Beyond the EVM - Computation and the World Computer w/ 0xToki (Umami Finance)

**Speaker A:** Hello and welcome back to the Strange Water Podcast. I'm so happy you tuned in for this conversation. We've got something very special for you. Today's guest is one of the more technical guests we've had on this pod. 0xtoki is one of the smart contract devs for Umami Finance. We've been bothering Toki to do an episode with me for weeks now, but he's been much too busy shipping the brand new Umami Delta Neutral GLP vaults. And so now that they have finally shipped, have been tested and are accepting deposits, he has finally freed up enough time to chat Ethereum. This conversation is one of the best conversations, recorded or not, I've had in a long time. Of course, Toki shares his background and how he found himself creating advanced financial products on Arbitrum. We also discuss Umami and specifically what it takes to achieve success despite failed product launches, regularly occurring Black Swan events, and non stop dao drama. And believe me, Umami has seen more dao drama than most. But the second half of this conversation takes us down roads that are rarely walked down. This is a conversation you can only have with someone who eats zeros and ones for breakfast. Although believe me, this conversation is entirely understandable when you think of Ethereum today and in the Ethereum endgame. What do you think ethereum is for? 18 months ago I would have said the purpose of Ethereum is defi. Today, I couldn't be more convinced that I was wrong. When I look at Ethereum, I really do see the world computer. I see the platform upon which we will begin to define and master trustless computing. When I think of the final boss of Ethereum, I no longer think JP Morgan. I think AWS and Toki will help us understand exactly why, using his real world experience and his actual working protocol. One more thing before we begin. Please do not take financial advice from this or any podcast. Ethereum will change the world one day, but you can easily lose all of your money between now and then. All right, let's get started. Toki, thank you so much for joining me on the Strange Water podcast. **Speaker B:** Thanks for having me, Rex. **Speaker A:** Yeah man, I'm so excited about this conversation and so I guess I'll cut into this later about how I know you and how we met, but can you just always like to start with the same thing? Can you give the audience just a brief introduction of who you are and just how you found yourself basically willing to line up outside of the global financial system in Ethereum? **Speaker B:** Yeah, absolutely. So kind of started off in crypto when I was quite young, still in high school at the time, like when Ethereum like just got released. So I was just finishing high school and yeah, at that time there wasn't really much, much happening in terms of development on Ethereum. Like I would usually keep up to date with the Ethereum developer calls and what was happening all through like the bear market and everything and in, in the 2018, 2019 bear market and yeah, that was, that was interesting like watching development slow. But yeah, my interest was like still increasing over that time. I just. **Speaker A:** So before you even move forward from there. But like what, what attracted you to Ethereum as it was being born? **Speaker B:** Well, I found that there was really nothing like it in terms of a layer that anyone could participate in that was not controlled and not censored by any group. And I thought that was, that was really, really important in terms of like being able to build software because yeah, some software, you often can't build software without having. Without trusting someone to deploy that for you and without trusting someone to keep that up for you. And it also limits the, the scope of applications you can build because like you often you can't. It's quite difficult to build applications that, that touch money in any way and Ethereum just kind of had that by default, which I thought was really, really interesting and something that would definitely be used in the future but at the time it didn't really seem that relevant. One of the things as well that kind of really like confirmed that for me was like seeing the first few Defi applications beborn and yeah, so those, those first few applications as, remember like, like Ethlend, which is now aave, which is pretty much the one that for me made me realize that yeah, this is something that I want to work on because back then it was quite rudimentary. It was like peer to peer loans and the UI was terrible. But after that then Defi Summer came along and yeah, that, that just confirmed what I was thinking all along which is yeah, that this is, this is going to be something real. **Speaker A:** So let's see, I met you about this time ish, maybe a little bit longer a year ago and by that time we were, you were deeply entrenched with Umami Finance and you know, we'll get there in a moment but can you just like help me understand the time between like finding Etheland and seeing the magic of like finance in this credibly neutral place and like, you know, we'll get to it but like working on these vaults, like what was it like to be in this space. Like what were the things that were exciting to you? What were the things that like really engrossed you? Were there any things that like really made you nervous and want to get away? Just like talk to us about that time of, you know, turning into the token we know today. **Speaker B:** Yeah, so I would say that at the start, like so, so I have a background working for a payments company and when I was there, like it's payments in crypto and like working there, it was much more of like a traditional like tech role. Yeah, like working more on the consumer side of people, on ramping cryptocurrency and whatnot. And like seeing that there, like I was able to kind of watch the industry grow from that position and get like a good understanding of kind of like the products that I specifically wanted to work on and really develop like that in particular. And what I saw just generally was that there was what people had done really well over like the, the first iteration of Defi was building like very trust minimized applications, like ones that specifically worked solely on chain. And you build some strategy right in solidity and deploy it and that's it. And then also all the tokens and everything else that comes along with it. But one thing that I kind of saw that was missing was some applications that weren't just limited by what you could do on chain. Because when you're building on chain there are some limits in what you can build. And for example, like Oracle's is a really good example. You can't really build like a Oracle just purely on chain. You need some data source off chain. But that applies to lots of complex financial products and being able to build them in more efficient ways. So that in particular was something that I just saw generally was kind of lacking. And I thought that the market would really, really like really enjoy something like that just because of the benefits that come with building something with an off chain counterpart. And that kind of leads to, leads to like these vaults. So yeah, like these vaults, they have like a significant off chain counterpart. And that's required because we write a model off chain that's used to basically like calculate how much delta we should be hedging across each of the vaults. And we can't put that on chain just because the amount of computation that's required to run that, if there was a trustless way to run that with like, you know, high throughput and a lot of computation, that would be like amazing and something that I'm sure we will have in like the, in the near Future. But at this moment in time, like if you want to build strategies like that. Yeah, you