Bridging The Gap With Nomad
Christian| Saddle 0:00
Tell the people a little bit about your background, who you are what you're doing.
Pranay| Nomad 0:05
Sure, sure. Thank you for the intro. I'm Pranay. I'm one of the cofounders and CEO of Nomad, which is an optimistic interoperability protocol to allow smart contracting chains to be able to talk to each other. And really what we focus on is security first. There’s been this massive explosion of bridges. And with that, I also mean literal explosions to the tune of like nine figures or $600 million plus hacks. So it's really important that we start getting this right and, you know, build a connected chain future that people can use without having to be terrified about the underlying security models of the bridges. And I believe I have Julian here as well. Who can give an intro about himself and maybe say a little bit more about Nomad from his point of view.
Julian| Nomad 0:58
Yeah. Hey everyone. So yeah, I'm Julian. I lead growth at Nomad. You know, helping partner with, you know, whether whether you're just a degen or whether you're a protocol like Saddle, trying to partner with Nomad and focus on this cross chain feature, I think these are the kinds of people that I love to talk to. And so, I don't know, I think, you know, I think I'm really excited about Nomad. I think, you know, the one of the ways that I like to describe Nomad is we believe that will eventually be like the TCP for for the blockchain ecosystem, focusing on security first. And I think Pranay will probably go into like, you know, how we use an optimistic mechanism and how that's better than like validator or multisig bridges. But But yeah, I'm excited to get this AMA going.
Christian| Saddle 2:00
Awesome. So yeah, I think a good place to start then to expand on the intros is, what exactly are you guys doing? How are you doing it? How is security built into your development process? More specifically?
Pranay| Nomad 2:14
Totally. Yeah, I'm happy to start there. I think the key thing to understand is kind of how we got here. Which is, how did we end up in this world with a ton of popular and successful layer ones. Saddle is obviously deployed on Ethereum. But part of what motivates this conversation is, Saddle is going to expand to Evmos, which is going to blow open the Cosmos ecosystem to bunch of EVM, liquidity, and developers. So it's clear that the number of like popular and high quality layer ones is continuing to grow and will continue to grow into the future- especially as the like tool suites to deploy new chains, app specific chains continues to expand. So things like Avalanche subnets, Cosmos SDK, Polkadot and Substrate, it's clear that there's never been, it's never been a better time for a developer to be able to spin up their own chain to be able to deploy their app however they want and take advantage of building the layer one itself in whatever way they need to support their applications and their users. So in that regard, where we end up with is a bunch of fragmented liquidity and layer ones that can't talk to each other very easily, unless they're already playing in the context of a Cosmos or a Polkadot with the native Interoperability solution.
So what is happening right now is we are simply in another turn of the infrastructure cycle where last infrastructure cycle focused on a lot of high quality L1s that emerged. And now our job is to learn how to connect them so that we can have true horizontal scalability. And for Julian's point, what we're trying to do is offer some type of standard with a high level of security that can be comparable to what IBC is in Cosmos to a bunch of heterogeneous chains that cannot use IBC or header relay constructions right out of the box. And so how Nomad works is, instead of using a light client to offer trustless bridging by confirming state transitions within the light client of the receiving chain, Nomad optimistically commits to state on the home chain, and then waits for a little bit once that message has been sent to the destination chain to ensure that if there's at least one honest actor off chain, they can flag fraud and prevent bad messages from going through.
And so the key trade off Nomad makes is it sacrifices instant settlement or speed for a little bit of latency in order to increase the security across chains where IBC may not be able to be deployed easily. And the reason we believe this though, this is kind of from a user standpoint, most users won't really may not run into the security properties of a bridge day to day, they mostly focus on speed and security.
The reason we believe this is a trade off worth making is because, as we've already seen, the top three exploits in all of crypto are all bridge exploits: Wormhole, Poly Network, and most recently Ronin- total to over $1.5 billion and all dealt with bridge exploits. And so, in order to prevent this from happening in the future, we need to make this trade off and be able to offer a more high security solution. Which is where we play and hope that there are use cases that makes sense for app developers crushing app developers to use Nomad.
Christian| Saddle 5:41
Perfect. You said something very interesting. You said that the that you guys are enabling communication between different blockchains. But you didn't say token bridging. So can you tease up a difference there between bridging tokens specifically versus relaying messages more broadly?
