Solana, What’s Right And What’s Wrong

Summary

In this engaging conversation, Eugene Chin, co-founder at Ellipsis Labs and known as zerox on Twitter, shares his insights on the crypto space, particularly focusing on high-performance DeFi products like Phoenix on Solana. With a background in high-frequency trading and product engineering, Eugene discusses the evolution of his thoughts on DeFi, the challenges faced by liquidity providers, and the potential of Solana's performance to revolutionize the trading experience on-chain. He also addresses the importance of balancing technological innovation with core values in the blockchain community.

Takeaways

• 🌐 Eugene Chin is a co-founder at Ellipsis Labs, focusing on high-performance DeFi products like Phoenix on Solana.
• 🤖 Eugene's background includes high-frequency trading and product engineering, with a foundation in mathematics.
• 💡 Eugene's transition to crypto was driven by a desire to improve upon the inefficiencies he observed in traditional DeFi liquidity provision models.
• 📈 His perspective on AMMs has evolved over time, recognizing their value as a liquidity bootstrapping mechanism, especially for new tokens.
• 🔄 Eugene sees a future where AMMs serve as a liquidity backbone, complementing more sophisticated order book systems.
• 🚀 Phoenix is a proof of concept for demonstrating that active liquidity can outperform passive liquidity in an environment like Solana.
• 🛠️ The Solana ecosystem has room for improvement, especially regarding its fee model and network layer issues.
• 🔧 Solana's priority has been on performance and user experience, sometimes at the expense of incentive compatibility.
• 📊 The success of Solana's token (SOL) is tied to the platform's ability to support a robust DeFi ecosystem, rather than its market cap ranking.
• 🌟 In the long term, Eugene envisions a future where Solana can facilitate the trading of non-crypto assets, integrating with traditional financial systems.

Q & A

What is Eugene Chin's background and how did he get involved in the crypto space?

Eugene Chin is a co-founder at Ellipsis Labs, where they build high-performance DeFi products like Phoenix on Solana. He has a background in high-frequency trading and product engineering, with a focus on math during his studies. He entered the crypto space during the pandemic, initially spending time looking at DeFi and its developments.

What were the main issues Eugene saw in the current DeFi market that led him to start his company?

Eugene was not satisfied with the state of DeFi, particularly with the XY=K model and its replacement with Uniswap V3's concentrated liquidity. He felt that these models did not make sense from a trading background and seemed inefficient compared to traditional market-making practices.

How does Eugene view the role of AMMs in the DeFi space?

Eugene sees AMMs as a liquidity bootstrapping mechanism suitable for new coins, but believes they are not designed to be the ultimate solution for liquidity provision. He thinks AMMs serve a purpose but are not as efficient as traditional market-making models, especially for more liquid, large market cap assets.

What is the main goal of Phoenix on Solana according to Eugene?

The main goal of Phoenix on Solana is to prove that active liquidity can be competitive with passive liquidity in an environment like Solana. It aims to provide better liquidity than centralized exchanges by building a product that market makers can use to provide really good liquidity to end users.

What are some of the challenges that Eugene sees with running a high-performance trading platform on a blockchain like Solana?

Some challenges include the need to pay gas fees for every on-chain order placement or cancellation, which can add up quickly for active market makers. Additionally, the environment is significantly different from centralized venues, requiring a new primitive for on-chain liquidity provision.

How does Eugene view the future of Solana and its ability to support high-performance applications?

Eugene believes that Solana has been ambitious and successful in its mission, offering high throughput and credible decentralization. However, he acknowledges that there are long-term issues that need to be addressed, particularly on the engineering and research sides, to ensure the platform's continued growth and success.

What is Eugene's take on the Solana fee model and its impact on user experience?

Eugene criticizes the Solana fee model, stating it does not make much sense as it does not effectively throttle demand or provide a good user experience. He advocates for a model that offers better UX, such as one with a maximum escalation limit and a clear transaction fee structure.

What are Eugene's thoughts on the recent changes to Solana's MEV (Miner Extractable Value) situation with the removal of the mempool by Jto?

Eugene views the removal of the mempool by Jto as a positive step towards prioritizing user experience over incentive compatibility. However, he believes this is not a permanent fix and that a better long-term solution is needed to support the on-chain trading economy.

How does Eugene see the role of blockchain in the future of finance and beyond?

Eugene believes that blockchain, particularly through DeFi, is well-suited for disrupting the traditional financial system by offering permissionless innovation and access. He sees a future where blockchain technology can onboard a significant portion of non-digital assets and provide better financial outcomes for users.

What are Eugene's thoughts on the economic security of L1 tokens and their role in the ecosystem?

Eugene thinks that the economic security of L1 tokens is overrated. He believes that as long as there is an honest minority that can fork out malicious actors, the economic security argument does not hold much weight. He also suggests that the focus should be more on building a platform that optimizes for applications rather than token price.

How does Eugene view the competition between Solana and other high-performance chains?

Eugene believes that Solana has an incumbency advantage due to its early adoption and network effects. He thinks that while other high-performance chains are making valuable contributions to the space, Solana's head start and continued innovation give it an edge. However, he also acknowledges that no blockchain is in a finished state and that ongoing innovation is necessary for the growth of the entire crypto industry.

Outlines

00:00

🤝 Introduction and Background

The video begins with an introduction to Eugene Chin, also known as ZeroX Trader on Twitter, who is a co-founder at Ellipsis Labs. Eugene shares his background in high-frequency trading and product engineering, and how he transitioned into the crypto space during the pandemic. He discusses his dissatisfaction with the DeFi space and the motivation behind starting his company in late 2022. The conversation delves into the inefficiencies of the traditional DeFi liquidity provision models and the need for a more efficient order book system.

05:01

💡 Evolution of DeFi and AMMs

Eugene shares his perspective on the evolution of automated market makers (AMMs) in DeFi, from the XY=K model to the introduction of concentrated liquidity AMMs like Uniswap V3. He discusses the challenges faced by AMMs, particularly in terms of providing competitive liquidity compared to traditional high-frequency trading firms. Eugene also highlights the role of liquidity mining rewards in sustaining AMMs and his changing views on their utility, especially as a liquidity bootstrapping mechanism for new tokens.

