genie back in the bottle at this point. Like it's been invented. The crypto is here. It's here to stay. It just, you know, it's, it's all about timeline.

It depends if the U S wants to remain kind of the hub or if we want to push that overseas and eventually flip flop later on down the line. So hopefully not the latter. And it, it ends up being the former, But yeah, that's all I've got on that.

I don't know. Does it feel like it's like when I think about this, it feels like this just makes things for a longer, a longer, colder winter. But to your point, Sam, like, you know, you can't really put the genie back in the bottle. But like, is this something you guys think, maybe I'll throw this to you, Effort. Like, do you think this will just blow over or is it something that's, well, probably have to be, you know, another thing to be battled out in court.

I saw that Binance actually already tried to settle, allegedly with the SEC. I think they put out a statement saying like, Hey, we tried to even settle before this got to this point, but basically no cigar. So I don't know what are your takes on the impact to the industry for the next say, 6 to 12 months?

Not gonna look great.

I mean, people said it already, but like liquidity is already like, terrible. We're at the lowest lowest trade volumes that we've seen in years. I mean, 90% of the market. And I think over the past few months, Binance's market dominance has actually been slowly chipping away, which I think is good regardless of this, because I think we need more diversity in exchanges. It's for like a healthy ecosystem, especially a sector that prides itself on decentralization.

When 1 entity has 90% market share, that's not good. But I think Binance has a war chest. They're gonna fight for it. They're probably the only crypto entity that has more money than Coinbase. And I think Coinbase has relatively good actors in the space,

or at

least probably the best actors in the space compared to most other entities out there. I'm not sure about the security standpoint, about what assets or securities or not. I think if some of these things that are being said in this lawsuit, like them commingling funds, potentially buying a yacht with some of these commingled funds, if that's true, like financing to get the book thrown at them either way. I also think that like the Ripple lawsuit that's going on right now, the Coinbase lawsuit, you know that they're going to be fighting for that over the coming years.

I don't think this

necessarily changes anything. Like you brought it up earlier, Dan, like we kind of saw this coming. The SEC was obviously, if they're going to go after Coinbase, they're absolutely going to go after Binance. It doesn't really like change the market dynamics that much. The only concern I have is if like the DOJ comes in and goes after specifically CZ and goes after Binance and looks to extradite them to the United States and potentially jail them, that could be a really big issue because now EU and other areas where Binance is legally allowed to operate in might decide to kind of side with the United States and really throw their own book at Binance, which I think could have like huge issues, like impacts from like a liquidity perspective.

If anything, it's going to just force more users to go on chain because Sam, like you said, the genie is already out of the bottle. You can't kind of recork it. So it could be bullish for like on-chain DeFi primitives in general. But I think in general, like the United States, it doesn't really change much. Like they're going to be combative with crypto regardless.

If what they say is true, Binance doesn't look like they're the greatest actors in the space. They've always been on the shadier side, at least that's my personal take.

There we go. There you have it, folks. The bullish spin zone pulls liquidity back on chain to its home where it belongs. And then I suppose watching bad actors out of the space is a net positive over the longterm. Sam, who do you got for us this week?

Yeah, just 1 more comment on that too. We do have 2 pro crypto candidates running for presidency in just 1 year, right after the Bitcoin halving, right after DASDC, a lot of catalysts coming up here. So I'll at least keep my fingers crossed for that. But I actually, in the same vein, I've got a Purpse on the cool throne for the exact reason you just mentioned effort. I think we saw this exactly happen and play out when FTX collapsed, not saying Binance is gonna collapse, but ultimately, Perp's platform saw a huge increase in just underlying fundamentals in terms of users, volume traded, fee revenue generated.

So I think that that could potentially be an outcome. I know finance is a regularly used exchange to obtain leverage. So if there's any question around that, I think a lot of users do flow on chain because once you get bit by the leverage bug, I think that's just something that it's a lifestyle, honestly. So yeah, I specifically want to point out DYDX because, you know, we're already starting to see Dex volumes start to surpass sex spot volumes. So I think towards the tail end of this year, even next year, I don't know how long it takes to play out, but I think that we'll start to see that in the leverage trading space as well.

It's just great product market fit. And we see that through like the GMX token, DOIDX, GNS, et cetera. So I really like DOIDX. That's my favorite play going into the end of the year. So I've got them on the cool throne this week.

You've got USDC coming to the cosmos. You've got LSTs ready to just be proliferated. I'm pretty sure they're focusing on a mobile app. There's just a ton to be excited about over there. Like if you ask a hundred people in crypto, what's your favorite crypto UX experience you've ever had?

If they're not located in the United States, I guarantee a lot of them are going to say do IDX. So I'm just kind of bullish Antonio, their team and their ability to ship a good product. Everyone keeps talking about the giant unlocks in December. But the way I see it is if they really do build a product that is better than any centralized exchange offering, which is exactly what Antonio told us he is seeking to do on 0 X research, like a couple months back. I think that they're going to want to stake those tokens and earn that revenue into perpetuity.

Like I don't see, I get it would be tempting to take that immediate payout, but I do think there's a serious case to be made for that to be the go-to leverage trading venue in the cosmos. And if you can own a large portion of those revenues every single week, and it's truly decentralized, which is the reason they moved from Starkex app-specific chain in the first place, I really like the play. You even saw quite a bit of strength out of the token today when everything was nuking. So that's usually a good sign when things are nuking and something else is holding up strong. So I think it's something to pay attention to.

I think the timeline effort you told me before the call was September sometime. So I just like all the catalysts for DYDX going forward.

Yeah, even when we spoke to Antonio, gosh, that must have been like the third or fourth episode, which is pretty crazy to think now we're on 40 some odd episode numbers, episode counts in. So bringing it back to the early days, but, you know, I think 1 of our major takeaways from that call was, if they can pull this off, it is really going to prove the use case of an app chain. So still really excited from that standpoint. I think they're doing a lot of really cool things on the tech level tech layer, like decentralizing the indexer and things of that nature and using asking the validators to do more in their system and decentralize their order book. So a ton of really cool pieces that they are custom building out.

So super excited to see this come in the next couple of months. But yeah, to your point, Sam, it's hard not to be bullish on somebody like Antonio, who is just so product focused and all he wants to do is make the best product.

Yeah, I would also say outside of DYDX, you have something like Quenta on Optimism as well. We haven't had infrastructure this good for on-chain perps or just on-chain activities in general. This is a first for us. We just need to go more than 2 days without having an exploit somewhere. But, well, I heard that out.

Incident counter has been reset to 0.

Going back to like DUIDX and them kind of trying to decentralize their entire stack, it's arguably a regulatory loophole, right? Especially now with the SEC cracking down, or not now, they have been. But if they are sufficiently decentralized, there's really no 1 point of failure. And I think that is a huge catalyst. If the SEC keeps cracking down on crypto projects, obviously it's bearish the asset class.

