Welcome to Epicenter. To show which talks about the technologies, projects and people driving decentralization and the blockchain revolution. I'm Sebastian. I'm here with Felix. Today we're speaking with Nicholas Kunko. He's the founder of Chronicle. Chronicle is an Oracle protocol providing data for blockchain applications, and it's also a spin out of the maker protocol.
So Nicholas and his team were basically heading the Oracle team at Maker and that team has now spun out to form Chronicle as a standalone product. So we'll be diving into Chronicle today, understanding how it works and also talking about the Oracle market more broadly. Nicholas, thanks for joining us today. It's. A pleasure. Thanks for having me. So you've been in the space for for some time, obviously you were part of the maker team and heading the the Oracle team there.
How did you get involved with Ethereum and how do you start working with the maker team? Actually quite funny. I was at, I was at IBM at the in the research department and we were actually working on hyper Ledger which was this permissioned Ledger. And then the future blockchains, yeah, yeah, it was, it was the future. Effectively IBM had missed the boat on cloud completely. They were very upset and they said the next thing that comes along like we're going big and we're going early.
And you know, to their credit, you know, they were very, very early on blockchain. They just got the the public private Ledger kind of equation wrong. And and so the Ethereum white paper kind of came out and I read this and I was like, oh wait, like. You know, public general compute layer, that's the thing. You know, I go to my boss, I'm like, all right, you know, we should, we should throw away everything we did, right? We should just use this Ethereum stuff.
And they're like, no, that's just vaporware. I think somewhere like, I think like a year later like a main net actually launches and we're like, like look, it's real like let's go like and I was quickly told, you know, shut up, get in line, right. So so I made my way over to the Ethereum community and while like the community was great, there were not actually that many like real let's let's say like protocols to to to work and contribute to.
There was a lot of kind of like hobbyist stuff going on, but and with with grand ideals, but not a lot of people just working full time on on building something. And I think back then there were kind of like the three big teams were like I think Auger, DIGIC style and and maker.
And so out of those I I kind of chose maker because I just seemed like a circle of like these individuals where I felt like the the dumbest person in the room and that always seemed like a very, very productive environment for for learning. And yeah, that's super interesting. I think also like interesting to hear like these three teams essentially all defy applications if you want to say like that, right. Like Digic Star was about
tokenizing gold. So interesting that the the early teams were already working on like I guess what became the the biggest use case. Sure. I mean, if you think about what Digic style was, I think it was just a matter of like, you know, wrong, wrong timing, right today. Like a Digic style would would be an RWA, right? A token that is like a stable coin backed by a gram of, you know, physical gold in the real world. Like that's a real world asset.
You've brought gold onto the blockchain, right? That would be that would be huge in the the RWA narrative right now, right? Right. So also like of these three, I guess like you said the timing was wrong there maybe and also like Augur sort of the projection market thing didn't turn out? Like that, well, let's say or it's still like sort of it's kind of still around I guess more so than with with pulley
market maybe. But also, I guess, yeah, Maker definitely is the most successful out of the stream, maybe because of you also, but yeah. Or maybe can you tell us a little bit about what about the early days that Maker and sort of, yeah, what was so special about it? Yeah. I mean, in the early days of maker like, there was nothing. Right, there were, there were no dexes like this was way before
an Ether delta or anything. So we were like, well, we want to make a dye, but in order to make dye we have to build all this other stuff first, right? So we made the first decks. There were no oracles. So, you know, conceptually they existed, but no one had actually made like a like an Oracle protocol that anyone could use. No one was planning to make one.
So we made the first Oracle, we deployed that in I want to say June of 2017 in conjunction with like the the prototype for Forsy, I think it was called Protosy and you know that that protocol I mean one was like the first oracles on Ethereum, but two if you think about how long that. That was running. I mean it's it's been running
consistently since then, right. And like 6 years at this point on Ethereum, I mean that makes it one of like the oldest kind of almost like a grandfather like protocol, if you will. So we're we're quite proud to have built something that that really lasted and like withstood the the test of time, what were the early visions for Maker and what were they trying to achieve at the time and you know contrast that with what Maker has become now, like how different has that vision played
out. Sure. So, so I think with any kind of startup with a with a grand vision, you always have to make kind of adjustments over time. I'd like it you, you have to imagine, right when the idea for Maker was conceived, when the Maker white paper came out, there was no defy. The thing that I give like, you know, Runa and and Nikolai, the, the two cofounders of of maker Dow, so much credit for is that to them it wasn't like a possibility that this like vibrant Defy ecosystem would
exist, right. It was a certainty. And they were building, you know, for this like puzzle piece in that certain future that they envisioned, right. And the. You know, I, I, I, I think founders always have kind of visions of the future but like you know Runa and and Nikolai were really acute and really
kind of got it right. But, but even you know within, within that, right, you can say, OK, well in the future there's this vibrant defy ecosystem, there's going to need to be some way to transact value that is stable, right? Because people don't want to transact in something that's volatile. Right. Like if you're a merchant, you don't want to accept something that's volatile, right? You have thin margins. If you don't have, if you don't get paid in something stable,
your margins blow up, right. And you don't have a sustainable business, right? As a customer, you don't want to hold anything volatile, right, because you don't want to see your wallet, your wallet like a value like fluctuate, right? You want to have like a stable purchasing power. So I think the the need for a for a stable coin was.