Pranay| Nomad 6:00
Great, great point. I think this is like a thing that folks are starting to realize, particularly I think, I give credit to layer zero for doing a really great job evangelizing the idea of like the Omnichain future or generalized message passing. But this isn't anything new. Like IBC has been talking about this for four or five years where IBC has generally framed communications between blockchains in the form of like packets or agnostic messages that just send bytes across the wire. Similar to how Julian mentioned, TCP. TCP is simply a protocol to send information. It does not specify what people do with that information. And so in the same way, Nomad is fundamentally a protocol to establish messaging channels that connect blockchains. So I can build something as ridiculous as if y'all remember the app “Yo” from the early 2010s. It was literally an app that you download, where all you could do was wake up in the morning and tell your friends “yo”, and they raised like $2 million. That's a story for another day, like what the market was like back then, and why this got funded. But one of the jokes I've been making, but But it's kind of like I want to see somebody build this using the Nomad SDK is build an app that lets chains say GM to each other. Because that's totally possible. There's not much business value for it, or it's just a goofy example of what can be done.
But my point here is that the token bridging use case is just one application that can be built across or on top of generalized message passing channels. And the business logic for the token bridge application is you lock tokens on one side, and then once that escrow function has been performed, and relayed to the destination chain, then you meant a synthetic asset that says, at any given time, you can redeem this IOU, one for one with the underlying escrowed asset. So really, it's not a bridge, it is a synthetic asset exchange.
And that's largely how all of the exploits have been conducted is that through some application or Root of Trust vulnerability, the hacker has been able to remove the funds from escrow such that all the people holding the assets on the destination side are simply holding worthless paper. An IOU has no value, if you cannot redeem it for the underlying. And so this is why this is what spooked everybody about the Wormhole hack is because so much of the like ETH that was used in Solana was being collected, like escrowed and collateralized by the Wormhole bridge. And as soon as that escrow had been lost, now all that eat that was being used in like, Solend and a bunch of other protocols. I'm not as familiar with the Solana DeFi ecosystem. It created it would have created systemic risk, if those assets are now unmapped. Right, because then they're worthless. If they're worthless than the stable coins that have been issued by escrowing the Eth on Solana would not have any value either.
So there's this kind of systemic risk that was bubbling up, and thankfully, Jump came and made the system whole in order to prevent the like domino effect from taking root. And so winding back to your question, Christian, like the token bridge itself has been the main application that's gotten the most attention simply because people have have had a need to ape across chains and into yield farms where there's more yield. But in the future, I think we'll see a lot more sophisticated cross chain applications, such as being able to escrow and asset on one chain and vote on a governance proposal in another.
Right, really, all messaging channels do or generalized messages do is they help create some way to communicate across an asynchronous boundary between chains. And so the crazy future we're looking at is that people do not even know what chain they're interacting with. They're just interacting with an application that somehow under the hood uses a messaging protocol to bridge the gap, pun intended, between whatever chain the application is deployed on.
Christian| Saddle 10:09
That's great. Um, I want you to highlight a little bit more of the differences between your approach to bridging in this particular case tokens versus, say the Wormhole’s implementation of doing that. So are you guys not doing the escrow model? Do you guys have liquidity pools on multiple chains? Like, how does that play out? Like, behind the scenes?
Pranay| Nomad 10:33
Yep, yep. So good question. And short answer is the Nomad token bridge does use the escrow and mint model. We partner with another great team called, Connext, to who are building the liquidity network or who have built the liquidity network side of it. And quickly to kind of offer some context on what these two are. The mint, the lock and mint bridge is what is needed to be able to generate wrapped assets. So for example, eth, there is no way for me to natively deploy eth on Avalanche. Ethereum is the native-Ether is the native token for the Ethereum chain. And in order to get eth exposure on Avalanche, I need to lock eth on Ethereum and mint, a synthetic on Avalanche itself. What can be done after the synthetic is minted is some market maker or router or protocol can buy a bunch of this eth, this Avalanche eth let's call it, AVAX-ETH, and basically make it available in a liquidity pool for users. And so if I'm a regular user, and I just need to get exposure to 108x Eth the avalanche side, I sell my 100 eth on the- well, I don't know what regular users selling- moving this much weight. So let's say one Eth I sell my one Eth on Ethereum, and then the market maker sells it to me atomically on the Avalanche side.
