This is epicenter episode 340 with guest Daniel Wang.
Hi, welcome to epicenter. My name is Sebastian cuchillo
today, our guest is Daniel Wang. He is the founder and CEO of
loop ring. Loop ring is a decentralized
trading platform, which makes use of ZK Roll-Ups to achieve
impressive transaction throughput on chain.
So if you want to learn more about ZK Roll-Ups, you should
definitely go back and Listen to her episodes where we've talked
about these Technologies. So there was episode 310 with
elements of saint of Stark where or our recent interview with Jin
Ling Wang and Carl flourished at sex 03:36 where we talked about
optimistic Roll-Ups, a few things to know about Loop ring.
It is an order book based exchange which sets it apart
from protocols like Eunice Whoppers of gnosis protocol.
However, the order book is centralized it's non-custodial
though which means that users can claim ownership of their
tokens at any point. Like I said, it leverages ZK
Roll-Ups to achieve scaling on ethereum and loop bring claims
that they can achieve over 2,000 transactions per second on
chain. And they have a strong focus on
the Chinese market, which is where the team is based sunny
and Federica that this interview and in the days after the
recorded this in early, May a security vulnerability was
identified by the star core team and report it to the loop bring
team, the post detailing that bug are linked in the show
notes, the vulnerability, In the wallet front end.
And as far as we know the smart contract code was not at fault.
So, in short the wallet, generates a key pair to conduct
snark related operations, and these keys were generated in 32
bits space, which is quite insecure because one could
compute all of the possible account keys in the system.
Daniel mentions in the interview that they audit every new
release. But I wonder how this sort of
thing could possibly be missed. Perhaps the front end wallet
wasn't part of that audit. In any case, Case, once again, I
think this shows the fragility of defy infrastructure.
I don't know how we get around this, but every so often a
vulnerability is discovered or a defy protocol gets attacked and
if trillions of dollars of financial value, our 21 Day,
live on defy, the ecosystem needs to be much, much better at
security. Here's what you'll learn in this
interview, Daniels background and how he became involved.
Grip toe loop Rings, 2017 token sale, and why they needed to
Current funds to investors the concept of ring matching which
existed in the early Loop ring protocol, loopings, use of ZK
Roll-Ups to achieve scalability, current throughput, and
transaction costs Loop ring compared to buy Nance, and other
centralized exchanges. Why they chose to build on a
centralized order book model, the difference between
optimistic roll up and ZK Roll-Ups, the loop ring token
lrc and how it's used in the protocol.
And Daniel's views on the future of the decks ecosystem, just a
few housekeeping items. I am participating in to
conferences, in June, from June 1st, to June 3rd, May net is
happening in Maine. That is a conference organized
by Masari. And on June 2nd, I am really
excited to moderate a fireside chat with Joe Lubin of
consensus. And Danny Ryan of the theorem
Foundation. As this comes out, you can still
get your early bird tickets. For the next two days, they're
only 50 bucks. Yeah, thanks really worth it.
It's going to be a great conference head over to main net
dot events for all the details. And then a few days later, I am
going to be moderating, a panel at the web 34, mm, which is part
of COG X. That's from June 8th, to June
10th, and we're still putting the panel together, but it will
be on the topic of Freedom, versus Civic duties.
So that should be a lot of fun. And once the panel is officially
announced and on the website, I'll let everybody know.
So you can register for that conference at wed 34mm dot-org.
Last week, I made a plea to all of you to give us more iTunes
reviews. Well, you have come through and
answered my plea. We receive a handful of new
reviews, which is really great, really excited to see them
coming in. I have a little slack
notification. Get new reviews and every time
that thing Rings. Unlike and you review and I go
read it. So thank you to those who left
this review. If you haven't left us an apple
podcast review, please do so please.
Take two minutes. Going to your Apple podcast app
on your Mac or on your phone and just leave us a review.
Tell us what you think of the podcast, how long you been
listening? What you've learned your
favorite guests, it can sometimes be difficult to think
about what you want to write in a review.
You can write But all these things.
So yeah, I would really appreciate it if more of you
would leave us reviews and you can do so really easily by going
to epicenter, got rocks /, apple, and that takes you right
to the page. And as a gift, as a small token
of my appreciation for leaving us an iTunes review, I'll give
you a discount code for a free key.
Key hardware wallet, just send me an e-mail.
Sebastian at epicenter dot TV. Tell me like, hey I left you
review and I will send you a discount code for 100 percent
off. On your keep, your Hardware
wallet. So, for the last couple weeks
I've been telling you about least Authority and they had a
webinar in late April to educate people about security Audits and
what that could mean for your project, well that webinar is
now available on their YouTube channel and on the website if
you'd like to take a look at it and it's been really great to
work with them because there's such a mission-driven team and
they're working on privacy-preserving Technologies.
And their latest project is one that I find really interesting.
It's called Z Caps or zero knowledge access passes.
Now I'm not going to go into detail about how that works
under the hood because I probably wouldn't be able to do
a very good job but I'll tell you what they do.
So your knowledge access passes allow developers to create
Services where the payment data is disconnected from the
customer data or the service data.
So let's say you're running a password manager application and
your customer data is encrypted on your servers by Zeke apps you
could allow for customers to use that service effectively take
credit card payment for that service and you issue a token.
And this is a zero-knowledge token that they can then use to
access the service but you don't know which token is used with
which account so effectively you disconnect the service data from
the customer data. So it opens up.
Lots of possibilities for companies to provide even more
privacy to their customers and perhaps, Even censorship
resistant because there's no way for you.
The service provider to connect the payment data and the
customer. Dave, these are the kinds of
privacy-preserving technologies that least Authority or working
on. And if you want to know more
about C caps, go to least Authority.com / C caps, that's Z
Ka. PS.
And with that, here's our interview with Daniel Wang.
So we're on today with Daniel Wang, who is the CEO and founder
of loop ring. So, Dana was great to have you
on. Could you tell us a little bit
about your background and how you got involved in this space?
So I have a technical background, I graduated from
University of Science and Technology of China.
And then I got my master from Arizona State University after
that, I had been working for Google for Or Chinese e-commerce
company called JD.com. So basically just working on the
backend systems back in 2013, I purchased my first fake coin
after reading their wet papers, I got this news from the CCT
way, you know, the Chinese Central television pretty big TV
in China, they covered Bitcoin a little bit so I got a really
interested in that Imani concept.
