Multichain dApps Can Broaden Your DeFi Opportunities

Smart contracts revolutionized the crypto markets by expanding what was possible on the blockchain.

As the first smart-contract platform, the Ethereum (ETH, Tech/Adoption Grade “A”) network is home to many decentralized applications (dApps), which facilitate everything from decentralized social media platforms to lending platforms.

But Ethereum isn’t the only name in the smart-contract game anymore.

Ethereum’s drawbacks — its high transaction fees and slow processing times — have made room in the market for alternatives.

So, how do dApps built on the Ethereum network compete if users are moving to other networks?

That’s where multichain capabilities come into play. In our latest Weiss Crypto Sunday Special, host Chris Coney picks the brain of Weiss Ratings analyst and contributor to our Weiss Crypto Portfolio Alex Benfield to see where the future of multichain operability can take us.

You can watch the interview, or continue reading for the full transcript ...

Chris Coney:

Hi there, guys, and welcome to this week's edition of the Weiss Crypto Sunday Special with me, your host, Chris Coney. With me today is Alex Benfield.

Alex, welcome back to the Sunday Special, sir.

Alex Benfield:

Hey, thanks for having me back.

Chris:

Thank you for coming today, sir. The topic for today is follow on from something you, Juan and I talked about number of episodes ago and we said, “oh, we should make that a separate episode.” And the topic is multichain decentralized applications. Let's break that down.

This wasn't ever a thing when smart contracts first came along. You just assumed that if you had a DeFi app, you picked — you as in the developer — a blockchain to deploy it on. And that was it. It was like, that is where you're going to use that app.

And of course, when Ethereum was the only smart-contract blockchain out there, it was the network of choice. And then all these other smart-contract platforms popped up with whatever competitive advantages, greater speed, lower fees, blah, blah, blah.

Then it was a case of, well, do you move your app lock, stock and barrel? Or which is what's happening now, do you deploy your app on both?

That's something that I think investors need to consider. The basis for this in my mind is Metcalfe's law. I talk about this all the time, and I'm still surprised at how few people — not in crypto, but [those] getting into crypto — don't understand what it is. Which is fine because it's kind of a computer science concept. Because we're not talking about hierarchical organizations that are triangle shaped, from CEOs [at the top] all the way down to the people working on the shop floor.

You've got these networked organizations where you've got a number of participants, and then any participant can connect to any other participant. And Metcalfe law says that the value of a network is equal to the number of participants squared. It's like the telephone. If you've only got two telephones, only one other person to call, network value of one squared. Whereas if you've got 10 people, it's not like you can make 10 phone calls. Each person can ring nine other people.

That's why Facebook, like I've written in my notes here, has got a kind of like a cemented position. It's hard to set up in competition to Facebook because when you bootstrap a new social network, you have no users. So, why would anyone sign up? There's no one to connect to. And that's why Facebook has that monopoly. The only thing that's challenging Facebook, as we've been talking about, is if people use their attention in the metaverse, there we go. That's not the topic for today, though. It's about multichain apps. The network value is really where I'm getting at.

And this works both ways. Initially, it would be the network that had all the value. If you were an Ethereum user, well then, the apps would have to deploy on Ethereum because that's where all the wallets were. Whereas I'm thinking as time is going on, as there are more chains competing, the value of the chain is becoming less and less because you're not really getting into crypto because you like the Ethereum network. You might get into crypto because you like the Aave (AAVE, Tech/Adoption Grade “B- “) capital markets. So, [in that case], it's really Aave that's bringing the users in, and then it's Aave's job to make the user experience as good as possible. And that's where they then have a responsibility for selecting which chain or chains to deploy on.

That's sort of the topic I want to discuss today. Me personally, in my own DeFi activity, I'll be honest: I'm using Aave quite a bit just for basic lending and just to make sure that there's no idle assets in my Ethereum wallet. I don't really use the Ethereum version of Aave. I use the Polygon (MATIC, Tech/Adoption Grade “B+”) version of Aave.

Of course, since we're talking about that, Aave is obviously an example of a multichain app because it runs on Ethereum and Polygon and now Avalanche (AVAX, Unrated) as well. So, I switched over to the Polygon one because it's faster and the fees are a lot lower recently.

Alex:

You switched because the fees.

Chris:

That was totally why I switched. The funny thing about Aave, though, on a higher level is the rates, the lending rates on there right now aren't that great. Don't know what you think about that.

Alex:

On Aave?

Chris:

Yeah. You could only get 4 or 5% on your stablecoins right now, which is a lot lower than it was just a matter of weeks ago, when Tether (USDT, Unrated) was paying 12 or 13%.

