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Web3 Galaxy Brain

Hilmar Maximilian Orth, Founder of Gelato Network and Arrakis Finance

23 January 2024


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Nicholas: Welcome to Web3 Galaxy Brain. My name is Nicholas. Each week I sit down with some of the brightest people building Web3 to talk about what they're working on right now. My guest today is Hilmar Maximilian Orth, founder of Gelato Network and Arrakis Finance. Gelato is a service provider that helps protocol developers automate smart contract and roll-up maintenance. Gelato's network of nodes automate and relay EVM transactions to many EVMs. Gelato also supplies roll-up as a service tools to help new roll-ups launch with the necessary infrastructure to attract third-party devs. It was great getting to chat with Hilmar about his journey building Gelato, how the company's products fit together, and what's next for the EVM ecosystem. I hope you enjoy the show. As always, this show is provided as entertainment and does not constitute legal, financial, or tax advice or any form of endorsement or suggestion. Crypto has risks and you alone are responsible for doing your research and making your own decisions. Hey Hilmar, welcome.

Hilmar Maximilian Orth: Hey, how's it going?

Nicholas: Good. How are you?

Hilmar Maximilian Orth: All good. All good.

Nicholas: What time of day is it where you are?

Hilmar Maximilian Orth: It's still, everything is still early. It's 6 p.m. here in Switzerland. What about you?

Nicholas: It's noon here in Canada. Well, at least my part of Canada. But I'm glad to have you on the show. Thank you for coming to talk about Gelato and maybe a little bit about Arrakis too.

Hilmar Maximilian Orth: Yeah, sure. Of course, open to anything.

Nicholas: Great. I guess we can start off in the simplest place, which is, what is it about blockchains that excites you? What is it about blockchains?

Hilmar Maximilian Orth: What is it about blockchains that excite me? I think why I came into crypto, which is kind of like a similar sort of question here, right? But maybe this is more technological.

Nicholas: No, both. Yeah.

Hilmar Maximilian Orth: Yeah, it's a kind of like a similar question. But I think what excites me about blockchain as a sort of technology is the change in architecture that it provides us developers that we can build applications where the users, at the center of control of their own data, you have not siloed databases anymore where users' transaction history, value, money, data is sort of locked in. And if you want to use a different sort of client or application, you have to. basically you can't really exit there. Blockchain is cool because it's open APIs for anything data is stored and transparent in a mutable way. And yeah, this allows you to build social media applications or financial applications. any sort of applications you want without that sort of Facebook Twitter-like lock-in that we have today. And I think we do have a bunch of cool examples out there that sort of showcase early prototypes of this. Unfortunately, no sort of production mass scale applications yet. But I think that sort of excited me at the very beginning and still does. Though I think the very sort of first thing that got me super excited and why I actually joined crypto back then was the DAO, like when the first DAO launched in 2016. And that actually sort of got my attention and not the financial side. And then later, I only got into the financial side.

Nicholas: You say not the financial side, but it's something about the kind of collective financial opportunity, nevertheless, that resonated about the DAO?

Hilmar Maximilian Orth: It basically sort of was this notion of, hey, we can be a bunch of people on the internet that can come together, pool resources and achieve a common goal. With laid out rules, they don't have to be enforced by any sort of supernatural, supernatural government and legal sort of courts. And that got me very excited because I worked at Stardust before and they all had their sort of smaller or bigger issues. And this sort of notion just was very refreshing. And of course, DAOs, like now being a couple of years in, right, they have their own issues, they have their own political games and these kind of things. But that sort of first pitch, it was like, oh, I'm going to do this. I'm going to do this. I'm going to. So I started DAO, which got me got me super excited. And that's why I joined joined in.

Nicholas: And where were you coming from?

Hilmar Maximilian Orth: So I've got a background in finance, which I started at university. I was always like, when I was 14, 15, I already started trading with small money. And yeah, then I just at some point got into coding and with my first applications. And yeah, then DeFi came around. Then, of course, I joined crypto and this sort of got me into DeFi, which was basically, my finance background, which I studied, plus coding that I really enjoyed. And before I worked in crypto, I was just like a regular sort of tech startups from Y Combinator and some others back in Berlin, Germany. And so I was always very, very sort of tech focused.

Nicholas: The Gelato white paper really focuses on smart contract automation. Automation is, maybe you can explain a little bit about why that's where you started and how the mission has evolved over time.

Hilmar Maximilian Orth: Sure. Like when we started Gelato in 2019, there wasn't too much, too many applications on Ethereum that really had a lot of usage. I remember like CryptoKitties was like the really first one that really blew off. Before that, we had a couple of smaller ones. Uniswap just came out. MakerDAO, Single Collateral DAI just came out. And so we were really hacking on a bunch of sort of use cases ourselves, and we were building like auction protocols and all these kind of things. And every time we sort of dive deep and build a more sort of complex DeFi primitive, we realized that there are all these processes that have to go on in the background, like in lending markets, liquidations and auctions need to start and close auctions. If you need to compound interest, you need to constantly sort of compound fees. And all these processes had to be automated. And we realized that MakerDAO, for example, they had to build up this whole decentralized keeper network, which is what they called it back then by themselves from scratch, which was like a huge overhead, a lot of issues always. And we saw this sort of this primitive repeated a lot for every single new application that came around. And so we realized say DeFi is actually like most of the transactions would actually be automated server side and Web 3 and DeFi. And so that's why we saw this as one of the biggest issues that prevented us from getting a DeFi device. further mass adoption of DeFi applications, and that's why we focused on solving this particular piece because back then there was nothing that solved it. There was this project from an Ethereum core dev called Ethereum Alarm Clock, which sort of got started way in the beginning, but it was far, far too early because back then literally nothing was happening on Ethereum. But once we were around, the first DeFi applications emerged, and so it was a good timing.

Nicholas: And who are the customers for those kinds of automation tools?

Hilmar Maximilian Orth: Oh, well, I think we have over 400 projects in Web3 using our tools for our automation service. Some of them include MakerDAO, for example, for also sort of their protocol operations that they do. The Optimism Foundation uses it, for example, to automate the sending and topping up of all the testnet faucets across all OP L2 chains. Then you have like, you have really, they can be very simple, like Synthetix uses them to automate SNX claiming rewards claims, basically. So you automate the claiming of rewards, but they can get super complex, like there's this lending market called Abracadabra, and they automate. or like BFI Finance, the yield harvesting protocol, they automate the revenue transfers across 18 different chains back to Ethereum, where they then swap all the revenues they generate into USDC and deposit it back into their treasury. So they range from very simple tasks to like immensely complex ones. And yeah, so DeFi is a very prominent one, but there are use cases in social NFT and other verticals.

Nicholas: Yeah, maybe we can get into some more later on as we talk about some of the services you provide. But I guess another way of asking the question is, is it typically the core devs, for lack of a better term, who are the customers, like protocols, core devs are the ones who are automating actions on their own protocol in order to do these kinds of things you've described, or are the customers also including maybe users of those protocols who want to automate their own activity?

Hilmar Maximilian Orth: Yeah, so Gelato is really a developer-focused platform. So our customers or users are the developers of these protocols, these core devs of the applications that people use. These are our primary customer and user. You can, though, if you are somehow technical savvy, you can also as just like a regular end user, use our tools. Some of them do so, but it's not really focused on them. We actually started out our very first prototype. It was actually more user focused back then. But I think we quickly realized that there's a lot of complexity involved with automating transactions that send like millions of dollars in a single transactions back and forth. So you definitely still need some sort of technical expertise to do so without any sort of risk.

Nicholas: Right. So it's not a portfolio management automation focus. It's much more about protocol automation. Yeah.

Hilmar Maximilian Orth: So these days we have applications that are built on Gelato that then surface UIs to end users where they can then set up these automations in very which is like clicking buttons, basically. So so Gelato is really just like a core primitive below that that applications built on top to then expose more user friendly applications.

Nicholas: So can you explain a little bit about the architecture and how this core Gelato automation functionality works? That what is it about the architecture in its maybe decentralized design that's attractive to these protocol devs more so than, I don't know, just running these as processes on a VPS or something?