So I read a the white paper X3 times that night.
And then the next morning, I purchase a coin, I still have
those Bitcoin in my wallet. Then I talked to a VC say, you
know, the Bitcoin is really fascinating.
I want to create a centralized exchange at that time.
It was not called centralized exchange, it's just crypto
exchange and then I raised the about two million u.s. dollars
and I launched the small exchange where people can treat
Bitcoin some other altcoins like moss.
Stir coin repo as well, but the platform really didn't go.
Well, we have a really terrible period of time where Bitcoin the
prices collapsed. So I closed the company.
I joined another high-tech company called joann.com which
is an insurance company. So internally, we use blockchain
technology to do some internal cool stuff, but I don't really
enjoy time, you know, working with corporations, so in 2017, I
think maybe it's time for me to, you know, start using etherium
or smart contract to build something cool.
Something really to trading, by the way, I'm one of the early
investors in etherium, I still see how those easier as well.
So basically I my career Stars crypto career starts from buying
Bitcoins and then invest in Easter and build centralized
exchange and then the desert decentralized exchange.
So that's Where, you know, I started the crypto life what
made you transition from the concept of a centralized
exchange to a decentralized exchange.
People are talking about security but at that time really
is the pinpoint is to maintain a centralized exchange is the
continuous worrying about your capability of.
Keep the users asset secure because you don't want to wake
up in the morning and then suddenly realize out asset are
gone. And then you have You know, take
hold accountable for everything happened.
We consider from our own former operational perspective.
We don't want to have that pressure to work against hikers
because, you know, you have to invest a lot of money into the
infrastructure to make sure the security of your exchange is
good enough. Security is from my perspective
is always tight with cost. I think it's still true for many
centralized exchanges and then Then we also need to consider
from the users perspective. Most crypto exchanges,
especially those, you know, back in 2014, 13.
They're not regulated at all. So if as a user, your asset got
stolen from a centralized exchange, there's nothing you
can do. You can just complain with the
operators of the exchange and no more, the eyes are gone.
And, you know, that's the final ending of your story.
So, I think maybe we can use Smart contract.
Do something that hiker cannot You know, steal from exchanges.
So, you know, back in 2016. I think early 2017, we had this
idea of looping for make sure, you know, some work can be still
done of chain, but the settlement part especially, you
know, the fund movement between different users can be done
unchain. So, I think our project is a
little bit later than 0 x. And then at that time, people
are talking about this concept of peace and Relax exchange.
So I think in general security is something we really want to
achieve to make sure. You know people.
They use blockchain a Smart contract Technologies to treat
some I said that are backed by those Technologies as well.
I always say this is it Raonic to say, you believe in
blockchain technology about you have to treat functionalized
exchanges which the traditional technology that just means the
blockchain. Technology is not that ready
yet, right? So, Need to figure out a way to
push this technology further to make sure it's usable.
First for our crypto holders ourselves, not to just talk to
some industry to say, hey I want to revolutionize your industry
by this cool technology. Right.
We have to solve our own problems first.
So that's why I focused on each change instead of other
applications. We are deep dive into this in a
bit. Let's just get the rest of Your
back story on tape. So basically, you, you actually
did a token sale in 2017. Just before China actually had
this blanket ban on icos and you were actually forced to refund
most of your Ico proceeds. Correct.
So tell us about that time. That must have been crazy.
Well, it's a story really, I will recall many times during my
life. So we did the do I co back in
2017, I think in June, or July? I'm looking at only had like
three or four full-time personal we raised 120,000 ether.
We didn't really expect that many.
We set a hard cap. So after that nobody can get
more money there. And we reached that hard cap.
I think we are also one of the first projects who performed the
Ico using smart contract. So we didn't really have any
platform to use. We're at a smart contract.
We have a one-page website and people I can just check the the
tokens they received and how many tokens are still there for
sale. I think that experience is
pretty cool. It makes me feel, you know, in
the future maybe fundraising can be as simple as what we have
done. But later on, you know, people
have gone to another approach using some big platforms like
Finance to raise money, I think it makes more sense because
there are more users, but I think with our Pros, you know
it's just very cool one week after the Close of the Ico.
We got the notification from Regulators.
Say you have to refund and I was told my name is on the list,
like a two-page list of people who have conducted Ico.
And if I didn't do the refund, then I will be in serious
trouble. I cannot leave the country.
I cannot do blah, blah. You know, a lot of things.
I was really terrified to be honest.
I actually individual in China and if you get that kind of like
a pressure from The government, you will have the pressure, it's
not like in other countries, you can hire a lawyer.
There's no way you can fight back you how to be responsible
for that? So as I okay, I don't want to be
put into jail. I don't want my staff to be put
into jail. So, let's do the refund, right.
So, we how to write another smart contract.
We how to tell our media friends to say, hey, we want to refine
just how as many people as possible.
So, we collect the token and then we At least The Ether back
to many users I think is 80% or something like that or 70%.
I cannot recall exactly. The users have to trigger this.
So did they actually have to send back the lrc tokens to you
and they were then refunded? Their ether, the most cases.
Yes, but there are some cases where it's not an individual's
is some small companies who helped us to do the marketing
and we have to fight with fact them to get the token back.
They would don't want to give the token bag.
They just want to hold the token as and in the meanwhile, they
want to get the money back. So there are some Backpack, you
know, some fighting's between those Partners but most people,
most individuals will just give back the token and then get the
easier back. We also rewarded some
individuals who helped us to coordinate the process so we
didn't ask everything back but in general having a large
portion of our tokens are returned.
And as a result we returned about 70 to 80% of the Deezer.
I think most people who didn't really Lee written easier as you
individuals are from countries outside of China.
So they are not Chinese. So they not scared by the media.
Right now, I think it's a lock for us.
Otherwise, this blueprint project will certainly go down
at that time. We just finalized one idea in
terms of operation and marketing, we don't want to
spend those as much money as other project team will do a
marketing. So most money are spent in D.
I think that's why you will hear some people say.
Hey why do print doesn't really do any marketing or stuff like
that? And people say, hey why don't
you? It's better those people in
China will say, why don't you pump your price?
