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Hey, Bankless Nation. Welcome to the Meet the Nation. Today we are exploring Hop Protocol
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with CEO and founder Chris Winfrey. Hop Protocol is a cross L2 cross chain liquidity protocol
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allowing you to hop from one L2 to another L2 to another L2 without having to go through
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the bottlenecks of the L1. So the way that this works is that Hop has contracts on the L1. It also
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has contracts on all the L2s and it also has these other hop tokens that are accounting tools
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and using all of these collections of technologies as well as actual USDC or USDT or ETH liquidity
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on all the L2s. It allows users to hop around all the L2s without having to touch the L1.
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So we go into the details about how this works, the technical capabilities of the Hop Protocol,
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what it's like for a user. We ask the question, what can Hop go from L1 to L1? Can it go? Can it
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also go from L2 of an L1 to a different L2 of a different L1? Then we also ask about the
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organization of Hop Protocol, how it came to be, what its future row maps are. And so overall,
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I think thorough in depth and the efficient conversation of Hop Protocol. So I hope you guys
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enjoyed this conversation and learn all about Hop Protocol. There's links in the show notes with
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linking to their Discord and Telegram or if they have one and Twitter. So if you want to join
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the Hop Community, you can go ahead and click those links there. So let's go ahead and get right into
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it. But first a moment to talk about some of these fantastic sponsors that make this show possible.
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wallet, what are you even waiting for? Go to ledger.com, grab a ledger, download ledger live and get
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all of your DeFi apps all in one space. Hey, Bing, this nation and today we are here with Chris
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Winfrey, the co-founder and CEO of Hop Protocol, which is one of the emerging
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Inter-L2 Interchain liquidity protocols that allow you to hop from one chain to another chain
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without having to go through some of the frictions of actually using the codified gateway
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between these two things. So Chris, welcome to the meet the nation.
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Hey David, I'm really excited to be on the show.
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So let's start at the very, very beginning. Where did Hop Protocol come about and what was kind
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of the initial inception idea? Yeah, so my team was originally working on a contract-based account
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called Op Theorem. And so we started that about a couple years ago and kind of saw an opportunity
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to really streamline the UX on Ethereum. And we felt like we made a bunch of good improvements,
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but ultimately when we started, it cost about 30 cents to deploy this contract-based account for
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users. And by the time DeFi took off and really drove those gas prices up, then it was over
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$200. And so we had to push this cost over to users. And then just for them to get started,
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it had this just huge barrier of entry. So we started looking for ways to kind of get our users
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onto Layer 2 and started connecting Ethereum with different Layer 2s. But we were still seeing that
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users weren't really saving gas. They were kind of moving to Layer 2, making a few transactions,
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and then coming back to Layer 1, and just those bridge costs were more than if they just used
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something like Uniswap on Layer 1. So we realized like, okay, if Ethereum has a future, we really
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need our users to get onto Layer 2 and to stay on Layer 2. And just to be Layer 2 native citizens,
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they never touched Layer 1 where they would have to deploy this contract-based account.
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And so we started kind of iterating on different ideas, put out a white paper and a demo of
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a hot protocol and each research. And that started to get some traction. You know, at the time,
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you know, Baitaq was starting to talk about, you know, a roll-up centric roadmap for Ethereum.
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And we kind of realized that, okay, maybe this has the opportunity to be core Ethereum infrastructure,
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where we need a way to kind of connect these different roll-ups and Layer 2s and just
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decided to go all in and focus on hot protocol. So one of the design philosophies that I think
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you articulated is that it's great if Ethereum has all of these Layer 2s and you can do all these
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things on the Layer 2s. But if we have all these Layer 2s, then people, we would imagine,
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people would be going between all these Layer 2s and going back to the Layer 1 to go to a
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different Layer 2 kind of almost defeats the purpose of having a Layer 2 at all. If you still
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have to funnel through the choke point of high gas fees, low block space environment of the Layer 1.
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So the idea of Hop is just increasing the experience of exactly what you said, which I really
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enjoyed, which was being a Layer 2 citizen. And so if you can just hop around all the Layer 2s,
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you actually completely remove that constraint of the high gas fees bottleneck that everyone has
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to go through by touching the Ethereum L1. Anything you want to add to that?
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That's exactly right, yeah.
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Okay, so let's see, how does it actually work on a technical level? What does it mean to
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hop from one layer to another? Maybe we can start with what does it feel like from the user
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perspective? What's that feel like? And then technically, how does that operate on the back end?
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Sure. So from a user perspective, we just exposed this very, you know, it's a Uniswap-like
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interface. It feels like you're using a cross layer or a cross chain AMM where you can just kind
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of deposit assets in one end. And then after some time you'll get assets at the other end. So you
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can transfer assets in about the time it takes for the source chain to reach finality, which is about
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five to ten minutes. The source chain? That is the chain that you are leaving or is that the chain
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that you're going towards? The chain that you're leaving. Okay. So that's basically the user experience
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and something that we've been very careful to not introduce the second transaction and just make
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that and try to abstract kind of this underlying technology from the user and make it as smooth
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as possible. So when you say it's like a Uniswap style interface, when I go to Uniswap, I have two
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tokens that I select. I have, you know, I want, I have Ether and I want USDC. Actually, it's almost
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always the inverse. I have USDC and I want Ether. If for you guys, is it I am on Arbitrum and I want
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to be on Optimism? So we just swap out the tokens and instead replace it with destinations?
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Yeah, that's exactly right. You'll select the asset and then a network that you're coming from
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and then a network that you're you're going to. Okay. And then can you also swap exchange tokens
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in the meantime or is that just a completely different feature? Not not right now, but it's
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definitely something that we're talking about addressing in the future. Okay. All right, so very
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cool. So I have a bunch of USDC or Ether on one L2 and then I want it to go to a different L2.
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How is this actually facilitated on a technical level? Sure. So there's a few layers to hop and so
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the very, very core layer is basically this way to scalably send messages from one roll up to the
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next. And so the way this works is each scaling solution already has a message bridge with
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layer one Ethereum. So this basically allows contracts on Ethereum to call contracts on layer two
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and contracts on layer two to call contracts on Ethereum. And you say a message bridge.
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That is just like the bridge, right? Like when I say I want to get my money from from L1 to Arbitrum
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or L1 to Optimism, I use the bridge. Is this a that's the same bridge as the message message bridge
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or is that a different piece of infrastructure? So we call that the native token bridge and the
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native token bridges are also built on top of this core message bridge. So if you imagine the message
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bridge allows contracts to call each other, then what the native bridge is going to do is it's
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going to allow you to lock up USDC on layer one and then that's going to send a message to
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mint USDC for you on layer two. And then on the inverse, if you burn USDC on layer two, then it will
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send a message down to layer one to to release that USDC on layer one. The caveat is that for
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optimistic, we're all up the message from layer two to layer one takes a full week for it to be
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executed on layer one. And this allows time for the challenge game to play out in order to make
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sure everything is secure. And then with zk we're all up, the message can only propagate as fast as
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that zk rollup checkpoint. And so a zk rollup checkpoint is pretty expensive. So sometimes it will
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happen every half an hour, sometimes it'll happen every six hours depending on how scaled up that
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rollup is. But you know, even exiting a zk rollup can still be slowed depending on the scale.
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Okay, and that's an important point to drive home like even in our fastest rollups that we have zk
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rollups, it's still a 30 minute wait time, which I mean, I get frustrated when I have to wait five
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minutes for my transactions to clear on Ethereum. So like from a user UX experience, like 30 minutes
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is going to be even more frustrating, even if they get used to it, like we can still iterate on this.
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And again, that's the fastest time to go from a layer two to a layer one. And so like with
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optimistic rollups, which are both optimism and arbitrum, it takes upwards of seven days. And so if
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you want to use these bridge, I'm pretty sure crushed me if I'm wrong, but going from the L1 to
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arbitrum or optimism, it's more or less instantaneous. But getting back out is takes seven days
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for optimistic rollup. So there's like huge UX problem here, almost no matter what.