do need a significant off chain. Off chain part. **Speaker A:** No. Awesome, man. And I think so just to get the audience up to speed. The vaults that you're referring to are the very brand new released the Umami Delta neutral GLP vaults. And I'm sure they'll come up many times as we're talking. But what Toki is talking about is that like the, the computation in order to make these work is so intensive that like you can't even run it within arbitrum. You have to run it off chain and then find a way to coordinate on chain and off chain. And so like while you were just saying that Toki, I. I had lost you a little bit because I was thinking like counterparties, like how, how does Umami have a counterparty? Like the whole point of this is like all the finances are on chain. But like what you are saying, which is like you have skipped 45 minutes ahead of where I want this conversation to go, is that like we think of everything that we're doing in this frame of finance and defi. But the way that we should be thinking about this is in the frame of computation. And from that's the standpoint that you're talking about counterparties. Are you following me? **Speaker B:** Yeah, absolutely. And I think that there are a lot of cool ways that you can, even in the state we are now without having the computation purely decentralized, you can still enforce invariants in your contracts that require that any computation done off chain is true and is true to like the strategy that you're running. And that's really important to what we build. But it's, it's also, it's very similar to like, like a zero knowledge proof and how like something's a lot of computations done off chain and then you just post the proof on chain. But that proof can be mathematically proven as correct on chain. It's very similar to that type of design. **Speaker A:** Yeah, man. Your racing's so far ahead of this conversation, I'm tempted to just continue on, but for the sake of continuity, let's just catch us up to Umami. And the big thing that you've made it clear that you're starting to realize the interesting intersection is how the EVM can touch outside, compute and create new solutions. But something I know a little bit just about your history is that like what brought you to Arbitrum, and correct me if I'm wrong, what brought you to Arbitrum was like the like craze and mania of that first, I believe it was like a kitty based NFT project. Is that so like, can you talk to me a little bit about like how you can be so serious about computation and building financial products but like be in this industry that is like narrative driven and like energy driven by memes and things that are like maybe more silly. **Speaker B:** Yeah. So I would say that that side of the industry I really, really enjoy. Well I wouldn't, I wouldn't be working it if I didn't, if I didn't enjoy that side of it. But I think yeah, that side of it, like the, the meme driven investments and just all the fun that happens on chain, I think that that's just like a representation of like just a layer that we've built which is like a free and open layer for like anyone to participate how they want. And by creating that layout you kind of get like all types of actors and when there's money involved, that's when you can get like I would say like very interesting investments. And not even investments, just like some type of scheme that often, you know, maybe poor financial design, but it's just like a funny, funny kind of joke. I guess that's what you could say. Like a lot of these like forks are when you get like all the different, like food forks and then all the different home forks and all that stuff. It's I would say work industry with all of this is. It's fun. Definitely. It's never adult day. And when you're checking, checking on chain and like checking Twitter and seeing like the, some of the things people get up to and some ways that people get wrecked is often quite entertaining as well. **Speaker A:** Yeah, for sure. I actually just read this book, it's called, I believe it's called the dawn of Everything. And like kind of one of the main thrusts of the book was that like we think of innovation as this like kind of coordinated result of like science and investment and like problem solving and stuff. But it kind of like turns out if you like go look through like the archeological record and anthropology and stuff, it's like kind of turns out that all of our like technologies and tools are created like in these moments of like exuberant like play and joy and like farming probably was like created because like people were just like creating these like fun gardens like while they were you know, like moving with their pastoral homelands and then that's how they developed the tools. And so we don't need to get that deep into it. But I just See so many parallels to what you're saying about how like we've created this system where there's so much energy and so much creativity and like, if you look at it, it just looks like madness and stupid and play, but it turns out like this, like that is the energy that brought you to Arbitrum that made you realize like, hey, this is a place to experiment with these computational counterparties and like get into Umami. I mean, is that correct? **Speaker B:** Yeah, absolutely, I think. Yeah. Like the fun side of it. Yeah. Was definitely initially what drew me into 100. It's. Yeah. Like seeing all the different projects that launched on Arbitrum in like the first like week. Yeah, it was, it was funny to say the least. I guess it was just a lot of emissions based defi and like extreme emissions based defi and yeah, some of them you could say were scams and yeah, like, I guess some stuck around as well. It might be being one of them. **Speaker A:** Yeah, well, and as much as you want, because I know that there's like 18 layers to this story, but like, can you just kind of like talk about your experience of being like probably one of the earliest people to mommy's who's still there and watching it transform from a literally waifu based OHM fork into like one of the most like sophisticated financial products on chain right now? **Speaker B:** Yeah, I have to pinch myself sometimes when I think, when I think back at like how it all started. Yeah, So I guess it, it kind of started with a group of anons who. This was preceding me. It was. Was before I joined, but it was. Yeah, it was just a group of anons who started as like Arby's Finance. And that was like an AUT compounding, like an auto compounding defi platform. That was kind of. It was pretty useful at the time because like that was when we had all these like emissions based token protocols. And then Arby's came along and then allowed you to take like this like insane API and then like use compound interest to like just bump it up even more and then reinvest all the emissions from all of these different protocols that ended up doing really well during the bull market. And then after that, everyone on that team pivoted and some new people joined and they started 02ohm, which was an OHM fork but with a bit of a twist. They invested the treasury in, I would say, like more DGEN token investments. Not like it wasn't meant to be a store of value like ohm is with a Treasury backing it of like ETH and other assets like that. It was just the treasury was meant to be backed by a lot of these like funny tokens and more meme investments at the time. And yeah, so that ended up it. It grew quite big during the bull market and during, during that time. But then they ended up rebranding to Umami and I joined just a couple months after that and then after joining a lot of people left around that time and there was not really much direction in what everyone wanted to build next. They were kind of. It was also. It also coincided with OHM collapsing so a lot of the own forks went down a lot in value as well. **Speaker