And then do something right? We have been holding this
talking for so long and you every time you have you just
talked about, you have a new version.
You have a new feature. We really don't care.
We just care about a price. So that's the fact in China,
most people are speculating, Thursday really don't believe in
anything. So making a profit is the most
important thing. This is a pressure for us during
the last two years. I get that sense too.
That like you know there's sort of very few technically focused
legitimate process coming out of China.
I think you guys are definitely one of them.
Let's jump in on till the some of the details of the product.
So first question would be, why did you guys decide to build
sort of a decks protocol? So why not instead of like it's
going out and building a decks? Why take sort of the more 0x
like approach and build a platform for dex's The first two
versions of routing protocol is really similar to 0ax.
The one huge difference is that we have this concept of ring
matching where 0 x only has like two other matching, right?
So this ring matching is a distinct feature that we offered
but besides that there's no difference between those two
projects. Could you describe a little bit
about what ring matching is? In a traditional trading pair,
you have two tokens a swapping with each other.
Right? With this ring matching in our
implementation, we can have up to 16 different tokens of 16,
different accounts they can, you know, swap tokens in a ring,
right? So people can all the relayer
can look into different markets and to achieve these arbitrators
in one Atomic operation. So, Let's say Alice and Bob and
Charlie these three person can be put into one ring so that
they can do swap in as am operations.
There's you don't have to do like two traits or three trees.
So like Alice wants to buy Bitcoin.
Yeah. Bob wants to buy ether and
Charlie wants to buy Litecoin and know.
Maybe they're not selling what so you can plan and make a
triangle trade. Exactly.
That will be effective. It has to Arbitrage righteous
very much like arbitrators the Outside of that is the matching
is really complicated. Is it would take more time to
find the best deal. When the number of participants
increase in the ring, is it like some sort of np-complete
problem? I'm not good at that theory.
So I'm not sure about that, but the time should be exponential.
It's an np-hard problem. All right, thank you for that.
I didn't know that. So later, I we limited The
number of participants into 8, is that of 16 didn't really
support that ring matching in production because a backhand or
the relay, er, Team really. Has a different time to find a
good real go for to support that.
That feature really didn't justify grouping as a
independent separate protocol, right?
So we should do something different to make sure lubricant
can still survive. So that's the Chinese.
We had like two years ago or one year and a Right now, we have
the third version of the routing protocol and the ring matching
is totally gone from this version, because it's not
something we want to achieve, but we keep the project name
there. In principle, The Ring matching
is a very powerful concept and that it kind of pulls your
liquidity across different token path.
So basically especially in a world where there isn't one
dominant trading partner. So for instance in a world where
you have many different stable coins.
For instance, this ring matching is super powerful so do you
intend on picking up on this eventually again?
Or do you think it's just given up on it?
I think we are going to give up on that and I do agree for a
staple clients. This ring matching really will
bring a lot of value especially when the trading volume is going
to be huge. So that application I think is
still very usable. The reason we want to give up
the ring matching is because in terms of zero, knowledge proof,
there's really no way to implement the ring matching
because we need a lot more constraints than Those can be
supported by etherium. So technically we cannot support
ring matching more than maybe, three or four participants in
the ring. So we gave up that because we
ran out, I just focusing on your knowledge proof based solution.
Now, to using smart contract, a lot on chin.
What was the problem that ring matching was trying to solve?
It seems to me that most exchanges even decentralized
exchanges. Usually take an approach where
they use like Straight A so for even you to shop.
For example, if you require all markets to use ether as a base
trench, a somewhat solve this fragmented, liquidity problem.
You know, it has this higher overhead of people may have to
do two trades instead of one. But why did you decide that?
You know, ring matching was something that needed to be
done? And why would you think it was
sort of superior over just the base trading pair of model?
Back in 2017, we think the ring matching may help user to find
the best deal. If you don't support ring
matching is not the user who will benefit from best price is
the Arbiter. The people who do the
arbitrators who will get the best there, get the differences
between the best price and the price that the normal user can
get from The Exchange. So if a centralized exchange can
support ring matching, then the user will certainly benefit from
that. Reality most centralized
exchange don't do that because it's going to make the system
more complicated. It can output match engine as
per trading pair, right? At they have to consider all the
Liquidators across treating pairs into one, huge, liquidity
pool, and then make sure they can find the best ring among up
to hundreds of treating pairs. That's a problem.
The is not going to bring more benefit to.
To The Exchange cash flow that the investment into that is more
than they can learn. But with smart contract wasting
a maybe in the future Autobot, trading is not going to be
dominant because I really don't like the Wall Street being
dominated by treating all girls. I think it should just be users
which we had not to high-speed trading.
I think smart contract because the trading fee is you cannot
just ignore the street and V so probably all go Trading.
Not going to be popular. So real user trading, they can
use this ring matching, maybe they can benefit from that.
And X is obviously also don't lend themselves to high
frequency trading, right? Because basically the minimum
time you have as the block time and basically everything that
happens in a block happens defacto instantaneously exactly.
Yes. So, speaking of Wall Street,
obviously, like you mentioned crypto exchanges, don't really
make use of like, ring trading. But, you know, if like, is this
ring, trading sort of Paradigm something that's used, maybe in,
traditional Financial exchanges, like, NASDAQ or things like
that. Is it used anywhere else that I
don't know? I think the overall concept is
to find the best price, right? To make sure the price you find
the password. Salt in traditional markets
pages to arbitrators. They use more than multiple
trees to make sure past price is fine right with ring matching.
Basically we just want to make sure, you know, in one autonomy
Corporation, they can achieve this.
But the heart that the challenging part is that if you
talk to a professional Market maker to say, hey, we have this
ring matching cool stuff. They need to learn about that.
I think those people are not Really good at accepting new
ideas, they just want to make sure they're treating.
All those can be migrated to you know, crypto and then make a
profit when I can imagine is. It's probably very useful in
sort of OTC desks, rather than order book system.
Like, if you're running OTC that which is sort of, you know,
lower volume, they might make sense that ring training might
help there. Yes, I think in some treating
all goes, they have this ring matching, I'll go there, but
they don't call them ring matching.