Quite clear from a theoretical perspective, but it what you know I think they were kind of this idea that the consumer side of using crypto right like in their everyday lives, right for for spending and and for earning that that would kind of keep in pace with the more let's say financial infrastructure right and. I think as we've seen that the past couple of years while there has been consumer adoption of crypto, DEFY has just like outscaled that type of adoption
massively. Yeah certainly I mean the the I think that the role of maker in early DEFY. I think a lot of people who maybe were using Defy now it's sort of like you know it I want to say it's forgotten but it's like because state of cores are such an important part of Defy and can obviously you at USDC has taken up the larger part of
the market it it's. So I think it's worth remembering that in the beginning when we didn't have USDC like we had died and I was the only real way to get stability like so get get out of risk assets in in in early Defy and played like a tremendously important role. So I think it's like a very important public good and and also something that allowed Defy to basically be spawned into existence. I kind of think like the
inflection point. What really hit for me was that, you know in back in in 2017, right when we when we released Psy, the moment after we released it, make her internally started paying everybody in Psy and it wasn't like. Plan that way beforehand, it was just kind of like, well, like, you know, if if we, if we actually built what we said we built, you know, if we actually like believe that, like it works like you wouldn't mind being being paid in it, right.
And I remember Andy Andy Millennia, who was the CTO at the time, just being like, OK, we're going to start paying everybody inside everyone was kind of like shrug, OK And that's really cool, right. That's when you go from like. Theoretical product you know with like oh it's going to be used in the future for all of this stuff to like no you're
like using it yourself right. You you have so much confidence in this thing you've built right that you're willing to you know kind of like stake your your livelihood on it and and and you know that continues today like even a chronicle like we we still pay our team and die even at maker teams are still paid and die like it's you know there's a lot of teams across crypto. Right. That get paid and die or are willing to accept payment and
die. You know, we work with auditors more like can we pay you and die? And they're like, yeah, no problem, right. So it's a it's really beautiful that there's like really the generalized, like economy builds built around the whole thing. I think, yeah, it's really cool. It's also like something that you see in the like maker community in general. I guess we're we were noticing that.
It's often seen as like one of these most like decentralized or like pushing for decentralization in a lot of ways and I guess die being like the most decentralized stable coin arguably maybe to this day and and that being used there is also a sign of that but maybe you can also like expand you know how how else this is like taking shape in in like sort of the spirit of of people working on maker and and how it led you essentially to I guess also like now become chronicle in your
own. Spin out from maker. Sure. I mean so from the beginning in Maker there was always this focus on on quality, on doing something right. You know, and you can I I think there's like this this, this trade off right in the development space where you know you can do something fast, you can do something cheap, or you can do something with very high quality right and like choose to.
And I think Maker was very much always maxing out on, you know, doing something at a very high quality, right, regardless of of how much time it took, right. And I think we got a lot of pushback at the time, right, for, for being very slow to release things. But I think our vision was always, you know, that D Phi would scale to the billions, the 10s of billions to the hundreds of billions, so.
You know, when we were thinking about like the financial mechanisms and and backing for dye, right, that was always the standard to to what we were building to. And then and I think that was that was very prescient. So I think like that ethos, you know at this point we've kind of had like generations of of like core developers that maker, right. There's just been like several, several different different kind of waves of of people, but I
think that. That attitude towards this like like we kind of like to call it like maker Grade I I think that attitude towards doing something right, you know that kind of has really prevailed especially when you see like all of the the ex developers of Maker down right to branching off you know to start their own their own projects, right. You know you see it with the. With the Ashna guys you see it with the the summer five guys, right.
You see it with with sense. You know I think that prevailing attitude of of kind of like Maker grade has really like pollinated to to those projects as well and Chronicle is definitely definitely among the counts that among like one of our values internally as well. Let's talk about Chronicle more
specifically. Why did you guys choose to spin out the the Oracle from from from maker as as a different product and we were we were talking about this before the show Felix and I and I I think this isn't the first like I feel like Pithe also spin out of some project. I know that in Cosmos like there's this UMI protocol which is lending protocol they're spinning out their Oracle as well as a product. Is this a trend or is are we like is there like a Oracle spin out trend happening here or?
Well, so in terms of our journey out of Maker, I think it was like a very like natural and organic transition, right. You know, maker really took this path of, you know, gradual.
Decentralization, right, it, it did have, you know, a foundation at one point, right, that helped bootstrap the protocol and then the foundation said and now our mission is done and they really handed over the entire protocol right to the Dow and and maker is actually like a true Dow now right like there's governance votes to on board teams to give teams budget. Right. To approve or or reject like different projects like it's truly decentralized in in every
way. And so that that kind of transition into the Dow I think was, was was very was was like a big milestone for for Defy in general, right. You kind of saw people have dows, but they were always backed by these foundations that were kind of like kind of like shepherding the. The the Dow in a certain direction, right. And maker was the one to truly like you know let go of the wheel and let the Dow kind of lead itself and and and they should be commended for that.
But I think the the problem that that we kind of ran into is that the Dow was trying to do too much and it kind of was pulled in too many different directions. And so that's kind of what the the end game was all about was about. Simplifying the Dow right, narrowing its scope right and and targeting it more towards like a smaller set of objectives and and this led to like a very natural kind of like spin out of of protocols from Maker right.
You see like Spark protocol developed by Phoenix Labs right and the Chronicle on the Oracle front. So there was a so there's there's still like a very, very close partnership with Maker, right, but these are. These are independent entities, right. And they they kind of just like count themselves like among like this this maker ecosystem. I'm also like a partner to to to maker, but they are independent, right. They have their own independent set of objectives.