But throughout this process, no synthetic acid was minted. It was just the exchange hands and then the market maker rebalances between the two sides. But the point here is these are two different applications. One creates the underlying asset. And the other makes it easier to swap between the two representations for users. And so what Nomad is is the former. But the key difference between Nomad and the other systems out there like a Wormhole is that something in order for this lock and mint application to work, something needs to verify that the tokens were indeed locked on Ethereum and let the destination chain know so that it can mint it without double spending. If the destination chain mints synthetic Eth without there actually being any underlying locked up, we get into that same situation that I described with the Wormhole hack. And so really what the differentiator for these underlying settlement layer bridges is what is the Verification Mechanism that tells the destination chain that that locking that escrow has happened. And you can trust that mechanism that tells you that? Well, for the best way to do this is to use light clients like IBC. But for the aforementioned reasons, it's really hard and expensive. And it's not extensible, meaning it's hard to roll out onto a bunch of different chains and different heterogeneous environments.
So really, what everybody's relied on, is what's called external verification, which is a fancy way of saying, I trust somebody in meatspace, to tell me the right thing. And the only model that really has taken root is I trust X number of people and hope that X is a significant enough number such that they won't rug me. wormhole is 13 out of 19. Axelar is a dynamic set of like, I think they have 40 validators, so maybe like 27 or 28 out of 40. Whatever the math for two thirds is, layer zero is like three out of four, they have three Oracle providers two of three, which needs to reach a threshold signature, and then one relayer, which they run, but everything is just some m of n security model that I will trust some number of people in the real world to do the right thing. Of course this can work but really there are flaws with it because as seen with the Ronin hack, if you compromise enough of them, you're still kind of rugged. And so what Nomad does is Nomad says, Let's not kind of brute force our way into doing this by just adding throwing more bodies at the problem. Let's scale the number of people required to verify back down to one, there will only be one verifier, who we call the updater. But what we'll do instead is instead of immediately accepting the message that they're sending from chain A to chain B, we will introduce a slight delay. We'll wait for 30 minutes or whatever the parameterize dispute window is for someone else in the real world to say, hey, I don't think they're doing the right thing. I'm going to submit a fraud proof and prevent that message from being processed. And so the key kind of trade off here is Nomad sacrifices speed. But it adds, it shifts that to a different security model where one person, one watcher out of a set can basically revoke permissions for that channel. That comes with its own set of trade offs in terms of what these watches can do. But the key thing is, the system is more conservative and defensive, it waits a little bit and airs on the side of like liveness failures rather than tolerating safety failures, which again plays into the positioning around being security first.
Christian| Saddle 15:39
That's very interesting, between the escrow model, the implementation of the escrow model that other guys use, especially when it's like a chain link type of consensus mechanism, where it's like you said, m of n validators have to be on the same page, versus what you guys are doing where anyone can basically revoke privileges. I assume that has to do with the Optimism, the Optimistic technology, you guys are building is that is that right? Should I be connecting that thread there? Or is are they unrelated?
Pranay| Nomad 16:09
No, exactly right. And because the message is Optimistic, that's what allows us to wait because what we're saying is trust but verify. Trust that the person is game theoretically doing the right thing, which is Optimistic, but then wait a little bit and tolerate that latency in order to say, hey, we might be Optimistic. But if somebody's trying to do something bad, we will bake in these checks and balances.
Christian| Saddle 16:33
Yeah, that makes perfect sense. So are there any applications that you're in particular, excited to see implemented?
Pranay| Nomad 16:41
I'm pretty stoked about the Acid bridge, that's the first place where we're trying to offer more kind of secure Acid bridge with the representations that are escrowed using this Verification Mechanism. But some of the other ones I'm excited about include governance. We recently made a proposal to deploy Uniswap v3 on Moonbeam. And part of that is we want to use Nomad as the rails for governance. So being able to manage different deployments of apps across chains by using the Nomad rails. I think another that we're excited about is just like, protocol messaging. So like protocols are now expanding rapidly cross chains and Saddle being one of them. You may have different, you may have like emissions across chains that you're trying to standardize, but no way to do so. And so being able to have like a home on Ethereum, that sets the emission through governance or whatever and then is able to communicate the emissions rate to whatever instances deployed on whatever chain, that's something where Nomad can help as well. And so-
Christian| Saddle 17:41 (change time)
This printer would this would this enable people to in terms of governance, let's say we're voting on like a vote escrow model, with this enable a multi chain gauge system to be built out?
Pranay| Nomad 17:54
Precisely. Yeah, you read my mind.