But if the DOIDXV4 product is really good, it's incredibly bullish for AppChains, Dan, just to your point, just from like a regulatory perspective. And I don't wish this on any teams, especially teams that are trying to push crypto to mainstream and really trying to improve the product market fit. But I will also say I'm kind of like, I'd be worried if I was L2s right now. If you have a token today, if you're arbitrary optimism and you're running a centralized sequencer, I don't know. I don't wish that on them.

I hope they make it out alive and I hope that they're able to ultimately decentralize that sequence over time. But I think in the same vein that you can be bullish D-Wed, DXV4 and this whole like decentralized app chain thesis, if it is correct, if the product is good, you also have to kind of look at like the L2 model and be like, if they don't decentralize their sequencer soon, and they have obviously like a real reason to push this as quickly as possible to get them decentralized and not have any single point of failure. Like that is the reason to decentralize is strictly what the SEC is doing. And I'm personally worried that if it doesn't happen soon, they can kind of be part of this, I guess, collateral damage from the SEC's actions.

Yeah, agreed. And just to play devil's advocate a bit, just because you bashed on my Ethereum L2s here. I do think the stakes are pretty damn high for DYDX in the Cosmos ecosystem. If it's a flop, that's pretty tough. I don't think it will be.

If I were a betting man, I'd be betting on DYDX, not financial advice, all that jazz. But I do think if they fail over there, that's gonna really hurt Cosmos, the whole brand. Yeah, I don't know if it's something they'd be able to recover from, to be quite frank.

1000%.

1 of the lead core devs of the Cosmos ecosystem, I'm not going to mention names, but has said it. He said it publicly too, not that it's a big deal, but like, DUIDX literally dragged their market maker participants and USDC into the Cosmos. I'm sure there was other work. I'm sure USDC always plan on launching the cosmos ecosystem eventually. They're already launched on other chains like our ecosystems like Avalanche and Solana.

But my understanding is like USDC predominantly came to the cosmos specifically to support DYDX and their venture that they're trying to build out there. So like they kind of kicked, they dragged their, their, I guess, major contributors and core participants, like kicking and screaming into the Cosmos ecosystem. So I 100% agree, Sam. If this doesn't work out, like there goes really most of my thesis for why I'm bullish to Cosmos ecosystem.

Well, I'm glad that you agree with me there. It's interesting to hear you talk about the bear case for Cosmos. It's not something I get to hear too often. Everett, I do know you've got a pretty fun, cool throne this week. What you got?

Yeah. So it's not crypto specific, maybe crypto like adjacent. There's like a metaverse play here eventually. But so it's Monday, June 5th. Today, Apple's WWDC worldwide, I think developers conference, I think it stands for.

Today was day 1 of it. Obviously there was a lot of hype around their new product launch and it was official. So they did announce Apple Vision Pro, their new AR VR headset that's really trying to compete with Meta and I think like Sony and a couple of other products out there that are really like the large players in the VR, AR headset space. They're calling it their spatial computing product. It's a $3, 500 headset.

I'm gonna be honest, it looked sleek as hell. I really didn't know what to expect from it, but they pretty much have their own like operating system called Vision OS. That's really just like, to me, it looks like a copy pasta of Mac OS or iOS, but specifically for their headset product. And I honestly think like that alone, regardless of like additional use cases, I'm sure there's a shit ton over time that'll build out once there's a good developer toolkit or environment for this type of product. But I think a VR AR headset having its own operating system, a really solid 1, is really what's going to separate the products that have failed in the past, like Google Glass, for example, to this Vision Pro.

So Apple's name of the game is building a solid operating system. They did it for Mac, they did it for iOS, they did it for their watch. That sleek user experience is really what I think sets their products apart from the rest, like the Androids and others of the world. So I think having their own OS that is like very familiar to the average iOS user, I think this is gonna be like, they're gonna knock this thing out of the park. It's very easy to like make these things look cool on screen until the actual user uses it.

I'm sure there's going to be a lot of bugs the first couple of iterations. But if it's even somewhat compared in the real life to what they showed Caste at their keynote speech today, I'm incredibly bullish on this product. Just as an example, if I was wearing the headset right now and I actually thought the headset looked pretty cool, if I was staring at this screen, I can literally lift up my head and then project this entire screen into my physical space and expand the size of the screen. So eventually you won't even need monitors. You can literally just duplicate displays in your area and just have a 360 degree view of all your different screens.

It uses cameras built into the headset to actually track your fingers. So if you want to click on something, your fingers can literally be at your waist and you just pinch your fingers together and the cameras literally are pointed down towards your fingers. So I think it's a really cool user experience improvement from other headsets like Meta's Quest, where you actually have to hold like a joystick in your hand. It doesn't really feel natural. So I mean, Apple's always known to like not necessarily make revolutionary products, but make incredible improvements on products already out there in the market.

And I think they really did that with what I saw today. In addition, they launched, they have a partnership with Disney now where all of Disney's product suite, like Disney Plus, is going to be able to be watched using their Vision OS. They have Optic ID, which is like very similar to what WorldCoin is doing with their orb. So like when you go to unlock your screen, instead of using face ID is able to like see what your ocular pattern is in your eyes to like unlock the device. They didn't mention Metaverse explicitly.

So I guess that's kind of like the bear take from a crypto perspective. But I have to imagine eventually there's gonna be like games associated with Vision OS and this Vision Pro headset. So I'm like really excited to see what this product looks like in over the next couple of years. I really think it's going to be like the next, I would argue it's probably going to be the biggest product for Apple like over the next decade, even larger than iPhone over time.

Just like many funds and crypto VCs made their AI pivot. I think this is Effort Capital making his crypto pivot. So this probably is a good bottom signal, just mental note.

I think something that'd be really cool later down the road is if Apple opens up to being crypto friendly, I think the Vision Pro opens the floodgates for a lot of really neat NFT applications. Like being able to purchase an NFT and like only you have that experience on your AR headset. Or even, I think they announced that they're partnering with Unity, which is like a gaming engine. So if people make crypto games on Unity, they're a lot easier compatible with Vision Pro. So like people could actually have demand for in-game assets that could be tokenized on NFTs.

So there's a lot of really cool synergies that can happen if Apple just gives us a nod of the head.

Yeah, no kidding. And the Apple wallet is still this overhang of what could be for crypto. If your Apple wallet's USDC enabled, I mean, that is the biggest unlock for all of crypto. But what I think I'm most excited about for this is exactly the scenario described. Like you can just be looking at your screen with your glasses on and then have multiple displays everywhere.

Like anybody who's been traveling knows how big of a pain in the ass it is to go from your suite at home setup, multiple screens, got everything set up exactly as you want it to go into that hotel room crammed up off your laptop. I'm on like a 3 month travel thing right now. And if I'm like working from home, it's just sucks as opposed to being in the office. So I got into the block works office custom created my own setup. Everyone in there is laughing at me.

I got my own double screen monitor set up and like I need the high quality monitor set it up monitor set up. And so I being able to just strap on glasses and then custom build my own setup every single day, I mean, that's pretty damn cool.

Think of the unlimited number of Dune dashboards you can have at once. It's your 1 dream.