Alex:

Yeah. I'm not using Aave for recruiting pools like that. I'm branching out to some different lending platforms.

Chris:

Such as?

Alex:

Well, big one I'm doing right now is Orca on Solana (SOL, Tech/Adoption Grade “D+”).

Chris:

Ah yes, of course. Yeah. Orca.

Alex:

I'm enjoying ... It has pretty good rates right now. So, enjoying that. As well as …

Chris:

Is that only on Solana, that one?

Alex:

That's on Solana.

Chris:

Exclusively?

Alex:

I'm really participating in liquidity pools on either Solana or Polygon.

Chris:

Yes. Well, this is a bit of a tangent, but let's stay on it for one second here. My theory as to why the yields will be higher is when a new protocol is trying to bootstrap itself and will offer higher yields to attract the first base of liquidity.

Would you say that was a fair assessment?

Alex:

Yeah. It's incentivized yields.

Chris:

Right. That's probably why Aave now is so well established and the liquidity pool on there is so high. It's, like, $15 billion or something. Why it wouldn't necessarily have such as high a rate as it was. And also, because the market has been going sideways, demands to go long have died down a bit.

Alex:

Maybe, yeah. I'm pretty interested in finding the real rate on DeFi. We know now that the real rate you can get on lending and virtual banking systems is something like 0.025%.

Chris:

What do you mean, the real rate?

Alex:

I'm not talking about minus inflation. I'm talking about the true interest rate you can get in a savings account; it's 0.025%.

Chris:

Oh, the advertised rate. Yeah. I'm with you.

Alex:

Advertised rate. And in DeFi, we've seen stuff like 8% to 10% and up to those highs like 30% stablecoin rates.

Now obviously, it seems like 30% is super high and that's probably not sustainable. So, what is the true rate that DeFi can offer? How much higher is the true rate in DeFi vs. traditional banking? That's what I'm interested in finding, right? Because is it more like 5%, like what's currently available on Aave? Is it maybe a little bit higher? Or even lower than that 5%? Where would that number settle? And even 5%, it's still much, much higher than traditional banking, but I'm just curious what that true rate is.

Chris:

Well, I guess it normalizes with when the market matures. I was thinking of this like in concentric circles. In the center would be mature markets, like Aave, that have $15 billion of liquid capital on Ethereum. And then the Polygon version has got $5 billion. And even then, the interest rates are previously similar on both marketplaces. But if you want to get higher rates, you have to go further out.

So, it's sort of more and more exotic places, you know what I mean? There isn't a real rate, I suppose. And the only way to reconcile that across the board would be to have total interconnectivity, which is part of the conversation about multichain apps. Because if you had just Aave on Ethereum and then you had Orca on Solana, well, if the rates are different, there's an arbitrage opportunity there.

Which, barring any other integration, would require you as a human being to manually draw your funds out of Aave into your Ethereum while it crosses the bridge to Solana, then stick it into Orca, or have a balance in both to create that arbitrage opportunity.

But until we've got a totally interconnected blockchain world where everything connects to everything, there are going to be … I’ll call them inefficiencies. Because an inefficiency is where you can borrow at 5% in one place and deposit it elsewhere at 15% and Bob's your uncle.

I mean, you could even do that now. You could borrow on Aave, borrow some stablecoins, swap them into TerraUSD (UST, Unrated), cross a bridge to Terra (LUNA, Tech/Adoption Grade “D”) and then lend them out on the Anchor Protocol (ANC, Unrated) or something like that. I mean, that's a manual process right now, but I'm sure someone has got some sort of a private software that does that for them, which is by the by.

That kind of thing, though — talking about trying to stick on the topic of multichain apps — becomes less and less necessary as apps become more multichain [operable] because it's so easy to discover the discrepancies.

I’m going to keep using Aave, it's just the easiest example. On Aave, you have the three buttons at the top. You click on Aave Ethereum version, Aave Polygon version or Aave Avalanche version. And then on the markets tab, there are all the assets available and all the rates. You don't even have to leave Aave to see the differences. And that's probably why they're normalized. It's a process of discovery.

Like, you've found out about Orca somewhere, and then gone, okay, I'm having some of that. And then Marco is out there doing his crypto yield hunter thingy, figuring out where the best yields are for Terra and stuff like that.

But without that kind of discovery, it leaves some people on the lower rates and some people on the higher rates, right?

Alex:

Right.

Chris:

That's just sort of a side conversation about yields. But it does link into the major topic of the multichain apps. That's another thing; the apps probably will go more multichain as they mature themselves. That's fair to say.