10:02

🚀 The Vision for Phoenix and Solana

Eugene outlines the vision behind Phoenix, a product developed by Ellipsis Labs, which aims to prove the viability of active liquidity provision on Solana. He discusses the challenges of providing liquidity on-chain, the importance of profitability for market makers, and the need to improve the underlying primitive for active liquidity. Eugene also shares his thoughts on the ambitious goals of Solana's founder, Anatol, and the potential for a shared global state in DeFi.

15:04

🌐 Solana's Current State and Challenges

The discussion shifts to the current state of Solana, with Eugene acknowledging the platform's high throughput and credible decentralization levels. He highlights the various challenges Solana faces, including engineering issues related to the networking layer and the need for long-term research solutions. Eugene also touches on Solana's fee model, incentive compatibility, and the recent removal of the mempool by Solana's leading node operator, Jeto.

20:05

🔄 MeV, Blockchain Speed, and Decentralization

Eugene delves into the concept of miner extractable value (MeV) and its implications on Ethereum and Solana. He discusses the differences in how each platform has addressed MeV, the potential for faster blockchains to reduce MeV, and the trade-offs between speed and efficiency. Eugene also shares his thoughts on the ideal level of decentralization for a blockchain, emphasizing the importance of aligning with the platform's goals and use cases.

25:07

🌟 The Future of Solana and DeFi

Eugene envisions a future where Solana and DeFi can compete with traditional finance, offering better trading experiences and guarantees of transparency and auditability. He predicts a future where a significant portion of non-digital assets are onboarded onto crypto rails. Eugene also reflects on the broader potential of blockchain technology beyond trading, acknowledging the ongoing innovation and the need for a pragmatic approach to evaluating the value of blockchain applications.

30:09

🤔 Final Thoughts and Outlook

In the concluding part of the conversation, Eugene shares his personal views on the future of Solana and the broader DeFi ecosystem. He discusses the importance of continued innovation, the potential for new high-performance chains, and the value of differentiating Solana from its competitors. Eugene emphasizes the need for blockchains to evolve and improve, while also maintaining a focus on applications and user experience.

Keywords

💡Cryptocurrency

Cryptocurrency refers to digital or virtual currencies that use cryptography for security. In the video, the guest, Eugene, discusses his transition from high-frequency trading to the crypto space, highlighting the significance of cryptocurrencies in the financial industry's evolution.

💡DeFi (Decentralized Finance)

DeFi, or Decentralized Finance, is a financial system built on blockchain technology that aims to provide services traditionally offered by banks and financial institutions, but in a decentralized manner. The video discusses Eugene's insights on DeFi, emphasizing the need for efficient order books within this space.

💡High-Performance Trading

High-performance trading refers to the use of technology to trade financial instruments at very high speeds, often leveraging algorithms and advanced software to gain an edge in the market. In the context of the video, Eugene's background in high-frequency trading is relevant to his current work in developing efficient crypto trading systems.

💡Ellipsis Labs

Ellipsis Labs is a company co-founded by Eugene that focuses on building high-performance decentralized finance (DeFi) products, such as Phoenix on Solana. The company aims to improve the efficiency and performance of DeFi platforms.

💡Solana

Solana is a high-performance blockchain platform that supports smart contracts and decentralized applications. It is noted for its fast transaction processing speeds and low fees, making it an attractive platform for DeFi projects like those developed by Ellipsis Labs.

💡AMM (Automated Market Maker)

An Automated Market Maker (AMM) is a type of decentralized liquidity pool that allows users to swap tokens without the need for an order book or counterparty. AMMs are a common feature in DeFi platforms and have been a point of discussion for Eugene, who has expressed both criticism and evolving views on their efficiency and utility.

💡Liquidity Provision

Liquidity provision refers to the act of supplying assets to a market, typically in exchange for a reward or fee. In DeFi, liquidity providers offer tokens to pools or protocols to facilitate trades and earn incentives. Eugene discusses the challenges and potential improvements in liquidity provision within DeFi platforms.

💡Market Maker

A market maker is an entity or individual that provides liquidity to a market by standing ready to buy and sell assets, thereby facilitating trading and narrowing the bid-ask spread. In the context of the video, Eugene's company, Ellipsis Labs, is working to create an environment where active market makers can thrive in the DeFi space.

💡Product Engineering

Product engineering involves the design, development, and testing of products, often with a focus on creating solutions that meet specific user needs. In the video, Eugene's background in product engineering is relevant to his work in building high-performance DeFi products that address the inefficiencies he observed in existing platforms.

💡XY=K Model

The XY=K model refers to a constant product market maker formula used in some DeFi platforms, where X and Y represent the amounts of two different tokens, and K is a constant that defines the liquidity pool's conditions. Eugene critiques this model for its simplicity and lack of competitiveness compared to traditional financial market structures.

💡Uniswap V3

Uniswap V3 is a decentralized exchange platform and a specific version of Uniswap that introduced concentrated liquidity, allowing liquidity providers to offer funds on custom price ranges. It represents an evolution in DeFi technology and is mentioned in the video as part of the discussion on the progression of DeFi platforms.

Highlights

Eugene Chin, co-founder at Ellipsis Labs, discusses the development of high-performance DeFi products like Phoenix on Solana.

Eugene's background in high-frequency trading and product engineering led him to crypto during the pandemic, where he observed inefficiencies in traditional DeFi liquidity models.

The transition from XY=K to Uniswap V3's concentrated liquidity model was a significant shift that raised questions for Eugene about the profitability of simple liquidity provision.

Eugene notes that traditional market making is highly competitive and sophisticated, questioning the viability of simple on-chain liquidity models.

The concept of AMMs as a liquidity bootstrapping mechanism is highlighted, recognizing their value in facilitating new coin markets despite their limitations.

Eugene's vision for Phoenix is to prove that active liquidity can outperform passive liquidity in an environment like Solana.

The importance of addressing the fee model and providing a better user experience is emphasized for the success of on-chain trading platforms.

Eugene discusses the need for Solana to improve its networking layer to address engineering challenges and enhance the platform's scalability.

The removal of the mempool by Solana is seen as a positive step towards prioritizing user experience over incentive compatibility.

Eugene shares his views on the future of DeFi, predicting a shift towards on-chain trading that offers better user experience, liquidity, and transparency.

The potential for on-chain trading platforms like Phoenix to eventually handle non-digital assets and disrupt traditional financial systems is explored.

Eugene addresses the criticisms of Solana from the Ethereum community, highlighting the differences in values and priorities between the two blockchains.