And I think you know from an Oracle protocol perspective like it's great that you can that you can have a partner like maker where you can prove you know this infrastructure, this Oracle infrastructure right is rock solid, right. It's. It's secured, you know during the bull market like maker had I think around 20 billion TVL. You know like this Oracle infrastructure is like really
battle tested right. And then to use that right to bootstrap your credibility right to go and bring this Oracle to to everyone right. I think, I think there's a very, there's a very natural kind of like product market fit and and transition there. Yeah, we're definitely want to talk a bit about that like you know your plans of expanding sort of from being the partner for Maker to like onboarding other protocols. But I think initially let's maybe talk about technically Oracles in general.
You know, and you maybe explain a little bit first what the role of the Oracle actually is in Maker, maybe for listeners that that because we're like now talking 20 minutes, we're just assuming everyone knows, maybe a lot of people know, but maybe just to refresh the memory. We go like that and you explain the role of the Oracle maker and and yeah we we sort of dive a
bit into the tech. Sure. So in Maker and you know in general in D5, right, Oracles are kind of used as the like canonical source of truth, right, for for any kind of data, right. And and that can be, you know that that's usually like expressed in terms of like prices. So in maker right, if you lock up some ease to open up a die position against right, the protocol needs to know what the
value of ETH is right? In order to you know decide how much die are you allowed to to to borrow right. It needs to know what the price of ETH is right? In order to determine which loans are, you know, at risk of liquidation, right. So. Oracles are kind of like like this critical infrastructure. Like you can almost think of them as like the Achilles heel
of a of a protocol. Because if an Oracle ever prints, you know, etha is 0 or if an Oracle ever prints like etha is $100 trillion right in in, you know, a second, the protocol pretty much blows up and goes and solve it right. So they're they're really like this. Mission critical type of infrastructure like a like, like the way I tell it to my team is that building an Oracle is like building a spaceship. There's no room for air, right?
Like if you, you know, if you have a bug on on a spaceship, right? You know, like people's lives could be lost, right? If you have a bug in an Oracle, right? You know, you could lead to billions of dollars just evaporating, right? So it's. It's one of those things where you really have to be very deliberate in how you design an Oracle right, and from a that perspective, you have to be very deliberate in choosing the right Oracle right.
So yeah, maybe like you already mentioned, one challenge here in running an Oracle, right? Like a lot is at stake. Can you maybe dive deeper into some other challenges of running an Oracle and then we? You know go into like how Chronicle solves them hopefully sure. So I think the the big trade off that every Oracle protocol has is this trade off between kind of security and decentralization
and cost. And traditionally the way this plays out is that you can as an Oracle protocol right choose the number of validators that you have, right. Do you have a lot of validators, do you have very small number of validators And that will affect the cost of the Oracle and and the, the cost of the Oracle right is like a very important part of creating a sustainable Oracle product, right, because
of gas prices multiply right. I think we've been very blessed with you know a nine way, 10 way, 15 way kind of average gas prices. But if you think back to even just a year and a half ago, right, two years ago during the peaks of the bull market, right, there was a day where we hit 7000 way right. And you know, Can you imagine the costs like the cost to operate your product, right, literally going up, you know the 500X, right.
That's that's incredibly difficult to deal with from a service provider perspective, but also incredibly difficult to deal with, right, from a user's of oracles, right. So typically what Oracle providers have kind of done is erred on the side of like okay smaller number of validators, right? Kind of good enough security to kind of keep those costs in check, right? Not updating the Oracle as frequently, right. If you do less updates of the Oracle right, you can save on
costs even more. And and this, these are not real fixes, right? These are kind of just like Band-Aid fixes, right? What you really need to do is kind of solve the underlying engineering problem of this linear relationship between the number of validators, right, and the cost of the transaction. And so I think that's that's kind of what Chronicle kind of has solved. You know it's it's certainly not the entire Oracle problem, but it's a very, very significant chunk of it that was kind of
holding back the Oracle space. And and I think that's that's what makes Chronicle quite, quite unique in that you know we have this constant time Oracle verification mechanism. So that means that you can have any number of validators, right. And the cost stays exactly the same. And the the beautiful thing about this is like you know we have some some incredibly smart people on the team who who have some very good experience with with gas optimizing.
And so we've actually gotten the the gas cost of an Oracle update. You know again with any number of validators, right, could be one, could be 100, could be 1000, we've got it down to 66,000 gas, which is to to put that into perspective of of how incredible that is, that is less than an E RC20 transfer that the cheapest transaction you can do on Aetherium, right, is sending E to someone that's 21,000 gas, right. This is the equivalent of of
three of those. You know when when you compare this to like like to put this in reference to other Oracle protocols, chain link with like 10 validators costs about 280,000 to 300,000 gas for not only have we gotten this down, the cost of time to have you know a multiple of those number of validators, but we've even gotten the cost down like 80% compared to some of these other, some of these other Oracle providers so. So when you when you say
validators, I mean I think a lot of people think of validators as network participants that are securing a chain. And in the context of say a layer one like Ethereum or an or an app chain, what? What does a validator look like in the context of Chronicle? Or like another like you mentioned, chain Link also has validators like what? How? How are these participants interacting with the chain? What kind of infrastructure are they running? What are they securing exactly?
So So I think the the easiest way to think about oracles sometimes is like a good layer of abstraction is like a multi sick right? You have a certain number of of signers right? That's your validators and you need like a subset of those to reach consensus around
something. So in terms of what that looks like from the tech side, it's you get a bunch of, you know, actors to, you know, hopefully that you know, have some kind of reputation attached to them to run a client and they essentially right have their own keys, right? And what they're doing is essentially querying all of the data, processing the data themselves, right, Modeling it and then spitting out like an answer of being like OK, ETH
USD, I think it's this, right? And they sign that with their key and then they push it to kind of a peer-to-peer layer. And so now you kind of have like all of these kind of gossips, price attestations kind of like floating around and like a big like primordial soup of like of you know like attested to information. And now you can start aggregating all of those together, right.