We were looking at the list of various DeFi apps before we started recording this and looked at how many different networks each app deploys themselves across. And if you were building a brand-new protocol, well, it makes more sense just from a complexity point of view to deploy it on a single chain and then, once you've established yourself, you can branch out.

It's almost like traditional business: You establish your business and product in a market. And then, once you've got a foothold in that market, you can go into other markets. I suppose that's one way of thinking about this, but instead of markets, you could have chains.

And why is that? Why is that the same? Because each chain has its own sort of community, really. We know that the Binance community are die-hard fans of that ecosystem. And I'm sure it's the same with each one. They're little communities in their own way.

I used to swear by EOS as a community until I've thought about ... Well, I still like the technology, but I don't like that mess with my investing thesis. But the point being, if you are a decentralized app and you think: “Okay, we're the number one app, like Aave on Ethereum, how do we expand our user base?”

Well, one way to do that would be to appeal to a different user base on a different chain.

How is that relevant to investors? Well, using Aave again, if you were an investor in the Aave token, if you treat the app like a business, you'd look at if they were doing good business, at their expansion plans and at their plans to expand to different promising chains that would be kind of bullish if Aave were like a blue-chip company, for example.

It is difficult because we're still in this realm of how on Earth do you assess the value of these apps and networks and coins? And the easiest way to do it is to try and map over the equity mindset if we can.

I don't know how you think about that. Do you yet have, or know of, a framework for assessing the value of such things?

Alex:

No. I just don't think you can establish a framework right now, to be honest. There's not enough uniformity in the market. So, a lot of these protocols have, I mean, different plans with what they do with any sort of profits they're making. These tokens, they do completely different things. Not all of these are the same governance token.

When it comes to investing in either the app or the network, I tend to think that you will be able to value some of these like you value a company. Say Aave was very successful on Ethereum and Polygon and a number of other chains, then there's going to be a certain value in holding that Aave token. If I'm using Aave across these different chains, there's going to be value in me holding the Aave token because I'm going to be able to use it to power my transactions on Ethereum, Polygon, etc.

I'm reaping my yield rewards in the same token. That cuts down on the complexity because now I can just exchange my Aave for Ethereum or Bitcoin (BTC, Tech/Adoption Grade “A”) or stablecoins. That cuts down on the number of transactions I have to do to claim profits.

So yeah, I think as they grow and branch out on a number of different chains, you're going to start to see people that kind of develop a loyalty towards a certain dApp. Because … Listen, the honest thing here is it's super complex, what most of us are doing — crossing bridges, holding a number of different wallets, using a whole number of different dApps, liquidity pools, all sorts of different things. It's complex and that's not going to be what people are doing in 10 years.

It's just not. You're never going to get mainstream masses …

Chris:

At that level of complexity.

Alex:

Handling multiple different wallets across multiple different chains, using multiple different platforms. At some point, this is going to look a lot simpler. At least, it's going to look simple, right?

Chris:

Yeah. That's a good point.

Alex:

You're just going to go to Aave to invest in a liquidity pool or take out a loan. And you're not going to necessarily know or care about what chain it's on. And you're only going to have your Aave connected to your wallet. Maybe it's MetaMask, maybe it's something else, but that wallet is going to hold all your tokens.

Chris:

That’s a funny name, MetaMask.

Alex:

Whether they're ERC ... Are they ERC-20 tokens? Are they Solana-based tokens? Are they XYZ chain tokens, who knows? But at some point, people, like the users, aren't going to need to know and they're not going to care.

Chris:

Well, it's a good point. I mean, I just picked up the name. It's called MetaMask, as in meta, as in beyond. Right?

Alex:

Right.

Chris:

And you'd think that was its job, would be to provide a meta wallet that, as you say, would just be ... You'd just use your meta wallet, and it would take care of all that complexity.

Now, MetaMask does do this, especially with Ethereum virtual machine (EVM)-type chains. In the DeFi supercharger, actually get people set up with this. And this is how I've used it personally: You're on Aave, but if you've only ever used Ethereum, you see the buttons for Avalanche and for Polygon, but when you click on them, if you don't know or already have a Polygon set up and an Avalanche set up, the Aave app doesn't help you. It just assumes. It’s like, “connect to me on those networks.” You're like, how do you do that? It doesn't tell you.

However, MetaMask does provide that functionality by allowing you to set up multiple networks within the app. But that's sort of left to you a little bit.

Alex:

MetaMask works on these different EVM compatible chains, but it takes a little bit of knowledge to put those things in motion. At some point, whether it's MetaMask or another wallet, that process is going to be much more seamless.