The discussion touches on the importance of continuous innovation in blockchain technology, emphasizing that no platform is in a finished state.

Eugene's perspective on the role of blockchain in finance is that it should be fast, efficient, and permissionless, disrupting traditional systems to deliver better outcomes.

The interview concludes with Eugene's thoughts on the future of Solana and the broader blockchain ecosystem, emphasizing the need for constant improvement and adaptation.

Transcripts

[Music]

hey guys I'm here today with Eugene chin

um known on Twitter as zerox [ __ ] Trader

uh Eugene is somebody who's been in

crypto for a little while now has very

good thoughts I think on the space and

also has become somewhat of a personal

friend so um Eugene you want to give a

little background and uh tell everybody

what you do thanks for having me on G uh

yeah I'm a co-founder at Ellipsis

Labs we build product in di specifically

high performance uh di products like

Phoenix on

salana I have a pretty standard

background spent some time in high

frequency trading more time in product

engineering studied math in school came

to crypto during the pandemic spent a

lot of time looking at dii and uh yeah I

was not too happy with what I saw and so

my co-founder and I started the company

in late 2022 and here we are

nice uh so was Phoenix or Ellipsis Labs

which is your company uh was this the

first work you did in dii or were you

doing stuff before um before you founded

this like were you actually like writing

code before that or no depends what you

mean by work uh you know in crypto we

call ourselves like independent

researchers which usually just means

unemployed so that was me for quite a

while in crypto sort of exploring and

trying to figure out what's going on got

it yeah I think that's what I would put

myself in that category as well as well

wellth I don't know how much research I

do but um okay interesting so you you

did you sp you spent a little time in

high frequency trading um I would assume

this is what sort of brought you to

looking at how Marcus function in Defi

and eventually to the conclusion that

defi needed a very uh efficient order

book is this like would would you agree

with this and then also what was sort of

like your your view on how trading was

occurring um yeah like the structure and

then like how you thought that you could

like

potentially present a solution yeah so I

came to crypto in 2021

and spent a lot of time looking at what

was going on in Defi and there was this

whole XY equals k thing uh which I guess

very soon after I got into crypto

was uh replaced with unisat V3 the

concentrated

liquidity amm and this is just like so

foreign to someone with a little bit

more of a trafi background and you know

there were all these papers saying

things like if you provide liquidity on

the XY equals K amm you're going to make

money and it sort of just did not make

very much sense to me and then as all

the coins were going

up uh I kept thinking okay like I must

have something wrong here um all these

positions are making tons of

money uh despite being like really

really

unsophisticated liquidity providers

because coming from the uh the more

traditional side electronic Market

making is extremely extremely

competitive industry where you have

these high frequency trading firms

electronic market makers who have been

in the business for decades at this

point spent tens of billions of dollars

on R&D to compete in providing really

really good liquidity which means tight

spreads and uh lots of

depth and this one click XY equals k

liquidity provisioning just seemed like

there's no way it should be able to

compete with

that um and I think that's pretty much

born out to be true it became like much

more clear when the prices started going

down uh and you still see

this in crypto today where on chain

especially with amm the spreads tend to

be wider and the liquidity providers

tend to not make money tend to lose

money in fact uh often times they have

to be compensated with uh liquidity

mining Rewards

um and I think I have a lot more respect

for the amm today than I did maybe like

a year or two ago uh I think it really

makes sense as a liquidity bootstrapping

mechanism where the onboarding cost for

a market maker to start providing

liquidity on a new coin can be

relatively

high and this does give like a one-click

way for someone who is not particularly

concerned with making money on providing

liquidity and more concerned with um

liquidity existing at all for example a

team that is deploying a token um so I

think there is a real use case there um

but it does seem relatively Fringe uh

and if defi is to compete with grafi

which I think should be the goal I don't

think the goal should just be defi for

people who don't have access to binance

or defi for trading coins that you know

coinbase won't list

um so for defi to be able to compete

with trafi you actually need to also

compete on product you need to compete

on efficiency you need to build really

good products for market makers so they

can provide really good liquidity to the

end user yeah and you've been like

pretty vocal about amms I would say um

at least from what I've seen on your

Twitter you've long like been sort of

critical of the model or at least like

you know you you voiced um what you've

just said now uh so you say that you've

like sort of had a change of opinion but

I want to ask you like specifically do

you think that amms

are I don't want to say useless but like

not nearly as useful when it starts to

come to like assets that are not on this

long tail like do you see a future where

amm are useful for these like very very

liquid large market cap assets or do you

think that like at that point like

you're saying like we're going to just

be trading exclusively on order books in

that capacity I think they're likely to

continue existing in some capacity more

as uh like the liquidity of Last Resort

the backbone

liquidity

um where you know there are times where

market makers don't want to provide and

so generally the way this works on

centralized venues whether it's in trafi

or in crypto is someone whether it's the

exchange or a token team is going to

strike a deal with the market maker

to guarantee that there's going to be

some liquidity at some depth uh like 99%

of the time or almost 100% of the time

even when it might be not profitable uh

directly on the market making and maybe

you can replace that with some sort of

amm like

construct uh but the amm is really not

designed to be the Super General thing

in my mind it's designed to have some

form of completely onchain liquidity in

an environment where

one there's no guarantee there's going

to be sophisticated market makers who

want to show up and onboard onto your

system and two when the whole blockchain

like the entire Global state does call

it 15 or 20 transactions per second it's

just not conducive to any sort of active

Market making activity so you do need a

new primitive for that environment so

for example I think like order books

will never make sense on ethereum Main

net unless ethereum main net someday

scales to you know 100,000

TPS yeah and that's long like that's

basically been the rationale at least

like for since the Inception of amm is

that like you realistically can't have

these like very high frequency order

books on top of a blockchain that you

know uh moves every 12 seconds but um so

it to to that end um what did you like

what were you looking for when you uh

started like building out Phoenix like

what was in your mind what you needed to

do and then also we can kind of like I

suppose move on to like salana as a

whole and like how you felt that salana

specifically would like enable what you

were looking to do yeah in my mind

Phoenix is like very far from a

completed product it's just a naive

vanilla order book implementation on top

of

salana with spot trading only

and yeah it's really a proof of concept

where first we need to prove out the

product thesis that active liquidity can

be competitive with passive liquidity on

an environment like salana and it's not

obvious that this is going to be the

case because providing liquidity on

chain is very different from providing

liquidity on a centralized

venue I think the most important piece

is you have to pay gas the market maker

has to pay gas anytime they want to