They just try to find across two markets the opportunity to
Arbitrage, right? And they break those
opportunities into multiple orders to make sure they have
the profit. So if you bring those all goes
into a ring matching relayer and make sure in the original part
book, you can find a ring then it's a ring.
Matching. Right?
So I think the overall concept is really just find
Opportunities to find the best price for the user event.
The best opportunity to make money out of those spreads.
I think that's the general idea. If you look at the arbitrageurs
who actually spot these rings and execute them, they net the
difference, right? Anyway they actually transfer
liquidity from other book to order book but they are paid for
this yearly by the user. By actually joining the split
liquidity across different order books in sort of this ring
trading world. You actually make the
arbitrageurs the market makers Superfluous to a certain extent.
No yeah, I think I I would agree to what you said and so that's
the eighth. Some centralized exchange or
decentralized ones. They offer this ring matching
all go in there. Match engine then the users will
benefit right? Not the Arbitrage because the
there's no Arbitrage opportunity at all because all those
opportunities detected and used internally by The Exchange
benefiting the users now to external Market Matrix or
arbitrageurs To me this is super interesting because as the
listeners may know, is I'm the CEO at knossos and we built this
protocol named the gnosis protocol and the nose is
particle when the exact other way.
So basically, we also looked at scaling and bring Fades and we
also decided that we could only Implement one of these at this
time and we implemented the ring trades and instead of the
scaling but you actually went the other way and you implement
the scaling. So what you're actually doing is
your life version of Luke, bring three actually.
Uses, ZK Roll-Ups tell us about that.
It's probably because I used to have this small centralized
exchange and I always have this goal to create a direct that can
have the potential to compete with like Finance.
It's my belief that it is much easier to convince a user to
switch to a new project with a similar user experience.
Then to tell them at very different business model to say,
hey this Is where you can do the trees.
The user experience is different but the goal is the same Ray, is
it more? Like you talk to a normal user
to use? You Nisswa units.
What works is great. But for normal users, they just,
hey, this is different. This is not exchange, right?
So they have to take time to learn the new stuff with most
people, especially those in China don't want to do, they
just want to invite us make money and leave market, right?
So my interest like a very A of looping is to create exchange to
compete with like Finance or okay, Yaks, I cannot say, I
don't like them. They certainly play a very
important role in the ecosystem but I think going forward if
those exchanges are still there, those sad stories will happen
again and that means we haven't done a good job.
So my goal is really clear just to computer with them.
So throughput and reducing the cost because my first priority
by creating something, New and interesting is not so from our
experience at least I think right now we are on the right
track. I'm not saying focusing on the
ring match. It's not a good idea, but they
certainly will be challenging even for you to make normal
users to use. Can you put numbers on this?
So what's your current throughput and what's the cost
per order on the current version of lubricant.
So the current version is reporting.
One is throughput is about 2020 plus trees per second on the
Syrian midnight and the segment upper the cost per settlement is
about 0.0002 US dollars. So three zeros after the point,
I think it's okay. Is our new versions 3.5 which is
just code complete today because is going to be lowered a little
bit but not too far. The reason is that we have been
optimizing the protocol so hard that there's little room to for
improvement but I don't think is a problem.
The cost and the performance or the soup would are no longer
issues for us in near term. As you can see in some statistic
our Production throughput is 0.128 per second.
There's a long way to go before. We can reach our throughput,
upper bound, the cause is. Okay, our cost for zero
knowledge, proof generation for the instrument case is only
about 15 to 20 percent of our payment to Amazon.
So we pay for five times more to Amazon than to like etherium
gas. So I think those are now no
longer problem, the biggest problem.
I like user experience and user onboarding, those are more
challenging right now. So, just for a reference point.
So you mentioned that your protocol concurrent to get about
2,000 traitor second. How much do does an exchange
like Finance sort of what's their average throughput?
When I owned my own exchange, the throughput is about 100 to
300 trees per second for small centralized exchange.
Because in reality, you don't want really put too much because
that means more cost you Cement in the infrastructure, right?
So for finance I think it will be a couple of sovereigns
normally and then maybe maybe tens of thousands at the peak I
think by nice is okay because they make money.
They can you know, scale pretty easily with more investment but
for looping I think the upper bound is the upper bound right
now. There's no way to go even
further than 2,000 per trees per second.
What I'm saying is that A loop ring is as of now can compete
with small or even middle-sized centralized exchanges but to
compute this by now as you need maybe 10x or 100x throughput,
and you may want to reduce the cost per trade even further.
So right now is really not ready to compete it out, replaced by
net. And there's also other
challenges such as cross chain, right?
We are only supporting tokens years are Tokens or and either
not across chin assets. So, that's the challenging part.
So, the number of orders that you currently process on,
looping is orders of magnitude below what you could in
principle, do what in your mind is the principal challenge to
adoption for you guys because it's not cost, right?
It's not caused. First is user experience.
So we right now only support matter mask, we support a wallet
connect. That's the only to approach to a
lock wallets and especially in China that people don't really
use. Chrome browser.
They don't have access to Chrome Store which means they don't
install metal mask at all. So the use onboarding part is
really challenging. People have to get a VPN to
access other the internet so we access the inter China, the
Chinese Only Internet. So that part is really
challenging for us. Even for people who have access
to Chrome and The Meta mask. I think they still have to learn
something about looping about Why should I create a treating
password? What if I lost the training
paths, were things like that? Some some Corner cases scenario.
They have to learn how to handle that and then the most
challenging part A liquidity. So right now liquid, you has two
sides, the word on one side. We don't support Bitcoin.
We don't support those top 20, you know, other blockchain
projects coins, but luckily we are going to support TPT see
very soon but the other side is that.
Initial liquidity is not good enough.
We have to work with market makers, to make sure they are
willing to put their assets into a looping and to the market
making, we have prepared at this liquidity or market-making
competition to attract Professionals for calm, but it
will take some time and they will have to tell us whether our
profit sharing program works or not.
For those people, I think making money is important because they
are putting their asset even in decentralized exchange.
It also means risk, right? Nothing is safer than putting
your sat to our own wallet, so we have to justify the risk and
profit for them. Liquidity is very much a chicken
and egg problem. So basically if you look at the
Loop bring architecture. So basically you we talked about
this in the very beginning, so you are non-custodial exchange,
but I don't need to tell you guys this, but X is not a deck.