Right now, on MetaMask, I have to click a setting, whether or not I'm on Ethereum or Polygon network. And I have different assets on each different network. I can't see all my assets across all different networks all at once, which I find to be weird.

Chris:

There are some …

Alex:

Personally, I would want to see all of them at once.

Chris:

Well, there are some third-party websites like that.

Alex:

And I would like to just connect my MetaMask Aave and not designate whether or not I'm on the Polygon network or the Ethereum network.

Chris:

There's an argument there actually for ... I mean, MetaMask is open source. So, I'm sure there's an argument there to add that dashboard feature to MetaMask. If you've got it set up to connect to Polygon and Ethereum and Binance Smart Chain and Avalanche Arbitrum and Optimism, my MetaMask would know that because I've already got it all set up. Then it would just scan my wallets across all of those and give me a dashboard with all my balances in all of them. That would be pretty good.

Alex:

And what if the wallet was arbitraging your holdings across different chains based on what was most affordable at that time?

Chris:

What do you mean, arbitraging, in that context?

Alex:

If I had USDT and say that the network cost to move USDT around is fluctuating across these different networks, I just have USDT in my wallet and the wallet is automatically flipping that USDT to whatever is the cheapest network to move a USDT around.

I mean, these are things that obviously are not something that you can do right now. But the way I envision the future of DeFi, that's kind of an important characteristic that I see. It has to be super smooth user experience.

Chris:

Well, you can do that right now. It's just you have to do it manually.

Alex:

But right now, we're just so far away from that.

Chris:

Yeah. I agree. And also …

Alex:

And I mean, this has to be foolproof. Your five-year-old has to be able to use DeFi at some point. They have to be able to use these apps. It has to be that simple.

Chris:

Well, that's part of the multichain future, right?

Alex:

It's going to get there. Yeah, yeah. Oh, multichain is a huge part of it. But the user experience, I think, is what has to improve.

My point being is that a multichain dApp provides better user experience, or has the ability to provide better user experience, than a single-chain app. If Aave existed on all the networks that I wanted to use, that's the first step in making Aave a mainstream product. Then the transition between chains on Aave is the next step.

Once you create a smooth transition between the chains, then as a user, I don't really care what chain I'm using when it comes to, or what chain Aave is using behind the scenes.

Chris:

It's a good point. Yeah.

Alex:

I'm just moving my money around on Aave.

Chris:

Yeah. Do you know what that reminds me of?

Alex:

And I couldn't care less if it's Ethereum or Polygon.

Chris:

That does remind me because you're always ... I mean, this is what you're good at. You're always looking at the modern internet and where it's at in terms of user experience. And then you're always dragging crypto that way, saying we need the same quality of user experience.

And where my mind just went then is like, oh yeah, that is exactly how modern web apps work. The big ones, they have copies of themselves across multiple data centers, across multiple geographies. And behind the scenes, without the user even knowing about it, if one data center is overloaded with traffic, or if the route to that data center is busy, it just reroutes all the traffic and balances the load based on that. So, it reminds me of that.

I've just drawn a little diagram on my notepad here of three Aaves across three different blockchains like Ethereum, Avalanche and Polygon. And again, at the moment, it isn't automated and seamless. You have to do that auto-balancing thing yourself. And when you cross a bridge, say from Ethereum to Polygon, you still might get dinged for a $99 fee, which hurts.

Alex:

Right. And you're still imagining, you're still picturing three different Aaves. What I'm saying is that in the future, it has to just look like one Aave. And then the code is moving assets around, across a different chain. But I as the user, never, never see that.

Chris:

Right. That is still complex, though. Because even if it was, say, let's take Ethereum, Polygon, Avalanche version of Aave, each of them has got their own pool of liquidity. And you're saying, okay, let's automate that so that it could rebalance the capital across all three. Great. That would automate the bridges between the two. Trouble is, that adds a more fundamental problem, in that anytime you want to move something out of the Ethereum pool, you've got the Ethereum fee problem. That's a whole other external problem that prevents that from happening right now.

Alex:

I tend to relate things back to web2 right now, because frankly web2 is better than web3 at the moment. In crypto, we'd like to think of web3 as just vastly better, but …

Chris:

Has the potential ...

Alex:

For the average user, web2 is so much better than web3 because the user experience is just far superior. So, if we bring that user experience from web2 into web3, then that's when we can see mainstream adoption. But we're just not. You're not going to get the guy behind the counter at your local deli and your grandmother are not going to be using Aave right now to move their assets around, because it's just too complex. But if you simplify that, then all of a sudden, it opens a door for people like them to use Aave every day.