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Exactly right. Yeah. And so we have these message bridges that we can leverage. And so you can
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imagine if we want to talk from from one rollup rollup A to roll B, then the naive approach would be,
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okay, send a message down to layer one, and then send that message back up to later to at the
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destination. And then we kind of have this communication link. Right. We bounce off the layer one to
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go off to a different destination. Yeah. And so the problem with that is that this creates this
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huge bottleneck with layer one. So if we imagine that our layer two environments are way more scalable,
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we have lots and lots of messages. And if each of those messages needs to propagate one by one
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through layer one Ethereum, then it just creates this bottleneck, bottleneck, it's expensive,
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and it just doesn't really get us the scalability we want. So the core innovation behind hop is that
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we will aggregate many messages on the source chain, the chain that you're leaving. And then we
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will periodically commit those. And so when we commit them, we aggregate all those messages into
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this really compact data structure. I'm sure you guys have talked about Merkel trees. And you basically
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just have a single hash that represents all of this data. And then we can propagate that hash
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through layer one that represents thousands of messages onto the destination layer two. And then
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we can unpack it at the destination. And then that kind of creates this scalable roll up to roll up
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messaging protocol. Okay, so that is like the settling up between two layers, right. And so maybe
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there's just a bunch of USDC that flows from one L2 to another L2. That's not settled. A bunch of
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things happen. Maybe a bunch of things more happen. Maybe a bunch of things more happen. And like
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the analogy here is kind of like a bar tab that everyone uses. And people usually typically
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use the bar tab analogy to talk about a payment channel, which I think a protocol might be,
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but we'll talk about that. And then so what you're saying is like, you hop protocol allows for
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a bunch of economic activity to happen. A lot of people going to the bar and asking for a drink
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without actually a transaction settling to visa the visa network. But then periodically,
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you do settle up. And the assets do actually flow from like the arbitrum contract on the layer one
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to the optimism contract also on the layer one. And allows the actual roll ups to settle up with
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each other based off of hops sort of like off chain transaction ledger that it has. Is this all correct?
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Yeah, yeah. And so I wouldn't we have very a lot of similarities to payment channels and
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you know, specifically that we make a bunch of payments and then we do this kind of batch settlement,
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but then but then like structurally it turns out a little different, but that's where the similarities
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end. Yeah. Okay. Exactly. So how does hot protocol actually like account for the net of all of the
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assets that are transferred cross-chain? So that's kind of this next layer. And so hop has this
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intermediary asset that we call H tokens. And so it depends on what assets being bridged,
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but it could be like HUSDC, HEF. And so just like are these just like hop IOUs?
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Exactly. And actually, you know, you could think of basically every token on layer two as an IOU,
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because you know, even with the native bridge, you're locking up an asset on layer one and
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and then think something on layer two. And so basically this is hops version of that that's
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alongside the native token version. We call that the canonical asset. So like canonical USDC,
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that's going to be the one that's used in the Uniswap, et cetera. And so the reason we introduce our
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own intermediary asset, these H tokens, is because we need to build this special functionality
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into them that we can't build into the canonical assets. And so specifically when you deposit
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into the layer one hop bridge contract, you'll mint an H token. So if you deposit USDC,
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you'll mint to HUSDC on layer two. And that that functions just the same as the native bridge.
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But the difference is that when you burn HUSDC or another H token on layer two, we have a role
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called the bonder that can mint HUSDC at another destination for you.
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Because hot protocol needs, it needs, what's the right word? It needs itself sovereignty. It needs
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its own ability to manage its own currency to account for the differences between the currencies
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across the different L2s, right? Exactly. Yeah. Okay. So like, wait, so is it, so I have USDC
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on Ethereum? And I deposit it into Arbitrum. And then I get USDC on Arbitrum. But like you said,
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that's actually an IOU. So it's actually Arbitrum USDC that is an IOU of USDC on the main Ethereum
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chain. And then when you mint a hop USDC, aren't you actually minting H Arbitrum USDC? So it's
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HAUSDC because you are making an IOU for Arbitrum USDC, which is making IOU for USDC on the main
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chain. Is that right? Yeah, the naming gets a little confusing, but I would think of it as
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the canonical USDC is kind of an IOU promise to be able to claim USDC from the native token
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bridge contract on layer one, whereas HUSDC is a promise to claim layer one USDC in the hot bridge
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contract on layer one. Okay. Okay. Hot bridge contract on layer one. Is the hot bridge contract
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on layer one also part of the Arbitrum or Optimism contract? Or is that something is that separate?
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It's separate. And then it will also be connected to Arbitrum Optimism,
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polygon, and so it's like, it's more, rather than stacking on top, it's more in parallel.
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Okay. Okay. Cool. And so, so that's kind of how the, yeah, that's kind of how the H tokens exist.
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And then in terms of, you know, transporting an H token from one roll up to the next,
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the user basically burns an H token specifies the destination. And then we have a bonder. And so,
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the bonder is able to fully verify these roll ups, you know, in the time it takes for layer one
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finality. And so with roll ups, you kind of have two finalities. You have kind of like off-chain
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finality, which you can determine pretty fast in five to ten minutes, because you can actually,
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you know, look at the chain of transactions and compute the the state and make sure that you're
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correct. But you can't do that on-chain because you can't run all those transactions. Otherwise,
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we wouldn't be scaling Ethereum. And so that's why it takes a week for kind of on-chain finality.
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But the bonder, they're fully verifying things in real time. They see that H tokens were burned,
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HUSDC was burned. And then they have collateral locked up at the destination. And they'll use that
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collateral to mint HUSDC for the user at the destination. So now, you know, imagine they facilitate
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a bunch of these transfers. They've locked up a bunch of collateral and they can't unlock that
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collateral until they receive proof that HUSDC was was burned at the source because we want to make
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sure that the hot bridge contract remains fully collateralized. And so that's where the message
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bridge comes in, the hot message bridge. So, you know, after many people have transferred, we aggregate
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those into our contact data structure. And then, you know, we propagate this, we call it a transfer
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route or a message route, you know, through layer one to the destination. Once I reach this
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is the destination, then the bonder can settle up and their collateral is unlocked. So that's
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kind of how you can move an H token from one place to the next pretty immediately into the settlement
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process happens over time. Okay, so like to my mind, the H tokens are like this shadow token,
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the shadow that like follows the actual real token. But it has the self-sovereignty that hot
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protocol needs in order to move like at the speed of light. And so the way that hot protocol
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allows for like this, like near instantaneous transfer of, you know, asset to from asset to change
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or change or change, is that you guys actually have the actual assets on all of the change on all
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the chains. And so somebody on chain A can go to chain B because hot protocol actually has the
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USDC on both sides. And then the H tokens are that communication accounting tool that because
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hot protocol, the hot protocol contract on the L1, it can manipulate the destination of the
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tokens as it sees fit unlike it how that's not true for USDC or ether. And so it can manipulate
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the balances on all the other chains to account for the transferring of USDC or any other token
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across all of the chains. Is that right? Yeah. And this is all done completely trustlessly.
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It's all fully collateralized. It basically is completely realized on the security of Ethereum
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and the different scaling solutions that you're using. But we like that word trustlessly.
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What happens? How does, what happens if like all for some reason everyone is on Arbitrum and
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they want to go to a different L2. So like Arbitrum, I'm just using Arbitrum just because everyone is
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on layer 2A. And then all for some reason there's an economic event that means everyone needs to go
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to a different layer to layer 2B. And all of the liquidity flees out of layer 2A. How does,
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and then therefore everyone who's left on layer 2 is stuck because you guys hot protocol has
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lost of its all of this available assets because everyone has used up all like the bandwidth.
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How does hot protocol like redistribute to account for like different bandwidth requirements
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across all the layer 2s? So actually to take a step back. So we have this HUSCC and this is kind
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of like the second layer but the H tokens aren't what the users want. They are using these actual
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canonical tokens. And so that's kind of like the third layer of hop. So the core we have the
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message bridge and then we have the second layer, this intermediary asset. And then at the third
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layer we have AMM. So we have an AMM between the canonical asset and the H token. And so when
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a user is bridging from Arbitrum to Optimism, they'll swap USDC to HUSCC that HUSCC is burned and
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then the bonder will then HUSCC at the destination. And then that's automatically swapped out into USDC
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and ends up in the user's wallet. From user perspective it's just one transaction for the whole
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flow. And so these AMMs actually play an important role in terms of like balancing across the
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chains as well. So if we see a huge flow from say Arbitrum to Optimism then you know it will
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cause the USDC on Arbitrum to start trading at a discount. And then the USDC on Optimism to start
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trading at premium. And this actually incentivizes folks to rebalance these chains with like large
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settlement transactions through layer one. So they can kind of redistribute assets across the
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chains and then profit off that based on the Arbitrum's opportunities that the AMMs present.