That is hilarious. Yeah, I don't know. I would take a more bearish spin though on like metaverse gaming. I honestly hate the fact that Apple is just going to have more of a monopoly over like the hardware stack. Because like the reason crypto gaming hasn't taken off to date aside from the fact that the games just aren't very fun.

I would attribute to like just not having a mobile friendly place to deploy. Like ultimately like with these hyper casual games, like I think people wanna be able to use them on the go and to have to like actually sit down at your computer and like play them, It feels a lot more like a job than it does a game on the move. So I don't know how I feel about it in terms of how bullish it is. Metaverse slash gaming. But I definitely know for myself, like I want to buy this even first gen headset.

Like, I think it's going to be worth the price tag. And I can't wait just for the same reason you described, Dan. Like to literally have these screens anywhere, everywhere you go is fantastic.

True. And 1 of the knocks I had on the Solana Saga phone, I equated it to Tesla's. It's like the first gen of anything you just don't really want to own. But damn, I want to break my own rule. Like this thing looks cool.

You're going to spend $3, 500 on a headset in this market?

No. So point in case we got to collectively put our minds together and come up with a business reason for Blockworks Research to own 1 of these things.

I just said

productivity enhancement of all those Dune dashboards. All right, Mike and Jason, you'll have a letter you're coming your way.

All right. I think that's a good spot to end the hot seat cool throne and get into the interview. Dan, before we do that, You want to tell people what's good with the Atom Accelerator?

Absolutely. As always, special shout outs and special thank you to the Atom Accelerator. They're really just trying to do what's best for the Cosmos Hub and expand the Atom Economic Zone. So if you're a developer looking to get involved in crypto or find a new home in the industry, the Atom Economic Zone is really for you. I feel like we naturally talked about a ton of the awesome developments that are kind of coming up in the ecosystem throughout this intro section, but just to hit on it again, Interchain security provides the ability to essentially put in any new features or chains under the Atom Economic Zone.

And there's a lot of really, really exciting things going on. You know, duality is 1 of those things more further out on the timeline of when it's going to be enabled, but you know, they might not even have a token and they're going to fully align with like potentially even atom as a gas token. So a lot of really interesting things there. IBC gives you the flexibility of connecting to any other app chains and interchained accounts gives you the functionality to kind of utilize what the activities on those other blockchains as well. You know, Stride, who we're speaking with today has a phenomenal use case for why that's important and what that can unlock.

Now, Neutron is officially live and it's the perfect place to go launch permissionless smart contracts with ease. I think AstroPort just went live today or yesterday, it might've been. And they've already taken over as the highest volume decks. Astro Port is a Terra survivor, so great to see that team still thriving. And again, liquid staking, taking off means more DeFi, It's more exciting and more attractive.

Strive's really kind of pioneering this and making it more scalable as well. And again, we've said this a million times and we'll continue to say it, but the closer USDC gets to launching, the more exciting DeFi gets as well as there's kind of that stable form of value throughout all of the Cosmos. So, if you think that you can provide value to the Atom Economic Zone and need a grant to do so, be sure to reach out to the Atom Accelerator DAO. Their link is in our description and they're doing grants between 10, 000 and $1 million on a rolling monthly basis. So be sure to check them out.

Now onto the interview with Stride.

All

right, everyone, we are joined today by Aiden and Riley, the 2 co-founders of Stride, who's bringing liquid staking to the Cosmos Interchain. Guys, I really appreciate you guys hopping on. It's A0X today. We got a really, really exciting conversation about what you all are doing. And of course, that's within the Cosmos ecosystem.

So before we dive directly into Shride, kind of want to get your overarching take on kind of what the landscape of crypto looks like, you know, to me, it kind of feels like we have these like 3 ecosystems at the moment, kind of like the high throughput camp with the Solanas, the Aptos, the Suis. And then you have Ethereum and its L2s. And of course, the Cosmos ecosystem. So Zucky had a pretty viral tweet the other day a couple weeks ago now, that was essentially like this battle cry for the Cosmos ecosystem. He said, I think Cosmos social capital has about 12 months to do something unique and differentiated.

Otherwise, we get swallowed by ETH-flavored variants of the Cosmos-originated ideas like roll apps and eigenlayer. I feel a sense of urgency. The hour is late. I'm curious to get your take on kind of what you think this was about or kind of how you feel like does this resonate with you? Is the time truly now for the Cosmos ecosystem?

It's an impossible question. We debated this at length internally. On 1 hand, Cosmos has a ton of new tech shipping over the next 6 months. Well, ETH L2s are in some ways still basically multi-sigs secured by admin keys. They don't have like client-based interoperability and they're not quite as trustless as Cosmos, at least until you see something like ZK L2s.

And Cosmos now has shared security plus Interop, while ETH is still at the stage of shared security. On the other hand, ETH has distribution. Cosmos doesn't even have Metamask yet. ETH has so many more users, institutional penetration, custody is super easy. And many teams choose to build roll-ups on Ethereum instead of AppChains for these reasons.

And there's evidence of momentum in both directions, in my opinion. You see Coinbase choosing OP, L2s have some of the most exciting partnerships in the entire digital asset space. But then on the Cosmos side, DYEX is coming in, Noble has native circle integrations. Maybe the maker end game is on Cosmos, who knows? And I think Zaki followed up to his own tweet with some more context talking about the aspects of Cosmos that he's most excited about.

Talked about Celestia, Skip, Noble, Metamask, Snaps, the liquid staking module, Bearchain, ABCI++, Osmo 2.0. Basically a bunch of pent up innovation that has been done over the past few years but hasn't quite shipped yet. And we might see the fruits of that labor in the next 3 to 6 months might totally change how Cosmos is experienced by the broader and perceived, not just experienced by the broader crypto world. But I'm curious what you guys think and you too, Aidan. It's an impossible question at the end of the day.

Yeah, I would just strongly agree with that. Like on the 1 hand, you have all these awesome things occurring in Ethereum and its L2 ecosystem with partnerships like with Coinbase, WorldCoin, etc. But then on the other hand, Cosmos has like, it's had these missing pieces for the past 2, 3 years. And like with native USDC, with, you know, obviously LSTs, like you guys becoming a more prominent narrative and then DYDX, V4, like there's just so many tailwinds for the Cosmos ecosystem. And it's like, just like you said, over the next 3 to 6 months, it's going to be like the most interesting time there has ever been to pay attention to the Cosmos ecosystem.

So definitely excited for it. But Dan, what do you think?

I'm with you there. And it's hard to pick 1 ecosystem right now for me and be like, all right, the time must be now because it kind of feels like for all of the industry, that's where we're at. Like everybody's itching for that killer app. And, you know, there was some discussion around this the other day on Twitter. And like the idea was, you know, everyone's building infrastructure and no one's building apps.

And it's because, well, there needs to be the infrastructure to support the apps. I mean, it feels like we're kind of stepping in that right in that direction there. But I'll toss it over to you, Aiden. I'm really curious to get your thoughts here.

Yeah. 1 thing that I think is interesting here is different people have different definitions of what Cosmos is. So Cosmos is the SDK, which is the software development kit that you can use to build blockchains. It's also the Cosmos Hub, which is the 1 blockchain in the Cosmos ecosystem. And other people use the definition of any chain that's connected to IBC.