So basically, there's many ways of actually architecting a decks
and you are not cursed, hold you, but you are a centralized
order Book Exchange. Why did you opt for this
centralized order book? And for Do you think about fully
decentralized exchanges? Well, I do lie, I prefer to use
fully decentralized exchanges because that's what a tax is
supposed to be right. In reality is hard because of
the performance of the underlying tag blockchain
technology. So hopefully when the theorem to
comes out we can have a facts which is fully on chain and can
also provide You know, a better user experience, the all the
book management, you know, others are created a canceled,
you know, these operations, if put on chain will cause a lot of
gas than purely the settlement part because the sediment is all
the trees have been done and just move the money around.
So I think even in the future even if serum has been scaled
like a thousand times more, I think moving the all the book
management, order matching Orange, Ian is still quite
challenging so going forward and maybe some like am an exchange
like a uni swap it's going to be more feasible in terms of
implementation and operational so I don't see in my lifetime.
The other Book Exchange were our be moved fully unction.
I think that's just not going to happen but I do if they engage
in a lot of new Trading. Models like you Nisswa like your
auction-based pass processing. Ring matching stuff is going to
become more popular and get some user from the centralized few
changes. I'm not really optimistic about
the later one scaling, because I would say, even if the
blockchain skills a lot more, there will be a lot more
applications deployed on top of the layer one system.
So that the gas price will be, you know, adjusted according to
you know, the consumer and and you know the minor.
So the guys price will not be 1,000 times lower than it is now
after a serum to. So I think scalability is not a
thing. You can rely on layer 1.
So, why do you think that most of the on train exchanges or
decentralized exchanges in the broad sense?
Like the order books? Haven't sort of gotten a lot of
popularity yet. So if you look at things like
zero or X is probably the most popular one.
It's volume is like, much lower. I don't know.
Actually, I don't even know if it's lower die, maybe it's
higher, I don't know. But at the very least like, you
know, the Mind share is much lower than things like Yoona
swab or Khyber or, you know, things that are taking non order
broke approaches. And so why is that The thumb
side of older book based exchange with my knees other
books often is that there's no easy way to achieve this
composability with other function.
If I product Khyber, and Yuna swap, they are really friendly.
So it's easy for people to integrate with Khyber, with Yuna
swap, but it's not easy at all to integrate with Xerox.
Exile, grouping, because when you submit order, you don't know
what's going to happen after the submission of the other, right?
You don't know whether the trade is happening or not.
And when, but with units will have, you are certain that and
there's a high latency as well. Yes, yes.
So basically the composability is one issue for any Layer.
Two Solutions, I think 0x is not exception.
The other reason that the racks is not are going Haven't been
popular, is that for normal users, in that the user
experience of using Xerox is far from being ideal, right?
So most people accurate don't care about security, most
people, they care about user experience.
The security part is, you know, if you can offer the same user
experience and and you are much more secure, then of course you
are a very good. Good solution.
If you sacrifice user experience, no matter how secure
Your solution is, if people don't get it, people don't want
to pay for security at. They want to pay for user
experience. They want to pay for being able
to make a profit. So I think is 0 ax and new
parents early versions, We just cannot meet users expectation at
all. So to be fair to say that order
book exchanges are sort of have to be a product in and of
themselves, while maybe more, you know, swap or Bachelor
auctions. And these things are lesser
products in and of themselves are sort of more tools like as
part of a larger defy toolkit and it's how they've
differentiated themselves is the composability on chain while
order books changes can't Use that as a differentiator.
So they need to find different way to differentiate themselves.
It is true for now but I think it doesn't has to be true in the
long run. So right now with Loop running,
there's no way you can compose with layer 1.
If I products, but with our 3.5 version, we opened the door.
So that people would deposit their tokens or Easter into our
exchange contract. Those ICS can actually Work with
other defy products. So we allow people or the
operator of the exchange to make use of those tokens with the
users permission and on the other side, you know, on layer
1, layer 2 side, maybe going forward, there are more layer to
composability so that we can have more layer to D5 products.
They interact with each other so we have interaction or
composability on layer 2 as well.
And without Lear, they are one composability.
So maybe that's another thing, maybe will happen soon, but not
soon enough because their knowledge proof stuff is still,
is not very developer-friendly right now, but going forward,
maybe with even, even better technology or implementation of
zero, knowledge proof, this can happen.
So yeah, let's talk about that. So, how did you guys end up sort
of using Z Cairo? Roll ups and you know you I
guess you guys were using them before they were even called GK
Roll-Ups. So for the point that you
decided, okay, you know what, let's sort of pivot to focus on
scaling these exchanges, what are some of the Avenues you
explored? And how do you end up on the
current solution? The reason we started
investigating in your knowledge proof is that you know, one day
like three years ago, I talked to my team to the hey, are you
in optimistic about what we are doing?
Are you excited? And they most people saying, no,
I don't think this is going to work so.
So here's some people say I pretend to be, you know, excited
because I don't want to make you sad.
So I said, okay, thank you for telling me the truth that we
need to. To figure out a way to make some
change. Otherwise you know we are all
going down, right? So I did some researchers, I
talked to my Chief Architect to say, Hey, you know, you know
what, spare yourself from the daily life, the daily work,
focus on zero, knowledge proof to make sure, you know, we
understand the technology and we can, we can try to use the
technology to make sure we don't use the blockchain itself for
competition at all. Just about this.
So racked, our Chief Architect, spend like three months for
three months and then come up with a design.
So I told the team that we are going to switch Direction, not
focusing on Xerox, like exchange at all.
We want to make sure skating is our priority, not some, some
other features. It's a candle is a path.
We didn't really know it. It's going to work out.
As a matter of fact, we didn't really have this Tiki roll up
idea, you know, in our design at all.
Because maybe the seek a rollup term has been brought up, but
will it really didn't focus on that.
We we just want to make sure, you know we have our own
solution without be without relying on any other you know
ideas it turns out our solution is TK Rolla.
But you may not know that our solution also Has another option
to tint the roll-up part of so that we can only have the TK
part on chain and use a like ipfs or some other decentralized
storage system to store the data.
So if that option is is on the throughput is going to be much
much higher. So it's a gamble.