Chris:

It does. But the paradox is that if someone, an investor, waits until then to invest in the space, most of the opportunity will have gone because the market will have matured, right?

Alex:

Oh, yeah.

 

Chris:

The best time to invest in Bitcoin obviously is now. Second best time was when it was a penny. Because if you wait for stability, there’s no volatility. And if there’s no volatility, there’s no plus 10% in a day. And if you’re happy with 0.1% returns, you may as well stay in the old banking system. So, something has got to give.

 

Alex:

I think that’s why it’s important to focus on multichain dApps right now because the applications that are focusing on branching out to multiple different blockchains are probably the same teams that are focused on building out the right user experience, the right product line. You cannot hit that sweet spot of user experience, where things just seem to work and make sense, if your app isn’t available on different blockchains. Because that transition has to be smooth. You have to be able to flip between blockchains easily.

Chris:

Sure. And it happens in pieces as well. I’s sure that Aave developers are doing everything they can, but they’re sort of waiting on innovations from the networks, which are way beyond their purview, waiting for other technologies to be invented or the inter-blockchain communication thing to be perfected. And as soon as that’s available, they’ll be all over it. Aave have got an integration with Uniswap.

So now you can, if you’re lending something out on Aave, click the swap button and then it says, okay, what do you want to swap your Ethereum to? And you can drop it down and say: “I want to swap it to USD Coin (USDC, Unrated),” and it actually displays a little indicator. It says, “You're about to go from a 0.05% yield on your Ethereum to a 4% yield on USDC, would you like to proceed?” And you [click sound] ... And then it goes to Uniwap, swaps it for you, puts it back in Aave. Which is pretty cool.

So, that's on the way. And they're obviously doing their best with the technology that's available. And as soon as better is available, they'll expand into that.

Alex:

Yeah. No, it's interesting. I was just thinking of this analogy in my head right now. Imagine this is the whole multichain. This is how I think about it. Imagine if you could only use Google, like Google.com, on Google Chrome browser. But you could use Yahoo on any web browser in the world. Nobody would ever use Google. Nobody would ever use Google. It would be almost primarily Yahoo.

Chris:

So, that's akin to what? Google.com being …

Alex:

A single chain dApp vs. Yahoo being multichain dApp.

Chris:

But you have to have a specific wallet for ...

Alex:

Exactly. Nobody would use Google Chrome. If there were certain websites that only worked on a single web browser vs. certain, similar websites that worked on any web browser that you wanted, everybody would be using multi-web browser websites.

Chris:

Sure. Actually, there's a historical precedent for this, which proves that the proprietary approach, let's call it, doesn't work.

Apple used to use what they call RISC processors — RISC, which stands for Reduced Instruction Set Computing — as opposed to the x86 processors like Intel was using. They had fundamentally different languages that CPUs talk. And while the RISC instruction set was higher performance and so on, at the higher level, you had to re-engineer your software to work on Apple, which is why the Apple Macintosh software catalog was distinct from the Intel ones … and why Macs never used to be for gaming, because just user base wasn't there.

Eventually, just due to market forces, they capitulated and years ago canned the idea of using RISC processors and just started using x86 processors. So, similar sort of thing.

Alex:

That's Metcalfe's law in a nutshell, right?

Chris:

It is Metcalfe's law. I was going to get there, but you beat me to it.

You sort of kicked that off by talking about the Google you can only access with a special web browser. This is a very good point. And this is why the whole idea of if the Ethereum blockchain is open-source software, so is the Ethereum main net but then you can use the Ethereum technology to launch a brand-new network with a different name, but essentially functions the same.

So, Ethereum is obviously an Ethereum Virtual Machine. Polygon is Binance Smart Chain, things like this. They function the same, which means the address format is the same. Most of the transaction structure is the same. They've just been tweaked ever so slightly for whatever the purpose is.

Like, Polygon is a proof-of-stake network, so it's faster and cheaper. Binance Smart Chain, again, uses its own network and integrates with the Binance ecosystem. But the benefit of them all being fundamentally the same DNA, if you like, is their interoperability. You can bridge stuff quite simply because they share almost exactly the same DNA.

What I'm getting at there is if you think that MetaMask is like the universal wallet for Ethereum Virtual Machine-type chains, and that's going to make the Ethereum ecosystem — I don't just mean the Ethereum mainnet, I mean all the Ethereum family — much more likely to become the dominant standard. Just, do you know what I'm saying? Then that's what you're getting at, that's fine ...