So depending on which definition you use, I think you might have a slightly different take on this tweet. But thinking about the Cosmos hub in particular, I think 1 thing that the Cosmos ecosystem has struggled with a little bit is when everyone has their own chain and everyone's sovereign, sometimes people are rowing in different directions. Whereas in other ecosystems like ETH or Solana, at the base layer at least, everyone is rowing in the same direction and the applications are built on top. And there's of course trade-offs to sovereignty, but I think this is 1 of the downsides of sovereignty is you sometimes get people rowing in different directions. But recently with the launch of Interchain Security and some changes to the Atom or Cosmosub tokenomics.

I think it seems to me that people are feeling this sense of urgency and maybe rowing a little bit more in the same direction behind Atom and the Cosmosub.

Right on. So specifically when it comes to liquid staking, in the post-Shapella Ethereum landscape, it's just like this huge narrative, everybody's been talking about it, LST, fi LST summer, it's it's pretty nonstop. And so the obvious benefit of having liquid staking tokens is obviously keeping the asset liquidity and earning the staking rewards. And that's very powerful when it's plugged into a vibrant DeFi ecosystem. But when people talk about Cosmos ecosystem, their Cosmos DeFi, it's usually like the conversation and how it's been slow to develop.

Do you think the arrival of liquid staking tokens to the Cosmos interchain can really help kind of be that kickstart catalyst to the DeFi for this ecosystem?

I definitely think so. So I think it's sort of interesting in that liquid staking tokens, as far as I know, were actually invented in Cosmos. There's a forum post from like early 2019 and this course 1 research report on LSTs. However, they didn't take off in the Cosmos ecosystem. Of course, they took off in the Ethereum ecosystem through Lido.

I think Lido was the first really large decentralized LST protocol. And as a result, I think Cosmos DeFi struggled for a long time. Part of the reason is just the tokens in Cosmos have such high staking yields that to even use these tokens in DeFi, you have to clear this hurdle rate or provide very generous external incentives. So we have seen some chains do this successfully. I think Cosmos has sort of pulled it off with their large incentive program, but for other chains, it was really hard.

And when we were actually launching Stride, we were thinking about what DeFi protocols could use LSTs in Cosmos. And it was a little bit hard to say, because I'm sure there were lots of teams that thought about building DeFi in Cosmos and just never launched because the hurdle rate was so high. Lots of DeFi applications in Cosmos just don't make sense if you don't have Liquid Seiken tokens. But I think our thesis has been validated. We launched Stride back in September, and in the 3 or 4 months after launch, we started seeing tons of DeFi protocols come online.

Some of these were definitely in development before Stride, but I think other DeFi protocols saw LSTs coming to Cosmos and realized that they could finally build DeFi primitives for the Cosmos ecosystem. So things like lending, things like CDP stablecoins, like IST is a big 1 coming on Agoric, which hopefully will be backed mostly by LSTs. All these DeFi products are finally coming online. So I think LSTs are going to be a huge unlock, and especially over the next year, you know, It takes some time to launch a Cosmos chain. It's not quite as simple as launching a smart contract, even if that's what we like to say.

But yeah, I'm pretty bullish on DeFi and Cosmos over the next year.

Yeah, same here. I just always think to the PURPSE tokens like GMX, GNS, etc. I salivate over the idea of being able to use that as an LST, earning P&L, trading fees, the inflation. That would just be such a huge unlock. And it just wouldn't be able to compete with anything on an ETHL2, quite frankly, because you get to do so much with that token.

But I'm curious, what do you guys think, how do you think Lido's arrival to Neutron is going to affect the market landscape on the LSTs in the Cosmos ecosystem? Obviously, they have a huge treasury, a lot of network effects built up on the Ethereum ecosystem. Like it's, it's essentially a whale coming in to fight you guys for your 80% plus market share and a really nascent market. I think it's 1% of all of Adam's supply of state, uh, through liquid staking tokens. So how do you guys think about that competition?

Are you excited about it? How are you gonna, how are you gonna position yourselves in that 1?

So maybe to frame this, there are 3 main competitors today in the Cosmos ecosystem, outside of Stride. There's P-Stake, there's Quicksilver, and there will soon be Lido. And there will always be key differences between these platforms. Buckling them up a little bit, Stride and Quicksilver and Stride and Pstake have a key difference of minimalism. They're both app chains or all 3 of them are app chains.

But the main differentiator is that P-Stake and Quicksilver both aim to have DeFi ecosystems on top of their own chain. So They issue the LST and they plug it into their own DeFi ecosystem. This is a very attractive business model because you get not only the fees on the liquid staking, but also the DeFi. Stride is a little bit different in that we just do the liquid staking and then integrate with other DeFi around Cosmos. So maybe it's not as good a business model in that sense, but maybe it can scale more.

Then comparing Stride and Lido, the key difference is the approach to liquid staking overall. Lido deploys smart contracts and Stride uses an app chain. If Lido deploys on Cosmos, they'll likely deploy as a smart contract on Neutron. And so you have different trust assumptions between a smart contract based deployment of liquid staking and AppChain. The smart contract-based deployments sometimes are controlled by admin keys and multi-sigs.

They're upgradable. Whereas the AppChain is controlled by a validator set. This is not strictly a good thing and not strictly a bad thing. There are just trade-offs here that are made. There are KYC and compliance reasons to be controlled in a certain way.

Then there are also different safety capabilities. If you have an AppChain, you can do things like rate limiting and invariant checks, but maybe you can't pull all the funds if you need to in a split second in case of a hack, whereas with an admin key, you can do that. At the end of the day, Cosmos is sprawling and diverse. And I think we're gonna net out in a world where some of the liquid staking providers specialize to particular subsets of this broad multi-chain ecosystem and others specialize in other places. So it's very hard to say we're going to net out.

And as you said, Lido is a huge incentive program and a massive, massive, 1 of the most competent teams in the crypto ecosystem. So it's it's going to be a real race to especially for the atom market, where maybe

80, 90%

of the stake value in Cosmos lies today.

Yeah, I love that you also mentioned 1 of the key differences between Lido and of course, Stride, is it's like, I think our listeners are probably pretty comfortable with what the kind of the UX flow looks like for someone staking E through Lido because that's like this this DAP built on top of the chain that it's servicing. And so I want you to kind of like walk us through what the user flow looks like for somebody who's let's say has Adam and wants to stake it through Stride. What does that process look like? And can you just kind of walk us through how the asset moves from the Cosmos Hub in this case to Stride and what the process kind of just looks like?

Yeah, definitely. So on a monolithic chain, typically the way that you interact with a contract is you click a button, maybe you do an approval, and then you sign a transaction. And it happens on that chain. So there's no bridging step. There's not much waiting involved, depending on how fast blocks are produced on that chain.

In Cosmos, things are a little bit different where you first often have to IBC transfer a token or bridge a token over to another chain or application to kind of quote unquote deposit it there. And then you can do your action. So up until actually today, the way that Stride typically worked from a user's perspective was you would first IBC transfer your token to Stride. And then in a second step, you would liquid-sake that token. So there were kind of 2 transactions.