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Right very clever. That definitely seemed like the right place for economic incentives.
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How are these AMMs constructed? Are they more like curve where the actual shape of the AMM is
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differentiated or is it more like uniswap V3 where you can have concentrated liquidity?
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So it's more like curve for stable swap. They are like kind assets you know that there shouldn't
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be any reason for you know USDC and HTC to diverge because ultimately you can claim either one
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on layer one for layer one USDC. And same with you know if an ATF and all the other assets that we
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support. So yeah right now we're using the stable swap construction.
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Hey guys I hope you're enjoying this conversation with Chris about hot protocol thus far coming
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up any second half of the show we go into more details about the technical details of the hot
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protocol as well as the future road map and also just a more casual conversation about what Chris
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thinks about the current state of DeFi and where we are overall going and also talk about yield and
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how hop hop can offer just a sustainable source of yield for all those stable coin yield
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in governance. Can hop bridge non EVM chains? It can. Yes. And so we haven't supported them yet.
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It would just be a matter of re-implementing our layer 2 bridge contract for whatever the
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scaling solutions. But you know, we do plan on supporting StarCware and ZKSync and other ZK
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rollups. And then eventually we'd like to support like disjointed layer ones as well,
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but that's kind of a different problem set than what we're addressing right now.
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Okay. So it seems to be that any rollup EVM or not that settles to Ethereum. That seems like a
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relatively surmountable obstacle because there's only one canonical hop contract on one canonical
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Ethereum L1. That seems like a task that can be overcome. Getting from one L1 to a different L1
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or an L2 on one L1 to a different L2 on a different L1. That seems like a taller task because
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now there has to be two different hop contracts on two different L1s. Is that on something here?
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Yeah, that's exactly right. Can you describe how that how that problem works?
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Yeah, so it's a very different problem set. It's something that, you know, we wouldn't use the
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core technology behind hop for this. We would kind of develop something new. And so this will
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probably involve some new validator set to basically attest that, okay, you know, tokens,
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each tokens were burned up that, you know, some disjointed layer 1. And we can release the token
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on layer 1 Ethereum or Mint Age tokens on an Ethereum L2. And so this validator set won't share
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the same security as Ethereum. It will be as secure as that validator set. It will be like a
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multi-sake validator set of sorts. Yeah, but that's kind of the best that you can do.
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Right, listeners will be reminded of our episode with Rune Christensen who had a lot to say
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about security assumptions across layer 1s using multi-sakes.
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Yeah, okay, so can one is who can provide liquidity in hop right now? Is that like a closed
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environment? And then what's the long-term game plan for that?
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Yeah, so we think of that there's two types of liquidity in hop and we call this passive liquidity
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and active liquidity. And so passive liquidity is basically liquidity in the AMMs. You just kind
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of set it. You have very low risk of the permanent loss and you can just kind of earn trading fees
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and then maybe stake it if there's liquidity mining. And then we have active liquidity. And this
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is the bonder process. It's a lot more like running a E2 validator where you kind of set up your
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server. You have some process that's constantly listening for events and making transactions.
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And so right now the bridges are set up just one bonder per bridge. And so the worst
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a bonder can do is be offline. And when the bonders offline, the transaction will still propagate
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as fast as the exit time of the source roll up. So the roll up that you're starting on.
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So even though there's just one party that's doing this right now, they're not taking custody of
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funds. They're not presenting additional risks. They can just be unavailable basically.
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And in the next version of hop, we're going to support multiple bonders per asset. And then after
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that, we're going to have a completely decentralized bonder network. And so it's really cool about
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when we get to that point where we have this decentralized bonder network or even multiple bonders
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is that it becomes a one-of-end trust model. And this is just for being available. Right now it's
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trustless in terms of custodianship. But then in terms of like, is your asset going to move
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very, very fast or is it going to kind of move at the slower pace? That is still now one-of-one,
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but it's going to become one-of-end which is you just need one honest bonder to go through.
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Very cool. Do you have any sort of metrics that you've been able to discover over the last few
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weeks or so, or actually months now that Hopper to call has been alive for a while about the
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level of yield that liquidity providers are getting from this? So it fluctuates a lot. We just
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launched our eFridge last week on like a daily basis. Some people are making 15 plus percent on
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E. I was 15 percent in a day? No, no, no, sorry. Oh, you're really compounded. Okay. Yeah, you
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just want to say like, hang on, just take all my heat. Yeah. But yeah, based on a very short
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window and so I would expect that to be competed down. But so far, the yields have been good.
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And yeah, you can also earn stable coin yields. And again, there's very low risk of
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impermanent loss. So I don't think there's many opportunities to earn the kind of yields
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that Hopl P's are earning at least for heat. Right. Extrapulating this out into what
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me and Anthony Sazono called the nexus of Ethereum where there's many, many L2s and there's
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many, many economic actors hopping between all these L2s. This is going to be like a kind of like
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Ethereum's like economic heat where all the transferring around is causing a bunch of
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just like fees and yield to occur. Do you have any like long term thoughts about how L2 transfers
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will impact yield in DeFi? That's a good question. I mean, I think, you know, ultimately we'll
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just keep attracting capital and I say, we, I mean Ethereum until, you know, yields start to
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make more sense for the risk that people are taking. And so right now yields are very high.
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Risk is very high. As Ethereum becomes more mature and Hop becomes more mature and you know,
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urine becomes more mature. All these different yield producing protocols, I would expect
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yield to kind of settle into more in line with the traditional finance ecosystem.
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Is urine something that can be a liquidity provider for Hop?
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So we have talked about, so back to like active liquidity and passive liquidity. So with the
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one passive liquidity is much cheaper than active liquidity. There's low barriers to entry. You
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don't have to run the server process and there's a lot of folks that are just mercenaries. We'll
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throw yield, you know, it's very, very competitive. And ultimately with the passive liquidity,
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you need those pools because if you don't have the actual asset for people to bridge into,
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then, you know, they can't bridge. There's no way to kind of eliminate that type of liquidity.
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But this bonder liquidity, it just is essentially collateral. And so right now the bonder uses the
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same asset that's being bridged. But ultimately we could, or we plan to move to a future where the
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bonder could kind of hold the basket of assets. Those could be yield bearing assets. Or, you know,
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they could be if they could be, you know, whatever basket of assets the bonder wants to hold. And they
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just use that as collateral while earning yield on it for bridging assets across Hop. And that's
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where I think we'll get some big improvements in capital efficiency. Very cool. How are fees
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determined in Hop? So right now the bonder sets a fee. And then the AMMs take a 0.04 percent fee,
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so four basis points. And then, you know, once we get to the multi bonder model, then the bonders
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will basically compete for for lowest fees. And then that will kind of drive them down to a minimum.
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Do you kind of think that over the long term, over the many years that fees will kind of just
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collapse to the absolute minimum while also speed between L2s kind of increases? Is that the outcome
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for this? Yeah, Hop definitely scales up a lot better than it scales down. So, so, you know,
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basically the larger amount of assets that we're transferring for each of these settlements
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through layer one, then the cheaper we can get fees. So right now we're at the bonder charges
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1.8 percent, so 18 basis points. Pretty soon, we're going to be, you know, we just scaled up
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the ETH liquidity. We're going to do the same with USDC. We're going to be able to drop that tone
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to nine basis points. And ultimately, I think we can get it to, you know, around four basis points
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or lower for the bonder fees. Now that seems to fit into the model of L2s that I've come to
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understand where the more users and the more assets and the more economic activity that's
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happening on these L2s, the actual cheaper the fees actually are because they're amortized across
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all the users. And so not only is this true of the actual L2s themselves, but this is also true
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of Hop as in the bridges between these L2s. Can you just, can you just riff on that for a second?
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Do you think like that's L2 environment is just going to become faster, cheaper, stronger as
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more and more people just adopt it? Absolutely. Like even, even for myself, you know, I've been
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using D5 on L1. I just rebalanced a bunch of positions. And I just realized, what am I doing
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on L1? I'm just losing a huge part of my yield to transaction fees. L2s here today. And so,
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yeah, I really think that soon here it will be very much much more rare, especially for users that
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aren't dealing with, you know, anyone who's not dealing with like hundreds of thousands of dollars
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is going to be on layer two and just stay on layer two because layer one is just too expensive.
