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Speaker A: We want the whole world to run on blockchains, which means the whole world's value has to go into blockchains, which means banks, asset managers, sovereign wealth funds, family offices, everybody has to be connected to and utilizing blockchains for their favorite flavor of financial products. So this is, you... |
Speaker B: Welcome to bankless, where we explore the frontier of Internet money and Internet finance. This is how to get started, how to get better, how to front run the opportunity. This is Ryan. Sean Adams. I'm here with David Hoffman, and we're here to help you become more bankless. Bringing banks to blockchains. Ho... |
Speaker C: Why? |
Speaker B: What Sergey calls securitization 2.0. Number five, what makes a decentralized network? Sergey has five levels of security that you need to hear. And number six, will crypto happen fast or will it happen slow? Of course, you're listening to bank list because you think crypto is inevitable. But how many years ... |
Speaker C: During this episode, listening to Sergey, I had the old bankless thesis, the protocol sync thesis, in the back of my mind, Ryan, and I think he was articulating a version of that when we asked about why there is this incentive for banks to bridge their assets into the world of crypto, into the world of block... |
Speaker B: Yeah, I agree. There's very much a trojan horse going on. We're getting them hooked on a blockchain. I think there's a ton of wins for traditional finance once they realize this. And I think Sergey's thesis is all we're missing is the glue. How do you connect to banker tech and blockchain? So that is the sou... |
Speaker C: I am super excited to introduce to you Sergey Nazarov, the co founder of Chainlink. Chainlink, as you know, provides all the prices in for DeFi, providing DeFi with the data that it needs to know what prices are. But really, Chainlink is much more than just prices for Defi. Chainlink is aiming to become the ... |
Speaker A: Thank you for having me. Great to be here. |
Speaker C: So I started off this conversation talking about, I think what everyone understands, Chainlink to be inside of the crypto context. It powers a lot of the information that many Defi apps need to work even at all. Like, we need to know the state of prices for many, many Defi apps to even function. But I think ... |
Speaker A: Sure. So Oracle networks are an environment that does computation in a trust minimized way about everything that you want to make trust minimized or have consensus about that is outside of a blockchain. So blockchains generate this unique computational result of this decentralized consensus, wherever indepen... |
Speaker C: As we progress in this conversation, I want to fill in that gap between where Chainlink has been, where it's frequently known to be, and the very expansive vision for itself, which is almost limitless, I'd say, starting with Chainlink and just the price oracles for Defi, and then expanding to just general of... |
Speaker A: Sure. So what I mean, technically speaking, is trust minimized off chain computation. So it doesn't mean every single computation that you don't have any trust dynamics around. So if you want to run a private gpu for yourself to play a game, you don't need trust minimized off chain computation, just like you... |
Speaker B: No, Sergey, that's really helpful. And actually, in getting into this episode, I don't think I was ready for kind of a rabbit hole to go down, but it strikes me that I don't think bankless has actually gone down the Oracle network rabbit hole. And I'm kind of prepared to in this episode that sounds like a ra... |
Speaker A: I think that is useful. Thank you. Yeah, that's a good summary with, with a few small caveats. One of the caveats is it's not just data, it's off chain computation, whether it's related to data or not, including communication between chains. So all trust minimized computation and data aggregation is a subset... |
Speaker C: Understanding how this works technically, I like to go into that a little bit. The base iteration of chain link, which is just provide price oracle to defi, is a pretty simple concept to understand. There's just a smart contract that provides an output, then other apps consume that as an output, and that's h... |
Speaker A: Yeah, your question totally makes sense. I would just clarify what it is that chain link does and what it makes possible, even to your point about consuming the price data. I'll just use that as an example to show that it's not exactly as simple as that. So basically, you need to create a node network. You n... |
Speaker B: So Sergey, Chainlink is an oracle. It is a network of oracle networks. It's not just one. One singular network. |
Speaker A: Absolutely not. We do not have a single network that will not scale and that's not secure. The people that build single. I hope we'll have time to talk about the five levels of cross chain security. Well, I'll explain the different types of networks you can build, but. But no. Chainlink is. Thou is over 1000... |