The first 1 takes maybe 30 seconds. It's a bridge transaction. The second 1 takes maybe 5, and it's a liquid-saking transaction. It's not a perfect UX, and especially for people coming from the Ethereum or monolithic world, it's a little bit counterintuitive, like why you have to bridge a token before you just liquid stake it. What's nice is as soon as you liquid stake your Atom, you get STAtom immediately in return.

So there's no waiting, like Stride isn't querying another chain or doing anything like that. It is instant. And then you can take your SD-ATOM and take it to Osmosis or UMI, a lending protocol, or do whatever you want. But there was this extra step. So we spent the last couple of months looking at how to optimize this.

And what the stride UX looks like now is the user signs a single IBC transaction and their token is transferred from the Cosmos Hub to stride so that Adam moves from the hub to stride and then it's liquid state immediately upon receipt on stride. So this takes it from 2 transactions down to 1 and it feels a bit more like a monolith and there's even an additional sort of routing step that you can do where if you want to send it back to the Cosmos hub, that's something that we could do in the future. So you just sign a single transaction on the Cosmos Hub, and then 30 seconds, a minute later, you end up with ST Adam in your account on the Cosmos Hub. So I think the UX started much more like Cosmos native, where it was bridge and then do the thing. And we're getting much closer to something that feels like a monolith, where you just sign something on the Cosmos Hub and you don't really have to worry about what's happening behind the scenes in terms of where your token is going.

Fantastic. I mean, we always talk about how improved UX is just the no-brainer next step for the entire industry. So love to hear the steps that you guys are making there. And specifically when it comes, so everybody kind of is familiar with IBC and how that plays a role in the Cosmos ecosystem, but ICAs, Interchain Accounts, are this like new unlock that you guys are really pushing forward. Can you talk about how Stride is using interchain accounts and the value that that provides for you?

Yeah, so a brief sort of technical background on interchain accounts. On most chains, there's a public private key pair that people or contracts use to sign transactions. So when you create your seed phrase, you get a private key and then there's a public key associated and you sign a transaction. With interchain accounts, the model is pretty different. So it requires a slightly different model for thinking about it.

But the high level idea is with an interchain account, either a user or a protocol on 1 chain can own an account on another chain. So rather than having a private key for 1 chain, you have a private key or the protocol owns an account for another chain, and then it can control that chain remotely. 1 way to think about it is it's sort of like a puppet master where you're kind of sending actions and seeing results across different chains. So that's sort of technically how Interchain accounts work. And the reason that they unlock Stride's logic is when Stride stakes or unstakes user tokens, they're all pooled together in 1 account.

This is pretty similar to how other liquid staking protocols work. And the inner chain account will actually send the staking and unstaking transactions. So when you deposit, say 10 atom to Stride, those atom get transferred over to this pooled account on the Cosmos Hub, and then Stride will send a transaction through IVC and say, hey, here's 10 new atom. Can you also go ahead and stake these on behalf of the user? So that's sort of how interchain accounts work.

Yeah, that was a really helpful explanation. 1 analogy I saw for interchain accounts that I really like, I can't remember who came up with it, but it was like sending letters inside of an envelope inside of a box over to to various chains, which I thought was kind of clever. In terms of LSTs though, specifically for stride-based tokens, are they like A token types, so like auto-rebasing, or are they C tokens that basically become available for more of the underlying when you go to redeem those tokens. What's the actual model and why did you make those choices?

Yeah, good question. They're seed tokens. It's really hard to rebase tokens in Cosmos. As you can imagine, many blockchains, ST Adam lives across all of them. So if you want it to rebase, you need to count them all up and then divide to bring them back to par.

That's a very, very expensive operation. It might actually be an NPR problem because the connections to all the new chains are permissionless. So at any point in time a new no-name chain could open a connection and bring STAtom over and you'd have to count that in your rebasing operation. So that's maybe a technical limitation, but at the end of the day, even if it were possible to build STAtom with the A token type model, you probably wouldn't want to because it's better for DeFi to have a non-rebasing token. You even see this on Ethereum with STETH and wrapped staked ETH.

The version that eventually gets used in DeFi is wrap stake eth. And the reason for this is if you wanted to rebase and distribute extra tokens to compensate users for their staking reward, it's kind of hard to reason about how that might play out for a user who is maybe collateralizing a debt or LPing a pool. Where do the tokens end up? The tokens that you send them. So short answer is we're using C tokens.

Yeah, no, I agree. That's definitely the trend we've seen in Ethereum DeFi with the exception of Staked ETH, but of course Wrapped Staked ETH is making its rounds. Moving the conversation to interchain security itself, Stride has the proposal out to share 15% of liquid staking rewards with liquid staking rewards, transaction fees, MEV revenue, and Stride inflation in exchange for the hub's security. Can you talk us through why this decision was so important for Stride and why it was ultimately the path that you all wanted to proceed on?

Yeah, it's a great question. So there's sort of 1 assumption and then 1 hypothesis that we have. So the assumption is that Atom is a really important token in the Cosmos ecosystem today, and will continue to be a really important token in the Cosmos ecosystem going forward. And this is something, you know, it's hard to validate this today, but I think we've seen, especially as Atom has shipped more features recently, I think we've seen a bit more energy behind the Cosmos hub and the Atom token itself. So that's sort of an idea that we have.

And you see this reflected in TVL as well. I think Atom TVL makes up something like 80, 85% of all stride deposits. So there's sort of a power law with Adam at the top, Osmo second, and then it trails off, um, could change, but this is what it looks like today. And then the idea behind interchain security is 1, um, through ICS Stride is much more economically aligned with the Cosmos Hub. So there's a sort of symbiotic relationship where each chain is servicing the other.

So Stride provides sort of an economic engine for the Cosmos Hub by creating lots of liquidity for the Atom token. And the Cosmos hub in return provides security. And in particular for liquid staking protocols, it's really important that they're very secure because the TVL can get so high. And The liquid staking protocol itself touches something that's very close to the heart of blockchains, which is proof of stake. For example, if you look on Ethereum, I think Lido's TVL is something like 13 billion today, which is maybe twice as much as the next highest protocol by TVL, which I think is maker.

So TVLs for liquid staking protocols can just get really high. And therefore you want very high security, both protocol security, which we try to ensure through lots of audits and rigorous testing and things like that, but also economic security. So you wouldn't want, for example, the Stride validator set to have low economic security and then secure billions and billions of tokens, because there might be some incentive misalignment there. So that's how we think about interchain security at a high level. It's both economic security, but also economic alignment.

I feel like a lot of Cosmos naysayers will say, well, interchain security makes no sense. Like at a certain point, you're going to graduate and want to have completely your own validator set to accrue all those transaction fees, MEV and inflation. So would you say that that doesn't really apply for Stride considering a vast majority of your TBL is Atom and you kind of grow in tandem with each other? Or do you think there is a world down the line maybe where you become your own independent chain?