A:** And so sorry, just to level set like what you're saying when you join right now you're at a point where 02 ohm is huge, has a giant treasury, a lot of it has been frivolously invested in like stuff that obviously wasn't going to do well. But you walk into this situation where there's a ton of money, a bunch of anons. A lot of them are leaving because like the, the big problem is no one knows what the purpose of any of this is. Is that correct? **Speaker B:** Yeah, absolutely. That's a good way to describe it. It's pretty funny. Yeah, there was at the time, I don't think the treasure was. It was way bigger before but you know a lot of those. The way it was invested was. Yeah, wasn't the. I would say we didn't have one around, that's for sure. **Speaker A:** Yeah man. Okay, so you're, you've entered and like stuff is like just like kind of chaos. People are leaving, like people are happy that there's a lot of money like and, and like just. Do you have any reflections on like what it takes to take this like kind of rat's nest of like money and ideas and like drama and like turn, turn it into like you know, this team of people that are like that are so resilient to bear markets, to drama, to everything and at the end of the day can just put out like a compelling like product that actually pushes the boundary of what we're doing here. Do you have any thoughts on why you guys were able to do this? **Speaker B:** Yeah, absolutely have some pretty strong thoughts on this. I think that during that time like the type of person that gets attracted to a protocol that's falling apart is someone who wants to build something and like wants to stick around. And that's just generally who Umami has attracted from the start being like kind of a mess and not really having much Direction, like, all the people that joined and that really stuck around, it kind of acted as a filter in a way, because anyone that didn't want to really contribute and really, like, you know, put in a lot of work to get it where it is now. Like, they just wouldn't really stay around, stick around, because, you know, it's too much work. There's lots of easier money in the space. Like, why would I stick around and, you know, work on something that's really difficult when, you know, I can just go do something else that's a lot easier? And I think that generally, like, the team that, like, came together is just, yeah, I would say, like, one of the best teams in Defi. Just everyone on the team is, like, so dedicated to working and, like, you know, working together and solving problems. I mean, from the start, like, everyone. I think that that is definitely, like, the most important part and why we managed to finally get something out after, you know, some failed attempts and lots of work. And I think that, yeah, that's how we got there in the end, is just like a very, very resilient team. **Speaker A:** Yeah, no, man. And again, for the audience, like, I, it's crypto. So, like, things are weird. And it's gonna sound weird that I say this, but, like, I worked for Umami for one month and like, during that time, you know, like, I, I, I've built, you know, I met all of you people and I met, like, you guys. Not in a way that's just like on Discord or whatever, but I spent time, you know, doing very little amount of work, but, like, spending time understanding what the ethos was and, like, why you guys were here and just, like, just to see how much fun you're having. And I guess kind of the last thing I want to ask in this realm before we pivot more to, like, the development and being on Chain is like, do you just have any reflections of the end of the day that now that Umami's flagship product is out, is Umami more like the, let's say, like, 10 of you guys that happen to coalesce around this kind of like, dead Treasury? Or is it, like, really about the products and, like, the, the thrust of the things that you guys are like, putting out there and putting on Chain? **Speaker B:** Yeah, I think it's, it's much more to do with, like, how we work together and how the team came together. And I would say, like, I guess, like, it's the circumstance that attracted everyone together, but then it's also the circumstance played a lot in like, who those people were and like, how we all came together to work on it. And I think it's much more about how we work together and how resilient we were during many times. And it's been very important in being able to assess whatever situation we're in and then work out how we can make the best of this and how we can build something amazing for the community. And yeah, I also want to mention that, like, during that whole time, like, we have had, like, an amazing community and everyone, like, the discord has always been lively and everyone always, like, chatting in there and often attracts, like, many people from crypto, Twitter, just that pop up in the discord from time to time. And that's. That's part of it as well. Like, having the community around and the support that's. It's definitely been really important. **Speaker A:** Yeah. I mean, I don't know if this is like the, the critical ingredient to every project, but, like, Umami has the three, like, magic ingredients that make things work. Like, one is the idea or the concept of the product, one is like the team that can get it done, and the third is, like, the community that, like, will back you through failed product launches, through, like, team drama, through bear markets, through all this stuff. And like, I don't really know what the takeaway is. Like, I don't know if this is like, okay, one begets the other begets the other, or if it's like, you need to breathe all three, you need to bring all three together or what. But anyway, I'm sorry to just throw in such a, like, leading question for you, like, is it the team or the product? Like, but like, I just, like, really want to hammer home that, like, Umami's been through a lot. And, like, the takeaway I have from it is like, okay, like, in certain circumstances, it doesn't even really matter what you're building. What matters is, like, the people that you have, like, brought together and the journey you're going on as a group. And so to me, that's the Umami story. And it, like, turns out there's also, like, financial products in it too. **Speaker B:** Yeah, there's also really cool financial products we're building, but then there's a lot of memes and a really fun discord. So it's good combination. **Speaker A:** Cool. So let's pivot into actual building. So, like, before we, like, dig into it, like, can you talk to me a little bit about, like, your personal interest in, like, finance and, and like, in the. When you're building these products, like, how much of this is like an engaging intellectual side on the computer science level and how much of this is about like the financial systems level? **Speaker B:** I would say that specifically for the products that we've built. Or actually I would say that when you're design like choosing a product to build next or something that you want, like looking at the market and looking at somewhere there's a gap or where there's something that you could improve, I would say that that's much more related to financial systems and being able to identify like some niche or some, some area which you can build a product that will work and that will be sustainable, be able to attract capital and it's something that provides value to the market as well. So I would say that that that side of it that's like, I would say early product development, you definitely like a strong financial systems understanding to be able to like identify some area that you would like to build or something that could be really useful for the market. But when it comes down to like actually implementing it and from everything from implementing it to launching it, like that is much more related to like financial