Christian| Saddle 17:57
Yeah. There you go. Perfect. That's great to hear. So I think now would be a good time to kind of take stock of what exactly the nature of our partnership is going to be. So for everyone listening, we started off talking about Evmos, we started talking about Cosmos and the reason for that is Saddle will be deploying the Saddle AMM to the Evmos blockchain as soon as it launches. Now, the idea again, is, you know, we’re very bullish interoperability, Cosmos has native built interoperability bringing-plus you'll be able to bring over any of the EVM compatible apps, or more importantly tokens, right? So you're gonna start to see a bunch of liquidity enter into the ecosystem. And this is where of course Nomad comes in. So, how do we get USDC how do we get USDT how do we get all these major, major assets that are essentially the backbone of all DeFi on Ethereum on other EVM compatible chains like Avalanche on other L1s such as Solana who are not EVM compatible, right. The backbone are certain are certain tokens, specifically stablecoins? So the idea is when we deploy Saddle to Evmos, how do we get this liquidity onboard? Right. So presumably, they will go through Nomad. Nomad is very well positioned to they are emerging as the preferred partner of the Evmos blockchain core team. I believe you guys are also built into the wallet so it's like if you want to natively bridge assets through the Evmos wallet interface, like the website, they go through you guys. And so the big picture, you're gonna get all of this, this liquidity entering into the ecosystem. They will go through Nomad and on the Saddle side, as far as LPs go, what we're what we're trying to work out now is we want to launch initially not with a 3pool but with a 4pool so if anyone's been paying attention to the defy landscape you know 3pool is really the backbone of of DeFi it's a liquidity pool with USDC USDT and DAI. And a lot of times you will, without 3pool the liquidity that any token means is essentially dried up, right. You need a place to swap between the two you need to make it interoperable between one set of DeFi plays in say USDC versus another set of plays or token asset pairs in USDT.
And the way you go through that is through 3pools predominantly. Now recently, there's a bit of, you know, some thought of feathers were rustled where it seems like USDC, USDT, will now predominantly be paired with FRAX and UST. UST is the of course the Luna, algorithmic stablecoin. So there's a lot of attention on that front. And we also just we’re very close with FRAX. We like the Luna ecosystem where we like the implementation of a stablecoin. That's decentralized. It's pegged algorithmically. And now backed by Bitcoin, which is phenomenal to see. We like both of the tokens. And so in the spirit of bringing together the traditional centralized stable coins, from the EVM side, plus the more decentralized, in some cases plugged into Cosmos, in the example of Terra Luna, UST… bring them bring all of those guys together in one basket in a four pool. So that is what we're planning to do with-at launch, we want to start off the bat strong, we're going to stack as many incentives as we can go overweight on the on SDL emissions. Specific numbers are still being ironed out with respect to UST and FRAX incentives. But the idea is we want to really bring these communities together bring the liquidity, these pools of liquidity all in house on one spot, heavily incentivized and start this this crossbreeding cross bridge. Excuse me, cross chain future off strong. And so thankfully, we're working with Nomad very closely to that end, and they communication is flawless, right? They're always very transparent. As you guys have heard, they are 100% security minded, which is exactly what you want to see, especially in this space, because you know, you cut any corners and the whole house of cards comes tumbling down. And when it comes to when it comes to something as fundamental as bridging specifically stablecoins That's something you don't want to mess around with. So I can't speak highly enough about the Nomad team. But at this point, I'd like to bring it back to Pranay to talk a little bit about what assets are do you guys plan on bridging? What changes are you are you plugging into? And where do you feel where do you see yourself going in the next two months?
Pranay| Nomad 23:27
I'm actually throw that one over to Julian because I think he is the designated shill or and can do a better job than me. Julian's probably downing a sandwich right now.
Christian| Saddle 23:42
Pranay| Nomad 23:44
I think it's lunchtime so I will chime in there. So Nomad is like it's permissionless, right. The contracts are deployed and can support any ERC 20 token to be bridged over and really the only place where we kind of like add any roadblock is in the GUI that Nomad hosts that the Nomad Core Team host app.nomad.xyz. Anybody else can interact with the contracts and said any tokens that they want but really like it's not catered or permission but where we want to focus our efforts and get folks to provide liquidity is on the like, as you mentioned, Christian the top stablecoins. So your USDCs, your USDTs, FRAX, DAI. UST not so much because UST comes via will come by IBC rather than by a Nomad. We're mainly focused on supporting the EVM corridor so Ethereum and other EVM compatible chains, but also kind of focused on the blue chips. So WBTC. WETH, I think it may be less applicable for Saddle unless there's like a WBTC and an HBTC pool. But in general, I think most people have converged around WBTC as the prevailing representation of BTC synthetic And in two months really like what we're trying to do is get very deep liquidity in the Saddle pools and Evmos as well as the other AMMs. I think the thing here to recognize is, though Nomad may be the team that is focused on security and building a more secure construction, really what wins these, like bridge wars is liquidity. It’s which bridge kind of gets the most funds flowing through it in order to create that network effect around liquidity. So part of wanting to do this in partner with Saddle is to make make an appeal to all the high quality developers and teams in this space to coalesce around a standard that is more secure. And obviously, the free market will need to decide we're not we believe in permissionless system. So we don't believe in gating anybody through coercion. But we do want to get more people informed on bridge security, such that they arrive at the same conclusions that we do. And maybe like, want to offer this opinion without trying to add too much bias to what we built. And so over the next two months, we'll be looking to source liquidity support Saddle’s growth because of Saddle wins, Nomad also wins.