Then once you have enough aggregated information right across enough participants to reach a quorum right now this this information can be can be pushed on chain to the Oracle. The Oracle will process all of the attested to data, right, and then publish that, publish that piece of data, either publish that that price. So typically it's very, very important, right or or not, I shouldn't say typically no, it is very, very important that the validators you choose are very
credible, right. And and this is something that you know some protocols are very open about, right? Who is, who are the validators or in the cases of some Oracle protocols, who is the validator? So in terms of Chronicle, right, we we've kind of gone to this approach of saying, look there is a whole ecosystem of taps that people use every day, right? Maybe you have a Nosis safe, maybe you use Matcha swap to to trade, right. Maybe you have like Argent mobile wallet, right?
Maybe you use DFI Saver right to manage all of your DFI positions. And so people have built up like an implicit trust into these protocols And so who better to run the validators for an Oracle protocol powering DFI than all of the, you know, actors in the ecosystem, all of these protocols themselves. So we have like so Chronicles validator set right consists of, you know, people like 0X protocol or DYDX or getcoin, ether scan, INFURA, Gnosis and a
handful of others, right. And and we want to keep expanding that that validator set and and kind of like what we're going for is that is we want to be able to go to the community and be able to say here's an Oracle and you can trust it because it's so like powered by the community right. And even though you know in theory right you can always have an Oracle attack right. You can always have the the validators kind of try to do a malicious attestation right
attesting to to incorrect data. It it kind of in, in practice if you have enough of the, if you have a big enough validator set of all of the biggest actors in crypto, you kind of just negate any anything like that ever happening, right, Because it would be like the industry kind of just like cannibalizing itself and like swallowing its own tail.
So our our kind of mission right is just to kind of on board everyone that you know feels very strongly that we need to have like a truly decentralized Oracle that that we can that we can we all don't have to worry about you know this this Oracle attack vector anymore and that that want to be a part of that.
And I would say, you know, come talk to us, let's add you, let's you know have you become a chronicle validator And you know you can even use chronicle yourself in your own protocol right and and dogfood it. Yeah, that's actually very interesting, like speaking also from experience, like running.
Chaining operator with Coros and like sort of this model of where more the infrastructure providers are more like professional validators or like staking companies that run like infrastructure or on the daily basis versus like this model of letting the devs run it. And I think in Pith, actually a lot of their sort of validators I guess initially at least were like actually the data feed, the providers that actually. Generate let's say the price data, so literally the exchanges
and things like that. So I guess there's like different like participants you can choose. Can you maybe speak a bit about, you know, are there issues maybe with like availability, if it's like run by, you know, people that don't run infrastructure as their core business or you know, how how are you thinking about these things? Or should you have like maybe validators from all these different constituents? Or you know? I guess, yeah. Curious.
Do you know what you think? So, so I think you, you really want to just design A protocol that's resilient. So you know the protocol is designed that it's fine if like a handful of validators go offline, right? It's, it's, it's designed to expect that kind of scenario. Now in terms of like do we actually see that happening very often? No, not really.
These protocols run an enormous amount of infrastructure internally and they're they're very good at running infra and they have entire, you know DevOps teams to to monitor this infra and keep everything online. So in practice, right, we, we don't really see that happening very often they're they're very adept. But but I would caution is like why do people necessarily trust infrastructure companies as validators? Sure, they're good at running infra that stays online from a
trust requirement. What like like the security of your Oracle is relying on these entities that are your validators to be, you know, good honest actors that you know the user either the DAP or you know the end user that's using the Oracle or the end user of that DAP, right. That they have some kind of, you know, trust relationship with. And I would argue that these infrastructure companies are relatively unknown and they don't really have like a
reputation for integrity. And it it kind of seems strange to me that we would like you know, build these like decentralized Oracle protocols and then outsource the security to these like relatively unknown validators, right, that don't really have any reputation to to protect. What kind of like are you talking about like? You know, there's a service company specifically or some
other sort of actor here. So what Felix was alluding to is that there's a ton of like entities in the space that just run infrastructure, right? Maybe it's staking infrastructure, or maybe it's RPC infrastructure. Or maybe it's just like hosting in general. Or they just run validators for a bunch of different chains, right? Yeah. Like a, like a figment or a chorus or a, you know, kiln or anyone of these companies. Yeah, sure.
And so you you think that these companies have have generally low reputation and can't can't be trusted to run infrastructure. I I think as a user you should be always questioning like who are the validators, like that should be your first question when trying to choose a
protocol, right? And I think it's quite clear that if you compare, you know, like the amount of implicit trust that a user has in, you know, top leaders in the space like someone like Gnosis or Dydx or Bitcoin or Ether Scan, right. That you know, that reputation and that need to protect that reputation by those by those different protocols is much higher than, you know, an infrastructure company that seems like are just spinning up by the dozen.
Nobody really knows who they necessarily are. They're not very public facing and they could just kind of like spin up if if they do, you know, run into any reputational problems, right. They just rebrand, spin up a new entity somewhere else, right. And you know, back to business is normal, right? There's the the incentives, like us being a validator, right, and being an honest validator right are really tied to do you have a reputation to protect?