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It makes a ton of sense. Are there any significant differences between how Hop is constructed
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versus how connects is constructed that are worth talking about? Sure. So there's a few different
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bridge bottles. So we already talked about Hop. We developed this technology. And so right now we're
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kind of alone in this category. And then another category is hash time locks. And so this is
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kind of a game where you have one party lock up assets on one chain with the secret. The party,
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another party locks up assets with the secret. And then someone reveals the secret on one chain.
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And then the other party can use that revealed secret to unlock on the other chain. And so,
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hash time locks they've been around for a long time. This is the same technology that underpins
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the Bitcoin Lightning Network. And they work well in some scenarios. And then there's some difficulties.
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And these difficulties are ultimately why we chose not to take this approach when we were looking
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at this problem with Ethereum. And so one is that you have to wait for two rounds of finality.
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So you can't move too fast when you're doing kind of the second prepare transaction. And then
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you can't move too fast when you're revealing the secret. Otherwise, you're at risk of a reward.
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And then the other one is that whoever goes first in this game is kind of locking up their assets
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without any promise of the other party kind of locking up their assets. So if you have one party that
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has reputation, then things work really well. Because they're reputable and you know that they're
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not kind of like, you know, take lock up your assets without fulfilling the game or something like
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that. But then it gets harder to like really decentralize that network. Because once things get
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competitive, then you have to layer in some kind of reputation layers to make sure that you don't
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have parties entering and then just locking up people's funds so that you know that more assets
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are out through their router or something like that. And then the third type of bridge is kind of
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this externally verified bridge. And that's kind of what I was talking about with, you know,
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it could be a future direction of pop. But ultimately it introduces a new trust model. And with
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you know, for going across layer two, we want to just rely on Ethereum's trust model and see that
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as kind of the best way to scale in the near term. But then for kind of addressing, you know,
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disjointed layer ones, that's something that's that's better suited for hashed high mobs or for
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these externally verified bridges. Very cool. Let's let's talk about the organization behind hot
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protocol. How is the protocol actually, who are the people around hot protocol and how did they
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become organized? So we launched hot towards the beginning of the year. And since then we've kind
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of had this community grow. And then we have a company that kind of facilitates the development
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of the protocol. And yeah, so as we move forward, we're going to be kind of becoming more and more
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community oriented. And we're already starting to see, you know, community members that have
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developed like analytic dashboards or like Twitter bots and stuff like that, which has been really
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cool to see. Is there an actual formal hop down? There's not. Will there be? There could be.
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There could be. Is there a hop token? There's not. Will there be? There could be.
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Okay. Awesome. Okay. What if I, I don't know if there is an official hop roadmap, but what is
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left on the roadmap? So there's a lot. So right now we kind of have the first version of our bridge.
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The next version of the bridge is very similar, but enables multiple boundaries for an asset.
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And so we're excited about that. And it also allows us to kind of consolidate like kind assets.
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So right now we have a separate bridge for, you know, each of our stablecoins.
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And in the next version, we're going to be able to kind of have like a single stablecoin bridge,
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which is going to be much, much more efficient. And like I said, you know, it scales up really
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well. So it should allow us to drop the fees by a good amount. And then, you know, we want to head
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to, you know, we're heading into direction where we're making kind of the disc like core messaging
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protocol more generalized. And that's going to enable some really cool stuff in the future.
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And then beyond that, we want to address the disjointed layer ones. And you know, that's going
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to be a big R&D effort to kind of figure out, you know, what's the best way to do this in a really
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decentralized way, even if we can't, you know, leverage the security of Ethereum for other disjointed
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layer ones. Okay. Well, Chris, thank you for having extremely like powerful and concise answers.
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And so I think that's everything that I need to know about hop. Is there anything that I missed
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or forgot to ask? I think that's it. You know, we're really excited about the way, you know,
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everything's going. We're really excited about the way Ethereum is going. And to, you know, we've
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been waiting for layer two for so long. So it's been awesome to see that it's like actually here
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and it's usable and that we're seeing more and more layer two's kind of come online and get traction.
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And yeah, if you want to try the protocol, I'd recommend visiting hop.exchange or follow us on Twitter
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at hop protocol. And yeah, really appreciate you having me on the show.
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Chris, before you go outside of hop, when you are done with work, done with developing,
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what else about Ethereum excites you or do you pay attention to?
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That's a good question. I mean, that's a hard question. I've, you know,
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dive into DeFi all the time. Like that's been super fun. Like oftentimes like my entire Saturday's
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eating up by just, you know, making, you know, jumping around these different protocols, trying out
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new stuff. I admittedly missed I think a lot of the NFT craze. It's been so awesome to see
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like how mainstream it's gone. And like I, you know, was so kind of had my head in DeFi that I really
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just didn't see it going the way it did. And like I see your poster behind you. I know that you
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guys have been big believers in it. So it's been awesome to see it. And, but yeah, I've been
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following closely, but not too involved on the NFT side of things. And then, you know,
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Dows have been a huge interest for a long time. So like just seeing, you know,
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you know, Mola kind of kicked things off. And then you know swapped and compounds really
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start that the, you know, more organized, or not more organized, but kind of the protocol
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Dows has been awesome to see it. And so, you know, excited to see more and more people like
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working for Dows and having that be like a legitimate, legitimized type of organization.
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100% 100%. It's funny. It's funny that you think I'm an NFT person because I definitely like
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align myself as a DeFi person. And it's like, it's also funny to see like all the DeFi people,
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like not really, there's a separation between the DeFi people and the NFT people out there.
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00:45:16.160 --> 00:45:20.720
Yeah, yeah, yeah. And like it's so cool. Like the, you know, the NFT communities are really taking
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off. And it's just like, it's so hard to keep up with everything these days. Like it really is
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crazy how far it's gone. Is there room in the hot protocol for cross L2 NFT transfers,
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or is that is hop kind of only for fundable tokens? Absolutely. You know, by talent put out a paper
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about a month ago for a blockchain NFT bridge. And we think that the messaging piece
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of hot protocol is very well suited to kind of facilitate this type of NFT bridge. And so like,
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actually, he doesn't talk too much about how that communication would work in there. And so,
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we see this as kind of a misconponent and would love to kind of implement that in the future.
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Well, there's a lot of things to be optimistic about with the future of hot protocol. So Chris,
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thank you for coming on and telling us all about it. Thanks David. Really appreciate it.
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00:46:11.040 --> 00:46:15.680
So I think you mentioned this, but just to reiterate, what do you want listeners to do? Go try out
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hop exchange, follow hop on Twitter, join the discord. What else? Yeah, jump in the community.
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00:46:21.760 --> 00:46:25.680
You know, we're always a discord. So if you're looking for something to help, just start
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00:46:25.680 --> 00:46:33.680
start chatting and we'd love to find something. And yeah, follow us on Twitter and get your assets
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00:46:33.680 --> 00:46:39.120
on later too. There's real stuff happening. And it's a lot cheaper than later one.
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Very cool. Well, all of those links will be in the show notes if listeners want to hop into hot
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protocols. Chris, thank you for joining me. Thanks David. Cheers.
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Hey, we hope you enjoyed the video. If you did, head over to bankless HQ right now to develop
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Also, don't forget to subscribe to the channel for in-depth interviews with industry leaders,
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content. Thanks everyone for watching and being on the journey as we build out the bankless nation.
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00:00:00.000 --> 00:00:12.720
Hey, Bankless Nation. Welcome to the Meet the Nation. Today we are exploring Hop Protocol
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00:00:12.720 --> 00:00:20.480
with CEO and founder Chris Winfrey. Hop Protocol is a cross L2 cross chain liquidity protocol
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allowing you to hop from one L2 to another L2 to another L2 without having to go through
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the bottlenecks of the L1. So the way that this works is that Hop has contracts on the L1. It also
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has contracts on all the L2s and it also has these other hop tokens that are accounting tools
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and using all of these collections of technologies as well as actual USDC or USDT or ETH liquidity
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on all the L2s. It allows users to hop around all the L2s without having to touch the L1.