Speaker B: And each oracle network has a specific function. It has a specific set of inputs and a specific set of computation inputs and a specific set of computation outputs. |
Speaker A: It's a way to create focused validator sets that are focused on generating a specific, you could call it a decentralized service. So just like you have centralized web services, chain link is the way to create decentralized services. And each service is very specific. And then what you can do is as the value... |
Speaker B: It does, yeah. Okay, so really quick though. So these services that individual oracle networks are providing, are they subject to market forces? So somebody's buying this data. How do we know when to expand the validator set? Is it managed top down or bottom up? |
Speaker A: With respect to user force, users can come and make those decisions and the whole system is made to be increasingly configurable. So basically the point of the chainlink network is for the creator of an application or a bank or an insurance company to be able to decide their own security needs and represent ... |
Speaker C: Everything I've come to understand about how protocol scale always falls back to this pattern of pushing complexity to the margins. I think that's kind of what you articulated. There's not this central Chainlink.org that is saying, hey, let's add this new data to the data set. The idea for Chainlink is that ... |
Speaker A: So we're going to be announcing some exciting things about how that works in a more automated, scalable way at the smartcon conference coming up very soon. And there the answer will basically be a dynamic, automated marketplace. And so that'll be something that's very exciting. And we've gotten to the point ... |
Speaker B: Okay, Sergey. So we talked about the vision for Chainlink and the potential of all of these massive oracle networks, and we've talked about the technicals of how it works. I want to get into some specifics here, and one specific use case that I think is very relevant for bankless listeners. What I'm about to... |
Speaker A: Yeah, sure. Absolutely. So, yeah, you're right. I've seen a lot of the things in this industry. So just to be clear, I've been in the industry since 2010. So I think I've seen it below 100 million, from what I remember. Definitely when bitcoin was well below $30, like, way, you know, way before even single d... |
Speaker C: Trying to get a model for what you're just articulating about how the many, many banks are able to use Chainlink to engage and interact with the many, many, many chains. The model I have in my head is a little bit like something like Zapper in the crypto world. For instance, what does Zapper do? You can load... |
Speaker A: Sure. So let me explain. I think you've described some kind of aggregator that's an interface for end users. |
Speaker C: Users, yeah, it's just like a metaphor, not like a comparable. |
Speaker A: We're not that, yes. I just want to be clear. We're nothing like Zapper. I don't know what Zapper is, but we're nothing like that. CCIP is a very low level protocol. And as a low level protocol, what it does is it allows you to define how you want to interact with specific chains, specific contracts in those... |
Speaker C: Yeah, totally. And I've started to get in a couple other podcasts that we've done. This term called intent has come up. Uniswap X is using. Now intents and bridges are using intents, where the idea is that people are just signing their intent to do something, and then third party service providers come and f... |
Speaker A: Far ahead, very far ahead, because it's not about intent, it's about execution. I could have some intent, someone else can have some intent, is very nice execution. You want to send value to a new chain that you never were on, that you don't have a wallet on, that you don't have an address on, that you don't... |
Speaker B: Yeah, the way I understand this, basically is CCIP. It speaks swift, which is what the banks speak. And it also speaks blockchain, which is what the blockchain speak. So all of the banks continue to speak swift and also interact with, communicate with, exchange data, with, swap assets with the blockchain. An... |
Speaker A: Yes, you're absolutely on the right track there. Whether it's Wells Fargo or a brokerage account, I don't know if Wells Fargo would share the 7% with you. I think they keep as much as they could, and they use something. |
Speaker B: They don't do that right now. |
Speaker A: Yeah, exactly. I like your analogy. It's absolutely right. I would just switch it to some kind of brokerage or investment manager account that can't keep your. Your returns for themselves, which goes to your earlier points about bank lists and stuff and that type of thing. But, yes, you should be able to use... |
Speaker B: Yeah, absolutely. So I think, obviously, you see the vision here, and we see the vision, and many of our listeners will see the vision. The question as far as whether the banks see the vision yet, and this is a very interesting headline, actually, from swift, swift.com. swift unlocks potential of tokenizatio... |