place an onchain order anytime they want

to cancel an onchain order and yeah that

number might be very small but if you're

placing and cancelling orders very

rapidly uh you know those cost just add

up and so you need enough volume to to

make up for that and then the second

piece is these active market makers

really care about being profitable

they're like sophisticated entities they

know how to measure the profitability of

a strategy they're not looking at

you know some big green number on the

screen that says 800% apy and thinking

like okay that's like probably good to

go um so the market liquidity providers

are more sophisticated and more

sensitive to profitability than a

passive liquidity provider and the

environment is significantly worse than

it is providing on a centralized venue

so it's I think like not obvious a

priori that active liquidity is even

viable on chain and so we had to prove

that at first I think at least in the

current market conditions or the market

conditions over the last year which have

obviously changed quite a

bit

uh yeah the the market makers make money

on Phoenix they make uh quite a bit of

money and are able to provide tighter

spreads than the the amm now now that

like we've proven that active liquidity

can outperform passive liquidity you

know we still need to make the core

underlying primitive better because the

goal isn't to provide better liquidity

than Unis swap uh the goal is to provide

better liquidity than than coinbase or

binance or in the long run like the New

York Stock Exchange yeah and this is

something that anatol the founder of

Sona is like very fixated on I mean this

has been like a lot like one of his uh

selling points on SOL he says like I

think we can create this Global state

that competes with Finance competes with

coinbase first of all is this

realistic um second of all just out of

curiosity a little bit on your last

question you said that market makers are

profitable on Phoenix do you think this

is a function of the flow being

primarily non-toxic I don't know I

actually don't know if it is or I mean

is this like a long run profitable

Market making strategy for them or is

this like you said under current market

conditions so those are kind of two

questions but you can um answer how you

want I'll answer the second one first I

think it is always very difficult to

make a long run general statement uh

which is why is going to hedge with

something like in the current market

conditions there's a lot of non-toxic

flow on salana today although the market

makers were still profitable when the

volumes were 1% of what they are today

and there definitely are uh shall we say

toxic uh actors uh I don't mean toxic in

a derogatory way I mean it just in the

nature of the flow

and you know they're making money as

well and as a market maker your job is

basically you want to provide to the

non-toxic flow while losing as little as

possible to the toxic flow and so sort

of the ratio of how much non-toxic flow

to toxic flow there is uh matters quite

a bit and yeah in the market conditions

from six months ago when the volumes are

1% of what they are today and also in

the current market conditions the the

market makers are profitable and of

course they're adjusting their

strategies given the volumes given the

nature of the flow um you know very

actively monitoring as opposed to again

a passive liquidity provider and then on

your first

question one thing I've always respected

about toly and his vision for salana is

it's extremely ambitious I think Global

shared State makes a ton of sense

for uh defi specifically I think we look

at the rollup landscape today the L2

landscape and there's so much

fragmentation

and it really limits the usability and

usefulness of a lot of these UHC ations

are really these like pieces of infra

where one of the biggest benefits of

doing things on chain is the shared

state where you have this notion of

composability assets that can be used

across apps in a very very seamless way

and I think at some point you need to

probably have some opinion on what

pieces of State need to be shared and

what can have more like asynchronous

composability so for example I think it

makes a lot of sense for uh in the long

run of defi to live on the same shared

State whether that's salana or somewhere

else uh but maybe that doesn't need to

be the same place as nfts or or dpin or

whatever else is going on uh in

crypto yeah I think that that's I think

a lot of people are realizing this at at

this point um okay so I want to ask you

more specifically about like salana what

you what what are your scene right now

with

like uh well transactions are very hard

to land on chain as as you probably know

um and there's like you have done a lot

of research on this I would actually I

don't know I'm probably just talking you

up right now but I think it's also true

that you're like one of the foremost

experts on the salana fee structures you

have some strong opinions what's salana

doing right what's salana doing wrong

like what are the issues and like how

rectifiable are these you can just

ramble however you want yeah there's a

lot of problems with salana today um I

think the most important thing though is

like salana like kind of works it mostly

works and it works at quite high

throughput with very credible levels of

decentralization uh which is extremely

differentiated in the market today uh

and one mental model for salana is

basically since uh main net beta

launched in March I think March of

2020 Sal's basically been putting out

fires the entire time where things are

just completely breaking on the

engineering side or

uh on the business side or

whatever and over the last year there's

been a ton of time to you know pay down

some of this technical debt think

through some of the more like long-term

research problems which salana just

hasn't really had the luxury of being

able to deal with this all has been in

like this survival firefighting

mode and yeah like the again the mission

is extremely ambitious like you're

building this massive distributed system

that's permissionless permissionless to

participate in whether it's as a

validator um you know contributing to

consensus or as like a user application

developer and that's just an extremely

hard problem so I think salana was

founded

in 2017 or

2018 and the output since then has just

been extremely impressive and I think

it's super unrealistic to expect that

Sal would look anything like a completed

product

today um so yeah mentioned that volumes

have picked up by about 100x in the last

six to to eight months and it's brought

a lot of problems to the chain uh

there's definitely some some of these

like long-term issues that need to be

addressed some of which are on the

engineering side like the what we call

the networking layer on salana which is

really just part of the uh client

implementation has some issues where

effectively every validator has these

like ports that are exposed to the rest

of the world and there's you know

trading opportunities very directly

profitable opportunities to sort of spam

this layer with massive amounts of

traffic and it's a very difficult

engineering problem to figure out okay

how are we going to throttle this how

are we going to assign bandwidth to

different types of users or rpcs or uh

or

stake uh so there's a lot of engineering

problems there are plenty of research

problems as well uh I think salana

historically is not focused very much on

incentive compatibility very different

from the ethereum side and I think it's

worked out quite well for salana just

really focusing on engineering really

focusing on performance and sort of

kicking the C can down the road on some

of these uh thornier research problems

which we'll need to get addressed at

some point but actually have not been a

significant issue to

date on the topic of fees yeah I think

like the fee model and just doesn't make

a ton of sense right now where there's a

couple things you're optimizing for with

fees first you have some limit on block

space

and so like you can't increase Supply

infinitely and that means you need some

mechanism for throttling the demand

which is almost always going to be on

something like price and one really good

way to do this is with uh like a GL fee

model where you also care about the ux

and we saw this with ethereum you know