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So we go into the details about how this works, the technical capabilities of the Hop Protocol,
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what it's like for a user. We ask the question, what can Hop go from L1 to L1? Can it go? Can it
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also go from L2 of an L1 to a different L2 of a different L1? Then we also ask about the
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organization of Hop Protocol, how it came to be, what its future row maps are. And so overall,
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00:01:20.720 --> 00:01:25.600
I think thorough in depth and the efficient conversation of Hop Protocol. So I hope you guys
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enjoyed this conversation and learn all about Hop Protocol. There's links in the show notes with
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linking to their Discord and Telegram or if they have one and Twitter. So if you want to join
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the Hop Community, you can go ahead and click those links there. So let's go ahead and get right into
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00:01:39.840 --> 00:01:43.840
it. But first a moment to talk about some of these fantastic sponsors that make this show possible.
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keys. Not your keys, not your crypto. That's why so many in the bankless nation already have their
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or display your NFTs with Rainbow. You can also use Wallet Connect inside of ledger live to connect
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to all the other DeFi apps that keep coming online. DeFi never stops growing and the ledger live
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app grows alongside with it. So click the link in the show notes to see all of the DeFi apps that
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wallet, what are you even waiting for? Go to ledger.com, grab a ledger, download ledger live and get
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all of your DeFi apps all in one space. Hey, Bing, this nation and today we are here with Chris
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00:04:11.520 --> 00:04:16.000
Winfrey, the co-founder and CEO of Hop Protocol, which is one of the emerging
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Inter-L2 Interchain liquidity protocols that allow you to hop from one chain to another chain
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without having to go through some of the frictions of actually using the codified gateway
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between these two things. So Chris, welcome to the meet the nation.
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Hey David, I'm really excited to be on the show.
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So let's start at the very, very beginning. Where did Hop Protocol come about and what was kind
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of the initial inception idea? Yeah, so my team was originally working on a contract-based account
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called Op Theorem. And so we started that about a couple years ago and kind of saw an opportunity
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to really streamline the UX on Ethereum. And we felt like we made a bunch of good improvements,
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but ultimately when we started, it cost about 30 cents to deploy this contract-based account for
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users. And by the time DeFi took off and really drove those gas prices up, then it was over
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$200. And so we had to push this cost over to users. And then just for them to get started,
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it had this just huge barrier of entry. So we started looking for ways to kind of get our users
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onto Layer 2 and started connecting Ethereum with different Layer 2s. But we were still seeing that
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users weren't really saving gas. They were kind of moving to Layer 2, making a few transactions,
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and then coming back to Layer 1, and just those bridge costs were more than if they just used
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something like Uniswap on Layer 1. So we realized like, okay, if Ethereum has a future, we really
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need our users to get onto Layer 2 and to stay on Layer 2. And just to be Layer 2 native citizens,
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they never touched Layer 1 where they would have to deploy this contract-based account.
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And so we started kind of iterating on different ideas, put out a white paper and a demo of
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a hot protocol and each research. And that started to get some traction. You know, at the time,
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you know, Baitaq was starting to talk about, you know, a roll-up centric roadmap for Ethereum.
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And we kind of realized that, okay, maybe this has the opportunity to be core Ethereum infrastructure,
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where we need a way to kind of connect these different roll-ups and Layer 2s and just
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decided to go all in and focus on hot protocol. So one of the design philosophies that I think
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you articulated is that it's great if Ethereum has all of these Layer 2s and you can do all these
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things on the Layer 2s. But if we have all these Layer 2s, then people, we would imagine,
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people would be going between all these Layer 2s and going back to the Layer 1 to go to a
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different Layer 2 kind of almost defeats the purpose of having a Layer 2 at all. If you still
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have to funnel through the choke point of high gas fees, low block space environment of the Layer 1.
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So the idea of Hop is just increasing the experience of exactly what you said, which I really
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enjoyed, which was being a Layer 2 citizen. And so if you can just hop around all the Layer 2s,
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you actually completely remove that constraint of the high gas fees bottleneck that everyone has
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to go through by touching the Ethereum L1. Anything you want to add to that?
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That's exactly right, yeah.
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Okay, so let's see, how does it actually work on a technical level? What does it mean to
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hop from one layer to another? Maybe we can start with what does it feel like from the user
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perspective? What's that feel like? And then technically, how does that operate on the back end?
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Sure. So from a user perspective, we just exposed this very, you know, it's a Uniswap-like
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interface. It feels like you're using a cross layer or a cross chain AMM where you can just kind
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of deposit assets in one end. And then after some time you'll get assets at the other end. So you
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can transfer assets in about the time it takes for the source chain to reach finality, which is about
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five to ten minutes. The source chain? That is the chain that you are leaving or is that the chain
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that you're going towards? The chain that you're leaving. Okay. So that's basically the user experience
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and something that we've been very careful to not introduce the second transaction and just make
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that and try to abstract kind of this underlying technology from the user and make it as smooth
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as possible. So when you say it's like a Uniswap style interface, when I go to Uniswap, I have two
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tokens that I select. I have, you know, I want, I have Ether and I want USDC. Actually, it's almost
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always the inverse. I have USDC and I want Ether. If for you guys, is it I am on Arbitrum and I want
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to be on Optimism? So we just swap out the tokens and instead replace it with destinations?
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Yeah, that's exactly right. You'll select the asset and then a network that you're coming from
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and then a network that you're you're going to. Okay. And then can you also swap exchange tokens
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in the meantime or is that just a completely different feature? Not not right now, but it's
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definitely something that we're talking about addressing in the future. Okay. All right, so very
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cool. So I have a bunch of USDC or Ether on one L2 and then I want it to go to a different L2.
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How is this actually facilitated on a technical level? Sure. So there's a few layers to hop and so
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the very, very core layer is basically this way to scalably send messages from one roll up to the
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next. And so the way this works is each scaling solution already has a message bridge with
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layer one Ethereum. So this basically allows contracts on Ethereum to call contracts on layer two
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and contracts on layer two to call contracts on Ethereum. And you say a message bridge.
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That is just like the bridge, right? Like when I say I want to get my money from from L1 to Arbitrum
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or L1 to Optimism, I use the bridge. Is this a that's the same bridge as the message message bridge
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or is that a different piece of infrastructure? So we call that the native token bridge and the
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native token bridges are also built on top of this core message bridge. So if you imagine the message
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bridge allows contracts to call each other, then what the native bridge is going to do is it's
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going to allow you to lock up USDC on layer one and then that's going to send a message to
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mint USDC for you on layer two. And then on the inverse, if you burn USDC on layer two, then it will
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send a message down to layer one to to release that USDC on layer one. The caveat is that for
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optimistic, we're all up the message from layer two to layer one takes a full week for it to be
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executed on layer one. And this allows time for the challenge game to play out in order to make
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sure everything is secure. And then with zk we're all up, the message can only propagate as fast as
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that zk rollup checkpoint. And so a zk rollup checkpoint is pretty expensive. So sometimes it will
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happen every half an hour, sometimes it'll happen every six hours depending on how scaled up that
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rollup is. But you know, even exiting a zk rollup can still be slowed depending on the scale.
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Okay, and that's an important point to drive home like even in our fastest rollups that we have zk
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rollups, it's still a 30 minute wait time, which I mean, I get frustrated when I have to wait five
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minutes for my transactions to clear on Ethereum. So like from a user UX experience, like 30 minutes
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is going to be even more frustrating, even if they get used to it, like we can still iterate on this.
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And again, that's the fastest time to go from a layer two to a layer one. And so like with
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optimistic rollups, which are both optimism and arbitrum, it takes upwards of seven days. And so if
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you want to use these bridge, I'm pretty sure crushed me if I'm wrong, but going from the L1 to
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arbitrum or optimism, it's more or less instantaneous. But getting back out is takes seven days
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for optimistic rollup. So there's like huge UX problem here, almost no matter what.