Alex:

Yes. No, I completely agree with that. I think that being multichain is super important. But I think that at the same time, being a multichain EVM is much more important. I think Ethereum EVMs already have that Metcalfe's law effect in motion. I think if a dApp wanted to maximize its reach, it would need to be compatible with all the EVM blockchain.

Chris:

Sure. Do you know much about Avalanche right now?

Alex:

Are there any dApps that are compatible with an EVM and some other blockchain? Like, a non-EVM blockchain.

Chris:

That is a good question. Yeah, that was getting onto my question. Do you know much about Avalanche? I've not dug into it very deeply.

Alex:

A little bit. Right.

Chris:

Is that an EVM, do you know?

Alex:

Triple blockchain system, right?

If I want to build my app on an EVM blockchain and a non-EVM blockchain, or if I want to build it on every EVM blockchain and a non-EVM blockchain, it's vastly easier to build on each new EVM blockchain because they're all abiding by the same sort of fundamental principles. But it's like an entirely new project to get it to work on another non-EVM blockchain. So, just so much easier to hit all the EVM blockchains versus branching out to different non-EVM blockchains.

Chris:

Exactly. It's not a huge amount of work to support another EVM. It's actually, pardon the phrase, trivial compared to deploying on a completely different infrastructure, like an EOS-type delegated proof of stake system like Tron or those type of systems.

Alex:

I might not put it at trivial, but yes. It's much easier.

Chris:

I said compared to a brand-new blockchain.

Alex:

Sure. Yeah. I mean because then if it were easy enough, then you would have to question why a lot of these other existing dApps aren't available on all the different EVM blockchains.

Chris:

It's going to have to be worth it to them. That's the tough one, isn't it?

Alex:

I think it is. I think it already is.

Chris:

I mean, it's going to have to be worth it to deploy on the different tech, and back to my point about how many superior technologies that technically were superior didn't end up becoming the dominant standard, because it's not about that. It's about adoption …

Alex:

Yeah. Most dApps aren't available on every EVM blockchain. You have to wonder, why not? Because I would argue that it is worth it right now in a sense that it's a differentiating factor for your dApp, and it shows that you're forward thinking. There's not too many dApps. Even Aave is only available on three different blockchains.

Aave has a pretty big user base right now. I would argue that another app that came in just extremely similar to Aave, but it was available on as many different EVMs as possible. I would argue that that's the better app right away for user experience, because even if it has significantly less liquidity, significantly less TVL, I would argue that it's a better app. Because I can just move my money to dApp X or whatever you call it. And then I don't need to keep moving it around. I can keep it on dApp X and I can keep hitting liquidity pools for assets across different blockchains.

Chris:

Yeah. One feature we have spoken about, which isn't yet built into the multichain apps, is the bridges. That seems insane to me.

Alex:

I think that needs to be built into the wallet, really. It's kind of like hand-in-hand, right?

Chris:

Yeah, both.

Alex:

I guess you can't have these super cool, multichain dApps until you really have a great wallet that can bridge these different blockchains seamlessly. Right?

Chris:

Yeah.

Alex:

And I don't think that that's MetaMask right now. I like MetaMask. And I think it's probably one of the best wallets there is right now, but it's definitely not perfect. And there are many different things that it has to work on in order to be viable five years from now.

Chris:

I don't know why centralized exchanges don't just become bridges, because it's effectively all that's happening in the background.

I mean, I use Binance as a bridge sometimes because it supports a wide range of networks. For example, if I wanted to get something from the Tron network to Polygon, well, I could use the centralized Binance exchange because they'll accept a deposit from the Tron network. So, I could send some Tether into my Binance account. As soon as it's there, I can immediately then withdraw it and it'll give me the option of, say, withdrawing it to the Binance Smart Chain, which I will then do, and then I can bridge it from there to Polygon. And the fees will be negligent.

The trouble is that is a manual process and I have to sit there, waiting for confirmations so I can do the next bit. Why don't they just automate that? Because it's the same thing. They're just accepting a deposit, it's in their wallet. And then they let go of another one on another network. They've got the liquidity.

Alex:

Right. I would argue that wallets, they're not applications. They're blockchain infrastructure. And I would think that there's a ton of value for whoever makes the best crypto wallet. But I think right now, builders in this space are most incentivized to work on asset projects, protocols, just because that's where the money is going right now.

But I wish that there were more builders focusing on wallets. It's a critical piece of infrastructure. I mean, like I said, I like MetaMask. I definitely don't think it's perfect. And if something were better, I would switch from MetaMask in a heartbeat.

Chris:

Well, it's open source. So, I mean, the community can add whatever features they see fit.