I am not sure. But if I had to guess today, I think either interchain security or something like mesh security, where the majority of the security comes from the Cosmos hub makes the most sense. For all those reasons I mentioned, I think it makes a lot of sense for liquid staking protocols to have their fate tied to the protocols that they support. The nice thing about interchain security though is the chain, so Stride for example, doesn't actually lose very much sovereignty. So the STRD token still exists, it still has governance rights, the Stride protocol can still develop next to the Cosmos Hub.

And the only real difference is the Cosmos Hub validator set has additional slashing conditions and runs the Stride nodes themselves. But future Stride upgrades can still happen. And yeah, so Stride loses a little bit of flexibility and a little bit of staking rewards. But in return, it gets all of this economic alignment and economic security. So if I had to guess, I think It's probably going to go on for a long time.

Okay. Yeah. And I'm also curious because I've never actually been able to ask this to someone firsthand like everyone says and talks about how hard it is to, you know, actually bootstrap your own validator set from day 1 from your guys' experience. Like how difficult truly was that? Like what were the steps involved?

I can only imagine.

Yeah, it's, it's definitely harder than launching a smart contract. But it's not as hard as you would think. I feel like it's mostly a talking point for people that are like sort of criticizing the Cosmos ecosystem. As it may be just to put some numbers on it, when we ran our testnet, I think we had something like 1100 validators. And when we launched mainnet, we had about 100.

But there were many more that were kind of wanting to be in the initial stride set. So it was really a question of like, who's the highest quality validator and how do we make sure the initial set is distributed and things like that. But I think bootstrapping a validator set in general is actually not very hard.

Yeah, maybe to reframe that, it's more about bootstrapping a quality validator set that gives you economic security. During the testnet, there are hundreds of people running nodes on their Android phones with low bandwidth. And arguably that's a validator. But hey, you might not want that if you're securing billions of dollars on your mainnet.

Okay, okay. That's a good 1. Yeah, I like the perspective there as well. And so thinking about the relationship between like a consumer and a producer chain, the like the Cosmos hub in this case is getting 15% of liquid staking rewards and Stride inflation. Those 2 are very straightforward to me on like how the hub accrues value there.

But when it comes to transaction fees and MEV revenue, I wanna like dive in deeper on those 2. So specifically for transaction fees, for that category to be valuable, there needs to be a meaningful amount of on-chain activity. And so, what's like the long-term view here for you? Do you think things or applications will eventually be built on top of stride? Is that process permissionless?

Or do you think the transaction revenue will strictly be like staking and unstaking transactions that occur on stride?

Yeah, so today, it is not permissionless to build applications on Stride. And as Riley alluded to earlier, Stride is very minimalistic. So this is a security, but also a narrative and specialization concern. I think the best manifestation of Cosmos and IBC is lots of individual chains being the best version of what they're built to be and helping each other out. For example, Osmosis is a great DEX, the Hub is a great security provider, Stride is a great LST provider, and they can all help each other out through IBC.

Maybe in the future, it would make sense to build apps on Stride, but personally, I don't think it makes a whole lot of sense today, mostly for security reasons. That said, I do think TXVs will accrue revenue for the hub. The main reason being when you liquid stake, although it's a less common transaction, it's typically a very high value transaction. So having a higher TX fee on that, I think is probably reasonable.

Yeah, just to add a little color, there's also a strategic reason to remain minimalist. The quality of the partnerships between a minimalist liquid staking provider and DeFi applications around the ecosystem can be much, much higher than the quality of partnerships between a liquid staking provider that might be trying to cannibalize that DeFi providers activity. For example, if I'm building a DEX on Stride and I approach Osmosis to provide incentives to my ST tokens, they might not know whether I'm being entirely honest with them about my motivations.

Right on. I think that makes a ton of sense. And then on the MEV piece, I've heard you guys talk about this briefly, but I'd love to like to really dive in here and you have this like unique opportunity to auction off instant redemption rights. So I guess first, before we kind of dive into why that could be valuable, how do you guys view the price of an LST? Like, should that be pegged to 1.0 at all times or should like longer withdrawal processes kind of like lead to this liquidity discount.

How do you, what's your framework around the value that LSTs will be trading at on the open market?

Yeah, it's a good question. I think it honestly deserves a full research paper. And I've never seen someone write about it in that much depth. But our rough sense is first that it's very important for LSTs to trade close to the peg. The most obvious reason is 1 of the largest integrations for LSTs today is lending protocols.

And If LSTs start to de-peg and LTVs are really high on lending protocols, you might start to have liquidations. And in the worst case, you could even have cascading liquidations where 1 liquidation happens, the price drops further, more liquidations happen, et cetera. I think this risk was there in like 2022 for SCE because they didn't have withdrawals and there was like a big deleveraging. So it's really important for that reason. But also for just normal people that want to sell their LST and get the native token back, being pegged is pretty important for that UX.

And then in terms of how we think about the peg, I think in theory, it should be a function of the cost to short and the withdrawal period. The reason being, If an LST de-pegs, you could buy the de-pegged asset or token and you could short it on another market and you could withdraw that LST from the protocol. And at the full redemption rate, you could get back the underlying token. So the only cost that you incur is how much it costs to short that token over the withdrawal period. So if a token has a really long withdrawal period and a really high yield, that means it's going to cost a lot to short.

It's going to take a long time to withdraw. So it might have a weaker peg than a token with a really low yields and a really low withdrawal period. But in general, it should be between like 0.9 and 1 for most Cosmos ecosystem tokens.

Right on. That's actually a really interesting point. And because the Cosmos ecosystem tends to have, you know, that 15% staking rewards ratio or rate. So that will be an interesting factor here to watch that play into the peg prices of these assets. So with that said, in that, that in mind, it's like, okay, well, now that you guys are offering the potential for instant redemptions, and kind of like auctioning off those rights, how are the instant redemptions processed?

Yeah, it's a good question. So the way it works has to do a little bit with the internals of Stride. So maybe thinking about these internals, the way that Stride works is when someone deposits a token, there's roughly a 6 hour window where the token is just sitting on Stride. And then at the end of that 6 hour window, it'll get transferred back to the chain that it needs to be staked on. So for example, for Atom, it'll get transferred back to the Cosmos Hub, and 6 hours later, it'll get staked.

And the reason is, Stride runs all of its logic in these things called epochs. They're a little bit like cron jobs or something like that. Basically the logic just runs every 6 hours, which simplifies the protocol significantly. It makes it much less likely that there's bugs and all these things. It's a really nice feature.

But what's sort of interesting is when you liquid stake on stride, those atom are just sitting in the stride protocol for 6 hours before they're transferred back to the Cosmos hub. So if you want to withdraw, what stride could do, which is what it does today, is it could kick off a withdrawal and it could burn your ST atom and say like, hey, on stake 10 atom from the Cosmos hub. But alternatively, what it could do is if there's already 10 atom sitting on stride, it could just match that withdrawal with the deposit. So there's some float on stride and that's how you can process instant redemptions.