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Exactly right. Yeah. And so we have these message bridges that we can leverage. And so you can
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imagine if we want to talk from from one rollup rollup A to roll B, then the naive approach would be,
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okay, send a message down to layer one, and then send that message back up to later to at the
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destination. And then we kind of have this communication link. Right. We bounce off the layer one to
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go off to a different destination. Yeah. And so the problem with that is that this creates this
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huge bottleneck with layer one. So if we imagine that our layer two environments are way more scalable,
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we have lots and lots of messages. And if each of those messages needs to propagate one by one
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through layer one Ethereum, then it just creates this bottleneck, bottleneck, it's expensive,
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and it just doesn't really get us the scalability we want. So the core innovation behind hop is that
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we will aggregate many messages on the source chain, the chain that you're leaving. And then we
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will periodically commit those. And so when we commit them, we aggregate all those messages into
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this really compact data structure. I'm sure you guys have talked about Merkel trees. And you basically
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just have a single hash that represents all of this data. And then we can propagate that hash
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through layer one that represents thousands of messages onto the destination layer two. And then
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we can unpack it at the destination. And then that kind of creates this scalable roll up to roll up
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messaging protocol. Okay, so that is like the settling up between two layers, right. And so maybe
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there's just a bunch of USDC that flows from one L2 to another L2. That's not settled. A bunch of
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things happen. Maybe a bunch of things more happen. Maybe a bunch of things more happen. And like
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the analogy here is kind of like a bar tab that everyone uses. And people usually typically
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use the bar tab analogy to talk about a payment channel, which I think a protocol might be,
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but we'll talk about that. And then so what you're saying is like, you hop protocol allows for
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a bunch of economic activity to happen. A lot of people going to the bar and asking for a drink
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without actually a transaction settling to visa the visa network. But then periodically,
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you do settle up. And the assets do actually flow from like the arbitrum contract on the layer one
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to the optimism contract also on the layer one. And allows the actual roll ups to settle up with
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each other based off of hops sort of like off chain transaction ledger that it has. Is this all correct?
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Yeah, yeah. And so I wouldn't we have very a lot of similarities to payment channels and
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you know, specifically that we make a bunch of payments and then we do this kind of batch settlement,
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but then but then like structurally it turns out a little different, but that's where the similarities
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end. Yeah. Okay. Exactly. So how does hot protocol actually like account for the net of all of the
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assets that are transferred cross-chain? So that's kind of this next layer. And so hop has this
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intermediary asset that we call H tokens. And so it depends on what assets being bridged,
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but it could be like HUSDC, HEF. And so just like are these just like hop IOUs?
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Exactly. And actually, you know, you could think of basically every token on layer two as an IOU,
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because you know, even with the native bridge, you're locking up an asset on layer one and
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and then think something on layer two. And so basically this is hops version of that that's
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alongside the native token version. We call that the canonical asset. So like canonical USDC,
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that's going to be the one that's used in the Uniswap, et cetera. And so the reason we introduce our
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own intermediary asset, these H tokens, is because we need to build this special functionality
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into them that we can't build into the canonical assets. And so specifically when you deposit
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into the layer one hop bridge contract, you'll mint an H token. So if you deposit USDC,
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you'll mint to HUSDC on layer two. And that that functions just the same as the native bridge.
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But the difference is that when you burn HUSDC or another H token on layer two, we have a role
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called the bonder that can mint HUSDC at another destination for you.
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Because hot protocol needs, it needs, what's the right word? It needs itself sovereignty. It needs
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its own ability to manage its own currency to account for the differences between the currencies
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across the different L2s, right? Exactly. Yeah. Okay. So like, wait, so is it, so I have USDC
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on Ethereum? And I deposit it into Arbitrum. And then I get USDC on Arbitrum. But like you said,
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that's actually an IOU. So it's actually Arbitrum USDC that is an IOU of USDC on the main Ethereum
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chain. And then when you mint a hop USDC, aren't you actually minting H Arbitrum USDC? So it's
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HAUSDC because you are making an IOU for Arbitrum USDC, which is making IOU for USDC on the main
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chain. Is that right? Yeah, the naming gets a little confusing, but I would think of it as
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the canonical USDC is kind of an IOU promise to be able to claim USDC from the native token
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bridge contract on layer one, whereas HUSDC is a promise to claim layer one USDC in the hot bridge
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contract on layer one. Okay. Okay. Hot bridge contract on layer one. Is the hot bridge contract
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on layer one also part of the Arbitrum or Optimism contract? Or is that something is that separate?
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It's separate. And then it will also be connected to Arbitrum Optimism,
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polygon, and so it's like, it's more, rather than stacking on top, it's more in parallel.
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Okay. Okay. Cool. And so, so that's kind of how the, yeah, that's kind of how the H tokens exist.
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And then in terms of, you know, transporting an H token from one roll up to the next,
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the user basically burns an H token specifies the destination. And then we have a bonder. And so,
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the bonder is able to fully verify these roll ups, you know, in the time it takes for layer one
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finality. And so with roll ups, you kind of have two finalities. You have kind of like off-chain
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finality, which you can determine pretty fast in five to ten minutes, because you can actually,
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you know, look at the chain of transactions and compute the the state and make sure that you're
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correct. But you can't do that on-chain because you can't run all those transactions. Otherwise,
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we wouldn't be scaling Ethereum. And so that's why it takes a week for kind of on-chain finality.
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But the bonder, they're fully verifying things in real time. They see that H tokens were burned,
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HUSDC was burned. And then they have collateral locked up at the destination. And they'll use that
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collateral to mint HUSDC for the user at the destination. So now, you know, imagine they facilitate
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a bunch of these transfers. They've locked up a bunch of collateral and they can't unlock that
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collateral until they receive proof that HUSDC was was burned at the source because we want to make
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sure that the hot bridge contract remains fully collateralized. And so that's where the message
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bridge comes in, the hot message bridge. So, you know, after many people have transferred, we aggregate
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those into our contact data structure. And then, you know, we propagate this, we call it a transfer
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route or a message route, you know, through layer one to the destination. Once I reach this
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is the destination, then the bonder can settle up and their collateral is unlocked. So that's
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kind of how you can move an H token from one place to the next pretty immediately into the settlement
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process happens over time. Okay, so like to my mind, the H tokens are like this shadow token,
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the shadow that like follows the actual real token. But it has the self-sovereignty that hot
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protocol needs in order to move like at the speed of light. And so the way that hot protocol
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allows for like this, like near instantaneous transfer of, you know, asset to from asset to change
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or change or change, is that you guys actually have the actual assets on all of the change on all
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the chains. And so somebody on chain A can go to chain B because hot protocol actually has the
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USDC on both sides. And then the H tokens are that communication accounting tool that because
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hot protocol, the hot protocol contract on the L1, it can manipulate the destination of the
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tokens as it sees fit unlike it how that's not true for USDC or ether. And so it can manipulate
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the balances on all the other chains to account for the transferring of USDC or any other token
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across all of the chains. Is that right? Yeah. And this is all done completely trustlessly.
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It's all fully collateralized. It basically is completely realized on the security of Ethereum
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and the different scaling solutions that you're using. But we like that word trustlessly.
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What happens? How does, what happens if like all for some reason everyone is on Arbitrum and
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they want to go to a different L2. So like Arbitrum, I'm just using Arbitrum just because everyone is
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on layer 2A. And then all for some reason there's an economic event that means everyone needs to go
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to a different layer to layer 2B. And all of the liquidity flees out of layer 2A. How does,
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and then therefore everyone who's left on layer 2 is stuck because you guys hot protocol has
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lost of its all of this available assets because everyone has used up all like the bandwidth.
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How does hot protocol like redistribute to account for like different bandwidth requirements
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across all the layer 2s? So actually to take a step back. So we have this HUSCC and this is kind
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of like the second layer but the H tokens aren't what the users want. They are using these actual
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canonical tokens. And so that's kind of like the third layer of hop. So the core we have the
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message bridge and then we have the second layer, this intermediary asset. And then at the third
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layer we have AMM. So we have an AMM between the canonical asset and the H token. And so when
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a user is bridging from Arbitrum to Optimism, they'll swap USDC to HUSCC that HUSCC is burned and
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then the bonder will then HUSCC at the destination. And then that's automatically swapped out into USDC
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and ends up in the user's wallet. From user perspective it's just one transaction for the whole
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flow. And so these AMMs actually play an important role in terms of like balancing across the
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chains as well. So if we see a huge flow from say Arbitrum to Optimism then you know it will
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cause the USDC on Arbitrum to start trading at a discount. And then the USDC on Optimism to start
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trading at premium. And this actually incentivizes folks to rebalance these chains with like large
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settlement transactions through layer one. So they can kind of redistribute assets across the
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chains and then profit off that based on the Arbitrum's opportunities that the AMMs present.