And in the case of many of these validators, right, I don't think they do. I mean I don't know if I would fully agree with that. Maybe you feel like you have a different view on this, I mean or certainly you have a view on this, this you work for first one. But I feel I feel like validator infrastructure companies do place a lot of it, at least in. Well from the perspective of like where I know infrastructure validator companies, right.
So like in Cosmos we we have a lot of infrastructure companies that run infrastructure that run validators and and other sources of infrastructure and they do place a whole lot of importance in their reputation certainly through their involvement in in governance, being good stewards of the ecosystem in terms of like contributing to open source software etc. Like, sure, there are lots of. Maybe you know less reputable companies or individuals or like semi professional validators
that are running infra. But by and large I feel like infrastructure companies. I mean their business is right. So like their long term, their long term incentive is to build a company and so build reputation and maintain that reputation. Yeah, so, so I think in the end the point that we can all agree on is that like the validator set matters, right. And that's absolutely or for any Oracle protocol, right, From a technology perspective, right.
You can, you can always fork the technology, but you can't fork the network, right. And so the, the really differentiating factor that you will have as an Oracle protocol is like you know what is the value of your validator set, right. How expansive is it, you know, what is the like, you know, both the individual reputation and the aggregate reputation and the, the number of validators in this set, right. And and that's really your
remote, right. Then that's why, you know, at Chronicle we're kind of placing like a huge value on just, you know, onboarding more and more of these, of these highly credible validators. Yeah, I think it's really interesting this discussion for sure, I guess in in general. The, the interesting thing I think for you guys in a way seems to be lying also in that the complexity of the protocol or also like that it's possible to run potentially like relatively easily for these other actors.
Or like can you maybe describe a bit because like I guess from experience running a bunch of different networks at some point becomes like a big issue and you have like you have to have to focus on that and obviously all these companies you're mentioning. They have like products to build and like other things to focus on.
And I don't, I wonder, well, I guess maybe because they're like building on this protocol, they're running it and the Oracle is important enough or maybe it's easy enough to run, I guess. Yeah. Curious to hear how you're achieving that. So from the validator perspective is they're very, they're blockchain agnostic, right? Remember earlier I was saying like, what is a validator? Or in chronic lingo, what does the feed do?
They're just querying data and then they're signing it and they're pushing it to this peer-to-peer pool, right? That's all they do, right? So they're not even interacting with a particular chain, right? So if Chronicle wants to expand to, you know, 20-30 different blockchains, it doesn't mean that the validator actually needs to run 20 or 30 different, you know, blockchain notes, right?
They're, they're they're they're agnostic from from their point of view And so that really limits the complexity of what they need to run, right. And so it really it's the relay kind of side of Okay taking all of this data from this peer-to-peer pool and pushing it all chain right. And a relay only needs to support the chains that it wants to support, right. So if it just wants to do
Polygon ZKVM, it can do that. If it wants to do Ethereum VM, and I don't know something like Mantle or base chain, right, it can do that? Right. So there's like actually a second sort of row with the Relay more or less and then you have to, I guess that makes a lot of sense. And then in terms of the theme model or like I guess visible, which is I think in the Oracle space generally quite a interesting topic since a lot of
the protocols. Run on these oracles, a lot of value rides on them, but kind of no one wants to pay for it more or less. So you sort of have to finance it or like. And yeah, I would be curious to hear your thoughts how it's kind of thinking about this, how you feel this play out in the future. Also, is it ever always going to stay as it is right now that it needs to be like sort of subsidized or yeah, how do you,
where do you see this going? I I think that's an amazing question because it's a it's so creative like what we what we do in the Oracle space. So after kind of going through the right we talked earlier about right in the bull market you had these these crazy high gas prices right and the Oracle protocols who were not making any money right. We're just kind of like bleeding VC cash, right, had we're spending millions of dollars a year just on the gas, right.
And so all everyone kind of collectively noticed Oh well this is not sustainable, right. And and started introducing those measures that we talked about earlier, right. You know, reducing the number of validators, right, to make the transaction cost cheaper, reducing the frequency with which the the Oracle updates all to try to kind of keep the cost down. And so in particular when it comes to like monetizing Oracle's, I think there's a pretty clear path to monetization, right, in terms of
just a subscription, right. It's an Oracle as a service, right. And you can pay on some cadence, right, Either on a monthly, you can have some kind of monthly deal, annual deal, I don't know, per block, right, to have access to this Oracle. So. So that part's not very complicated. I think what is kind of complicated is like the meta game surrounding, like the constantly changing context of the the crypto macro environment, right?
So, you know, you can imagine right during the bull market, right when VC's are funding a bunch of companies, right? All of these companies or protocols, right, have a lot of cash, right? They're very much willing to pay the, you know, sometimes exorbitant costs of of these oracles. You look at kind of the current environment, right, where, you know, the VC funding market has has been rather tight and you're seeing teams and protocols needing to, you know, tighten up the belts, right.
You're seeing them do things like layoffs, right, to extend their runway. And they really are looking for a way to like reduce costs, right. And the one of those areas that they look at is, is oracles, right. And so there's kind of two interesting effects I think we've seen in the the past year.
So one is Oracle protocols kind of recognizing that their potential customers don't necessarily have the money to pay for this stuff and the Oracle protocol may or may not have the the capital right to to subsidize this like in the red for for some period of time. And So what you really saw was this proliferation of like pull oracles which were right.
So instead of the Oracle protocol pushing the data to this Oracle and now someone can just use the Oracle, it becomes the protocol itself that is using the Oracle that is like doing the actual push updates to the Oracle, right. So still using the same data from the validators, it's just instead of the Oracle protocol pushing it right, it's the protocol that's using the Oracle.