Okay, that's super interesting because I've seen other protocols like Lido, for example, has like this withdrawal buffer and it helps process withdrawals. So it doesn't necessarily, it can speed up the time it takes to withdraw, but of course that creates a drag on the assets yield itself, which I guess you could then make the argument, you know, with such high yields in the Cosmos ecosystem, maybe that becomes slightly less important. But are you guys like, is the idea, is the ability to auction off these rights, Does that exist today? Or is that something that's going to come in in the future?

Yeah, that's gonna come in in the future. So something that we're doing a lot of research into right now is the best way to model this. So we've actually done a little bit of work on Instant Redemptions themselves. And we could just make it like a flat fee and that might be the V1. The V2 is something a little bit more dynamic where you actually auction off the right to do the Instant Redemptions.

But there's a lot of sort of quirks that make this pretty challenging. We've been talking to the Skip and the Fairblocks team about how to best design this auction. Personally, I don't have a lot of experience designing auctions. Really, I'm not sure about you, but there's many more foot guns than I expected.

Yeah. Vishal is the expert here. The third co-founder is not on today. Yeah.

Damn, we

missed him. We'll save that 1 for another day, I guess. But something I wanted to bring back up just before we glazed over it. I know when I asked the question like about, you know, competing with Lido, a big advantage I feel like you guys have actually is that, and please walk me through it or correct me if I'm wrong here, but you guys got 450, 000 Adam pledge for some liquidity, uh, either on Astro port or osmosis. I can't really recall which 1 it is, but I feel like having that much liquidity for your LST is going to be a huge advantage just right off the bat.

So could you kind of walk us through that deal and the significance of it?

Yeah. So there are a couple of benefits to this. The biggest 1 is that it's a much more sustainable LP base for STAtom and Atom. You know, we're talking about the peg between STAtom and Atom and how it can de-peg based on lots of selling and, you know, the whims of LPs. By having the Cosmos Hub itself provide liquidity for the ST Atom pool, there's a sort of solid foundation of liquidity that's very reliable.

It's very predictable and it's not going away. The benefit that it provides to Stride is Stride has this incentive program, like many other chains, like Osmosis, and they're all sort of being burned down through time. So this incentive program has runway and it's going to run out at some date in the future. It's fundamentally unsustainable. It's going to work for a while, but we need to start thinking about more sustainable models for liquidity and these SE token token pairs.

And I think protocol and liquidity is really the endgame here. At least this is how I'm thinking about it right now. So seeing this come from the Cosmos hub is really exciting, because I think it can also be a model for other blockchains in the Cosmos ecosystem. It's also sort of unique for the Cosmos ecosystem. Like it's I think it's much harder to do this in other ecosystems.

But in Cosmos, it's very common that chains have community pools where they just have like, you know, 5-10% of their supply sitting idle, and using it to provide a solid foundation for liquid staking tokens, I think is a really good use of those community pool funds.

And so just to clarify on this, like the Cosmos Hub is retaining ownership of those tokens and they're just like essentially LPing them to provide peg stability.

Yep, that's exactly right. The Cosmos Hub still owns the tokens. The way it works technically is it's going to be custody by a smart contract on Neutron starting in a few months. So the Stride team got a grant from the Atom Accelerator now to build out this set of contracts. And the way that they're going to work is the contracts will be deployed on Neutron.

And because Neutron has ICAs and ICQs, these contracts can use interchain accounts to receive Adam on the Cosmos hub, send it over to stride, liquid sake it, send it back to neutron, and then LP it on Astro port. But the Cosmos hub protocol owns the liquidity like stride can't go to these contracts and like pull out the liquidity or sell it or do anything, anything else with it.

Okay, so it's like protocol own liquidity on behalf of the Cosmos hub or any other chain in that scenario. Do you think there was any value in trying to get protocol own liquidity for Stride itself and try to like distribute that out into these pools and kind of take that role that the Cosmos hub is providing, or would you like to strictly keep it so that the other chain is operating their own protocol, own liquidity?

Yeah, it's definitely an interesting question. And people have actually suggested this to us before. You know, they've in governance and, you know, in random DMs, we've heard people say, like, maybe Stride revenue, some portion of that should actually be diverted to the tokens that Stride has to LP. And it could start buying those tokens, and then Stride itself would have protocol and liquidity rather than the other protocol owning it. I think today it would be such a small magnitude that I'm not sure it makes sense.

But on the other hand, it's better to build up early. So I don't really have a strong view here, but it is a very interesting question.

An area that I've been a little bit disappointed in, in terms of Ethereum LSTs has been the focus on L2s. Like I feel like there's a pretty big opportunity for a Steeth to be like a gas token. Because I mean, I've always got some ETH in my wallet over on Ethereum. Like Of course I would hold it as Steeth if I knew I could pay for it, you know, whenever I needed to make a transaction. So is there any, I guess, ambitions to have maybe ST Adam be play that kind of role across the interchain, you know, being able to just kind of hold strides Adam and be able to pay for transaction fees.

I know a lot of people in the Cosmos talk about making USDC a gas token, but personally, I'd rather earn yield while it's just sitting there idle in my wallet. So curious how you guys think about that.

That's a great question. We've talked to a few of the Atom Economic Zone chains about this. Duality in particular are aligning fair very closely with the hub. I think they're passing most of their fees on to the Cosmos hub, and might not even be launching a token. And they're pretty open to this idea, as well as some of the other Atom Economics zone chains.

But gas plays a slightly different role in Cosmos than it does on ETH. Frankly, you don't really have to hold much other than dust to perform these transactions. And a lot of the Cosmos chains are starting to whitelist a broader set of token denominations for gas. I think the endgame is probably that USDC will be gas across Cosmos and you'll have to hold maybe 1 or 2 bucks in order to transact pretty indefinitely across all the chains. So it could be cool to have STATUM as a gas token, but I don't think it's the long-term solution.

So we dove pretty deep on Stride's architecture, but 1 thing I'm still not following is, okay, so let's just keep using atom as the example here. So let's say I want to stake my atom. I obviously have to stride, or say I use the one-click method, and now it's in that first epoch and it gets sent over to the Cosmos Hub in the module account to be processed for staking. How does Stride determine which validators receive that token and how does it ensure the fair distribution there?

Yeah, that's a great question. So there are a number of different validator selection mechanisms that are used across the quits taking providers. On 1 end, you have something maybe safe, but centralized, a whitelist per se, where the team that's the validators, maybe they know them in person, they have a Zoom call, something like what we're doing right now. They verify all the security standards. They maybe even have a contract off-chain that says, hey, if you're slashed, you have to pay that out of pocket.

On the very other far end of the spectrum, you have something that's very, very decentralized, but potentially unsafe. There are intent-based architectures where when a user deposits a token, they decide particularly which validator they want that deposit to go to. And then they can decide to maybe rebalance their STATM across validators. So they have a full control, but these types of approaches are ripe for governance-based attacks. And I can get into that if you want, but somewhere in the middle, there's a, maybe a balance where you have both safety, but also a good chunk of decentralization.

And what Stride has decided to do is something around that range of the spectrum, where there's a council of members who represent the host chain, say the Cosmos Hub. These are members who understand Cosmos Hub governance. They're aligned with the Atom zone and understand all the details. Maybe they know the validators well and they know who has a particularly safe setup, who contributes to the community, who writes code. And they review applications from the validators.