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Right very clever. That definitely seemed like the right place for economic incentives.
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How are these AMMs constructed? Are they more like curve where the actual shape of the AMM is
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differentiated or is it more like uniswap V3 where you can have concentrated liquidity?
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So it's more like curve for stable swap. They are like kind assets you know that there shouldn't
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be any reason for you know USDC and HTC to diverge because ultimately you can claim either one
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on layer one for layer one USDC. And same with you know if an ATF and all the other assets that we
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support. So yeah right now we're using the stable swap construction.
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Hey guys I hope you're enjoying this conversation with Chris about hot protocol thus far coming
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up any second half of the show we go into more details about the technical details of the hot
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protocol as well as the future road map and also just a more casual conversation about what Chris
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thinks about the current state of DeFi and where we are overall going and also talk about yield and
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how hop hop can offer just a sustainable source of yield for all those stable coin yield
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in governance. Can hop bridge non EVM chains? It can. Yes. And so we haven't supported them yet.
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It would just be a matter of re-implementing our layer 2 bridge contract for whatever the
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scaling solutions. But you know, we do plan on supporting StarCware and ZKSync and other ZK
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rollups. And then eventually we'd like to support like disjointed layer ones as well,
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but that's kind of a different problem set than what we're addressing right now.
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Okay. So it seems to be that any rollup EVM or not that settles to Ethereum. That seems like a
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relatively surmountable obstacle because there's only one canonical hop contract on one canonical
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Ethereum L1. That seems like a task that can be overcome. Getting from one L1 to a different L1
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or an L2 on one L1 to a different L2 on a different L1. That seems like a taller task because
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now there has to be two different hop contracts on two different L1s. Is that on something here?
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Yeah, that's exactly right. Can you describe how that how that problem works?
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Yeah, so it's a very different problem set. It's something that, you know, we wouldn't use the
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core technology behind hop for this. We would kind of develop something new. And so this will
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probably involve some new validator set to basically attest that, okay, you know, tokens,
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each tokens were burned up that, you know, some disjointed layer 1. And we can release the token
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on layer 1 Ethereum or Mint Age tokens on an Ethereum L2. And so this validator set won't share
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the same security as Ethereum. It will be as secure as that validator set. It will be like a
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multi-sake validator set of sorts. Yeah, but that's kind of the best that you can do.
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Right, listeners will be reminded of our episode with Rune Christensen who had a lot to say
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about security assumptions across layer 1s using multi-sakes.
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Yeah, okay, so can one is who can provide liquidity in hop right now? Is that like a closed
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environment? And then what's the long-term game plan for that?
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Yeah, so we think of that there's two types of liquidity in hop and we call this passive liquidity
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and active liquidity. And so passive liquidity is basically liquidity in the AMMs. You just kind
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of set it. You have very low risk of the permanent loss and you can just kind of earn trading fees
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and then maybe stake it if there's liquidity mining. And then we have active liquidity. And this
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is the bonder process. It's a lot more like running a E2 validator where you kind of set up your
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server. You have some process that's constantly listening for events and making transactions.
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And so right now the bridges are set up just one bonder per bridge. And so the worst
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a bonder can do is be offline. And when the bonders offline, the transaction will still propagate
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as fast as the exit time of the source roll up. So the roll up that you're starting on.
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So even though there's just one party that's doing this right now, they're not taking custody of
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funds. They're not presenting additional risks. They can just be unavailable basically.
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And in the next version of hop, we're going to support multiple bonders per asset. And then after
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that, we're going to have a completely decentralized bonder network. And so it's really cool about
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when we get to that point where we have this decentralized bonder network or even multiple bonders
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is that it becomes a one-of-end trust model. And this is just for being available. Right now it's
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trustless in terms of custodianship. But then in terms of like, is your asset going to move
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very, very fast or is it going to kind of move at the slower pace? That is still now one-of-one,
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but it's going to become one-of-end which is you just need one honest bonder to go through.
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Very cool. Do you have any sort of metrics that you've been able to discover over the last few
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weeks or so, or actually months now that Hopper to call has been alive for a while about the
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level of yield that liquidity providers are getting from this? So it fluctuates a lot. We just
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launched our eFridge last week on like a daily basis. Some people are making 15 plus percent on
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E. I was 15 percent in a day? No, no, no, sorry. Oh, you're really compounded. Okay. Yeah, you
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just want to say like, hang on, just take all my heat. Yeah. But yeah, based on a very short
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window and so I would expect that to be competed down. But so far, the yields have been good.
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And yeah, you can also earn stable coin yields. And again, there's very low risk of
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impermanent loss. So I don't think there's many opportunities to earn the kind of yields
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that Hopl P's are earning at least for heat. Right. Extrapulating this out into what
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me and Anthony Sazono called the nexus of Ethereum where there's many, many L2s and there's
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many, many economic actors hopping between all these L2s. This is going to be like a kind of like
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Ethereum's like economic heat where all the transferring around is causing a bunch of
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just like fees and yield to occur. Do you have any like long term thoughts about how L2 transfers
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will impact yield in DeFi? That's a good question. I mean, I think, you know, ultimately we'll
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just keep attracting capital and I say, we, I mean Ethereum until, you know, yields start to
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make more sense for the risk that people are taking. And so right now yields are very high.
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Risk is very high. As Ethereum becomes more mature and Hop becomes more mature and you know,
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urine becomes more mature. All these different yield producing protocols, I would expect
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yield to kind of settle into more in line with the traditional finance ecosystem.
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Is urine something that can be a liquidity provider for Hop?
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So we have talked about, so back to like active liquidity and passive liquidity. So with the
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one passive liquidity is much cheaper than active liquidity. There's low barriers to entry. You
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don't have to run the server process and there's a lot of folks that are just mercenaries. We'll
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throw yield, you know, it's very, very competitive. And ultimately with the passive liquidity,
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you need those pools because if you don't have the actual asset for people to bridge into,
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then, you know, they can't bridge. There's no way to kind of eliminate that type of liquidity.
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But this bonder liquidity, it just is essentially collateral. And so right now the bonder uses the
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same asset that's being bridged. But ultimately we could, or we plan to move to a future where the
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bonder could kind of hold the basket of assets. Those could be yield bearing assets. Or, you know,
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they could be if they could be, you know, whatever basket of assets the bonder wants to hold. And they
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just use that as collateral while earning yield on it for bridging assets across Hop. And that's
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where I think we'll get some big improvements in capital efficiency. Very cool. How are fees
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determined in Hop? So right now the bonder sets a fee. And then the AMMs take a 0.04 percent fee,
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so four basis points. And then, you know, once we get to the multi bonder model, then the bonders
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will basically compete for for lowest fees. And then that will kind of drive them down to a minimum.
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Do you kind of think that over the long term, over the many years that fees will kind of just
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collapse to the absolute minimum while also speed between L2s kind of increases? Is that the outcome
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for this? Yeah, Hop definitely scales up a lot better than it scales down. So, so, you know,
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basically the larger amount of assets that we're transferring for each of these settlements
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through layer one, then the cheaper we can get fees. So right now we're at the bonder charges
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1.8 percent, so 18 basis points. Pretty soon, we're going to be, you know, we just scaled up
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the ETH liquidity. We're going to do the same with USDC. We're going to be able to drop that tone
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to nine basis points. And ultimately, I think we can get it to, you know, around four basis points
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or lower for the bonder fees. Now that seems to fit into the model of L2s that I've come to
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understand where the more users and the more assets and the more economic activity that's
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happening on these L2s, the actual cheaper the fees actually are because they're amortized across
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all the users. And so not only is this true of the actual L2s themselves, but this is also true
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of Hop as in the bridges between these L2s. Can you just, can you just riff on that for a second?
366
00:36:44.560 --> 00:36:49.440
Do you think like that's L2 environment is just going to become faster, cheaper, stronger as
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more and more people just adopt it? Absolutely. Like even, even for myself, you know, I've been
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using D5 on L1. I just rebalanced a bunch of positions. And I just realized, what am I doing
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on L1? I'm just losing a huge part of my yield to transaction fees. L2s here today. And so,
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yeah, I really think that soon here it will be very much much more rare, especially for users that
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aren't dealing with, you know, anyone who's not dealing with like hundreds of thousands of dollars
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is going to be on layer two and just stay on layer two because layer one is just too expensive.