1559 where yeah there was the burn and

all that but actually much more

important in my opinion was the ux

Improvement where you basically know I

can send a transaction with some you

know like small tip and then I'm just

going to pay the base fee whatever it is

and I know it can't increase by like a

100x in the next block there's a Max

escalation and you're just going to get

your transaction in with quite high

probability in most market conditions

not all market conditions but most

market

conditions and this type of mechanism is

really really good for the ux where the

user doesn't need to spend time or the

wallet doesn't need to make a decision

on behalf of the user of oh how much fee

do I think I need to bid to get in in

some sort of like first price auction

mechanism salana also has continuous

block building so any sort of first

price auction is still going to have uh

inefficiency where I think you could

make an argument for the efficiency

being just as good with the first price

auction on ethereum as um as a 1559 like

model or or probably Superior I think

the mechanism design designers would say

yeah um okay also I wanted to ask you so

jeto recently like did away with their

me pool like I think you had talked

about how bad sandwiches were getting on

salana um yeah what do you think of this

like is this one of the incentive

compatibility problems that you're

talking about or the others I actually

like wanted to ask more what you think

the incentive incompatibilities are and

then yeah like so what is the situation

like with with me now where is it headed

is somebody going to step in and like

just take a take goo's place and then

also sorry I keep like just thrusting

questions at you but the other thing I

was going to ask is just like if you

could um like synthesize the difference

between meev that exists on like um amm

that we see versus order books um and

like if order books eventually are just

going to like sort of look like

traditional stat ARB or if there's like

you talked about the difficulties of

Market Mak or or the differences Market

making on something like binance versus

Phoenix so um yeah like I hope you

remember all those things and because

I'm not sure that I do but uh yeah you

can just address any of those sure let's

start with jto uh I think removing the

men pool was a really really good

decision

uh and it is another example of salana

prioritizing I mean salana here in like

this very like vague nebulous sense of

uh you know it's comprised of a bunch of

different actors and of which like jeto

is one and it's another example of

salana prioritizing the user experience

over incentive compatibility because

yeah in the long run let's say salana

makes no changes moving forward on the

engineering uh and consensus side of

things yeah the long

run uh you lose continuous block

building you end up with something that

looks like PBS you might even end up

with something looks like four slot PBS

because leaders uh on salana get four

slots in a

row um and you also definitely end up in

this PBS construction with some sort of

front running

capability and that's just like really

bad for the user where you have these uh

you know today the main use case on

salana I would say like on any

blockchain

is playing the shitcoin game

and a big part of shitcoin game is you

want to place a market order Market

order really only makes sense in a world

where you have this first in first out

type

ordering uh because when you come into

the market and you say I'll take

literally any price or I'll take up to

50% slippage or 99%

slippage if that order is not executed

right way if someone else gets to look

at it first then you're going to get

front run you're going to get the worst

possible execution which is just a

terrible outcome for the end user and

yeah there's sort of ways around this

with private order flow uh we're seeing

this game start to play out or actually

it's played out quite a bit on the

ethereum side where uh you know some of

the largest block Builders three main

block Builders and a couple of them have

exclusive order flow deals with some of

these uh large senders of Market order

shall we say these telegram trading apps

where users are relatively execution

insensitive

and it's quite centralizing at the Block

building layer of course where if you

have more market share

today uh the you're able to provide

better guarantees to the incremental

order flow so the cost to to serve the

order flow is is lower for you

and yeah if you play everything out to

the equilibrium you end up with

something very very similar on salana I

think jto turning off the men pool is

not some permanent fix I don't think

it's ever been marketed like that

certainly not by the jto team

and what it does do is buy a little bit

of time where uh yeah sort of going to

have to figure out how to do Market

order on chain

if if you're going to be able to support

some sort of shitcoin economy and you

can do this with like a trusted

sequencer which is what the layer twos

do today um but if you want the sequence

of set to be fully permissionless then

you're going to need a better long-term

solution so now I have two questions and

that's I'm G to remember which ones they

are okay so the first one is you have

observed and honestly I would say very

well informed on ethereum me and you've

watched what's sort of UN unfolded in

that uh in that domain what are your

thoughts on just like the general

direction of me on ethereum and like do

you think that so like obviously there's

been some I mean there's been a lot of

opinions on this but there's been some

opinions that ethereum has in some way

like attempted to maximize the me well

actually this is sort of a stated goal

right the meev accelerationist whatever

you want to call it they've said look

we're going to like maximize it and they

we're going to work out the Kinks but

then there's people who have said okay

well it's not so clear we're working out

the Kinks and it seems to just like be

accelerating um so I want I want to know

like what your general view is on

ethereum MV and then the other thing is

how much of this because this is

something that toally talks about a lot

and you know there's also different

opinions on this how much of me like

just functionally is solved by by

blockchain's gun really really fast like

is it is there a way to

um uh is there a way to quantify that

like such that you can I I know that you

know like it's the difference between

onchain prices and offchain prices like

this is like a lot of what contributes

to M on ethereum for example but is

there a way for you to say like we can

push me down to a negligible amount with

xeed or you know like the blockchain

going this fast in in your mind so those

were two two specific questions but okay

I'll try to answer them in order this

time so the first was on ethereum

me I

think ethereum has not had the luxury

that salana has had in addressing the me

problem where I think it was another

case of oh [ __ ] is like on fire and we

us to address this right away uh I think

this was starting in like late 2019

early 2020 as defi really started to

pick up and you know there were all

these mempool games getting played you

all these failed transactions landing on

chain which is much more painful on

ethereum than it is on salana because

the block space is so

constrained

and because there were like so few

mining pools that were uh contributing

like a large market share of Mining and

there's like sort of no way to kick them

out you can't like slash them there's

like actually no option to

to uh and I don't think a the would have

considered this anyway

but there wasn't really a way to uh you

know nicely ask a minor to not do the

profit maximizing thing and in that

market we

saw ethereum

miners spinning up deals with Searchers

sort of under the table we

saw some mining pools attempt to extract

Meb on their own

and so this democratization angle I

think made a lot of sense in that proof

of work World

um and you actually had to you probably

had to enable sandwiching front running

because all the order flow was public at

the time maybe you could have just gone

the private order flow

route I think the real issue is you know

moving towards proof of stake and

PBS really having an emphasis on this in

set of compatibility uh really having

this focus on the solo Staker being able