Hilmar Maximilian Orth: Yeah, I think the most important thing is the reliability aspect of it. Um, more than anything else that we realized over the years. So automation requires a bunch of different services that you actually need to build, maintain and host that are quite complex, especially if you go multichain. And these are really. you need to constantly monitor the state of the chain. You need to constantly listen to new events as they occur. You need to have a direct connection to read and write to blockchains, need to have always the native asset to pay for gas. You need to run the right logic and get it included into the blockchain at various blockchains. that might mean you need various different logic to resubmit transactions and all these kind of things. So there's a there's a bunch of logic involved that makes this makes this much more than just like having a cloud function. If it would be that easy, then of course, everyone would just do it. But but unfortunately, that's not the case. But but this is actually like what we always wanted in Gelato really. It's like, OK, we have we built basically this service around automating transactions. And the best sort of place for that to be is actually in the blockchain client in the node itself. So you can think of like Ethereum validators actually running the software. And this was actually always like a dream that we had, like maybe one day or like Gelato can sort of be merging into Ethereum. And then as an Ethereum node operator, you actually run these services. But then we we sort of very quickly realized that Ethereum is very slow to change. You need external services that do that. But now in the sole layer two world roll up world, right, this is actually something we are working on. Like, how can you actually build this into the clients of the roll ups? Because there you can have much more customizability and you can have much more performance. You don't have to worry about like rolling something out to all these new validators. It's enough if one server runs itself. Yeah, that's kind of how we think about it.

Nicholas: Sorry, can you just clarify that last piece you mentioned about? it's OK if one server runs it? What do you mean?

Hilmar Maximilian Orth: In an L2 world, you basically have centralized block production and decentralized block validation, right? So there's a single server that actually is the blockchain, but it's fine because you can have. you don't have the only trusted server because you have fraud proofs or validity proofs that are posted on verified on chain to actually validate that everything was done correctly. Right. So now this is how why L2s are cool, right? Because you can have a much more centralized architecture and scale applications without losing the trust. And yeah, that's basically what I mean with this.

Nicholas: So you're saying that the possibility of delivering modified node software is more possible in a world with centralized sequencing because maybe it's beneficial to someone like Optimism or Arbitrum to have the cross chain compatibility that something like Gelato brings if they run. Gelato software on their sequencer.

Hilmar Maximilian Orth: So basically Gelato in its like in its early days, right, when we were in our three sort of middleware services we built that are sort of different to our role as a service platform, but our automation or I guess this transaction relaying service and all of these things, these you can really think of as modules or add ons to blockchains. Right. And what are blockchains? Blockchains are basically a bunch of like blockchain nodes or clients or validators that operate. Software. And so our software was kind of like an add on to them that we had to run in parallel to the node operators of these systems. Now in the layer two world, there's only one sort of usually one node operator that actually runs the blockchain. So you just have to basically give them your tools and they can also run it. And then the blockchain has these modules natively enabled. And now suddenly the blockchain itself comes with Gelato attached already. And this is also the reason why we got into the whole layer to roll up a world because we realized that, hey, we can merge our services into the roll up platforms and provide an augmented sort of layer to stack out of the box. And yeah, this is how we actually came about to build our role as a service platform.

Nicholas: It's interesting from the perspective of the L2 operators, I suppose it's attractive because it makes DevEx easier for protocol devs to redeploy an instance on their chain.

Hilmar Maximilian Orth: Exactly. So a realization that we had is when we talked to all these projects that were launching on their chooses, people wanted to launch on their own as well. Why? Because they want high scalability. They want cheaper cost, more throughput, and they might want to customize here and there. Right. But they still need to have and rely on it. They still relied on and still require all these infrastructure tools they got used to on Ethereum, on like the public Arbitrum or Polygon network. Right. But suddenly they're on their own chain and they are not the same. And then they were thinking, OK, Dan, now I need to build up all this, all these tools that I now relied on that these projects build over like four years. And I just now need to rebuild them myself. Well, that takes a ton of time. Right. So they actually realize it's very hard for them to build these applications. So they came to us and say, hey, Gelato, we are building our own layer two, but we need you on to support our L2 and sort of add support for it. And that's actually where it may click to us that if you that. We are very early belief that roll ups and layer two sort of future basically since the roll up centric roadmap block falls by Vitalik, but it may really make click for us to that. we can add a lot of value in the space. when all these projects came to us that wanted to do their own roll ups and ask whether they whether we can support them. And we said, hey, we can take the role of software that was built by like OP team, by the Polygon team. We can merge that or run it in conjunction with all the tools that we actually built over the years. And then you get basically a sort of augmented roll up framework out of the box, hosted for you. And you have all the all the tools you need from day one to really kickstart your application.

Nicholas: It's interesting from a business perspective also that L2 is open. It's sort of easier to sell a single potential B2B customer on some new functionality than to, as you say, convince core devs to integrate something or even to popularize something like an EIP.

Hilmar Maximilian Orth: Yeah, it's impossible on Ethereum, right? So it's. They're likely. the only way you could really change the protocol is a you have to lobby extremely hard and get an EIP through your chances. Your chances are close to zero. And good luck with that. If you if you are somehow lucky and get through that, it takes four to five years. Right. And then the second one is actually something like what FlashBots did. Right. And I think they are probably some of the only ones that achieve that. You actually just fork. The code base and you add such a big value adds in terms of monetize in terms of revenue that you add to the node operators that they start adopting your fork instead of the actual real client, right, which happened with like MVV guests. And so these are the only ways you could have changed the protocol before. But now on the L2 world, of course, you have a different a different way.

Nicholas: The other way, which also I was reminded of when you were describing it initially, is what I think is the way that the Eigen layer is doing, which is maybe similar to the FlashBots approach, but changing the node software or at least the staking, the relationship between the stakers and validation. Exactly.

Hilmar Maximilian Orth: So restaking is kind of like a way to make it well to build an economic framework around how these changes can be done on a more granular level and granular level. I mean, that every sort of node operator or staker can sort of decide for themselves how they want to do it. This, of course, also creates a bunch of risks, right? I think there's, again, like a good Vitalik blog post that I always like to show where he sort of goes through them and why some of the services shouldn't potentially be sort of operated by actually Ethereum validators and stakers with their stake being at stake at stake for slashing. But yeah, it's basically the same sort of core principle. and how can we amend and augment the functionalities of the blockchain without having to introduce core changes to the protocol?

Nicholas: So I guess what is it like talking to these Layer 2 operators? What are their concerns? or how do you think about the relationship between something like Gelato and people who are running, I don't know, Arbitrum, Optimism, et cetera? So Gelato

Hilmar Maximilian Orth: being a role as a service platform, right, where we provide developers to sort of build and deploy and have operated their modular sort of Layer 2 blockchains, what that means is that we are in very close contact and relationship with like Optimism, Arbitrum, Polygon, because they build the software clients that actually enable you to operate the L2s or the rollups. What we do is we, like Gelato, operates and runs the rollups. and what Optimism and sort of Arbitrum, their core tech teams do, they build the clients that we run, right? And there are, of course, two sort of ways how you can, how software is valuable, right, or how software creates value. Software creates value out of licensing and software creates value out of sort of operations or being serviced in SaaS models, right? We are basically kind of like the SaaS. They are the licensing or they want to monetize with licensing. And so we have a very good relationship with them. We contribute to the code bases. We find bugs. We test these things out in production with real customers at high loads. So, yeah, we are in constant contact with them.

Nicholas: You mentioned the rollup as a service, and I want to talk more in detail about that in a second, but Gelato offers like a lot of different products. I mean, maybe a lot is excessive, but a handful of quite different features that people can make use of. How do you organize them in your mind, or maybe you could describe them chronologically, how you got to each one?