modeling and like computer science. Yeah, and computer science and being able to actually like, you know, obviously like write the code, but also able to like test the idea before you put in the effort to write the code. So yeah, like both, I would say both of those sides really important, but they play like a role in different parts of the development of like a DEFI product. **Speaker A:** Yeah, I mean, in the way that you talk about that, are you kind of saying that like, look, these ideas are like just demarcating the same, like they're demarcating different parts of the same like design process. And like these parts don't have hard like starts and stop and therefore like they're kind of meaningless. Like we shouldn't really talk about them. Or are you saying like when you're designing a robust system, you need like people with the like financial systems standpoint and then you also need people with like the computer science standpoint. And then the name of the game is to like get them to coordinate. **Speaker B:** Yeah, I would say that it's definitely more coordination thing. But you do need both. You do need input because like you can talk about like building some financial system, but if it's just not feasible, then you know, you might as well like you can't build it anyway. So I would say that yeah, you do need like input on that side as well from the dev side. But when you're building like some financial system, I would say that it's kind of like the sky's the limit because there is always ways to implement it. But it just you know, can take like a long time and develop. Depends on the size of your team and whatnot. So yeah, like definitely it's definitely a bit of both when, when designing a product but when building something that's. Yeah, like for example, like if you're building like some like novel AMM design or possibly like some, yeah, some new stablecoin design, like both of those, I would say that you definitely need to have very, very good understanding of financial systems in order to, to understand like market structure, to understand if that's going to actually work specifically for AMM as well. Like you know, the market might not need some new novel top of design AMM because you know, it's just not that useful and there's something else already out there. But yeah, so I'd say definitely more leaning towards like having a good understanding of financial systems before. Yeah. Before you go out and build a product. **Speaker A:** Yeah. And I think maybe just to like generalize that a little bit outside of like our little defi niche like it always makes sense to like have a plan and have a vision before you embark on a, like a, a journey, you know, and I think it always makes sense to know what you want to build before you start building it and then like also have like you know, evidence backed conviction that the destination is like feasible and like worth it and all those kinds of things. And so yeah, I don't know. I mean I, there, there might not be anything more interesting to say than like in order to build good defi products like it starts with a good vision and a good economic model and ends with like rock solid computer science. **Speaker B:** Yeah, I would say, yeah, exactly what you said just before, like evidence based. It needs to be evidence based. Absolutely. And that can often take a long time as well to be able to like find evidence because the evidence often isn't, isn't there when you're, when you're looking to build something so that that can be like modeling out the system even before you build it as well to like make sure that that actually is going to work. **Speaker A:** Yeah. And then so like when you think of your role like with an Umami and not even that like the toki that you want to be throughout your career, like do you consider yourself like a like very good programmer that understand that's like working to understand financial systems or do you consider yourself like a very, very good financial, like a good systems modeler who's like getting better at programming. Like how do you see yourself? **Speaker B:** Yeah, so just a little bit more of my background like before like I, I, I had like a really strong interest in science as well so. And science and like modeling, modeling systems in science. So like modeling diseases and other stuff like that and when I was um. Yeah so that was back when I was studying but. And that's what I thought. Like yeah, would, could be a possible career path as well. But yeah, obviously like I'm able to apply pretty much the same, the same math and the same like the same practices for modeling like financial systems which is really useful. So I would say that like that site has become really helpful specifically in defi but and then programming I would say yeah, relatively strong programmer as well. But I would say that less strong on the financial side because I didn't study finance or and I haven't like had experience working at like some firm or anything like that. So I would say still learning on that side. But yeah, I'm able to apply a lot of the same type of techniques that I've learned in the past to working in finance and we do, I do have like a lot of help as well. So yeah like lots of help at Umami and people that work in the industry and getting like lots of insight from them as well. Specifically in the finance industry and traditional finance sector. **Speaker A:** Yeah and so as like someone who you know like comes to the table with like I'll rephrase like your interest in science as like a like a statistician like background or like somebody who's interested in models and like a computer, computer scientist. Do you have any like reflections on like how people that come with a finance first background like understand development in Ethereum and like is there anything you wish you could like kind of help them understand? **Speaker B:** Yeah, I would, I would say this is like really interesting because you with Ethereum like things don't apply exactly and things don't work exactly the same way as they do in traditional finance. The main thing that anyone who works in traditional finance would, would see is like that there's a big latency issue like straight off the bat like you know, there's latency is a big problem and it's something that's like that's kind of where your alpha is working in Tradfi. But yeah, with Ethereum there is just that latency like everyone's working on the same playing field for any blockchain. So when you're building products they kind of have to work around latency in different ways. And there's often ways you can like extract value. Like MEV is just one that's pretty much taking advantage of the fact that, you know, everyone's working off the same, the same time essentially. And yeah, so I work from coming from Tradfi and then wanting to move into Ethereum and defi. I would say that it's probably a good idea to like get some understanding of like if you don't already know how to code and don't know solidity. I would say that that's something that's really, really useful being able to understand systems and how they work. Because then you can just like, I mean look at them and see how they work as well. And that there is a lot of like limitations imposed just because we're working in a trustless system as well. So you don't quite get the same freedom when building products and building systems. You have to impose some limits because they can be risky if you don't impose them. **Speaker A:** I think one of the most powerful parts about Ethereum is the composability where any code that you ship, assuming you design it well, but even if you don't, other people can build on top of it and create, create something that like you never could have even imagined before. Do you find that that is like something that's super for computer scientists? That's like table stakes, right? Like that is kind