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It makes a ton of sense. Are there any significant differences between how Hop is constructed
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versus how connects is constructed that are worth talking about? Sure. So there's a few different
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bridge bottles. So we already talked about Hop. We developed this technology. And so right now we're
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kind of alone in this category. And then another category is hash time locks. And so this is
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kind of a game where you have one party lock up assets on one chain with the secret. The party,
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another party locks up assets with the secret. And then someone reveals the secret on one chain.
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And then the other party can use that revealed secret to unlock on the other chain. And so,
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hash time locks they've been around for a long time. This is the same technology that underpins
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the Bitcoin Lightning Network. And they work well in some scenarios. And then there's some difficulties.
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And these difficulties are ultimately why we chose not to take this approach when we were looking
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at this problem with Ethereum. And so one is that you have to wait for two rounds of finality.
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So you can't move too fast when you're doing kind of the second prepare transaction. And then
385
00:38:46.000 --> 00:38:52.560
you can't move too fast when you're revealing the secret. Otherwise, you're at risk of a reward.
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And then the other one is that whoever goes first in this game is kind of locking up their assets
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without any promise of the other party kind of locking up their assets. So if you have one party that
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has reputation, then things work really well. Because they're reputable and you know that they're
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not kind of like, you know, take lock up your assets without fulfilling the game or something like
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that. But then it gets harder to like really decentralize that network. Because once things get
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competitive, then you have to layer in some kind of reputation layers to make sure that you don't
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have parties entering and then just locking up people's funds so that you know that more assets
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are out through their router or something like that. And then the third type of bridge is kind of
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this externally verified bridge. And that's kind of what I was talking about with, you know,
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it could be a future direction of pop. But ultimately it introduces a new trust model. And with
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00:39:55.840 --> 00:40:01.840
you know, for going across layer two, we want to just rely on Ethereum's trust model and see that
397
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as kind of the best way to scale in the near term. But then for kind of addressing, you know,
398
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disjointed layer ones, that's something that's that's better suited for hashed high mobs or for
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these externally verified bridges. Very cool. Let's let's talk about the organization behind hot
400
00:40:22.480 --> 00:40:27.920
protocol. How is the protocol actually, who are the people around hot protocol and how did they
401
00:40:27.920 --> 00:40:36.560
become organized? So we launched hot towards the beginning of the year. And since then we've kind
402
00:40:36.560 --> 00:40:43.280
of had this community grow. And then we have a company that kind of facilitates the development
403
00:40:43.280 --> 00:40:50.000
of the protocol. And yeah, so as we move forward, we're going to be kind of becoming more and more
404
00:40:50.000 --> 00:40:56.080
community oriented. And we're already starting to see, you know, community members that have
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developed like analytic dashboards or like Twitter bots and stuff like that, which has been really
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00:41:02.080 --> 00:41:09.920
cool to see. Is there an actual formal hop down? There's not. Will there be? There could be.
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There could be. Is there a hop token? There's not. Will there be? There could be.
408
00:41:16.800 --> 00:41:22.880
Okay. Awesome. Okay. What if I, I don't know if there is an official hop roadmap, but what is
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left on the roadmap? So there's a lot. So right now we kind of have the first version of our bridge.
410
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The next version of the bridge is very similar, but enables multiple boundaries for an asset.
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And so we're excited about that. And it also allows us to kind of consolidate like kind assets.
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So right now we have a separate bridge for, you know, each of our stablecoins.
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And in the next version, we're going to be able to kind of have like a single stablecoin bridge,
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which is going to be much, much more efficient. And like I said, you know, it scales up really
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well. So it should allow us to drop the fees by a good amount. And then, you know, we want to head
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to, you know, we're heading into direction where we're making kind of the disc like core messaging
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protocol more generalized. And that's going to enable some really cool stuff in the future.
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And then beyond that, we want to address the disjointed layer ones. And you know, that's going
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to be a big R&D effort to kind of figure out, you know, what's the best way to do this in a really
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decentralized way, even if we can't, you know, leverage the security of Ethereum for other disjointed
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layer ones. Okay. Well, Chris, thank you for having extremely like powerful and concise answers.
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00:42:39.360 --> 00:42:43.920
And so I think that's everything that I need to know about hop. Is there anything that I missed
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or forgot to ask? I think that's it. You know, we're really excited about the way, you know,
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everything's going. We're really excited about the way Ethereum is going. And to, you know, we've
425
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been waiting for layer two for so long. So it's been awesome to see that it's like actually here
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and it's usable and that we're seeing more and more layer two's kind of come online and get traction.
427
00:43:07.520 --> 00:43:14.640
And yeah, if you want to try the protocol, I'd recommend visiting hop.exchange or follow us on Twitter
428
00:43:14.640 --> 00:43:19.920
at hop protocol. And yeah, really appreciate you having me on the show.
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Chris, before you go outside of hop, when you are done with work, done with developing,
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what else about Ethereum excites you or do you pay attention to?
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That's a good question. I mean, that's a hard question. I've, you know,
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dive into DeFi all the time. Like that's been super fun. Like oftentimes like my entire Saturday's
433
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eating up by just, you know, making, you know, jumping around these different protocols, trying out
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new stuff. I admittedly missed I think a lot of the NFT craze. It's been so awesome to see
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like how mainstream it's gone. And like I, you know, was so kind of had my head in DeFi that I really
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just didn't see it going the way it did. And like I see your poster behind you. I know that you
437
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guys have been big believers in it. So it's been awesome to see it. And, but yeah, I've been
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following closely, but not too involved on the NFT side of things. And then, you know,
439
00:44:27.600 --> 00:44:31.360
Dows have been a huge interest for a long time. So like just seeing, you know,
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you know, Mola kind of kicked things off. And then you know swapped and compounds really
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start that the, you know, more organized, or not more organized, but kind of the protocol
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00:44:44.240 --> 00:44:51.920
Dows has been awesome to see it. And so, you know, excited to see more and more people like
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working for Dows and having that be like a legitimate, legitimized type of organization.
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100% 100%. It's funny. It's funny that you think I'm an NFT person because I definitely like
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align myself as a DeFi person. And it's like, it's also funny to see like all the DeFi people,
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like not really, there's a separation between the DeFi people and the NFT people out there.
447
00:45:16.160 --> 00:45:20.720
Yeah, yeah, yeah. And like it's so cool. Like the, you know, the NFT communities are really taking
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off. And it's just like, it's so hard to keep up with everything these days. Like it really is
449
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crazy how far it's gone. Is there room in the hot protocol for cross L2 NFT transfers,
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or is that is hop kind of only for fundable tokens? Absolutely. You know, by talent put out a paper
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about a month ago for a blockchain NFT bridge. And we think that the messaging piece
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of hot protocol is very well suited to kind of facilitate this type of NFT bridge. And so like,
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actually, he doesn't talk too much about how that communication would work in there. And so,
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we see this as kind of a misconponent and would love to kind of implement that in the future.
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00:46:02.960 --> 00:46:06.320
Well, there's a lot of things to be optimistic about with the future of hot protocol. So Chris,
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thank you for coming on and telling us all about it. Thanks David. Really appreciate it.
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00:46:11.040 --> 00:46:15.680
So I think you mentioned this, but just to reiterate, what do you want listeners to do? Go try out
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00:46:15.680 --> 00:46:20.960
hop exchange, follow hop on Twitter, join the discord. What else? Yeah, jump in the community.
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00:46:21.760 --> 00:46:25.680
You know, we're always a discord. So if you're looking for something to help, just start
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00:46:25.680 --> 00:46:33.680
start chatting and we'd love to find something. And yeah, follow us on Twitter and get your assets
461
00:46:33.680 --> 00:46:39.120
on later too. There's real stuff happening. And it's a lot cheaper than later one.
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00:46:39.120 --> 00:46:43.200
Very cool. Well, all of those links will be in the show notes if listeners want to hop into hot
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protocols. Chris, thank you for joining me. Thanks David. Cheers.
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you want to be. Click the link in the description to become a bankless premium subscriber today.
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Also, don't forget to subscribe to the channel for in-depth interviews with industry leaders,
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ask me any things and weekly rollups where we summarize the week in crypto and other fantastic
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content. Thanks everyone for watching and being on the journey as we build out the bankless nation.