It's a desperate need for make a change.
Otherwise the project is going to go down, so I don't want to
to fail. So so luckily we found the right
direction. We didn't make mistakes in terms
of implementation. So I think I would say we are
lucky and just both to tools and New Direction without consensus
from our token colors. They don't really know what's
going on. Yeah, so we've been throwing
around the term quite a bit. You gave her all up.
Let's Deep dive into. What.
Actually is it? How does it work?
What Is the architecture. So, basically a previously, we
at the other book is maintained of change of the ethereum
blockchain. And then, if we find two others
can match with each other, we bring those two others unchain.
So dungeon part is smart. Contract will verify our the
trade, the others can treat with each other.
We also verify the balances of those two accounts house, house
of fate and proteins, and then they do the actual Pope in
Swati. So a lot of computations on
chain, the talking swapping is only the only a small portion of
the computation. But even with our optimization
is still takes like 200 to 300,000 gas per settlement.
So the throughput is really not good enough.
So we figure maybe we don't want to use the serum for the
competition. We move the competition often.
So the idea is to create c'etait often or layer to a concert
system, structured in a binary Merkle tree.
So the leaf of the Merkle tree will be the violence of the
trading account for each user and whenever we do the trees we
just modify the often Merkle tree and make sure the
modification is propagated all the way up to the down to the
root of the tree. And then to make sure the
theorem Has the information about the often computation of
the account modification. We have to put the root of the,
you know, Merkle tree angry, theorem with a proof to make
sure the way we updated. The trees are exactly falling,
our protocol, right? And the protocol is accurate,
the zero knowledge proof because the circuit those are actual
protocol, which makes Jurors in others, assigned by the user.
And the accounts are the two trading accounts in a country,
has the balance. And after the settlement, you
know, those accounts balance are still have their tokens, not
somebody else who get their book in Balance.
So all the rules are actually still there, but not on chain on
layer. One is accurate often on layer 2
to make sure people are really understanding.
People are really sure about the rules.
I installed a followed we have to do something called a trust
set up. So we open source the zero
knowledge proof, related circus and ask people to make it to run
the setup to generate a random number into the system and make
sure it's linked with a theorem. So that all the often Parts
open-sourced audited verified by Third parties.
And then we have after a set of settlement, we called a batch or
a block, a new Merkle, tree root is generated new corresponding
proof is generated. We then put those two pieces of
data on chain and onion, theorem.
What we do is to just to verify the zero, knowledge proof.
There is a pre-compiled verification is tracked,
instruction that we can use. It costs very little about the
22k gas and we can settle thousands of trees within that
little transaction. So in general is a layer to a
consists of multiplication instead of layer 1, right?
Okay, there's a lot to unpack now, so maybe let me, let me
recap this to make sure that I've understood it correctly.
So basically, you collect the data current you on chain, but
it could also be on ipfs or somewhere else.
And then, basically, the computation is done off chain,
but the proof is then put on chains, so that everyone can
make sure that you guys are not cheating.
And the setup is done in a trust way.
So as to make sure that the proof Just also above board.
So a couple of weeks ago we had on the optimism team.
So Colin Ning Nang. And they talked about optimistic
roll up which is the version of roll up that I'd X is going to
use a centralized version of. Could you explain some of the
differences between optimistic roll up and the ZK, wrote up
that you guys use? I think the TK roll-up.
Have you described as proactive? Approve based and the optimistic
roll-up is more passive proof based or fraud proof based.
So, in order for the optimistic roll up to work, you have to
figure out a way to incentivize serve party to make sure they
can continuously monitor the functioning transaction to
detect any. Potential fraud, proofs, right
Auto detect the inconsistency of data and then generate the fraud
proof to make sure, you know, there is a watchdog who are now
to really member of your alliance who can, you know, just
fight against you. Right.
The challenging part is that you have to design the way to
incentivize them because if the, if the Education has been
performing really, honestly, then there's no way, there's no
fraud at all, right. So, the other party will just
feel. Hey, you know, I have been
wasting my time here because I didn't really detect anything
wrong so and I get paid. If I'm not get paid, I will
leave, right? So if nobody is actually
watching the application then suddenly you know, the operator
will have a chance to create a fraud to behave, you know, this
artist. And then because there's no
active watch was dark there then later you know after the period
after a certain time then everything is finalized.
You know what stock even they can find some inconsistency that
there's nothing they can do because, you know, there's also
this always a time period. You know, the fraud proof can be
submitted after that. There's nothing you can do.
So, I like the idea of optimistic roll up, but if
there's Is no way to create such a token incentivize mechanism.
Then I will be not waiting to put a lot of money into such
application, but with zero knowledge proof, the cause is
bigger, but every submission of data and the proof makes sure
everything works before that timestamp.
So I'm 100% sure that all the data is is cracked and I can
trust. So that's Just the my maybe I'm
biased because I chose to take a roll up.
I hope there is a way people can create that to mechanism to
incentivize people who always watching of this Lola
application. But I doubt So what are some of
the trade-offs here? So it sounds like, you know, ZK
Roll-Ups are giving us the scalability and security and all
this amazing stuff. What are we sacrificing by using
them? First of all, the till now is
proof is not really optimized but this is a technology of ten
years old but really not how been used in application in real
world fall for some time. So we are bound by the
performance of zero knowledge proof.
So what is the current zero knowledge proof libraries we
have to pay for extra cost. In production for generating the
proof right, optimistic. Roll-up is more like a economic
design. It doesn't have really any
understand the underlying, you know, mathematical modeling or
some other Technologies to rely on to depends on.
So, if you you are good at modeling, the the risk and you
know, make sure people can use your data to create a fraud, you
can do that without Hang on other stuff.
So so for us, we how to make sure, you know, going forward if
people are working on zero knowledge proof and you know,
bring as a biter Library, we can just raise to the other library,
but we are not scientists. We are not a, you know, good at
math. So we cannot create that
underlying library, right? So that's our our limitation
here so we are basic this use tichenor, right?
We are not capable of Improving that they could start a lot.
Well optimistic roll up. You don't have to rely on
anything, right? So it's a modeling, it's a
mentality that you allow people to challenge you and that that's
it. That makes sense.
So let's switch gears a little bit.
We talked about this earlier, at least, we alluded to it.