Hilmar Maximilian Orth: That's a very good question. I think, so there are two big, so there are two camps. So one is, so they're all built in mind for developers to really augment sort of the public blockchains that we got used to. And we have web-free middleware services, which are these sort of modules, these add-ons for blockchains. These include our smart contract automation service to automate smart contracts that we talked about at the beginning, our relaying service, which is just a very sort of regular transaction relaying service that allows developers to programmatically send transactions to have, for example, a gasless user experience for the users, right? An example is like gasless NFT mints with meta transactions or account abstraction. SDKs use this under the hood to enable gasless or free transactions for users. Then we have web-free functions, which basically are similar to our automated service, which allow developers to access off-chain data and push them on-chain, something which is kind of like a tricky thing in web-free. And then also our VAF service, which provides randomness to smart contracts because EVM blockchains being deterministic state machines don't provide randomness, secure randomness out of the box, and so you need to feed it in from the outside. And so these services were all built based on use cases. we saw in web-free where projects started building their own server-side centralized logic to actually facilitate these functionalities. And these are kind of like one of them, I would say, with oracles and price feeds that is not included here, these are kind of like the big sort of categories or groups of web-free infrastructure services for writing on-chain. There's a lot of also services that deal with reading from the blockchain, right, like subgraphs, data indexing, and these kind of things. That's not what we do. And so these are web-free middleware services, these modules, right? And then our roll-up as a service platform, this is really like the platform to launch your own L2, like a sort of hosted blockchain solution. But this roll-up as a service platform has all these services that we built in and natively integrated, which means that if you deploy roll-up on Gelato versus any other roll-up as a service platform, which is just a roll-up as a service platform, you not only get the roll-up, you also get basically most of the services you actually need, and now we actually build integrations with other infrastructure providers now so that we have an actual machine, an end-to-end solution for you that you get not only the blockchain, but all the different tools and modules and services you need out of the box. So basically for you, it feels like you are developing on Ethereum just on your own roll-up, so you have all the tools available. And this is kind of like how we see actually where the demand and the market is.

Nicholas: How should a developer look at the different options available for roll-ups as a service, and why might they choose Gelato?

Hilmar Maximilian Orth: Yeah, so why do they choose? Why? A lot of them choose Gelato is because the roll-up, like most of them actually don't just need the raw blockchain. Like blockchain itself is kind of useless. We talked to projects that launched their own roll-ups like a year ago, like nine months ago, and they just posted empty blocks on Ethereum and paid a ton of money in ease for gas without actually having any useful applications on top. Why? Because all these applications that they wanted to build on their roll-up, didn't do so because they say, hey guys, all the tools we need are actually missing. So we would have to rebuild the entire stack that Gelato builds from scratch to then be able to deploy on your roll-up. Or please ask Gelato to support it. And so why they choose Gelato as a platform is that they can get all of that by default at block zero, at the genesis block, all these services supported on their blockchain and then developers that need to build on their L2 or themselves being the developers that are building like an application-specific blockchain. And they have everything ready to just like go and migrate their application over one-to-one.

Nicholas: But what are the functionality that they're missing with a vanilla roll-up as a service? Because it sounds like it's maybe not that Gelato provides the direct, like the services that you mentioned, the automation, relaying services, Web3 functions, VRF are all necessary, but they're almost preconditions to having the protocols, which are really what's necessary for, you know, you need an instance of Uniswap or something, some AMM in order to make the blockchain workable. So is it more that Gelato provides the like preconditions for those protocols to migrate? Exactly.

Hilmar Maximilian Orth: So like there are two kind of camps or two user groups for roll-ups. There are application-specific roll-ups. So these are, let's say applications, let's say a Perpdex, right? So a Perpdex just wants to have their own L2 because they can have significantly cheaper transactions and high throughput, but they actually are not interested in having any other application deploy on their own roll-up, right? They just want to be there themselves. And they are, they probably have some dependencies with us. And so they say, "Hey, Gelato, we are going to our own application-specific roll-up. Can you please also be there in order for me to actually be able to migrate my Perpdex over, right?". This is one user group. The other one are more what I call ecosystem chains. And these are blockchains like Astar or List. These are two blockchains that just went live with us. They are building more, it's like similar to like an Optimism or Arbitrum L2, right? Where they build an ecosystem where they want to attract other developers to then build applications. For them, it's very important to have all the different infrastructure services available. Otherwise, these developers will never come, right? And Gelato is a big part of that. The Graph, for example, is another part of it. And, yeah, so in that part, exactly what you said, we are kind of like the precondition for them to attract developers.

Nicholas: If I were to deploy a roll-up using Gelato, which stack is it using?

Hilmar Maximilian Orth: We are stack agnostic. So we work with all the stacks. You can deploy OP stack, Polygon CDK stack, Arbitrum OpenStack. We believe that developers can do that. Developers should choose freely for themselves which stack they want to be part of. And some of them have technical preferences. Most of them have preferences in terms of which ecosystem they want to be part of. And, yeah, we are very customer-centric there. So we help them to onboard with any of these frameworks.

Nicholas: It must be difficult as an infrastructure provider to support such divergent stacks, no?

Hilmar Maximilian Orth: Of course. But this is what we specialize in for the past four years. We run heavy, complex Web3-related infrastructure. And our entire team is dedicated to that. So this is sort of the value that you get from Gelato that if you want to try out and test out an OP versus OP Ethereum versus OP Celestia versus Polygon CDK or Polygon Avail for Data Availability Layer Flavor, you can just do so on Gelato and you know it's being run and operated reliably. Yeah, that's the whole sort of purpose of it.

Nicholas: How many people are at Gelato these days? 30 people. How does the VRF service compare to Chainlink or other VRF services?

Hilmar Maximilian Orth: The VRF service is, I think it's quite difficult, quite different to what Chainlink has. Our VRF service uses the Randall randomness from the League of Randomness as a League of Entropy as a randomness origin. What it does is kind of like a network of nodes that are run by Ethereum Foundation, by IPFS. By Filecoin, by different sort of academic institutions. And they come to every couple of seconds, come to a round, come together to create a new random value that you can sort of be probably sort of confident that it's pretty random. And they sign it. And what we do at Gelato, we take that data and we allow developers to set up small tasks that say, hey, I want to listen to certain events on Chainlink. And based off these events being emitted, I want to take that randomness that was generated and push it on Chain to then trigger a lottery outcome transaction, let's say, on Chain. Chainlink, Chainlink's VRF is quite different there. I think they have their own. I think no one 100% knows how it works exactly. It's not that transparent. But they basically don't use that randomness source. They sort of have some own nodes that craft something. And then push it on Chain. So yeah, it's, I think, quite a different design.

Nicholas: Do you think that something like EigenLayer would, like some kind of restaking solution, could produce randomness more effectively than what you described with Rando?

Hilmar Maximilian Orth: Well, it depends on how you would describe more effective or more random, right? So the question is, what is randomness? How can it be more random? Can you make it more random by adding more nodes? Or is it already sort of saturated with a number of nodes that the League of Entropy has? So I think EigenLayer applications can definitely probably build something. Not sure if it will actually be that different to what Rando provides, especially since it's free. And if EigenLayer nodes do it for free, then there's also no return for them. So then it's a question why they would do it in the first place. Otherwise, maybe they are altruistic and want to do it, right? So yeah, they would compete against kind of like a free and subsidized and with donations sort of service. So I'm not sure. I haven't thought about it.

Nicholas: Speaking of kind of like economic incentives of these things, what are the economic incentives that seem to you to make the most sense for people deploying their own L2s, app chains, or whatever their approach might be? Is it typically if they have a successful protocol on other chains that they might see the reason to move to their own chain? Or what would seem to you to be the reason? What would be the most substantial viable reasonings for spinning up your own?