to make as much yield as the

institutional Staker which is never

actually going to be the case but the

goal is to at least like decrease the

Gap and hope that I don't know solo

stier air drops will make up for the

difference or more than make up for the

difference

uh and to contrast with salana the me

infrastructure just didn't really

exist and only started to get built out

during this Market when there was very

very little activity on salana and

so the actors extracting Meb I would say

in general like less sophisticated on

the salana side than on the ethereum

side which is just a function of the the

market side

and I think that will not be true in the

medium to long run J has a very strong

position in this market and I think they

are able

to influence For Better or For Worse the

like where the Meb markets go on Sal

today they have more than 70% of the

stake I believe which is not them owning

the stake it's just 70% of the stake

running the jetto salana

client uh and yeah I think like removing

the men pool is one thing that I mean

well to be fair they added it in in the

first place there's no me pool by by

default on salana transactions are sent

directly to the

leaders there's no PTP gossip uh of of

pending

transactions uh yeah I think removing

that was just like clearly a good

decision uh and then your second

question was good but I forgot what it

was my second question was just I mean

you started to move that direction but

it was just if you make it really really

fast you make a block really really fast

can you

decrease me to I don't know a negligible

amount I don't know if that's really uh

a stated goal or I mean how how much

does just making it really fast because

this is something like anat says right

like this is like one of his big points

is like you make it really fast there's

less than e it's just like period end of

end of story and I wanted to hear your

take on that like coming from like the

more more looking at this as like

somebody building an application top uh

salana and yeah you can run with it from

there sure yeah uh I guess my first

point here is the application developer

really needs to care about me because

you can think of an application sort of

as this Clos system so on Phoenix for

example you have uh like market makers

and you have uh takers you have two

sides of the the flow and then what me

sort of is is this like extraction from

this Clos system and so if you're trying

to build something that is sustainable

you want to minimize that in the same

way that uh you know if you're doing any

sort of Market design you want to

minimize the the toxic flow relative to

the non-toxic flow with the

understanding that you'll never be able

to get to zero toxic flow and that

that's

okay

um running the blockchain

faster definitely reduces some types of

me increasing amount of block

space

Also increases

the protocol design space

and so there's more things application

developer can do to mitigate

me at the end of the day though what you

really care about is the proposer or

whoever has the right

to insert and order the

transactions uh what really matters is

how much agency they have so on ethereum

they have this not easy but relatively

easy problem of okay you have call it

150 transactions and you have 12 seconds

to like jam it into a block and me the

[ __ ] out of all the retail trades and on

salana it's like you have 1.6

seconds uh across your four slots and

far more transactions so it's like a

little bit harder to to meev it uh no

matter what though the most

sophisticated me actors are going to be

smarter and have more uh compute

capability than like the the weakest

validator and so if you're an L1 and you

care about

someone being able to run a node on a

Raspberry Pi or be a validator with you

know spending less than ,000 dollar a

month on on compute and and Cloud

hosting the most sophisticated Searchers

are going to have much more

capabilities and basically the only

thing you can do here is reduce how much

agency the proposer has which will have

other effects like the transaction

ordering will be less efficient

efficient in the economic sense which I

think might be okay

because like the max efficiency means

Max extraction which is bad for the

users and bad for the

applications there's this interesting

proposal on salana from

toi uh I think it's called concurrent

block proposers or something like that

where instead of having a single

proposer per slot you have multiple

proposers

and let's pretend there's two

proposers

they each have a right to call it half

the block space and then they pick some

set of transactions that they're going

to put in that block space and then the

consensus mechanism finds a way to merge

them into a single block and so you're

going to lose a lot of efficiency here

because two independent parties packing

blocks just going to be less efficient

than one one you're going to have

probably more failed transactions

because if I build a transaction uh if I

send a transaction I don't know at

execution time or sorry

at uh at the time it's inserted into the

block you don't know if it's going to

revert or not because execution depends

on

ordering and so yeah you just like lose

efficiency in all these places but you

really you also reduce the amount of

agency that proposers have which reduces

the amount of extraction there can be so

if you can run a system like that really

really fast where you have like a ton of

block space and you know we're just

we're just going to eat the failed

transactions and it's not a huge deal I

could see something like

that mitigating some of the problem in

the medium to long run is a huge

engineering lift to get there and

there's also some tradeoffs where today

on salana you get pre-confirmation for

free because the leader is streaming out

the block as they're building it and

that is not just was your transaction

included or not it's the state

transition that comes with the the

transaction and once you separate

transaction inclusion from transaction

execution then you have to wait for

consensus and these multiple partial

blocks get merged to know what the state

transition is so there's there's going

to be trade-offs all over the place here

but that's the nature of this

distributed permissionless system uh I

wanted to ask your person opinion you

don't have to speak on party lines here

I want to ask your personal opinion on

the level

of I don't know I would I guess

decentralization I can't think of a

better word right now but what do you

think the ideal chain looks like in

terms of do people need to be able to

run a Raspberry Pi or is it this idea of

um a hundreds of data centers around the

world um like what to you is

I don't know what should we strive for

in this capacity well it depends on what

the the end goal is so for example if

your goal is for the chain to be

resilient to an event like World War III

then you're also going to want to be

robust to things like massive data

center

censorship and if your goal is to build

a financial system that runs on chain

and provides really good outcomes to

users

then you know your requirements might

look a little bit different going off

that a little bit what is your view on

the sole token this isn't like Financial

advice obviously I'm just like thinking

as as the token used on salana and like

what is the long-term vision for this I

think CU I've talked toally and what he

says is like what we're trying to do is

build a platform and if salana if the

soul token is like the 100th largest by

market cap I think token on salana then

we've done a good job because we've

optimized for applications right um does

this work in your mind in terms

of yeah like developing a sustainable

fee and validator structure so the L1

token price matters if you care about

Economic Security and I think it's not

actually super clear how important

Economic Security is but you could

imagine a world where let's say the soul

token was extremely cheap there's like

no demand whatsoever call it like $1 or

one cent and then that means some can

come in and buy up like a massive chunk

of it um are they able to force an

invalid State transition answer is still

no uh which I think is totally argument

you see like one honest node to go out

to the world and say like hey this guy

with 99% of the stake is is doing

something that's [ __ ] up so we need to