But what's really happening is that what the protocol that's using the Oracle protocol will do is offload that cost to their users, right? So like if you use a protocol, right, it's almost like a hidden tax, like you get Oracle update like bundled into your transaction, right? And as a user, you may or may not even know that you're paying
for this, right? And so from an Oracle provider perspective, this is attractive because now you don't have to have this volatility in gas prices which is determining if you're like in the green or in the red. From a DAP point of view, it's great because you're getting oracles, but you're not actually paying for them. And then from the user perspective, kind of you're getting screwed, but you maybe don't even know it.
So, so I and then from a marketing perspective, this is all kind of dressed up as like it's an ondemand Oracle, you know? There's no wasted update. It only the Oracle only updates what exactly? When a user wants to like, use your protocol, right? Like it's seen as very like no waste or something, but it's mostly just marketing spit, right. It's really just a way for everyone to kind of like just be like pass the buck around in terms of I'm not paying for that
right. And then the the second well and and I will say like a little personal remark, I think this is very shortsighted. I think in the startup world, typically the business model is you want to subsidize the cost that your users or your customers have to, to accelerate growth, right. If you look at, you know the early days of Uber, right, they were using VC cash to sell you rides, right? For less than it cost them,
right? And that's how you bootstrap product market fit for a for a new product, right. Same thing with all of these like food delivery apps, right? They got a lot of traction because at the beginning they were really cheap and now that they're charging you for the actual cost, right? Everyone's like why am I paying $40.00 for like delivery of a pizza and like some some cheesy bread or something right? And this is like the antithesis
of that, right? This is like these pull oracles are like you're adding like a tax to those users right? And while maybe at the current gas prices it's not very noticeable when gas prices start to increase again and they will, when you start getting back to 102 hundred 300 way, it's really going to start to cannibalize the user base of these protocols because the users are just going to be like this is too expensive
to use, right. It's the cost to use this protocol is more than the utility than that I'm getting from it, right. And so, so I think these the polar Oracles are kind of like a forbidden fruit in that sense and that it seems like a like a magical solution with no downside, but it's it can be very dangerous kind of going
forward. And and so the the second I, I did mention that there's two kind of things that we've seen change in the meta that the second one is that Oracle protocols have gone from you know after having this realization of saying well the daps themselves don't necessarily have the money to pay for Oracles who has money right now. And they look at like all of
these new chains, right. They look at all of the L2 S, they look at all of the the ZK roll ups, the optimistic roll ups, the maybe alternative layer ones, right. And they they, you know, they acknowledge that like this is what money has been shoveled into in the past few years. You know, these chains are very cash and token rich and need but don't have necessarily have an ecosystem and they need to spend money to bootstrap that ecosystem.
And so it's actually much easier, right, to go to chains and to sell them on the Oracle services and being and being, you know, rightfully so saying that look you want to start up an ecosystem, but all of these Daps on your chain are going to need Oracles and they're going to have to bear those costs, right. And so if you want to be like a catalyst for, for teams being able to build on your chain, right, you should pay for the oracles yourselves, right.
And so essentially the chains become the customers and the Daps that are using the Oracle become the users, right. So it's interesting that you have like this user customer kind of kind of split ultimately I don't think the chains want to be in this position where they are permanently kind of paying for Oracle infrastructure. So, so I don't think it long term it makes sense anyway, but but in the end, right, someone is always deriving value from the Oracle and so someone will
be willing to pay for it, right. Ultimately, I do think that will be the daps once they do find find traction. Now I want to ask you about the the use of oracles in in app chains. I don't know what I think you follow this but. In say like in a Cosmos ICK chain there there's been some, there have been some changes to essentially the the the protocol where the the consensus talks to the applications. This protocol called a BCI and and so validators are now able to.
Effectively add Oracle data price feed data in their blocks and the other validators in the in consensus also vote on this data along with the block information. And so effectively what this means is that app chains can now kind of run their own oracles. They can sort of like ask their validators to provide price feed data and and not have to rely on an external third party service. Is this something you guys are
thinking about? And how do you see the use of oracles and you know here's our contracts versus roll ups versus you know, app chains, Sure. So, so I think what's important like to to convey, right is that as an Oracle provider you don't like I have my own personal views of like you know what chains or you know or kind of chain types, I'm bullish on or bearish on. But as an Oracle provider, right, we don't really make those kind of bets, right, in terms of who will succeed or who will lose.
You kind of just try to support everybody, right. So it doesn't matter, right, who who wins and loses, right. So from that perspective, right, you always want to think of Oracle protocols from like a general mechanism point of view, like what is an implementation that basically is general purpose that scales across every chain, right, every user base, every ecosystem of daps that is out there.
And so I definitely do think that there are interesting synergies like within certain chain ecosystems, right, Like in terms of like what you mentioned, right, with Cosmos, IBC, right, validators being able to to send in the test data, right in the EDM world, right. You can you have like these native message bridges and there's interesting applications that you can do on those like specific chains or on those specific chain types.
But as an Oracle provider like you really want to stay as as general as possible and just kind of support one implementation. Because the the moment you start to try to support multiple different implementations, things start to get really dangerous. The context of different chains in terms of how their environments work and what like the the gotchas are in terms of, you know, even simple things like overflows and and underflows. Or the implementation.