So you guys did a token sale where you actually had to refund
a lot of The Ether that you raised, but the fact remains
that you guys have a token. So what does your token do?
Well, that's a good question. To be honest, we have been
always struggling with the token economy.
We certainly don't want to turn our token into a security token,
right? And we don't know how to design
a better token economy. We have been talking about this
even like this week to our own Engineers that will say, Hey,
you know, this is not good. Great, the current staking model
so right as Of. Now if you have ever see token,
you can stick ever see to earn the protocol feeds protocol fee
is the portion of the treating fee is accurate.
The six basis points of the trading volume every trees on
every looping based exchange. You know, six, visit points of
the treating fees is going to be taken into a protocol fee full,
and if your steak for more than Two days, you will claim your
portion based on, you know, how long and how many tokens you
have staked their so. So you stake, you get the
protocol feet, that's it. So it's a passive staking
meaning that you don't have to do anything else besides steak
which is not good. Because passel means, you know,
it's more like a security, right?
You like stuff, you did, you get the learning?
So going forward, we may want to incorporate with This doll to
make sure people have to stake, and they have to vote or
something like that. To make sure active users really
have more will benefit more from the protocol fee e-stop is that
of just need passive staking but I'm not 100% sure.
I'm a big fan of bow going forward, I think we will also
create a looping down to make sure a lot of parameters
governed by looping token holders not ourselves.
But for the token, I even think maybe a security token.
Malta is the best. If you if you really believe
something you should be just passive why should a project
team require you to do some to certain thing to make a profit?
Right? You have already invested in the
project with ho tokens, it should just do nothing but it's
going to work against the security law.
So I'm still debating internally with our team but going forward
I think we will try different things to make sure that the
adverse is taking is going to be improved.
Yeah, so that's the current status of the looping staking
but as of now, I think this staking rewarded like 2%.
I knew I knew Ali right now but going forward.
I don't know how mass is going to be 2 percent is good enough.
I appreciate your candidness. I think this is commendable.
So we're talk about this in a little bit.
So I know you guys also took part in the D X Tau and a fairly
large weight. But so basically, if you are
talking about the lrc token, kind of becoming governance,
token of some sort, what kind of parameters?
Do you see being set by the lrc token holders?
Is it things like which tokens to list of what Friday trading
fees to take or something? Entirety.
So there are two sides of parameters.
One side is the protocol wise of parameters such as the protocol
feed percent is from right now is 6.
This is points, maybe it will change to a different value.
The other parameters will be like, how many overseas should a
sex operator hold before they can open a looping tax, right?
And there are also a lot of products parameters like commas.
Treating fees, they will charge at that party is totally
controlled by the tax. Operator is not controlled by us
or by any other parties. We need to give sex operators or
owners the flexibility to control those parameters.
Otherwise they will not choose blueprint, they will choose a
looping clone who allows them to, you know, control those
parameters. So we figured you know what are
they can do with looping, they should what are they?
Do with like Finance like sexist, they can do with
blueprint so that part we are not going to control at all.
So the protocol wires parameters will and should be governed by
the, the towel. The one thing I really don't
like doll or have concern on doll, is that most people are
not really interested in participating in voting or
they'll a communist, right? You know, people just most Just
late included, be if I don't vote, if it's not voting is not
bring me a benefit, I would tend to, you know, just watch some
TV, right? So it turns out most down users
they don't contribute we as a as a bad example, we are a like one
of the top 10 token holder in the ax down, by the way, it did
in really being, we haven't been really active.
We didn't really participate in A lot of voting.
So we feel sorry about that. So as a result, we propose to
gave our down token to add her token holders.
So say, hey, we are not really active.
We feel sorry about that. There were too busy with our own
project, we are waiting to give this happens to anyone who
wants, you know, be active, right?
So not being active is a big downside of Dow.
Maybe there are ways to to make changes but I I don't know, the
term my English is not native, there's a term that, you know,
if some some Elise they govern, small economy, entity and there
are like a normal users, everybody to Calvin, The Entity
or organization, right? I tend to believe that Elise
they are better at governing, is that of, you know, normal users,
like one vote per user, right? If you look into any, a lot of
democracy country These people have to elect some, some people
to represent them to make better judgment call right, not
themselves, right? I totally appreciate what you're
saying. So basically what you're saying,
it's perfectly legitimate to have an interest in being a
stakeholder without wanting to visit a participating in the
governance and just saying, I want to invest in you as a
project but I don't want to say or do I don't need to exercise
my say and basically having that be legalized under security if
that didn't trigger all kinds of security laws, you would be in
favor of that for do bring as well.
Yes, that's true. I have one last question on the
protocol before we move on to like the wider ecosystem.
So obviously the smart contract is Central to your protocol and
tell us about the security level that you have on that.
So basically has it been audited but your process in that area.
I guess so for every protocol version we put into production.
We have a surprise party who have done the Oddity for us for
the second major version would even have a third party to run
this formal verification. So I don't know whether that
works because that really didn't find any back at all for us.
The manual inspection of the coda is actually helping a lot
because I can the users and their experience in a bring a
lot of lessons. They learned experience that
they, they have to us through to improve the code base, but
formal verification, we tried once it didn't really help us.
Maybe it's because we had the mining inspector in first and
then the anyway. So for for this 3.5 version,
this new version, we are not going to have a independent
auditor because we don't want to put the new version into
production. We Aim to deliver looping 4.0
directly maybe in a few months and put those into diversity
into production, but he's, but in general, I think security is
up most. We cannot lose security.
We can sacrifice anything else but not security.
If we have one big issue in security, if peoples token or
Easter or last, it will take us. Maybe we just we will go down
and maybe we will take Gus like minds work, you know, to recover
where we are, so I don't want to sacrifice security at all.
So there's this is the bottom Okay.
So I mean and as you said, that's what if your eyes, the
higher Mark of a decentralized exchange is namely that people
self custody there's is rather than giving the custody to a
third party who may then lose it or no be hacked or so on.
So basically yeah that basically sacrificing on security
obviously would not be the right move.
So, with our newer Pros, we allow the operator of the
exchange to use people's fun but only when they also open source,
they're smart contract. They also, you know, audit their
smart contract. So the simply the most simple
way to utilize peoples fund is to, you know, put most funds
people deposit into a routine based exchange into.