Hilmar Maximilian Orth: I think it's multifaceted. There may be like three major ones that I see from talking to our customers right now. One of them is just user experience and having more granular control over the underlying blockchain. And this is really for applications that have gone through a certain adoption. And user increase that saw the limitations of being on a shared blockchain with other applications where gas price spikes from like an NFT application that you don't have anything to do with might actually negatively impact the user experience that your customers are having on your application right now. And so moving to your own L2, you have much more control, right? You can configure it. You can have lower block times to have faster sort of trading experiences. You can have... Zero gas roll-ups, right? That we are very excited about. So no gas at all. Users just don't have to worry about it. You somehow can prevent spam from occurring in different means, right? So these kinds of things... Or you can make changes to the client. You can have native account abstraction on your roll-up or any other BLS signature verification on your roll-up, right? So you can leapfrog the current blockchains and their functionalities, which are quite limited as we know. So this is like the first user group. The second one is... Things more from like a value accrual point of view. So an own L2 allows you to monetize your own community that you're building and get a piece of the block space revenue that roll-ups are generating, right? If you look at the Arbitrum Optimism base, there's quite some money to be made by attracting a large user base that you can monetize via transaction fees, right? This is another common goal of projects that launch, especially these ecosystem chains where they want to attract third-party developers. And then an interesting one, and we are talking a lot with like enterprises, is that L2s actually allow you to... L2s are like... We all know these private blockchains from back in the day that really never took off because they were like basically these isolated islands with no connection to all the cool assets that are on Ethereum. But now what you can have with L2s is you can actually have public permissioned blockchains. So what you can do is you can say, "I can build a fintech application in North America. And only North American citizens based in certain states that are KYC can actually transact on the chain. Everyone can bridge their assets in. Everyone can bridge their assets out fully permissioned without having to trust the operator. But if you then want to transact actually on the chain, you need to follow some extra rules that you can't enforce on a decentralized network like Ethereum. This is another one which I think we are only now sort of seeing the first movers actually being motivated by it. But I'm personally very excited.

Nicholas: And how do you see the different ecosystems playing against one another in the sort of arena of popularity or affordances? What makes a difference between, I don't know, super chain? or maybe even there are OP stack chains that are not super chain, of course. But Arbitrum, Polygon, how are they shaping up and is it stable? or can anything happen a year from now?

Hilmar Maximilian Orth: Yeah. I think it's still at the very beginning. Yeah. So it's hard to say how it will evolve. I think they're all doing a great job of making it as easy as possible for developers to use their tech. I think OP had a leg up at the very beginning because they really sort of formed the narrative the most clearly at the very beginning. So that's why I think we are seeing a bunch of bigger projects that started using the OP stack like base, for example. Right. And with Polygon, I think they really made a big push in the past four months. And we were also one of the first roll-up platforms that actually supported their CDK stack. And we are now launching the first CDK chains as well, also with alternative DA layers into production. And yeah, they're making a really, really big push and moving very, very fast. So I would estimate and expect to see a lot happening in the Polygon ecosystem. Arbitrum, I think, had the most complete stack when it came to like very segmented solutions for games or with any trust chains or like perp taxes and so on very early on. And I also do see a lot of adoption over there. But I think they have a different way of formalizing the sort of value capture from them and are very bullish L3s from a narrative perspective. Whereas OP stack really pushes the narrative of L2s. And then you combine all of them in a super chain, similar to what also Polygon does. So in the narrative and architecture and how they want to capture fees and stuff, there are like slight nuances there. But I think all of them are seeing from what I see in the market quite some adoption.

Nicholas: How is it possible that there are so many L2s and even, as you say, L3s when there's so few applications?

Hilmar Maximilian Orth: Well, I think there are many applications, actually. Maybe there are not many applications with a lot of usage, right? But there are actually quite a few applications. And it is also kind of like a chicken-egg problem, right? Like you couldn't really get the usage you want or you couldn't really have the right UX to attract the users that you might want to target, right? So there are like, of course, these crypto degens in DeFi that we all know and love that are going from one application to another and farming and so on. So we know. And our bank knows. We are very well aware that they are happy with the current UX that we can offer. But like my mom is not really happy with the UX, right? And I couldn't just give her an iPhone and tell her, please now try to buy this NFT, right?

Nicholas: The layer three for her is not yet online.

Hilmar Maximilian Orth: Yeah. And like there will be like if you can abstract gas to zero, right? If you can have social login. If you can have gasless transactions, everything. Seamless web two off ramps with fiat credit cards at the beginning to onboard them at least, right? I think then you can come and provide a user experience that actually makes sense for less tech savvy people to use, which is, of course, essential for the adoption to happen. Layer twos and layer twos are just a way to make that. Easier to make it easier to scale, to make it easier to customize the user experience and for applications to have more freedom and what they can what they can build here. So it's not a you still need to build the application, right? Like the blockchain itself is not an app. And that's why like the blockchain, like the roll up is just one part of offering as well. Right. It's like we are not like the only role of a service platform. This is this is just a part of the puzzle. You need this. Plus, then you need all the services. And then you also need like the applications. To actually solve some problem for customers. And then you have potentially in the future a mass adoption of Y3 applications. But of course, we haven't seen it yet.

Nicholas: Yeah, I guess. Would you say that the applications that are working today are infrastructure and memetic speculation in tokens, fungible or non fungible? Do you see other areas where there is like a product market fit or is that is that the primary area for product market fit so far?

Hilmar Maximilian Orth: Yeah, I think a lot of space. Like, of course, I think not only speculation, like speculation, of course, is a driver for all of this. Right. And this is the cool thing about crypto. I think circulation is actually a good thing. Right. So it actually drives adoption and makes people interesting. All of my friends that are not like crypto native. Why are they sometimes in bull markets interested in crypto? Because of speculation. Right. So it definitely. it definitely helps shine a light and gets people to try things out. So it is important element of the whole industry. Yeah. But I think they're like what crypto. I think there are a lot of examples of not like global massive adoption. Right. But if you think about companies being able to raise capital, store capital, transfer capital and completely finance themselves exclusively by just money on the blockchain, I think that's a cool. that's a cool product market fit. Like gelato, for example, like 99% of our cash is in our multi-stick account. In USTC or other stables. Right. And we pay everyone in crypto. We can pay people all over the world. Right. It's very difficult to do. It's much more difficult to do if you use the banking system. So when it comes to like large transfers, high value transfers where like transaction fees on Ethereum are not an issue right now. I think there is some product market fit for sure. And also for like lending and borrowings and these kind of things, which you might argue are speculation. But for me, actually, I don't know. I like since I adopted DeFi and crypto, I never moved back. Right. I never went back to the traditional finance system and did some stuff there. I usually am always on there. So I would argue there is some product market fit there for sure. But beyond the finance applications, which crypto and we all have to sort of go back to, this is what blockchains are made for. Blockchains are made to transfer value trustlessly, transparently over the Internet very efficiently. This is like the core premise. And all the other things like all the other things are still cool, but it's all about like who owns assets and how can I transfer assets from A to B? And then you can build a bunch of stuff around that. Right. And if these are built on top of that games, Web3 games are also built with the notion of, hey, there are some weapons in the Web3 games that I can transfer. Right. But at the end of the day, it's an asset transfer protocol. And this is where we will see the adoption. And there won't be. I don't think there will be this magic new thing which suddenly will drive all the adoption. But maybe I'm wrong, right? Who knows? Sometimes you don't really foresee the things that will then actually trigger mass adoption.

Nicholas: Yeah, absolutely. I'm curious. My perception is that while crypto is really good for, as you say, collecting, transferring, collectively managing financial assets, it's actually very difficult to integrate with the TradFi or even governmental expectations around bookkeeping and accounting. Sure. So while it's much simpler to execute transactions like from one country to another of a large volume and doesn't have all the problems associated with dealing with a bank in terms of security, uptime, customer support, et cetera, centralization. However, it nevertheless is quite. it can be much more of a headache, actually, if you're trying to run a business, because, I mean, we're just not there yet with like bookkeeping, even simple things like that. I'm curious how you've dealt with that at Gelato.