Alex:

Well, I mean just throwing it out there. What if a centralized exchange worked on a wallet that built in the bridging features like that? Like you were just talking about.

Chris:

Well, a lot of the exchanges do have wallets, don't they? I don't know if they've got bridges, but what's the Binance wallet? The Trust Wallet? Coinbase have got a wallet as well, but I haven't seen any of them have a bridge built in. I suppose the fear of that, it's almost like capital flights.

Alex:

Isn't that like a competitive advantage that a centralized exchange can offer that other wallet providers couldn't?

Chris:

Unless they fear that it's going to open the door to their deposits flying out.

Alex:

Well, at some point they're going to need to be a bit more forward thinking, right?

Chris:

Yeah. But that's why I'm advocating Binance in particular. If they became one of these cross-blockchain bridges, well, I don't mind them charging me a fee. It's like the Lightning Network. It's like a toll, isn't it? Of course they're going to charge a fee because they're accepting the deposit and then sending it out on another network. Totally, totally fine with that. Totally fine. I'm sure the bridges we're using now probably charge fees based on the rate that they give you when they swap the asset from one network to another.

And that actually brings me onto to Terra, because I just checked it. Terra is not an EVM, but it is part of the Cosmos (ATOM, Tech/Adoption Grade “C+”) ecosystem. Cosmos is designed kind of like the EVM system in the sense that there is a central hub blockchain, the Cosmos network. And then you can — this is almost designed to be this way — clone it and deploy another Cosmos-based chain, but it's a distinct blockchain of its own that's backed by the main chain. So, like THORChain (RUNE, Tech/Adoption Grade “C”), is a Cosmos one, Terra is one.

The whole point of this is you end up with a central hub and spoke system. And because it's all part of the Cosmos galaxy, you can theoretically swap any token from any blockchain to any other by going through the intergalactic hub.

And then of course there's that central liquidity and all that kind of stuff. When the Cosmos ecosystem was designed, they're thinking way, way ahead to the conversation we're now talking about. And it would make it much easier in that ecosystem for an app on one Cosmos chain to be able to talk to any of the other chains, and therefore any of the other apps. Because there is a designed, baked in centralized hub that everyone can communicate through. But that's a fundamental design difference. And Ethereum was still working towards that.

Alex:

Yeah. I was about to say, I saw a tweet and the other day that ... It was a quote from Vitalik, and he was saying that the future of Ethereum looks similar to what Cosmos looks like right now.

Chris:

Exactly. Well, they call it “sharding,” I suppose in ... Well, that's slightly different. Yeah. Let's not go into that because it's a whole other topic.

Alex:

Right. I think he was talking about the interconnectivity of different blockchains, and that's kind of how I've always visioned it. At some point, I think it's going to look like that. And you know, the question is whether or not Cosmos can dethrone Ethereum before Ethereum can get to that stage. I think that Ethereum's network is just going to be too tough for some of these different chains to compete with. I think Metcalfe's law keeps Ethereum dominant until Ethereum is able to make these different changes.

Chris:

Yes. The game is not over yet, though, because I'm just drawing a little pie chart on my notebook here. Because the way I think about it ... I read this book. It's probably one of the first business books I ever read. It was called Blue Ocean Strategy. And I've never forgotten that book because it was so ingenious. The whole idea is [what] they call “value innovation.” The idea is that the blue ocean is not polluted with the red blood of competition, beating each other up. It's uncontested market space. That's the blue ocean. So, instead of swimming in the red waters where everyone is beating everyone up and it's obviously red, you swim out to a different part. And what they were getting at is one of the teachings was first thing, turn your focus away from customers to non-customers.

Now that's so obvious, but not until you read the book. Where am I going with this? In my little pie chart that I've just written down there, and I've thought about this ever since I got into crypto. I made the mistake of trying to educate “already crypto” people. Which is obviously ... The population of the “already crypto” people is microscopic compared to the non-crypto people. Still, even if there's 100 million people involved in crypto, the non-crypto people still way outnumber them. So, wouldn't it make more sense to target them?

Alex:

And I think that the number of true crypto people is significantly less than 100 million.

Chris:

There we go. That's my point. That is my point. So, even if Ethereum dominates in this small slice of the world population that we call the crypto people, well, you look at the rest of the pie chart and you go, well, that's all still up for grabs.

And an ecosystem like Cosmos could easily overtake Ethereum. I'm going to say easily. It could, because there's still loads of non-crypto people who have never heard of it. And if they discover Cosmos first and then it takes off and it goes viral, or any other ecosystem for that matter, then …

Alex:

Perhaps. Right. Yeah. I think that the way that one of these ecosystems could tap into that gigantic market is through user experience. It really all boils down to who provides the best user experience.