Like you can have, for example, multiple EVM chains, right, that say that they're all EVM, but under the hood the implementation is different, right? And if you're not aware of these minute differences, you can really get yourself into trouble. And so you really want to have one implementation that you're
extremely confident in, right? That you can devote kind of your entire security budget to to auditing, to doing right bounties, pen testing rather than this dangerous game of like Oh well we have this Oracle that's specific for Cosmos and we have this one that's specific for Solana and we have this one that's specific for EVM and we have this one that's specific for like the move based ecosystem of chains and and right starting to like port features right and implementing
them like multiple times across all of these implementations. It's a it's a recipe for disaster. And so while while we would love to take advantage of some of these like really unique and really powerful primitives of these chains, the the game theory calculus just doesn't really play out that way and we have to think much more. Much more general, so let's talk about the the technical aspects of Chronicle a little bit. So. You, you leverage Schnorr signatures.
So maybe it we wanted to talk a little bit about how you're using Schnorr. But maybe first we could start by just reminding getting a reminder of like what are Schnorr signatures, how different they are from ECSA and maybe you could lead use that to lead into how you're you're leveraging Schnorr in the signing scheme. Sure, so sure signatures are a signature aggregation scheme. So that is to say, you can have one signature that is representative of multiple signatures.
And so you know, in contrast to ECDSA where you have like it's like a one to one relationship, right, one validator signed, you know a test and it generates one signature. And so if you have N validators, you have N signatures. With short signatures you can have N validators and is always ends up as one signature. And what's like incredibly powerful about this property, right, is that it leads to an enormous amount of data compression.
And when you look at some of the constraints of of blockchains, right, the amount of data is is one of the primary drivers of of cost, right. If you look at the composition of what a transaction on layer two costs, the innovation of layer two is, is that compute is incredibly cheap but data like the the data that you pass to a smart contract is incredibly
expensive. And the reason for that is because all of that data needs to be essentially push to a data availability layer like Ethereum layer one. So that right in in the event of you know like fraud that all of those transactions can be replayed, right. And and provably, you know you can prove that whether fraud or or not existed, right in the case of in the case of these
roll ups. So if you can compress the data in the way that short signatures do, right, you get enormous, enormous cost productions on on layer 2 for for for using short signatures. And so that was that's kind of like the primary driver of the of the gas savings that we did, right. That allows us to have like these 80 to 90% gas savings compared to some of these other Oracle protocols. Awesome. I think we also could still go into I guess the the optimistic.
Sort of verification and how this challenge protocol works at another time potentially since we're already quite, quite deep in the episode by maybe like more interestingly for the listeners that you know are potentially working on projects and want to integrate Oracles themselves. Can you maybe expand, you know where Chronicle like sort of is deployed right now or like where can people use Chronicle?
Data and you know, what sort of data do you have available at this point and kind of what are you working towards? Is it, you know, is it just Eve, is it going to like other directions? I think that would be a good place to sort of start wrapping it up. So in terms of change that we support today, we launched this new kind of Oracle architecture with this short signature innovation. We just recently launched this on Ethereum main net and on Polygon CK VM.
But we're effectively doing like a layer 2 strategy or we're just going to be onboarding like all of the layer twos, right. So when it comes to you know anything really that, that that you've you've heard of, right, in terms of what like Arbitram, Optimism Mantle Base chain, right, even even something like Noses chain, we're going to be onboarding these types of layer
twos incredibly quickly, right. So I would expect by the end of the year, right, we'll we'll basically be supporting all of the, all of the main ones. So you know I would encourage you to to reach out to us right. Go to our website chroniclelabs.org and from there right you can you can find our discord you can find our Twitter right. Get in touch with us you know let us know what what you need and we can we can get you set up in terms of you know what we
what we offer right. I think there's an enormous amount of product market fit right in D5 for price oracles, right. So we we definitely offer this but really like our oracles are built to be generalized, right. So we can do any kind of data. And so we're even delving into like the RWA space and doing like real world attestations off like you know even assets that are held by custodians right in
a in a bank, right. So we can, we can get really crazy with it and it's all backed by by the same underlying you know, secure Oracle architecture, right. That is securing like the billions of dollars to maker. Let's maybe just spend, if you don't want a few minutes talking about the real world asset stuff because I think that's probably one of the things that a lot of people interested in it.
Certainly it's one of the areas that is highly anticipated in terms of bringing more liquidity and more value onto blockchains. Can you, can you talk a little bit more about some of the work you're doing there, why you're so bullish on, on real world
assets? Sure. And I should probably preface this by saying I'm I'm bullish on real world assets in a in a very narrow context like I'm I'm going to a lot of conferences at the moment on panels about RWA and there's a lot of people pretending or saying talking about some far-flung future. When I'm when I'm talking about real world assets, I'm talking about what they look like right now. In terms of the product market fit that they have achieved right now.
So the the context here is right that you have this divergence of rates between the real world and between D5 because in traditional finance right rates are driven by monetary policy right and and to an extent liquidity. And in D5 rates are driven by speculative demand for number go up. And so number has not gone up for quite some time, people are relatively bearish and so yields
in D Phi are very low. And so this prompted a lot of protocols in D Phi with very large treasuries, right, or you know credit protocols like maker now to look elsewhere, right, to effectively say, look at the calculus of saying like, well, if we loan die on chain, we can get 1.75%, we can get 2% or we can loan die off chain, right and get like 5-6, seven, 8%. And so I think Maker Dow was very early in recognizing this
and and making moves. And so at this point, I think cumulatively maker Dow has allocated something like between 2:00 and I think almost like 3 at this point $3 billion into different real world assets, predominantly treasury bills, right. Because treasury bills are a very safe asset, right that if as long as you don't have liquidity problems, you can just kind of hold to maturity and earn like a very, very high yield right on the order of five
plus percent. And so you know from the perspective of Chronicle right when we look at real world assets, we're really look we're really building for what we see where we see like the pain points today, right. Maker is kind of not just talking about real world assets or planning to do them in the future, right. Maker is doing them right now at scale like.