of the point of object oriented programming and like all this stuff that we figured out in like the 80s, right. For finance people, I don't really think that's the same at all. I think these concepts are like almost novel. Do you find that like that is attention. You have to like work through it all with the, the, the finance brains. **Speaker B:** Yeah. Composability is definitely, I think generally I think some people just think it's dangerous. I could like, you know, like unbounded composability can be dangerous in some respects. But it's, it definitely comes down to the, to building like rock solid components and imposing limits because. Imposing limits in your. **Speaker A:** In. **Speaker B:** In essentially your component so that if people were to use it then you know, they're not pushing the boundaries of your product. And that's. Yeah, I think that's, that's a good way to elaborate on what I mean by imposing limits in your in. In your design. Because we do get like, we do see exploits just based off the fact that things are composable, like lots of like lending market exploits and yeah, Oracle exploits and that type of stuff is. Yeah, that's, that's just like the nature of it. So you have to make sure that your individual component when building it is rock solid before allowing just like free composability. **Speaker A:** Yeah, I mean this is like a little bit tangential and a little bit like galaxy brains. But if you'll bear with me for a moment, I think like on the one hand, you know, like, let's take this latest multi chain hack as an example. Like you can look at this as like kind of a risk case of composability and how you know, the vulnerabilities in multi chain like not only have like sunk basically like any protocol that has decided to like make that the canonical bridge, but like really looks like it's going to take down the entire like phantom ecosystem, which you know, like was an ecosystem with people that you know anyway. Like composability can kind of be seen as this like uniquely dangerous thing in which like you no longer have control of your own destiny. But I don't like, part of me just looks at the real world and I don't know about you, I was in high school when this happened. But in 2008 I didn't have any ability to stop the world from crashing around me or in 2020 as well. And so part of me is just wondering if a lot of these things about composability are just the same problems we have in the this like dynamic, globalized, interconnected world, but just reframed in computer science. **Speaker B:** Yeah, definitely. Yeah. You just take, whenever you have like layers on top of other layers, you're taking on leverage and risk and that's just, it's compounding risk as you go, as you go further with more composability. I think bridges are like something that everyone kind of just takes as this thing that's always going to work. But we've seen time and time again there's them not working. Like when you use a bridge, you just expect it to work in 10 minutes or whatever and that's it. But I think keeping stuff in bridged assets is something people won't be doing any longer. **Speaker A:** Yeah. And I think at the same time that bridges are getting scary and scarier, we're mudding the waters more and more with what even is a bridge. And if you're a layer 0 token that has the layer 0 contracts on each of these chains, is that a bridged asset? I don't even know anymore. I mean, honestly, I guess it is. **Speaker B:** Yeah. I would say they still are bridged assets. They're all representations of the same thing. But the token Depends on how the token's built. If layer 0 was used to just deploy all contracts for the same token, then you can kind of say that they all kind of have very similar properties and kind of is the same token across different chains or the same asset. But yeah, like, it depends. If you're wrapping it on one chain, then all the other representations on the other chain have the same one asset on another chain, which is kind of like a honeypot in a way, which is how a lot of other bridges work. **Speaker A:** Yeah, and it's even scarier when you have a third party that's wrapping your assets. Like, for example, wormhole is like wrapping certain, you know, tokens. And like, that's not, that's not like the canonical token. That's just the wormhole version. And it's, it's just a mess. It is a total mess. **Speaker B:** Yeah, that's. Yeah, that's definitely the, that's the danger for sure. **Speaker A:** While we're still in this realm of like, okay, what's it like to be a systems designer and a computer scientist and work with financial people? Just like any final reflections on like, things that you wish, like, you could kind of tell financial people? And I know it's an open question, I'll give you mine first because, like, the deeper we get into this bear market, the more I'm starting to like, get really nervous around like, this word capital efficiency. And like, the more I'm starting to feel like the finance people are so locked into like, finance stuff that we're not realizing that, like, the other side of capital efficiency is like, riskiness and, and leverage and like, all of these things. And, you know, do you just have any, like, kind of like thoughts on what, what's going on in this industry that can only be given by like a computer scientist and not somebody whose brain has been melted by money? **Speaker B:** I would say that, I'd say that it's very important to focus on building like, strong base layer protocols and even regardless if they are less capital efficient than like, centralized counterparties or counterparties that you can build with taking on more trust assumptions. I think that building that strong base layer just makes for a much better ecosystem overall and will improve products down the line and does really favor, well to strong composability rather than composability built on shaky foundations. And I think it's very important that even if, yeah, like some finance people maybe, maybe they won't want to work on stuff like that. It seems like boring and maybe less efficient than something else they could build. But I think that that stuff's very important and there's a lot of talk right now about Uniswap and how like everyone's like quantifying loss versus rebalancing and stuff like that and how it made it maybe not, maybe less efficient than having an order book, but I think that just a trust list and trustless properties of Uniswap and being able to deploy markets for tokens that generally you probably wouldn't be able to like have an order book for and there isn't enough liquidity. But I think that that in particular is very important. Yeah. Doing protocols like that, even if they are slightly less capital efficient. **Speaker A:** Yeah. And look like you know someone who has real tradfi experience and not like trading stuff, but like using finance to like make a business operate. Like when I get excited about what defi how D5 is going to change the world, like the things that are exciting to me are Uniswap aave. Like honestly the most exciting thing to me is as someone who is wired over a billion dollars in one sitting before that shit doesn't even make sense. Like, you start the wire process, takes at least five hours. You call your banks and they tell you the money is in the Fed wire system, it's at the correspondent banks. We can't tell you where it is. It'll be done when it's done. Like what I'm excited about is like sending money via these rails, you know, and so I do think that that yeah, like everything you're saying is right, is like, please go have fun. We've already talked about that. That's like the source of innovation and like go do crazy stuff. But like, if you're really here to change the world with Ethereum, it's all about bringing it back to basics, simple and these rock solid primitives that the entirety of humanity can