Speaker A: Sure, sure. It makes sense. Many bankers don't know why SWift is important either. So we will be speaking bank infrastructure. That's what we'll be speaking. So SwIft has been around for over 50 years. They are basically a PKI, a private key infrastructure that signs the most transactions about value in the ... |
Speaker B: No way. |
Speaker A: Yes way. Yes way. The voting scheme of Swift is that your transactional throughput determines your voting power, and the board membership decisions are determined by that voting power. So it's pretty clever. |
Speaker B: That's pretty creative. That's an interesting governance decision. So who are the big transactors here? Who are the big city is a. |
Speaker A: Big one, a few other big ones. Here's the thing, right? The real thing with building systems is why would you throw away something that works, first of all, that has a track record of securely processing things. Can you integrate with it? Swift has a lot of very great properties for security, for signing mes... |
Speaker B: Voting scheme, and it is very much, very much international. Right. So this is not just completely international us. |
Speaker C: It's a decentralized organization with liquid fluid governance that operates a set of standards. It doesn't really fit into any sort of, like, form factor that I think we would previously understand of, like, a company. It's pretty interesting. |
Speaker A: Well, no, it is a company, and it does have certain responsibilities. So it's, you know, I wouldn't go all the way to Dowland yet. I wouldn't say I wouldn't go there yet, but I would say that it's a misunderstood piece of infrastructure whose goal is to create a reliable way for people to transact. It isn't ... |
Speaker B: But, Sergey, it's not a blockchain. Right. In that there's a blockchain, that's for sure. There's no general ledger here. It's a private key infrastructure, and it's messaging standards, essentially. And then there's some governance around that. And that's kind of what Swift is. It's not a general ledger. Th... |
Speaker A: No, there's no consensus, and there likely won't be. What there will be is signing and messages that banks already use. Think about it this way. I'm in a bank. I've been in a bank 20 years. I've been signing billions of dollars every month using the signing device from Swift, and it's been working. Why would... |
Speaker B: No, I got it. |
Speaker A: I don't see a reason. |
Speaker B: So they're not going to replace it. So CCIP can speak sWift, basically, because Swift is so entrenched and allows banks, therefore, to communicate with blockchains because you could speak both languages. CCIP could speak both languages. |
Speaker A: Swift speaks bank systems. CCIP speaks blockchain systems. And we don't want to speak bank systems because it's a lot of work and the bank systems are very, very varied and not good in terms of their ability to integrate with things. And Swift doesn't want to speak blockchain because of the complexity there.... |
Speaker B: Okay. |
Speaker A: That's what's happening with Swift. |
Speaker B: So now we have maybe, let's assume we have the technical hurdle complete. And I know there's, I'm sure there's a ton of work still to do on the CCIP roadmap, but we have the ability to speak banker, and that's interoperable with blockchain. So we've got kind of that middleware, that interoperability layer co... |
Speaker A: Banks are driven by a very strong profit motive. Their ability to generate profit from making real world asset tokens, stable coins, and selling them to various family offices, hedge funds, and large global asset manager clients will, in my opinion, fundamentally kick off what I call securitization 2.0. Secu... |
Speaker C: Just to fully understand this, the idea is that banks have assets using the Chainlink CCIP network. Chainlink. The CCIP network will actually mint the ERC 20 token that will represent some ownership over the assets. Or how does that work? |
Speaker A: No, no. They can use existing standards to mint their tokens. They will probably use standards defined by their local financial system, by their existing system, or whatever standard they come up with. Chainlink enriches those real world asset tokens to make them real world assets that are connected back to ... |
Speaker C: Yeah, you said the word enriching. I really like that you're bringing data off chain data, of course, which is what Chainlink does, and imbuing tokens that are on chain with their real world anchor. I like how you said this, bringing reality and enforcing it into the token to make sure that there's a growing... |
Speaker A: Otherwise, it's not a real world asset. So you make your real world asset, it has to be a real world asset. Otherwise it's just something you say has something which it may or may not have, at which point you're not doing much more than whatever the system does today, that the current financial system. Then ... |