Like let's say you nicoise And then you know they can't they
can make some money there, right?
And then they can't claim back their tokens proportionally back
from the deposit contract. But again, I agree with you, you
know, user how to choose, you know, whether they want to stay
conservative by not allowing their token to be moved around,
or they want to be more like, profit-driven to make sure
they're falcon. Traded ought to be traded in
looking basic, change will be accurately, earning some
interest for them. So they have the flexibility,
they have to make the call. We just make sure it's possible
there. And if, you know, we adapt a new
version into our own decentralized exchange, we may
stay very conservative not to do a lot of deeper integration.
Because defy, right now, has a take risk of being too
complicated. They are stacking on each other
and you know, You don't know where the weakest link is right.
And the system is only as secure as the weakest link.
So I would strongly, you know, suggest against doing a lot of
complicated if I integration. So what do you see?
Is the future of the decks ecosystem going forward.
And what do you think? What do you make of some of the
more recent changes that happened ecosystem?
I think one of the most interesting one of the ones
especially is like, how a lot of centralized exchanges are
building their own dex's and in quotes and like the fact that
Finance has this Finance chain or like and will be is creating
their home. He changed off which are like
you know, pseudo decentralized things.
But do you think this might hurt the adoption story for you?
No more truer more pure decentralized exchanges.
Yes or no. And how do you see this going
forward? Well, in terms of taxes on their
one, I would love to see a lot of different trading, very
different trading models, who become, you know, products,
especially amm on layer 2. I really just see right now.
TK Roll Up is probably the best solution to scale attacks on
earlier to as to binaries chain bags or okay.
Yeah, like school be, you know, if If you really understand what
security means, you know, they are not secure, right?
They can argue, you know, they are also decentralized.
They also Block Chain but not all blockchains us secure,
right? But if you look at the code
base, yeah, it's decentralized. You know, it's very similar to
the theorem whatever at who are behind the consensus.
Right. What matters to security is the
consensus has to be erased among different parties more parties.
They know each other. They cannot easily affect each
other's decision making with a lot of blockchains.
You know? They're, they're minors.
Their consensus is really just centralized, right?
They have six more scenes, maybe even if one data center, right.
All controlled, by the mob, controlled by people who they
can influence or control. So if the underlying consensus
is not be centralized enough in everything on top of them.
On top of it is not a secret at all.
So I'm not worried about taxes build on top of.
Okay. Yeah, question, financed in
whatever chin, it doesn't matter.
How do you educate users to be able to do this sort of
differentiation? That's a good question because
most people just don't understand that, right?
So, is it takes a lot of education's to make sure normal
people really understand security?
I think what you are doing, I think is amazing photo.
We don't have time to fall for that and we don't have the
influence for that, but I think over a gradual, a people will
realize people will follow people.
They they believe in like right now, botanic it really Pro
Roll-Ups and there are Of opinion leader.
They talk about sticky, roll up if you talk about security, so I
think that's that's good. What then to you is the last
thing that we need to overcome to help dex's reach the
popularity's that Sexes currently do have because if you
look at the, if you look at the global trade volume is like on
the order of 1% or something that happens on dex's and all
the rest is on centralized exchanges, right?
First of all, you have to, you know, the mate those trading
volumes aren't centralized exchanges.
A lot of you cannot say they are real, right?
Maybe a person with about real, some exchanges are more real
than others but yes I agree that, you know, Sexes are still
dominating. We help you thinking about this
and our answer to the current challenge is a smart Wallet app
so that people don't have to learn about their private keys.
There are phrases. They don't they just need a
secure network to make sure they can help recover, their private
keys. So a smart contract, that speaks
the same language that normal users, speak with a good user
experience with sufficient defy integration, but not too
complicated evaluation so that they can hold the wallet and
then make money, right? So that will In my opinion, be a
killer app for massive users and actually, that's what we are
working on. So, to offer, especially for the
Chinese market, a mobile app with a small smart wallet will
go app which looping built in so they don't have to use meta
mask, use import their wallets, right?
So the user experience is going to be like, very smooth, but we
this is just my My answer, but not necessarily to be in a
successful in the future. We need to give it a try.
I think, you know, a lot of different projects that are just
trying, right? Our approach is different, not,
not in terms of, we are providing a smart contract but
we are really targeting the people, the user base.
Who, what not probes, right? They are just normal user.
They don't want to learn a lot. They don't listen to what.
Guys I'll free, right? They don't listen to my podcast
of my life streaming, they just want to download something to
make money, that's it. You know, they are not Pros.
So once this smart wallet coming, we are testing internal
version right now. So hopefully later this year, in
property, in July, is going to come out.
But mainly for the Chinese market I think regulation is
Thing we really want to focus in the future so we don't think we
have the body. The resource is to get regulated
in other countries. I think defy blockchain crypto
eventually it will be part of Finance so it's going to be
highly regulated locally. We want to get locally regulated
in in China but the technology is going to open source to other
two everywhere. Well ain't this the smart wallet
that you launch later this year, is it going to have?
I mean, you said you want to what you wanted to be secured by
the network. So does it have like social
recovery features or if I lose my mobile phone?
How do you make sure that I don't also lose my assets?
Yes, that's the way we got going to provide the recovery.
So it's based on social network relationship right now in China,
they use WeChat. So we are going to integrate
which we chat. So that if you lost something,
you can use, we try to reach to your friends, your secure
network to make sure they know you are you, and then they can
help you to recover. So, away also going to support,
Hardware's at as garden and we also going to offer a
centralized Garden service to make sure you know we are going
to act as the first you know responder to recovery.
A lot of feature will be added but I think we are going to make
sure this is a still a decent decentralized wallet than
custodial wallet which can integrate with looping Exchange
natively. To make sure people when they
get on board, exchange is going to be much easier.
They don't have to learn a lot of terms.
Daniel, thank you. This was super fascinating and I
think the Chinese user poor obviously is enormous so we wish
you the best of luck. And I hope this becomes a
success because this sounds super cool.
Thank you for being on. Thank you, hopefully going
forward. We can also integrate the ring
style, unchain, you know, trading experience into our
wallet, so hopefully, we can work there.
Thank you for joining us on this week's episode.
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