Hilmar Maximilian Orth: I think there are actually a bunch of tools already. So the beautiful thing is there's a lot of venture capital funding in crypto and all these problems that exist in terms of accounting and so on. They have talented teams working on them. I know our CFO, she works together with all of them. I'm not really involved too much in the sort of back office operations. At the beginning, we were. At the beginning, we were sending every single transaction online. But I usually interface with like safe and then sign these transactions. But, for example, request finance is a great tool, if you heard about it, that allows you to issue invoices that are compliant to certain jurisdictions and look just like a normal invoice. But then you can just like the recipient can just click to pay the invoice and you just use your metamask to pay. And then it's all being. Like there's a report. There's a report being created and you can export it in CSV files and so on. So there are a lot of tools that are working on making this more seamless. They are mostly B2B focused, though, for like DAOs and companies. And they are, of course, not at this stage as like Web2 software. But we are getting there.

Nicholas: That's a promising spin. I'm glad to hear it.

Hilmar Maximilian Orth: Yeah.

Nicholas: We alluded to it before, but account abstraction is another great theme in simplifying the UX of crypto. And as you mentioned, with the stack that's emerging with L2s and account abstraction and gasless transactions and all the other. I mean, also authentication like pass keys on phones becoming a standard that's popular. It does seem like we're getting closer to a world where a Candy Crush asset could just be on the blockchain without the user really having to know too much about it. I'm curious how Gelato is approaching account abstraction. And why it's important to you and how you're creating services around it for developers.

Hilmar Maximilian Orth: Yeah. So we've been in the business of like sending transactions on chain on behalf of users for quite some time. Our transaction relaying system is used in a lot of account abstraction SDKs of like Zerodev or the SafeCore SDK. What we realized very early on is that you really have to solve the user experience problems around sending and paying for transactions that we all know exist. On two levels. You either solve it on the wallet level, which is you have a wallet like Metamask that integrates smart contract wallets that then allow you to abstract away the need for gas in order to interact with applications. Or you solve it on the blockchain itself. And what I mean with that is you actually enshrine account abstraction, smart contract wallets or whatever other solution you have. You think is the best to solve these user pain points into the protocol. And we have been always looking into, okay, how can we finally solve this issue around gas? And we work together with a lot of account abstraction teams. But what we are most bullish on is actually augmenting the underlying blockchains to enable either fully zero gas transactions by default for everyone. Or natively integrate account abstraction. Not as we know it today where you have external wallets and you have your EOA and the smart contract wallets. They're not the same thing really. But you can have a much more cohesive experience where your EOA begets superpowers of a smart contract wallet. Basically gets programmable what you want. And this is what we are most bullish on. And that's why we actually believe that the best place to integrate these kind of things are in the blockchain itself. And that's why we went also in the roll-up space, in the L2 space. Because we knew that this is the place where you innovate. This is where you should actually apply account abstraction and gas transaction technology into these clients. And all of the blocks provide them with the chain that has that by default. And so I believe that now in the L2 world, we will see much more experimentation. We are working on this, for example. To offer a native account abstraction. All the L2s that we are spinning up for projects. And I think this will really enable us to experiment a lot. And build the best possible UX for users. Which is not fragmented as it is right now in Ethereum. Where you have not really smart contract wallets, but you have these services. And then it's all on top and a bit messy. Especially if you go multi-chain. So that's kind of our hypothesis about this.

Nicholas: So essentially enshrined 4537. And maybe 7212 even. Other things like this. Quality of life improvements to make smart accounts the default. Exactly. Do you agree with me that the notion of a wallet is becoming like a prosumer product. And instead people will just have accounts that are smart accounts. And not have a discrete piece of software to handle them.

Hilmar Maximilian Orth: You mean like in-app wallets?

Nicholas: Yeah, in-app wallets. Or I guess just you don't. When you sign into Facebook. Or you sign into Gmail. You don't have a separate. I mean I guess nowadays you do actually with the 2FA challenges and the authenticator. But in general people don't have the experience that they need a separate app in order to use a given app. They just use the app. And it has an account system for them. Maybe smart accounts allow us to get to some shared accounts between different applications. But like in the sign in with Ethereum kind of paradigm. But nevertheless in traditional Web2 software. It would be completely unaccompanied. It would be completely unacceptable to require that in order to onboard a user. They need to go get a separate piece of software made by a different company or open source project. So do you think that we'll get to that same point in crypto?

Hilmar Maximilian Orth: Well you still need the browser on the web to browse, right?

Nicholas: That's true. Although I guess they come by default with every. You need a computer.

Hilmar Maximilian Orth: Yeah, they come by default. I think wallets will also come by default. I'm pretty sure that Apple will have their wallets. But yeah. I think for me the question is more will it look the same as it is today. Like I don't. I don't think browser extensions in wallets are the end game. I definitely don't believe that's the case. I also don't believe that you have this one weird app on your phone through which you then browse as like a secondary. Like what is the MetaMask mobile app? It's basically like the Safari app, right? It's like the Safari app with a wallet. Same for Opera, right? Opera is this sort of browser. I think fourth or fifth biggest in the world. I'm not sure. And they also very early on actually had a native wallet enabled. And so you don't even have to install any add-ons anymore or plug-ins. You just had it out of the box. So I think you will. I think browsers, they will have wallets. I think operating systems like iOS, I think will have wallets. And you will have keys that you can control and you can sign in and you can enable them to be your. Like you can have identity through that online. It doesn't mean that you then still don't have like different accounts on different applications, right? I think there are two worlds. One is you install an app like you do on an app store right now. And then on this app, you just create an account. And with that account, you have a key associated with it or somehow. And you can interact with the applications through that. Or you interact with it through more like a browser type of experience. It has its pros and cons, to be honest. One problem I always see is that. It makes sense to have like a key is an identity. But it's also a wallet is still also kind of like your bank account. And we can sometimes mix these two up because they actually unlock a lot of cool use cases. But they're not always the same. And they're not always overlap. I mean, and so do you really want to have like 100 accounts on 100 different wallet wallets and addresses on 100 different applications? With like funds all over them? And how do you consolidate them then again? Or will you have like one master account which then knows all the sub accounts on all the different apps? And you just have one view and all the routing of the assets that get routed through it will be abstracted from you. I think that's super complex. The easiest one would be if you have a wallet. And through that, it's like the easiest UX for me would be that you just have a browser like you have. Like I'm on my Chrome right now on Twitter. And I log in. And I can type in Twitter. I'm on Twitter. I can type in Facebook. I'm on Facebook. And I just have my wallet. And I can interact with it. I think that would be the easiest. And I know it goes against a bit of some of the notion that other people talk about with. you have accounts per chain. You have your native sort of account per application and so on. But I think that also comes a bit of pain points that we currently have around like account restrictions and so on today. I think there might be. There might be a chance when we change the actual protocol underneath to solve them in a different way. But yeah, it is very hard to estimate how it will look like.

Nicholas: It seems like for it depends who the customer is. If the customer is a bit savvy, then you can imagine anticipating them having a wallet application provided by maybe Apple in the future or MetaMask today or whomever and using it to log into different websites. Dapps. But the paradigm for new to crypto. Billion plus user base seems to be one where there would be no expectation of such a common thread between the different applications that instead each application has either an embedded signer that has some limited access to a shared account or more likely because of the UX kludge of that, that just each application maybe spins up its own smart account. And if they can do it gaslessly, I guess the big sacrifice is the TVL of the accountant. Yeah. They have to start fresh.

Hilmar Maximilian Orth: Yeah. And again, going back to what I said earlier, like what are blockchains for? Right. I think blockchains are for storing and then transferring assets. Data of value. What are they? Data of value are assets like digital native assets, I would say. Right. Like a post on lens is also an NFT. And you can argue it might have like value. Right. So it could be seen as an asset as well. But yeah, like if you have a hundred accounts with assets, you sort of need to have a way to then link them all into one larger account, which is your which is your account. Right. And and so it might actually be the same thing. Right. Logging in with like one wallet or one browser that has a wallet where you then still create like sub accounts on each application. But at least it's directly linked to a single wallet where all your assets are, which is just much more easier to sort of keep track of everything and do accounting for everything and so on. It kind of ends up feeling the same. But what I don't think is you just have a thousand accounts that I have no correlation to each other, especially when you think about assets, because like no one wants no one wants to have a thousand accounts that are not like interlinked and you need like a spreadsheet to keep track of all of them.