Chris:

Very true.

Alex:

Because those crypto people, those 100 million crypto people or whatever, are already okay with the current system of bridging between different networks and switching assets between different liquidity pools constantly and sending things from different exchanges and different wallets. They're okay with that. But I can tell you that that blue ocean is not okay with the complexity that we're putting up with right now.

Chris:

I agree.

Alex:

So, whoever is providing the better user experience in five years I think is who's going to win this race.

Chris:

And I'm starting to think right now, just based on this conversation, that Ethereum isn't moving fast enough. Why do I say that? Given what was just laid out with the hub and spoke model of the Cosmos ecosystem, and given that Terra is part of that ... I don't know if you've ever used [Terra]. Have you been using Terra recently?

Alex:

No.

Chris:

They've got a feature that has been proposed in Ethereum for ages which hasn't been deployed yet. And it's so basic. Why can't I pay transaction fees on Ethereum with any token I have in my wallet? If I want to send you 1,000 RUNE tokens, why can't I just pay the transaction fee in RUNE? Just clip it off the amount I'm sending, and this would make it impossible to brick a wallet.

I've bricked a few wallets in my time. And if you send tokens in there that doesn't have any Ethereum, it's stuck, so then you have to deposit some Ethereum into that wallet to get everything out again, to pay transaction fees.

Why this is applicable to the Cosmos ecosystem is because the feature I'm talking about is the ability to pay your fees in any asset. On Terra, I was moving LUNA around the Terra network the other day, and I was paying fees in the UST stablecoin.

Why is that good? Because you understand what it is you're paying. It says this transaction fee, and you are paying 3.5 UST. And okay, that's a $3.50 transaction fee that I'm paying in dollars, not $3.50 worth of LUNA, which is how it is on Ethereum. It says, this is $40 value, but it's actually 0.05 ETH. But that might have Ethereum is worth $40 today, $60 tomorrow.

It's not like that on Terra, [where] you pay $3.50 in stablecoins. And that's possible because of the interconnectivity of Cosmos. You can swap assets and all that malarkey in the background so that even if technically I'm paying in LUNA, I'm not. They take the UST and swap it in the background through the Cosmos ecosystem, and then pay the miner in LUNA if they have to, or whatever. I don't care.

And this is your point. The user doesn't care. I think people want to pay the transaction fees low, fast and preferably in dollars and in stablecoins, because otherwise transaction fees are totally unpredictable.

Alex:

I don't disagree. But I think that it's possible that Ethereum could get to that point, too.

Chris:

It could, it could. But not with the way that the fees are right now. I suppose with Ethereum, if it was like pay with any token, say I send you a 1,000 RUNE and then it's 1 RUNE fee. Well, that one fee would have to go to the miner who mines the block. Then what's going to be happening from the mining pool's point of view is you're going to be collecting all this dust or all these fees in all these different assets, and then you're going to have to swap all that into Ethereum.

Alex:

No, there needs to be a layer that does the swap between the user, like whoever is paying the transaction, and the miner. Because the miner is only going to want to see …

Chris:

So, you're proposing that in the same transaction that I send the value to you is the same transaction in which it swaps a portion of it into Ethereum and then pays the miner?

Alex:

Yeah. Why not?

Chris:

Yeah. Why not? Exactly.

Alex:

I mean, why not do that? I mean, I'm picturing this whole future of Ethereum where there's the wallet that's maintaining the bridges and the dApps that are connected across different blockchains. And that has me excited. I just wonder how far away we are from that, or if we ever hit that point. Because I do think that that is where we need to be to hit mass adoption.

Chris:

Well, I sort of feel that's where it's our, I'll say our, Weiss Ratings' responsibility. Because our audience is the investors, and our job is to go out and find that stuff as soon as it's available and tell them about it.

I mean, it only really hit me recently when I personally — and this is kind of how I create the educational programs that I do create — just play with it all. I experiment with a lot of stuff, and 99% of it gets repeated because it doesn't work.

But when something extraordinary happens like that, like I can pay my transaction fees on Terra with UST, that's worth knowing about. Because it solves a real problem. And I haven't even put that into a course yet and I've already mentioned it on the Sunday Special. So, big up to the investors that are watching today. They've already got that, straight out of the gate. There we go.

Well, thanks very much for being on another addition of the Sunday Special.

Alex:

Thanks for having me again.

Chris:

All right. That's going to do it for this week's edition of the Sunday Special. Keep your eye on your inbox for next week's episode. Until then, it's me, Chris Coney, saying bye for now.