Fork the chain and I think that's

all quite

reasonable

um the

l1s I think have the best argument for

why the application actually needs a

token uh it makes a lot of sense in the

proof of work context makes a lot of

sense in the proof of State context um

whereas I think a lot of other shall we

say like applications with the token or

sort of fishing for a reason to have the

token doesn't actually make sense for

the product uh more makes sense as like

a you know

a uh like a capital generation mechanism

shall we say and

yeah I just don't really see any reason

why you know if if the soul token is the

H hundredth

largest by market cap on salana why the

chain like doesn't function I think the

economic security arguments don't make a

ton of sense uh I think it's quite

unrealistic though uh maybe the way

tokens trade will change in the future

today they very obviously do not trade

on any sort of fundamental basis so if

you ascribe to that then like the fee

model and the revenue model don't

actually matter for the valuation of the

token but I think it's CBD if that will

continue in

perpetuity yeah so you kind of ascribed

to the economic security is a meme

category I wouldn't say I wouldn't put

it that strongly but I think it is

overrated yeah I think and also like as

you can tell toally goes way out of his

way to troll about this right like with

the Chihuahua chain stuff like he goes I

mean he's like like it's like

performance art you know it's crafty but

it also does like it certainly does make

it it definitely makes you think let's

put that way uh okay I think the main

point the main point that he has is the

honest minority can always Fork out and

yeah it's going to be extremely costly

but if you have a dishonest majority

that's the only thing you can do and

yeah definitely if you're if like that's

part of the

uh the plan against some

yeah very large actor that accumulates a

ton of stake then yeah I think Economic

Security matters a lot less

than than most people in crypto think

yeah 100% agree and also like the thing

is like the part of the part of the

premise of proof of stake is that you

can Fork out you know malicious actors

and so like ascribing some not like um

amount that can be denominated as

economic security is like somewhat of a

frivolous Endeavor because like the end

of the day like it's the it's the notion

that their state could be forked out

that should in theory deter any

dishonest actors like at least at least

in the model so like I do kind of wonder

about that myself but anyways um okay I

want to like zoom out now or I don't

know zoom out but just like take this a

slightly different direction um we can

start with like okay so in five years F

okay you can start with 5 years and then

after that I'm going to push you to 15

years what are we using Phoenix for what

are we trading um like give me the give

me like the hyper bullish outcome not

like for investment reason just give me

the hyper bullish outcome

on trading on chain uh with Phoenix

specifically and then we'll move to like

def5 as a whole but like what what where

where is Phoenix headed and like what is

your hope for what you're building in

five years we should be able to get to a

point where trading on

chain

is as good or maybe even a significantly

better experience in trading on a

centralized crypto exchange and

concretely what that means is the

product experience is better the

liquidity is as good or better uh plus

you have these guarantees

around auditability

transparency permissionless access

permissionless Innovation on top of it

which don't exist with centralized

exchanges or at least don't

today 15

years on boarding of

a significant chunk of non-digital

assets onto this um onto these crypto

rails I don't know what those I don't

know what those um onboarding mechanisms

are going to look like but by that point

I think if we haven't been able to build

a system that is you know defy as a

whole better than trafi I would view

that as a pretty significant failure

yeah so like in 15 years are we Trading

apple and Amazon

shares on Phoenix

specifically no but just on

chain I think so okay that's quite

optimistic uh all right so then like

sort

of adjacent to this question uh what is

like just your overall view on Defi and

maybe blockchain as a whole like what is

it very useful for like so you seem to

think that it can be very useful for

trading obviously building a trading

application what else is like what is

the future for this industry and like

what is this stuff really good for and

I'm GNA press you so be prepared yeah so

I don't think about the philosophy of

crypto all too much I'm really really

focused on the defi side I'm not super

imaginative when it comes to uh what the

future of nfts or crypto gaming might

look like where those applications are

uh I

think there is like sober realiz ation

that needs to be had which is that not

everything belongs on chain you have to

think about what are the costs and what

are the benefits of putting something on

chain so the costs are extremely high

where just any application you put on

chain uh is going to be from like a

developer perspective much less

ergonomic much more expensive much more

expensive from the user point of view

because you're eating this overhead of

you know thousands of nodes coming to

consensus uh and sharing the state

rather than a single copy

in

AWS um in Virginia or something like

that and then the benefits are

around permissionless access or

sensorship resistance they're

around composability and permissionless

Innovation and this is why like Finance

I think makes a ton of sense for crypto

where you have this massive Trad F

system which I think is like mostly been

built by well-meaning

actors um or at the very least like

profit seeking actors um but it's been

built iteratively over like a hundred

years right and that means there's like

a lot of crft in the system there's a

lot of entrenched actors is very

difficult to

innovate and I don't think Finance isn't

is in a completed State I don't think

it's near a completed

State and so crypto specifically with

its permissionless Innovation and

access is perfect for disrupting the

traditional Financial system and not to

just like build some shitcoin because

you know on the side but actually to

build a financial delivers better

outcomes to the end users which are like

real people and real companies real

businesses as opposed to again

uh like pure shitcoin nihilism when you

look at ethereum right now and like the

we sort of touched on this but now like

zooming out just talking about like I

guess defi as a whole like are you what

do you

see the future of rollups um cross chain

interoperability all of this stuff like

you you mentioned the fragmentation like

this is something that's discussed like

at infin itm right and like uh it seems

like this stuff can be well I don't know

honestly I don't write code so I don't

know if this stuff can be like solved so

easily um some of it is more intuitive

some of it's like I'm not quite sure

about but uh it is annoying like to it

it is annoying when you have like your

metamask and you have to switch between

eight chains like it's like there's no

denying that right um and I think that

salana has stepped up like Solana saw

like the benefits of like just sticking

this all in one layer and like running

with it and like we'll fix problems like

you know move fast break things and like

things break like um so is ethereum

still innovating in your mind and what

do you think about rollups as a whole

like is this the direction that should

be taken I think it's a very reason

reable approach to take I guess to

answer the first question ethereum is

definitely still innovating ethereum is

on the Forefront uh specifically on the

research side of so much that relates to

blockchain I think salana owes a ton to

ethereum uh for Paving the way and

sewing some of the initial Vision even

if uh you know salana is opinionated in

ways that might disagree with some of

the ethereum core

philosophies or core values let's

say on rollups specifically yeah of

course the interop is a huge problem

today I think there's a bunch of

different narratives floating around

here the rollup companies or the L2

developers will tell

you well the big ones will tell you they

want everything to happen on their own

on like their own L2 so uh you know