Nicholas: So it is sort of the status quo with Web2. I mean, I understand what you're saying. There's a distinction about blockchains having data of value that they don't have. It's maybe a little bit distinct from, I don't know, your Candy Crush, World of Warcraft and Facebook. Maybe you don't. But they do have value. It's just not so much financial value. But the default is that each each has its own account, except if you're using SSO, in which case there is still data that's private to whichever application you sign into with a provider that you already have an identity with, like Facebook or Gmail. Yeah.

Hilmar Maximilian Orth: Yeah, for sure. I think it's just like the money is not really on like 10 different applications. Right. Your money is in PayPal. Your money is in your bank. But you don't have your money for applications that are separate. You have one credit card. You have one thing. So it very much like it very much depends on the use case here. If it's just about like making the same applications, but on blockchains that have nothing to do with paying for stuff or financials, then I think it makes sense. if we talk about that you want to achieve something for like financial. Like if you do want to do a financial transaction, I think then you want to kind of interact with an account where your assets are stored. And these assets should probably not be on like too many, too many different accounts, except if they feel like a single one.

Nicholas: So I guess I guess what we end up with is feeling like everybody will have some kind of main identity that is attached to like their crypto on and off ramps, for example, but maybe potentially separate accounts inside of different applications if they have substantial and I mean, just in terms of on ramps. And then you start stamping or onboarding into the application. It seems easier to just generate a new account than try to tie it to something else. But maybe that paradigm changes as the a stack evolves. Yeah.

Hilmar Maximilian Orth: And, and it's the same issue for layer two and application specific blockchains. Right. So we now talked about, Hey, what if you have a hundred accounts? But like what happens if you want to check with a hundred apps that are in hundred different chains? Right. Right. And this goes and here I think what's an interesting learning and what is like one of the biggest pain points that the Cosmos ecosystem had, which pioneered app chains. Right. They really had this figured out a long time ago was that the big problem for them is how can you minimize the overhead of making a lot of many blockchains feel like one, which is how can you solve the routing between chains effectively and how can you show a single balance, a single account for all the different apps on different app chains. And I think if you figure out that, if you can figure out how a thousand roll ups with a thousand applications can just feel like one, then we have what I call like scalable Web3. Then we have like a sort of Ethereum like user experience with. Yeah. That scales, actually. And I think it's actually cool that you have an account, which is your wallet. And it doesn't mean you just have one. You can still have multiple. Right. I have multiple accounts today that I can use. And it also doesn't mean that you can't have application specific accounts. Right. InstaDev was an early example of. I've got my account and they deploy smart contract for me. And I went into InstaDev. I have my own account. Right. So that was an easy or an early example of that kind of thing. But it was linked to your actual wallet that you still sort of had. And controlled. And when you mentioned also like password keys and stuff. Right. If all the mobile phones and stuff come with these sort of wallet like these keys out of the box, then you can easily assume that maybe in the future, like a Safari or Chrome will add it into their browser. And then suddenly you can just like interact with all the applications through that or every single app from the App Store sort of supports such that that's primitive. But then every time you click on, I don't know, transact or confirm, it's actually like you. Your wallet, your Apple wallet pops up like when you have your boarding pass, right? It just pops up. Or when you have your credit card that you pay and just like, hey, please scan my face. OK, scan. OK, confirm transaction and go through.

Nicholas: Do you want to add the passkey for this specific application as a signer on some sandbox? Exactly. Permission transactions from your main account or something like that? Yeah, it does seem like we're headed in some direction like this. Do you think about the? I mean, again, just to return to the applications or your mom is a use case. It's like. none of these are problems that users who don't yet see the appeal of this technology have. These are, of course, the transaction cost, et cetera, are being solved by some of these technologies. But they're also introducing this fracturing problem. And while everybody is pining for all the wallets to accumulate your ETH balance, for example, across all chains as a single value, they're also papering over the different risk profiles. when they do that, if the sequencers go down or especially if the assets are going down. If the assets are native to the L2 or L3, then there is no pulling them out. There is no withdrawing to L1. And if the presumption is that mass adoption is dependent on the low gas fees of L2s or L3s, then the assets that you are trading in, I mean, for example, NFTs, if the idea is that people are going to be eventually interacting with popular NFT applications, for example, because the assets will be native to the L2s, then there is no withdrawing of those L2s to L1. So if you. If you accumulate all of your balances of tokens in a single number, a single row in your wallet, but some of those assets are on chains or are native to chains that are not as reliable as L1, then we also kind of lose some of the clarity.

Hilmar Maximilian Orth: Yeah, sure. But this is what L2s and sanitization wants to solve, right? We want to like. this is what this super chain or the interoperability layer polygon and these kind of conglomerates of chains. They want to establish a certain set of rules and interoperability processes between chains that follow the same set of acceptable norms, which will lead to an outcome. And there will, of course, be issues, right? But it will lead to an outcome that a lot of chains feel like one and provides you. With the same security benefits, of course, it doesn't mean that you can't have like some someone else, another application that doesn't conform with this conglomerate of chains because they want to change certain things to make it sort of custom for their use case. And it's still secure or some of them are insecure and you might lose money, right? Similar to if you are on the Instagram app and you click on an advertisement that then leads to a sort of a rock or like a scam, right? And you put in your credit card. You put in your credit card details and your money is gone, right? Can also happen. So I think like this problem was already this problem is known. And I think this is exactly what what's like these projects like the optimism super chain are working on.

Nicholas: So do you ever think about Solana or other non-Ethereum blockchains every day?

Hilmar Maximilian Orth: No, every day when I wake up, I think it was a lot of now lately, it's made a lot of it's a lot of it, a lot of noise. So that was definitely the loudest, yeah, definitely for sure. So it definitely came up on my feet quite a bit. Maybe I follow Anatoly and he seems to retreat a hundred tweets a day. So maybe that's just making all the noise. But if I think about them, well, we have to. we made a decision like you mentioned at the beginning. We're doing a lot of stuff. We're doing a lot of services, right? We are running a lot of infrastructure and we we made the decision to be EVM only and we made it quite early because we believe that. EVM is the platform and the and the framework and the operating system sort of. that will be the basis of Web3. And why do we think that? Well, because we believe the adoption is already there and all the tools have already been built on top of the standard and the standard can now on L2 is also be much more rapidly sort of evolved and played with. And so we believe in the EVM standard and we believe also in Ethereum's network effects. And so that's why we focus on it. I have a huge respect for all the other teams that are building Solana stuff and so on. I think there's a lot of cool stuff being built and a lot of cool experimentation. And I'm never saying no, right? So maybe one day we'll also support it. But for now, we made this decision to focus on EVM right there.

Nicholas: In a similar vein, we talked about EigenLayer a little bit, but there is this, I guess, EigenLayer represents the possibility of separating the staking security model from the EVM. Do you also think that just the network effect of the EVM in terms of runtime is locked in? Or do you ever think that maybe the Ethereum staking ecosystem could transition to some other, yeah, some other virtual machine?

Hilmar Maximilian Orth: Well, never say never, right? Especially in technology. So I can only, like, I only dare to say what might happen in the next two years. Because everything beyond that is just such a, like, technology changes so quickly. So I don't want to make any weird predictions here. So, but right now, most of the infrastructure tools that developers require are all built with EVM in mind. And Ethereum being like Ethereum, EVM being kind of like this sort of gold standard EVM. And then all the other chains with their own sort of custom implementations being kind of like secondary. And so right now, this is the, this is the basis on top of which everything is being built. And so I think these, this is very strong network effects of tooling around an ecosystem. Like there are, I think, already experimentations that do like parallel VMs and all these kind of interesting technological advancements that provide potentially high throughput and so on. I think that will be played with and eventually Ethereum stake might be redirected to one of them. Who knows? But I think in general, when it, when you think about the number. Yeah. The value being transferred and the block space revenue that is being generated. I think EVM chains will be dominant over the next three to five years. Most likely.

Nicholas: Do you think the same thing about solidity?