use to build upon. **Speaker B:** Yep, totally agree with that. That's it. **Speaker A:** So actually that good pivot point to what I'd like to use the remainder of this conversation to talk about, but is thinking about a feature Ethereum as, as the system of distributed computing and not just as like this new way to do finance. And like, I am a huge, huge believer that the next narrative bull cycle to be clear, narrative because the actual bull cycle is just like a reflection of macro. We don't have anything to do with it, but the next narrative bull cycle I am like more and more convinced every day is going to be not about finance, but is going to be about like Ethereum as distributed compute and so before I like kind of just continue spewing at you, I wonder if like that initial thought, like evokes anything. Do you have any response to that? **Speaker B:** I think that yeah, like naturally, as like Ethereum develops more, you're going to like see all these different layers and computation will be cheaper. You'll be able to do more. That's. Yeah, that's just like kind of like the natural development of Ethereum as it moves to like a, it's a better layer. But I think that computation will allow for, for a lot of applications that can't, can't run right now, but you're still going to. Generally, I think that the next narrative, I would say before we're at the point where computation is being run on chain, I think that a lot of what will drive the next narrative is these layer 2 networks or bespoke layer 2 networks that implement some computation off chain, whether it be trusted or untrusted. I think that's going to, by bespoke L2, I mean say if you were to fork optimism and then implement your like a matching engine or if you were going to implement like a game engine or something off chain and that, that side of it, I think that, yeah, that that's going to be like a very strong narrative and it's something that we're able to do now, which we're only just starting to see happen. But I think it's, that's going to grow. Definitely. **Speaker A:** No, man, like, okay, we are completely aligned because like when I say distributed compute, I don't mean like we are going to run more and more stuff within the evm. In fact, like, I think the more Ethereum develops, the more we're going to realize like you want to do as little within the EVM as possible. Like tiny, tiny, tiny amounts because it's expensive, it's slow and it's like it's just a suboptimal developer experience. Like, I think that like what were what you just referenced and like what we're like starting to see like explode are all these different ways that like computational resources can touch Ethereum and interact with the evm, but like not we're going to see as much as of the compute move out of the evm but like because we keep the settlement within the evm. Like that's how we're going to call it, Distributed compute. **Speaker B:** Yeah, yeah, absolutely. It does matter. It's more about like, yeah, what, what you choose to store in the EVM and how that can be bounded by. Yeah, by some Invariant. And if that, if that is always true, then you can say that yeah, I generally trust this system or whatever is happening off chain as well. **Speaker A:** Yeah. And so earlier like you brought up ZK proofs and like my mind just like went racing. I've been waiting 40 minutes to come back to it or 30 minutes to come back to it because so God, like seven months ago now I flew up to University of Washington to meet with Sriram Kannan of Eigenlayer. And like one of the things that he made an offhand comment to me was like, so it turns out that if you actually want to run a plonk verification on chain, like just, just gas wise, if you have a full gas block, 30 million gas, like the maximum amount of plonk snarks that you can Prove is like 11 to 15. Like you just run out of gas otherwise. And so you know, like that is a huge bottleneck problem for scaling Ethereum. Like we keep talking about like all these endless roll ups and all this stuff and like, but like we can't actually run the computations on Ethereum. And so like I have kind of a solution for that, but before I do, I'd love to just get your thoughts on like, like this is what I'm talking about is we're going to start to realize the next narrative is all about like which parts of compute can we pull out of the EVM and still be distributed, still be trustless and still like you know, get what we want from Ethereum. **Speaker B:** Yeah, absolutely. I would say that you have like. I would say that there are stages to like how trustless that computation can be off chain. Like what you're just describing there like yeah, like verifying a ZK proof on chain. I would say that that is like pretty much like the gold standard obviously. Like being able to verify exactly what's happening off chain in a compressed way or like compressing the computation and then being able to say that yeah, this is the state afterwards and it is valid. The next a bit more trusted is yeah like imposing invariants for that computation off chain so that whatever's posted on chain can be, is. Is within bounds. That's generally cheaper but you are taking on. It is generally more risky in terms of you can't impose invariance for everything sometimes yeah, it's, it's just generally more trusted. And then you just have the other one which is yeah, you deposit your funds. It's like black box. Whatever happens off chain, you're trusting this counterparty and that's it. Um, but yeah, like I, I think that it's definitely the gold standard, like being able to like store and verify CK proofs on chain. But even if you're not like verifying them on chain is I, I think it's like a really, really good way to do it. But if you were to verify it off chain and then you know, post some, like I have, I have proved this or some trusted oracle that's done that, that's, I would say that's equally as good. But it's just, you're still, you know, it's, it still falls into the bucket of, you know, there' like some trusted party on the outside. So there is always going to be even because someone's posting the proof as well. I guess so. **Speaker A:** Well, so okay, so let me just like summarize what you said, which is essentially like, okay, like if we have these like gas limitations, like, okay, the gold standard can be running the ZK verification on chain and then above that we can like use an invariant strategy and then like, basically we can do different like solutions based on the security needs. Right? **Speaker B:** Yeah, definitely. Yeah. **Speaker A:** Okay, so here's an idea. And like again in this conversation with Sriram, the context was I was looking at starting a ZK proof as a service company. So what if like instead of actually verifying all of these like plonk snarks on chain, what if you just optimistically accepted them like Z? So zero verification, all you need to do is pay for like the storage of the proof. And then what you can do is say any third party can challenge any like proof. And then if the challenge like basically what they do is they put up some eth, which is the eth that the smart contract needs to verify the proof. And if the proof doesn't verify, then you know that there was a problem. Right. And so my question back to you is like in this spectrum of like ZK snark verified on chain being like the gold standard and then you have lesser options, where would you rate like this kind of optimistic solution? **Speaker B:** I would say yeah, it's like a, you could say like it's like a hybrid proof. Hybrid. Hybrid, like type system where you have. Yeah, I guess that's, I mean I think I've heard of this before where some people are talking about like a hybrid between an optimistic roll up and like a ZK roll up. And that's similar to what this is in a way. **Speaker A:** Yeah, I've definitely heard the word hybrid roll up thrown around