They rank them across a number of categories in an objective framework. It's totally blind. And then the rankings and recommendation put forth by the council is up to governance. So ultimately, stride stakeholders get to decide who's in the set according to the set that was proposed by the council. And then that is either ratified or denied.

And this process has been run once on the Cosmos Hub. I think it's going to be run again in the next month or 2, probably for us as well.

Okay. And then so like, so it hasn't been run for osmosis in this example, then like who, which validators are receiving that today? Is that just like a subset of white listed validators?

It's just the top, I think, 35 or 40 validators on osmosis. So until stride can do something high quality like the council, they don't. We don't take an opinion and we just copy the osmosis set.

Awesome, OK, that makes it on a sense. That makes sense And I hate to pivot back to the Cosmos hub itself here, but I have 1 more question around. So the liquid staking module, the LSM, has been this huge debate. Can you kind of walk us through what that is and if Stride is going to opt in and use that piece of technology?

Totally. So the idea behind the LSM is that liquid staking maybe has some risks, but if we regulate it effectively, it can be a massive boon to Cosmos. So the liquid staking module is basically regulation on liquid staking providers. It's a,

You can think of it

as a safety framework for liquid staking, where all the parameters that determine how much safety versus liquidity we trade off are controlled by Cosmos Hub governance. And it has 3 parts. The first is a cap on all liquid staking. Currently on the Cosmos Hub, liquid staking providers can hold 100% of the atom voting power, which some might consider dangerous. So The liquid staking module lowers this cap to

25.

Basically, it prevents providers from controlling more than one-third of the stake. Of course, one-third is a threshold for bad actors to censor transactions or hold block production. The second piece of the liquid staking module is that today, a validator like Figment can take unlimited delegations from liquid staking providers. So it's possible that they could have 100% of their delegations come from Stride. And it's also possible that they could take all of Stride's delegations.

With the LSM, in order to receive any liquid staking delegations, Figment needs to put up some skin in the game. So they need to self-bond some atom that they personally own and subject that to slash. Basically, this helps avoid validator corruption risk and align the 2 parties in the principal agent model. And then the third and maybe the most exciting part of liquid staking module is that there is a ton of staked item today. And in order to liquid stake that, it needs to be first unbonded, which of course costs the delegator 21 days of staking rewards.

Many users are hesitant to do that. So the LSM allows you to do that conversion instantly. You no longer have to wait 21 days. This opportunity cost is gone. And our hypothesis internally is that this transition, when the Cosmos Hub adopts the LSM, is going to open the floodgates and allow for a ton of new capital to be liquid staked and onboarded onto DeFi like UMI, Mars and Agoric.

That is incredibly exciting. I actually had no idea that was a thing. I would think a massive amount of Staked Atom would switch to being liquid staked as soon as that happens. There's literally no point not to. So that's super exciting to hear actually.

I did want to dive in real quick to just the research efforts you guys are launching. I was curious, like what kind of different things are you looking to research? And how can people potentially get involved? What's the main goal of the program that you're putting together?

Yeah. 1 of the first initiatives we're going to start researching at the end of the year is how can Stride work with ecosystems outside of the Cosmos? We want to focus on Cosmos for a long time, but part of growing the Cosmos is exporting the Cosmos tokens to nexuses where there's a lot of liquidity. So using bridges like Axelar, Composable, Landslide, maybe Warmhole, who knows? ST Atom, ST Osmo can be exported to ETH, to NIR, to Polkadot, to Avalanche, and can be used in DeFi there.

There's a pool on Camelot, I think, on Arbitrum now with STAtom, STEeth. And you might see more of those in the future. A second research initiative is creating liquid state tokens for some of those other chains, which might be enabled through general message passing through XFLR, but that's a little bit further out. We haven't started exploring that 1 quite yet. There are a number of other research directions like the instant redemptions.

We're doing a lot of work to try to abstract away IBC. Aiden mentioned the one-click liquid staking. It goes a long way for users, particularly users who are not experienced with Kepler and with the typical Cosmos user flow. For example, when MetaMask snaps comes along in August or September, these users are not going to want to do the bridge, liquid stake, bridge back. They might just throw in the towel.

So we're trying to get ahead of that and make sure that the whole flow is very simple. And then 1 final big research effort is liquid governance. Can you vote with your ST, Adam?

Awesome, okay, so that last piece is super, super interesting, because it kind of balances that trade-off between, you know, who should have the governance rights over a liquid staking provider? Should that be the governance token holders, or should that be like what are deemed as more of the users of the protocol, which are the people holding the liquid staking tokens? Where's your head at around that now? Obviously this is like a huge research topic, but I'm curious to get your thoughts on if you have any opinions on, you know, what that should look like in the near future?

Yeah, it's mainly a technical question right now. Most of the stride contributors that I've spoken with are of the camp that the user should retain full governance rights, as long as it's safe in a PLS model. Now, voting with a liquid staking token is at face value, not a safe proposition. Because the point of staking is that you lock up your token to vote. You can't unstake after your vote and cycle your vote.

You can't perform all these exotic attacks on the stake that's in the network. But if you emulate those locking mechanisms with LiquidStake tokens in order to give the user the ability to vote, then it can be safe. So step 1 here is, I think we have code written for this already, we just need to deploy it and put it up for vote. If the user locks their ST Adam on this dried blockchain, they should be able to vote on Cosmos hub proposals. But hey, no 1 wants to lock their ST Adam on this ride blockchain.

People want to put it on Osmosis and UMI and Mars. So step 2 is from a liquidity pool. If you're LPing for 21 days and you've locked yourself in for the 21 days, then you can vote. And then step 3 is if you've locked yourself into any arbitrary DeFi position, whether that's collateralizing a stable coin, providing collateral on a lending market, collateralizing a perp or an option, whatever it may be, if you lock yourself in for 21 days, then you can vote. And step 2 and 3 are cross-chain voting.

There are some complexities under the hood with how that's built, but that's on the roadmap and something we're starting to look at.

Nice. Well, this has been a fantastic conversation. We're running up on an hour here. Dan, I don't know if you had any other questions, but I wanted to give you guys a chance to kind of tell people where they can find you, learn more, get involved with Stride. Aiden, maybe we start with you.

You can find us at stride underscore zone on Twitter. That's where we're by far most active on Twitter. It's our sort of main platform. Maybe we'll expand to others in the future. In terms of getting involved, if you're a code contributor, all of our code is open source on GitHub.

You can just go make a pull request. If you're more of like a BizDev or some other kind of contributor, Riley and I and Vishal, all of our DMs are open on Twitter and Telegram and you just send us a message. We respond to pretty much everyone. 1 of the things I love about crypto is accessibility. So we try and provide that ourselves as well.

Awesome. Well, thanks again, guys. Really appreciate you guys coming on. Uh, we'll have to do it again in 6 months and kind of catch back up after all these catalysts, because I know everyone's super excited to keep following along, but anyways, Thanks again guys, have a good 1.