Hilmar Maximilian Orth: Probably. I would say so. I think there are a lot of cool innovations, right? Stylus and different languages and in Joule more low level. So, but I think especially when it comes to space. Like one lesson that being a solidity engineer myself that you must learn is that there has been a lot of tooling being built on solidity and a lot of best practices and a lot of stuff off the shelf that you can use. And a lot of mindshare went into it. Like look at the, the heck.

Nicholas: The Viper.

Hilmar Maximilian Orth: The heck of the Viper compiler bug. Right. And yeah. So you can't discount that. This is, this is just like a value that accrued over time. Lindy, which is immensely important in our industry. Right. I think our industry moves fast, but it also moves slow. Why does it move slow? Because there's so much value at stake at every little piece of land. You're right. That if you can rely on something that is proven, you don't want to change it. Right. And so I think stability will still be around for quite some time forever. I don't know, but definitely for some time.

Nicholas: I think the history of the technology business in the last 50 or 70 years or so upholds also that it's. Definitely not the best technology that wins. It's the greatest network effect, the lindyness, the ecosystem of tools and tutorials and community and all these things. So I don't really see even technical superiority of an alternative language or VM being enough to, to turn the tide. Although there is this, there's this odd feature of crypto, which it's not clear that it's enough to carry something to success. But people's preference. While lindyness is important. Also the speculative potential of novelty is also important. So TBD, if it's possible to summon something like a viable Solana ecosystem that could rival Ethereum, for example. I mean, Ethereum certainly did it to Bitcoin, but with a substantially different feature set, whereas Solana's feature set is not so substantially unique from Ethereum.

Hilmar Maximilian Orth: Yeah. For me, it's always like, I look at the developers and what they are doing and then sort of try to extrapolate some of that. From there, what will change? And like an interesting example of actual change happening is, it's quite technical, but back then you had Web3.js. It's like a sort of JavaScript library out in tech with smart contracts. Then you had Ethers. And then suddenly no one wanted to use Web3.js anymore. And literally everyone and their moms used Ethers.js. And now, and then Ethers was like the kingmaker for like three years. And now, VM. And other SDKs, libraries are coming around. And now the developers are pinging me and saying, hey, guys, we see the Gelato Relay SDK is still based on Ethers. Why are you finally changing it to VM, right? So this is like, there's change happening in certain levels of the stack, which are maybe not that security related, but where it's only about performance and usability and so on. There's rapid iterations. But everything which is kind of like about security and funds and so on, there people are so slow. Like, we are still doing everything on Ethereum. Ethereum is quite old. There has been Layer 2 for quite some time and Solana and so on for quite some time. But we are still using for most of our trading and volumes and stuff Ethereum. And so that just shows that when it comes to security and Linde, things move rather slow.

Nicholas: I think there is a little bit of choice paralysis around the L2s. I think there is a little bit of choice in Ethereum ecosystem too, sort of, you know, like, for example, I have more experience in the NFT side of things. And to migrate NFT minting to an L2 is very not obvious which one has the reputation to be legitimate for, let's say, for example, art that wants to be enduring and serious tokens. I mean, all of these L2s could disappear, you know, in 10 years, whereas I don't feel Ethereum is going to disappear in 10 years.

Hilmar Maximilian Orth: That's true. Yeah. I think there is sometimes a longevity of things. But this is also an interesting, actually, discussion point one can have at some point, which is the longevity of L2s and how, like, I'm very curious around the time of the first L2s being decommissioned and how this will work, I think. And what will happen to the state and the funds? and will there be like a sort of end, like, will there be a termination process to L2s where you store the states on Ethereum and then sort of stop the sequence? Yeah. And then it's sort of gone. Right. I think we haven't really seen that yet. We only have seen L2s start. But we also see L2s die. Right. It's similar. Like, if you build an application and you have a server and at some point it's not economical for you to run the server anymore. So you shut that server down and everything that was on the server is gone. Right. But in crypto land, we always expect everything to last forever. But it won't. Right. So now something is not there, except if you actually can get it out. And so I think that will be interesting to see. Yeah.

Nicholas: I was looking at the L2. beat has the archived tab, which has Polygon Hermes, Layer 2 Finance, OMG Network, Gluon, I don't know, but ZKMoney, V2, Aztec Connect. So there are, ZKSwap 1.0, there are a handful that have in some way been wound down. I guess here they seem to have like a TVL across all of them of maybe $10 million, something like that still. I don't know what their state is, but it is an interesting question. Why did Arbitrum, why is Arbitrum so big?

Hilmar Maximilian Orth: Why is Arbitrum so big? Well, I think they did a great go-to-market for sure. I think they are, what is the Odyssey, I think they called it back then. They are programmed to get projects, TVL, users, of course, a lot of ad or farming. But it was a great, it was, I think it was the strongest go-to-market from all the L2s. It was very well executed. So I think the growth team of Arbitrum. They did a great job. And if you have commoditized technologies like L2 software, right? Where like the users really don't see a difference between like this one optimistic L2 versus the other, except maybe some technological advances, advancements, which are usually temporary, right? So they then change again in three months. It's all about like the go-to-market approach and the business development. And they just did a great job. Similar to how Polygon won a lot of the apps like before. Before the L2 wave started, right? So most of the action was on Polygon actually. So they did a great job and they go to market. They attracted a bunch of talented DeFi applications. They are constantly rewarding DeFi applications with generous token grants and sort of funding, right? If you think about what the sort of Arbitrum DAO did very recently in this world, which gave people like 500K per project or something, which is a lot of money, right? They are spraying money. So I think they got a really good growth and retention program going on. And the system also worked quite well and was reliable and performed quite well. So I think, yeah, in a market like this, I think people always underestimate the role of just traditional go-to-market strategies. There are, of course, networks and there are blockchains and it's about ecosystem, but ecosystems have to be built and bootstrapped. And especially in a world like this. In a world where there are so many now, it's very hard to just carve out your own one and have it grown organically. You need that push and they executed quite well. I think that's the primary reason.

Nicholas: What have you learned about DevOps and uptime over the years of running Gelato?

Hilmar Maximilian Orth: Oh, yeah. Well, what have we learned? I think especially Web3 related things that no chain is the same. They all have their own small intricacies. And that's another reason why a lot of tools, want to use infrastructure services like us or the graph or others, is because they abstract away the nitty gritty of all the different chains. It's becoming easier in the roll-up world and the L2 world because it's standardization, right? So if everyone runs OP Geth, you kind of know what you're getting into. Before that, everyone had their own fork and it was just terrible. And you had to deal with that. And bridging was also like, which bridge can you actually use if you want to secure? So, yeah, every chain is... Every chain is very unique. It's all about... In Web3, it's all about being... It's not that the chain can run, but it's all about having connections to the chain. So it's all about having reliable read and write access to the chain. Then your application is actually live, right? And so what does it mean? You need stable RPCs. You need to run your own RPC if you want to be confident that you have connections. That's what we do a lot as well. You need very reliable write access to the chain. That's why a lot of projects use Gelato Relay or automation system, right? Because we have a very reliable way of writing to public blockchains in an automated way. And so, yeah, but it doesn't mean stuff goes down all the time. We experience a lot of weird things. We experienced 300 block deep reorgs. Blockchains just being down for like a day, right? And... And all this kind of stuff. And what does that mean at Gelato? At Gelato, it means we have node operators. We have our internal infrastructure team. They all get pager-dutied at 3 a.m. in the morning and need to put up some fire. So projects that build on top of our tech don't have to do that themselves, right? At the beginning, I often described Gelato as like a sleeping product. It's a sleeping product for developers that use us because we don't sleep for them. And so... And that's how we sort of... Like... Like the team gets called in the middle of the night if something goes wrong, right? And not the engineers of the developers of the projects. They can just sleep well, wake up refreshed, and go in and build the applications, be creative, right? And we do the heavy lifting under the hoods. And I think that's the value that infrastructure projects should bring to their customers.