a lot of times. I never know what people are Talking about. **Speaker B:** Yeah, I guess this is what you could class as like a hybrid roll up and I think that, yeah, that that's, I mean, yeah, it sounds like. Yeah, great and great in principle because you know, you have, you know, I mean you're kind of, you're finding a way to get around the limitations of being able to prove something like actually within the evm and. Yeah, that's, yeah, that's, that's good. **Speaker A:** Yeah man, you get it. And like this is, I'm so excited to have this conversation with you because you know, I, I don't think that like everything that's happening in Defi right now is garbage and like needs to be thrown away or whatever. But like I really do think that like we're starting to reach like levels of like contrivance that like I just can't see like making a real impact in the real world. Right. And like I'm not going to call anybody out but like it's just like sometimes I'm wondering if like we're so stuck in like our ve games that like we've lost like perspective and like so in these moments when I'm trying to gain perspective, like my question is like okay, or I guess my challenge is if Defi isn't there to take over the traditional system in a one to one replacement, then what is the point of Ethereum? And this is kind of where my mind's going. It's about okay, how can we basically take trustless settlement and then marry it with Super Compute that is only available in 2023 and beyond and turn that into this brand new world that that man, we can talk about what that even means, but I don't know. How do you feel about what I just said? **Speaker B:** Yeah, yeah, I agree. I think that that's like a way at viewing Ethereum where that, where that possibly in the future like a lot of finance is done on chain. Well not, it's not done on chain but you're, you're using this trustless system to as like as a layer that's. Yeah, well as a trusted layer to kind of like record your finances in like some abstracted way where you're doing the computation off chain. It could be trading or whatever it is but you're able to like post it on chain and at the end of the day it, you're able to like trust that that execution was, was correct. That's. Yeah, that's definitely where I see things going and yeah, we are kind of seeing that happen right now with you know, when I was talking about like the bespoke L2s, but they are more trusted. But yeah, building that in a trustless way, that would be like, you know, like pretty much like the gold standard. **Speaker A:** Yeah, man, totally hear you. And I think so like, for me, ZK cryptography is like kind of the, the magic term that like pulls all this together. And again, I was thinking about this, the zk, like ZK as a service company and like so thinking a lot of time, spending a lot of time like trying to teach people what ZK means, especially people like VCs who really don't know what it means. And like the way that I kind of landed on was like, look, like we invented cryptography as a science and like the 20s and the 40s, like basically during World War I and World War II to like hide and like crack secret communications, right? And then we got like better and better and better at it for, I don't know, 80, 90 years, until 2008. Satoshi gave us the white paper and he said, actually there are two uses for cryptography. One is encryption, but two is about like creating this credibly neutral space. **Speaker B:** Right. **Speaker A:** And you know, the, the provocation is like, okay, if we now realize there's two uses for cryptography, like, do you really think there's only two? Like, of course there's infinite. **Speaker B:** Right. **Speaker A:** We just need to figure them out. And like within that context, like I'm becoming more and more convinced that like what ZK cryptography is is like the ability to like verify compute. Like, and why that's important is because if you combine that with the credibly neutral space, like you are, you're now able to create trustless computing by. But like in super centralized, super powerful, like, like really like brand new ways. **Speaker B:** Yeah, what you just said about like, like, like being able to like bring. Yeah. Like some trusted computation to a credibly neutral space. And. Yeah, that's just a good way of putting it. And yeah, like again, like, that's kind of where I see everything going eventually. Right now there's no like generalized solution for that and people are kind of like hacking it together right now in terms of. Yeah, like spoke L2s and well, and. **Speaker A:** What you're doing with the vaults at Umami, right? **Speaker B:** Yeah, yeah, we're like hacking it together in ways and there's lots of different representations of that. Like you can see one. I guess one way that like people are trying to do it now is building like a chain in the cosmos, in the cosmos ecosystem. And then you're kind of decentralizing the compute there, but with like a ZK using like a ZK solution, you're able to. Because like, I generally see like one thing that's really tough with getting validators for a Cosmos chain is that like everyone has, you have to incentivize validators. It's like a whole system. But if you just have like the same type of thing running on some ZK model, you don't have to have, you can have like a group of validators that it's either can be yourself or some group. And then by optimistically posting these proofs and then checking them, I think it's just a lot lighter load and generally lighter load than having to build a full distributed validator set and all of that. I think that is generally probably where we're going to go and there will be some generalized solution. And I'd love to use a generalized solution of that. I think that would be great because generally when building strategies like the vaults, we do have a lot of trusted computation. And if you could put trusted private computation kind of in a black box that executes regardless of if our keeper is running, and that executes in a way that's defined by bounds and also private, I would say that's another really important thing. Having private computation there as well. That would be pretty much the gold standard for a lot of these strategies. **Speaker A:** Yeah. And that is the magic of zk, right? Whereas you can allow it to be verified, but without giving up the secret sauce. Maintaining privacy. Twenty minutes ago, I claimed that the next narrative phase was going to be the distributed community compute phase. And like, maybe that, maybe like the better way to frame that or like the, the moment that I'm looking for is the moment that this community like really starts to understand like the special property of the validator. And that special property is, is like the one place where compute and like the EVM actually touch. And so like when I hear what you're talking about, like the Cosmos validator set, like I'm starting to like, think like maybe the, the, the goal or the end state of crypto isn't like all these different validator sets. Like maybe there is a validator set, it is the Ethereum validator set. But like really what that means, it's like a set of computers that are networked together that have like this ultimately credibly neutral settlement system, but otherwise are much more competent computers that have a lot more space to do things. And whether that's running alt chains or ALT services or whatever, I really Think that that is kind of like the next leg of development and energy that we need in order to bring Ethereum to its end game. **Speaker B:** Yeah, absolutely. I know that Vitalik, he had a lot to say about running like, kind of like leveraging up the validator, the Ethereum validators. And yeah, like, I kind of like, I do agree with like some of what he said and like you should like risk should be definitely a factor when deciding when an individual