Speaker B: Yeah, completely. And I think we have one last stop on this train ride before we kind of zoom out and take a look at maybe the next ten years and wrap all of this up. At the risk of adding more bank banker lingo to this conversation, I'm actually going to do that because I do think people in crypto need to u... |
Speaker A: Sure. So the DTCC is the clearing and settlement of the United States, which is the largest the clearing and settlement system of the securities industry. So like all the equities, you know, all these types of stocks, all these things are cleared and settled through the DTCC, and that is mandated by law. So ... |
Speaker B: Did you say quadrillion? |
Speaker A: Quadrillion. Quadrillion. That's right. That's what I'm talking about. This is what people need to understand. I'm not talking about another trillion. I'm talking about quadrillions in transactional throughput that could touch our industry if we are able to create the security and reliability and unique prop... |
Speaker B: Is it like a database? Does this to CC, basically, to CCIP, does this look like another. Just data source, like a database, almost like a private chain or something like that. |
Speaker A: So CSDs, which is what the DCCC is, a CSD clearing and settlement. Clearing and settlement depository is something that I think can continue to exist in the blockchain world because they have various value added services they provide and they have a legally mandated responsibility to make the transactions le... |
Speaker B: I see, yeah. |
Speaker A: So because there is no blockchain, like how do security trades get settled? They go through DTCC. Do they use databases? Yep, that's the technology they use. But beyond that, what they do is if something is settled through the DTCC, it is considered a legally binding settlement, which obviously when you're d... |
Speaker B: So would this allow us to get in a world where the regulators allowed it a tokenized security from the DTCC on chain? |
Speaker A: Absolutely, yes. Yes. I am not here to make things harder. I am here to make things easier and to make them move faster to the benefit of everybody. The difference is that our industry understands the benefit of this technology sooner and it will be a huge beneficiary. Imagine if you could have tokenized equ... |
Speaker C: Sergey, you earlier talked about these five levels of security that you wanted to bring up, and you just talked about the fifth. Maybe you can quickly walk us through this idea that you have these five levels of security and how this fits into this understanding of what we've been talking about today. |
Speaker A: Sure. Great. Thank you. Yeah, so I think there's a trend where there is a number of people claiming decentralization for bridges, for various things, where that decentralization doesn't exist. And your audience is a very astute, thoughtful audience. So I just wanted to make clear the framework that we've com... |
Speaker C: Kind of feels like a shard, right? |
Speaker A: It's separate, it's completely separate, and it can scale and you can manage its security separately, and you can scale its security to the value it secures, and you can scale it up to the maximum degree that you could scale anything up, because it's just that one service for that one purpose, right? You're ... |
Speaker B: Wait, wait, when you say Don, decentralized Oracle network. D o n. Yes, that's right. |
Speaker A: So you have these three networks, networks all executing every, every transaction. And by the way, these three networks can be split into two groups one group is the transactional group. That's the committing and executing don that basically process the transaction and check each other. Then you have the ris... |
Speaker B: Yeah, absolutely. And as we often say on bank lists, may the most decentralized network win for sure. And we think they will in the long run. Sergey, this has been fantastic. I feel like at the end of this podcast, I now speak fluent chain link, which I didn't know as much about Chainlink as I do now enterin... |
Speaker A: I generally have two ways that I think about this. There's the fast case and the slow case. So the slow case is that the quality of crypto systems, the user experience, the scalability, the privacy, the connectivity, the ease of use from all of those things, gradually increases. And I think when the industry... |
Speaker B: Well, Sergey, this has been absolutely fantastic. It's been a pleasure having you, and certainly a long time coming. The parting message of crypto is inevitable. The only difference is whether it happens fast or it happens slow is a great message to leave listeners with. Thank you so much for joining us on b... |
Speaker A: Been my pleasure being here. Thank you for having me. |
Speaker B: Bankless nation. Got to remind you, of course, none of this has been financial advice. Never is on bank list. Crypto is risky. You could lose what you put in. But we are headed west. This is the frontier now. We're on the frontier of banking. It seems like it's not for everyone, but we're glad you're with us... |
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