And if you think about what is the entire real world asset market in terms of like capital delegated, I I think maker probably has somewhere between like 80 to 90% market share at the moment, right. And so we're we, we obviously work, we're the Oracle for maker, right. We work very closely with maker to to solving the problems.
And so you know we, we think we're going to have like a very big piece of the actual practical side of Fairworld assets and then use our practical experience right, to expand that right and offer those services to everyone trying to get into real world assets. Because I I think very few people understand like the boots on the ground problems associated with real world
assets. And it fundamentally boils down to that protocols, right on blockchains, right, don't really have any insight to what's happening off chain and they have very few kind of recourse mechanisms off chain, right. Maybe you have like a foundation that can serve as a legal entity as the face, but they are not the protocol, right. So it's very difficult for a protocol to act like autonomously in in the real world.
And so especially when it comes to credit delegation, right, you know what recourse do you have when someone runs off with your money. That is like the big question when it comes to credit delegation.
And so the, the pain point here for a real world asset is how do you, how does a protocol delegate, you know, something on the scale of billions of dollars into a real world type of infrastructure where it doesn't necessarily have the same capacity, right, for liquidating, you know, in the next block like it does on chain. And so really what you have to do is like deconstruct like what does this web of entities look like in the real world to create
a real world asset. And typically you'd have something like a trust, which is kind of like the representative of the the protocol in the real world. So you can kind of have the trust be subservient to messages from that have been ratified by a Dow right by by governance. So the the protocol would extend you know the the money to this trust right. The trust then interacts with the broker right. What securities or structured products are you trying to buy right?
So you could have a broker, right, like someone like block tower or I think in the past someone like Genesis before they before they blew up. So the broker, right, will buy and sell, you know whatever, whatever kind of structured products or securities you you want to purchase, right. And then you have a custodian, right. And the custodian is frequently someone like like a bank, right.
And then you may have like an auditor, right, who is like auditing the, the activities of what, what the bank has in custody or maybe auditing the activities of the broker, right. And so individually, you don't want any, you don't want to trust any of the data that any of these different actors kind of report because they kind of all have moral hazard, right? If you know maker turns off the tap in terms of credit delegation, right, all of them will not make any more money,
right? And the party's over, right. So you don't want to trust any of them individually, but as a as a set you can kind of overlap and like phase shift all of their individual reporting on top of each other in a real time kind of automated fashion. And then you can actually derive a like a high confidence in the consensus of what actually is in the real world and and give that representation on chain in the
form of an Oracle, right. So in terms of the messages like of instructions that make our governance gave to the trust right, those should be those should be symmetrical with the orders that the trust gives to the Broker, right. Those instructions that were given to the broker right should be symmetrical with the actual purchase and sell orders that the broker executed, right. With respect to what the bank
holds in custody. Those should be symmetric to what the the broker, you know confirmed right, that they purchased and sold right. Same thing with the data that the auditor is reporting, right. And so as you collectively aggregate all of this information, you can come find, you can determine what the kind of consensus view is in the in a decentralized fashion. And so now you can have this data on chain. But what's interesting here is
it's not necessarily price. That is that is the most interesting right you may be interested in. You know, what is the yield of this RWA bucket you may be interested in, you know, what is the, what is the like the term of a lot of these securities, right, especially if you're holding like treasury bills, right, Treasury bills mature, right. And then what do you do?
Do you like roll those back into new treasury bills or do you say, hey, you know we want to have some more liquidity in the maker protocol, right, let's recall some of that, some of that money? And blocks and we kind of take those sort of credit because that data is usually available on chain or right, right in the contract. You may be interested in the composition of the portfolio with respect to exposure to certain sectors or certain types
of securities, right. And so now once you have all of this data on chain, the protocol can react in like an automated fashion, right? It can like extend more credit or it can you know, cut off credit. It can determine, Oh well this bucket that we have over here in real world assets is generating significantly more yield than this one. Let's reallocate some of that
capital to here, right. And so it enables this enormous amount of like automation that that crypto protocols are kind of known for, but now in a real world context. And I think that's extremely powerful and that's can be applied you know in a general case at scale to weigh more things and what we see today, right, which is just treasury
bills, right. And it can be expanded to weigh more context than right just D5 protocols extending credit right in in this case a real world asset Oracle is really this bridge from piping and data from the outside world onto a
blockchain. So now we can kind of achieve this cross automation and that's where the real, the real value is going to be. It's not going to be that D5 replaces traditional finance or traditional finance like you know kills D5. It's going to be this hybrid system where they both both of those realms are able to interact and leverage the the strengths of the other. I think that's a great note to end on. Thanks. Thanks for for expanding on on
real world assets I think. It's it's one of the things that I'm really hopeful that will will start coming into you know D5 protocols right where you can open up say something like a like an Ave. or or or unit swap and and be able to to swap like your USDC or your ease for like treasury bills for instance. I think that that will be a huge, a huge accomplishment for the space if that were to happen.
Nicholas, thanks so much for coming on and and extending our minds about Oracles and Chronicle and all the important work you guys are doing and hopefully we can get you back on some more in the future. Yeah, it's been, it's been really great guys. Thank you. Thank you for joining us on this week's episode. We release new episodes every week.
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