Nicholas: How does it relate to the idea of being decentralized? That there's so much human labor required to fix all these things. I think it's true of, you know, even core devs have to be... On call also. But how do... How do... Like... How do... How can we relate to decentralization when the reality is that decentralization in practice for uptime means a lot of individual humans put, you know, as you say, waking up at three in the morning?

Hilmar Maximilian Orth: Yeah. So decentralization is just like an extra sort of redundancy mechanism that you can add to the equation, right? So usually if you think about reliability and uptime, like Web2 has it pretty much figured out, right? So if you know... If you use Google or Facebook, it's pretty reliable. It's pretty available. I would say, right? So you barely have any downtime there. And then they don't need a decentralized network to make this happen. Like Web2 technologies and you have multi-regional infrastructure setups. You have multi-cloud provider infrastructure setups. You have bare metal infrastructure redundancy. You can have a lot of different processes in place to make sure software is available. And I believe if you're building any software, but especially also Web3, you need both. You need the full on... Like if you're a provider, if you're in a decentralized network or not, you need to have the full Web2 style redundancy setup. Otherwise, you're not... You won't make it, be it as an individual provider or as a network itself. And then, of course, what is the great thing about having networks is if one of them... Like if one of these nodes go down, you have multiple other ones that are up there and are still doing their job. And so you can minimize issues around... One node operator being on GCP and GCP just being down in a server, in a certain data center in Ontario or something. But then you have a whole new level, which is like, "Okay, but if they're all running the same software, it doesn't really matter what the infrastructure setup of the software is about, and everyone's still down.". So then the whole spiel around decentralization actually didn't bring any benefit. And then what you need is client diversity. And then that's why Ethereum invests a lot of resources into client diversity. So I think decentralization... Decentralization is one key piece of the puzzle that... If you just talk about redundancy and reliability, decentralization is a great extra... It's a great add-on on top of all the best practices we have in Web2. And then, of course, you have more add-ons like client diversity and so on that you add on top. And this just makes, then, crypto networks the most reliable systems in the world because they just layer.

Nicholas: How do developers pay for Gelato?

Hilmar Maximilian Orth: So fairly easy. It's just per transaction. And then... Per unit of computation. So if you... If Gelato sends a transaction for you, it doesn't matter if the transaction is for... It gets this transaction. Is it for an automated transaction? Is it for a transaction that we sequence on a roll-up? Gelato gets a cut. And then for... So there are two costs that Gelato nodes have, right? Or us have. One is sending transactions, and then it's just computation. So the more computation in general... We have to do in terms of running... Yeah.

Nicholas: Do they pay in fiat or in crypto?

Hilmar Maximilian Orth: In UCC or ETH. It's all on-chain.

Nicholas: Okay. So no more network-specific token is required. Yeah.

Hilmar Maximilian Orth: I don't like that. We thought about it. Chainlink is doing linked token stuff, right? But I think from a user experience point of view, just paying in UCC and ETH is the best way. And then, for example, on all operators that are executing transactions, let's say on Polygon, what they get is users actually pay in UCC on our app. They just deposit into UCC and into their Gelato balance. And then this Gelato balance gets deducted for their computation costs and their transaction costs. And then this balance gets credited to another operator. And they basically get UCC from them. And they have to stake gel in order to actually participate in the network. And the more gel they buy and stake, the more of these jobs that users create they can service. And the more jobs they service, the more money they can make.

Nicholas: Makes sense to reduce the friction for paying for the service in the first place. Maybe having an obligation for the people who are more long-term invested in the Gelato network.

Hilmar Maximilian Orth: Yeah, exactly.

Nicholas: And the same business model applies for the roll-up-as-a-service piece?

Hilmar Maximilian Orth: Yeah. It's basically a transaction, like every transaction, and then also per computation.

Nicholas: And is that a flat fee per transaction?

Hilmar Maximilian Orth: Usually it is, yeah. Usually it's like a sequencing fee.

Nicholas: We've been talking for a while and we didn't get around to Arrakis yet. I don't know if you want to give a quick pitch for what Arrakis is, and maybe we could have a longer conversation about it sometime in the future.

Hilmar Maximilian Orth: I was thinking it definitely probably needs its own hour at least. And there's also Ari from the team, the CTO, who can talk a great length about the technical details, especially on the new protocol that we will be releasing sometime. end of Q1 that we're working on right now. that goes into all the juicy stuff of LVR mitigation, LP sustainability. Profitabilities and basically intent-based LP order route, intent-based trade routing through liquidity on-chain. What is it? Basically, Arrakis was born out of the understanding that DeFi will look similar in complexity around liquidity management and trading as CeFi. You will have sophisticated algorithmic market making services that projects need to use in order to actually create the most deep liquidity for their services. That's what it is. And honestly, we're happy with the solution that we have right now. going out of the box and gradually taking care of the products that we already all have. We can't wait to show you how it is. We are very, very happy. So, you have two options. The first one is trouble solving. the market-making service, they can't just rock you and go bankrupt and all your money is gone or do something weird. It's all encoded in smart contracts. And yeah, that's what Arrakis is building. I think we have around 50 projects that are using Arrakis as an on-chain market-making system, like Lido, Stargate, Asus Gelato, and many others as well. And yeah, it's working extremely well. As I said, there are new primitives that are being released soon with the release of Uniswap 4 and other next-generation DEXs that are coming around. And yeah, it's all about let's get all the trading. We believe that all the trading will happen on-chain. And in order for this to happen, we need to have the same efficiency and sophistication as what you are used to on central limited order book exchanges on-chain.

Nicholas: And for you personally, how did your career lead to being involved in Arrakis as well?

Hilmar Maximilian Orth: So Arrakis was created in Stargate Gelato. Which is basically its origin. And one of the reasons was that Gel with a very hard time creating on-chain liquidity for Gel. Uniswap 2 was super inefficient. Uniswap 3 came out. It offered you finally much more capital-efficient liquidity management, but it was extremely complex and you had to manually do it. And you as a project founder or the treasurer, you are not a market-making expert. It's a game of risk management. It's a game of risk and I actually studied investment and financial risk management in my bachelor's. So I definitely know a thing or two about it. But this is just like. it was extremely difficult and like. exchanges were sharky and the market makers we talked to were intransparent and had information asymmetry to us that enabled them to profit a lot from deals that they wanted to offer us. And so this whole notion led us to build Arrakis because we knew, hey, we have tools like Gelato in our hands. We have tools to automate a lot of processes, but it definitely took one or two years to actually came up with a sufficient sophisticated system to actually rival the sophistication of like a winter meter jump on-chain. And yeah, that's how Arrakis came to be born.

Nicholas: Awesome. We'll have to have a more deep conversation about it and including the CTO sometime in the future.

Hilmar Maximilian Orth: For sure.

Nicholas: Hilmar, thank you so much for coming and chatting about Gelato. If people want to learn more, where's the best place to follow Gelato and to follow you?

Hilmar Maximilian Orth: For sure. On Twitter, it's @GelatoNetwork. We are quite active on our Discord and Telegram as well. We have a YouTube channel where we sometimes post videos. You can follow me at HilmarXO here on Twitter or if you want to send me a donation on-chain, just send it to sir.eth. I'm just kidding. You don't have to do that.

Nicholas: Is it with an E or an I?

Hilmar Maximilian Orth: It's an E, of course. Of course. Of course. Don't insult me. Don't insult me. And yeah, that's it.

Nicholas: Perfect. Thanks so much. This was a great conversation.

Hilmar Maximilian Orth: Thanks. Likewise.

Nicholas: All right. Thank you everybody. Have a great day. Thanks for coming to listen. See you next week. Bye-bye. Hey, thanks for listening to this episode of Web3 Galaxy Brain. To keep up with everything Web3, follow me on Twitter @Nicholas with four leading Ns. You can find links to the topics discussed on today's episode in the show notes. Podcast feed links are available at Web3GalaxyBrain.com. Web3 Galaxy Brain airs live most Friday afternoons at 5:00 PM Eastern Time, 2200 UTC on Twitter Spaces. I look forward to seeing you there.

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