believe in this vision of one true L2

and you just have to Duke it out to

figure out who's going to win and then

some of the infro companies

are like pedaling this narrative around

oh you can just like solve the interupt

problem and I think today we just

haven't seen a good solution there and

it depends on what you mean by interupt

so there's a bunch of different forms

like uh for example synchronous

composability versus asynchronous

composability can I like touch multiple

applications across multiple layer twos

or multiple chains in like the single

Atomic action which uh you know

synchronous composability and

this almost certainly requires um some

sort of shared some some notion of

shared validity which is like sharing

the same sequence or set

and having one Chain's validity depend

on anothers and this sort of just looks

like one Mega rollup you just called it

n different rollups so you get n tokens

plus a sequence or token so maybe there

is some product Market fit for that but

from a architectural standpoint I think

doesn't make too much sense uh I call

that the salon at home where you have

this uh multiple you know single

threaded machines that sometimes

interact with each other which actually

looks very similar to a massive uh

single state machine

where you have a locking mechanism on

different pieces of state which is how

salana is

built

um but again not everything needs to be

composable with each other in the same

way that you know we use tons of

different internet applications today

but my slack doesn't need to know

everything that is going on on my Gmail

it's actually okay if one of them runs

on like AWS and one of them runs on on

gcp it's just like not a problem

whatsoever and again like yeah your

crypto gaming might just happen

somewhere else from your Defi and I

think that's that's totally fine yeah

what criticisms of salana that ether

Community wages do you think are

legitimate and which ones do you think

are

illegitimate I think most of them really

just come down to differences in values

and so that will affect if you think

it's like legitimate or illegitimate for

example ethereum really has this value

of anyone should be able to run a node

from home anyone should be able to

participate in consensus from like a

home internet connection and uh

relatively small

hardware and the reason for that is for

censorship resistance and some notion of

like World War III robustness and this

is just not really something that salana

prioritizes that highly and that's just

a values

difference um I think maybe where I

would disagree with Sana is

more on the research side and how

important some of these you know getting

some of these core mechanisms right

rather than slapping a bandaid on here

or there which is uh you know like an

engineering team where everything is on

fire that's what you're going to

do one example is around the fees where

yeah just like the fee model on Sal does

not make sense has not made sense for a

very long time sort of comes from a

point of view where supply of block

space is just always going to be greater

than demand for Block space which

actually is like quite a pessimistic

view um and I don't think is expressed

explicitly but kind of comes out in the

an engineering decisions or

prioritization and you know we see some

of the effects of that today where yeah

you just like don't know how much you

need to bid to land your transaction and

so there's massive inefficiency in the

bidding it affects the ux etc etc yeah

that makes sense um all right well I was

gonna I want to

ask yeah maybe one like one last

question just you're looking at some of

these other chains that are cropping up

like maybe less so on the L2 front

but some of these high performance

chains like for example U manad is

coming out soon it's like a paralyzed

parallelized evm um I want so I'm just

using this as an example I want to hear

and I'm not sure exactly what I'm asking

here but I want to hear like is the

vision in your mind for these chains to

just continue to innovate and that

sounds like um that sounds like it may

be obvious or may not be obvious

depending on like what chain you sort of

ascribe to but what in your mind like

will make salana different from the next

chain that comes out that's also

extremely fast and after that like

technological innovation versus maybe

some of like value sets inscribed um

because I think that like I guess what

I'm getting at here is that salana I

think was Saul okay so this is my

opinion right like this isn't I don't

think what anybody else say but this is

my opinion right like Shana said okay

Finance should go really fast actually

Finance should go really fast and what I

think happened actually is that a lot of

what was occurring on ethereum was not

like people maximizing for

decentralization or like maximizing for

like some like of these values now the

chain May in theory be designed in such

a capacity but that's not what people

were really using it for and so I think

like when like a lot of what salana has

seen recently it's just people

maximizing for more degeneracy over here

and so I want to know like is this

something where we just continue to hop

from chain to chain to chain and like

just continue to follow technological

advancements or is there a way that like

salonic continues to stay a breast of

technology and can ensure like some of

these ideals of decentralization I don't

know maybe this wasn't such an

articulate question but like hopefully

you start philosophizing for me well

it's a bit of an odd question because I

think prior you should expect if salana

is the fastest or most performing chain

above some level of decentralization

however you want to mention however you

want to measure that um it has some

incumbency advantage and again it's not

a finished product it should continue to

get better I don't think anyone views

Salon as in like a finished state today

and so you know it has like in my mind a

huge Head Start Over a chain like monad

or you know compared to some of these

high performance chains that came out a

little a little bit later like Aptos and

andu uh there's just this difference in

adoption

and that comes from being out earlier

and gaining some mind share earlier

but I think I have a more practical view

towards blockchains which like they're

pretty valueless by themselves and they

really depend on the applications that

are built on top and you know as an

application developer

when we look at any sort of infra we're

just you know we're picking the tool

that's best for the job and so when we

take a look at salana today it's good

enough for Phoenix and we look at the

other chains like not really good enough

uh from a Pure Performance perspective

and there's a bunch of other things that

come into play as well if you know we

need to do some tiebreaking like uh what

does the asset base look like are there

users are there active Traders and maybe

if the interop problem gets you know

solved in in some capacity by I don't

know uh a really great multi-chain

wallet that is actually able to abstract

the chain away then some of those chain

level Network effects are going to

matter less uh that's not the world

we're in today um and yeah I think like

none of these blockchains are close to a

finished State and all these attempts to

innovate like uh you know moned is a

great

example um are really good for crypto as

a whole because infra is not good enough

for like real applications that are

dealing with tons and tons of value um

they're not efficient enough they're not

performance enough and it's really

really hard to get there while

maintaining some level of

decentralization yeah okay that was a

good answer to a pretty non-descript

question um okay well thank you Eugene

where oh also um okay so they can find

you at on Twitter at Ox [ __ ] Trader and

then also um you write like some

research stuff as well if you want to

like show that and then anything else

you want to show as well yeah we

published some research on umra

research.

XYZ or umra Research on Twitter uh

various blockchain

related research pieces more on the

infra side more on the um like infro

technical design side relating to

primarily ethereum and salana

but hope not to be limited by that in

the future awesome well thank you so

much for coming on we'll have you on

again sometime I thought it was great

thanks for having me

G