is deciding like how what they specifically want to validate other than the Ethereum blockchain itself. And that is important because if ever say if everyone was validating like something that was risky and then that happened to fail in some way, then you've got a large portion of the Ethereum validator set exposed to that risk. So it's super important to assess the risk. **Speaker A:** Yeah, but I think that's only within the very specific frame of we're tying Ethereum directly through economic security to whatever extra services they want to run. Because like, like imagine this, right? Like let's say that you and me pull together all of our money. Turns out we have like enough money to like start a staking operation like in full force. And so like we go decide to like, I'll use America, right? Like we go decide to like actually buy a data center in Minnesota so to run our staking stuff. And then like we start to put more computers in to become more resilient and just like make sure like no matter what happens, we're at 100% uptime. So we have like 3,000% the capacity that we actually need. And then it becomes like, well, we have all this extra compute, like why don't we take a page out of the Amazon Jeff Bezos playbook and just like use that compute for other stuff like whether that's validating other chains in a way that is not economically tied to Ethereum or selling it for cloud computer, whatever. I just think that like what we're, what we have to realize is that like we're building Ethereum to run on these like tiny ass like janky Raspberry PIs and then we're running them like in AWS or on like thousand dollar nooks or like in dedicated data centers and like there's opportunity there. **Speaker B:** Yeah, yeah, absolutely. I think, yeah, I'm definitely of the opinion that like, like, rather than, it depends what you put on the validators, I guess, like what you want to do, I think that it should just be like, everyone should consider like very carefully like what they choose to put on their own validator and like how much risk they want to take. But I think that generally like a solution that I'm really bullish on is yeah like, rather than, yeah like layering it up, just like put it like do it as bespoke L2s, I think that that's a really good way to add like some like trusted like computation or some more advanced applications like on top of Ethereum. Because like essentially what these like what layering up the validator set does is it gives you like, it gives you like access to different tools you can use in Ethereum. So it could be like, like an Oracle or something like that. And I think that that's generally safe to run. But if you start doing something like you're running almost like a full fledged application on a much more computationally intensive application that assumes a lot of risk. And then layering that up on top of the validator set, I think that that should be reserved for having a bespoke L2 rather than layering up the validator set. **Speaker A:** Yeah, yeah. And I think, you know, I think like the insight is just to realize that like the same machines that we need to keep our networks running, whether that's Ethereum base layer or like the L2 and above, like are computers and like we need computers for a lot more stuff and like it the intersection there is going to be like what I believe is the catalyst for like the next round of development. Like, and I guess like what I'm really saying is that I just don't think that like can like the next round of exuberance is going to be like focused on, you know, just building the same, the next iteration of the Ponzi games that we're working on. **Speaker B:** No, I don't think that's gonna happen. Well actually, no, I take that back. I think that will always happen. But I think that there's a lot more, there's a lot more happening now, especially that I'm way more bullish on. That's going to definitely overshadow all of that stuff. **Speaker A:** Yeah. So in our last few minutes here, would you like tell us like what are the things that you're most excited about that are like coming down the pipeline, whether that's like, for like Umami and Arbitrum in the ecosystem that you're in or just like the greater Ethereum apparatus? **Speaker B:** Yeah, so I guess like for Umami specifically, like I guess like our GMX V2 products and then decentralized market making product, both of those really, really excited about it's a long journey ahead for doing that stuff. I guess like the GMX v2 stuff went. That's not really that that much of a leap. But then yeah, moving to yeah, decentralized market making, that's going to be really fun. And there's like a great, I mean it's a great community already. Like around that, around that type of stuff already. Like with Arrakis and all these other like protocols popping up, I think that's going to be like really competitive space and lots of, yeah, lots of benefits for smaller tokens and ones that can't get listed on centralized exchanges. I think that'll be really cool. And generally for Ethereum, I think that building more bespoke L2s really bullish on that. **Speaker A:** Yeah, I think the coolest thing that's happened in the last, I don't know this year is in the same week that Polygon, sorry the ZK Sync released the, their zkevm, Polygon released theirs and then when Polygon released theirs, they open sourced it. So like what you're like, forget forking optimism to create your like your app chain or whatever you want to call it. Like we're, we're in the ZKEVM era, man. Like we're here. **Speaker B:** Yeah, I haven't looked at that yet. I need to, I need to check that out. That could be, yeah, that could be really bullish. Yeah, that would be really interesting to see that. **Speaker A:** Then I'll take the opportunity to show my own work. And I wrote an article just as like kind of a hype piece for Polygon that was essentially like, because they open source their, their ZKEVM stack like a protocol. I use the example of frax, but it could be aave, it could be literally anyone that has integrated services can like today like in more in the, in the time that it takes for them to read the code. They can have it redeployed as like their chain for their ecosystem. And then from that moment on, like mev, like they don't have to give it to our bots. Like they can keep it for themselves. They can do whatever they want. They can be completely centralized compute wise and have zero fees on everything because they're settling back to Ethereum via the zkevm. Like man, we're in a whole new world because of the way Polygon chose to release what they did and because they really are true Ethereums. **Speaker B:** Yeah, I'm really glad they open sourced it. That's great to hear. Yeah, that's super bullish. **Speaker A:** Cool man. All right, we'll not take up any more of your time, but before I let you go, you have to tell the people where they can find you, where they can find Umami, and if they're interested in learning more about these vaults and maybe get involved, like, what do they do? **Speaker B:** Yeah, nice. So, yeah, so you can find Umami on Twitter. That's Umami Dao. And, yeah, so I'm also on Twitter just under toki or 0xtoki on Twitter. Yeah, she come say hi. I'm just pop into the Umami Discord. It's a great community over there. **Speaker A:** Awesome, man. And, yeah, I will attest to that. But Toki, man, thank you so much. I really appreciate the time and. And this conversation, just every conversation, but this one in particular, just, like, gets me more excited about, like, the. The world computer and, like, what we're building. And at the same time, I'm getting more cynical about kind of like, the Ponzi games. Like, I'm still getting more excited about, like, being here, and it's because of people like you and conversations like this. So thank you, my friend. **Speaker B:** Thanks for having me, Rex.