Christian| Saddle 26:12
That's great. So before we wrap up, is there anything you want to say? Any calls to action? Where can people find you? How can you join the community? How can you get involved? Yeah, so any last messages you want to bring out to the community?
Julian| Nomad 26:28
I can I can take this one. Sorry about the last one. I was actually trying to try to make a sandwich. But yes, the best way to find us. There were one, follow us on Twitter, obviously right here, right up on the stage. Obviously follow Saddle. You know, click plug. But we're not just that. You know, if you want to get involved with the community, the best way to do that is Join our Discord. Start using our bridge, app.nomad.xyz. And if you want to learn more about just like Nomad in general, we have docs at docs.nomad.xyz. But everything can be found at a central point at nomad.xyz, we have a beautiful new website for you to take a look at. But otherwise, like, the best way to get involved is just, you know, interacting with the community we’re on 24/7, if anything, I'm on 24/7. So if there's one person you can count on to chat with, you can chat with Julian on Discord on Twitter, I'm more than happy to answer any additional questions. And yeah, keep keep on using our bridge.
Pranay| Nomad 27:36
Yeah. And I also wanted to make a shout out to any app developers that are out there that are looking to go cross chain, we got myself and Luke here on the call as well. We're also on Discord. And if you have any technical questions around how you can use the SDK to start building natively, cross chain applications, hit us up. We’re still kind of, we're just now starting to exit stealth mode. We'll be having some, some big announcements soon. So stay tuned, I had to do the announcement. But there's big things coming down the pipeline. And it's just the start for us get in early. And we would love to work with you. And one of the things we have on our side is we are aligned with builders who are here for the long run. So we are down to hustle and work with you to ship some pretty dope stuff. So yeah, give us a shout out.
That's great. Yeah. So before Before wrapping up this part of the AMA, I do want to put a call out to anyone in the audience that if you have any questions, please do not hesitate to raise your hand. And we'll try and get get that free flowing as much as possible. On the Saddle end of things-you know, it's the same deal, right? We had to hop in our Discord, saddle.finance is where you where you'll find all our information, right? We have all our docs there if you want to work with us. If you want to learn more about the protocol if you want to learn more about the tokenomics, our governance process as well is there and you can find the currently active SIPs Saddle proofing protocols there as well. And then yeah, just follow us on Twitter and reach out. We love working with the community. We incentivize it specifically where if you you know, tackle some of our bounties, we will pay you in Saddle. They can be technical bounties they can be non technical bounties. There's a lot there's plenty of work to be done. So please feel free to to hop in our Discord or ping any of us any of the core team. We’d be more than happy to to work with you. So as for questions, we have a couple questions rolling in. So let's see. Yeah, so this would be more of a conceptual question for directed at Pranay is how do you slice up or categorize the different types of bridges? You know, like, what are the what are the categories of bridges that that approach can fall into canonical and non- canonical? You know, there's like, there's a mentum burn mechanism versus asker. Like, how do you how do you slice up the bridge ecosystem? In your head?
Pranay| Nomad 30:18
Yeah, great question. I think we've covered two ways to slice but I'll cover three in total. And the three ways to slice bridges are one, like, what is the underlying mechanism? Is it a settlement layer bridge? Or is it a liquidity network? The second way of slicing is what is the Verification Mechanism that underlies the bridge? Like how, what is the way that the destination chain knows that something happened on the sending chain? And then the last is, what is the this is the more kind of like soft way of slicing it is? What is the relationship between that bridge and the layer one that it's operating on? So in the first way of slicing it, we already talked about this, like, Nomad and Connext are very different types of bridges. One, Nomad is able to mint tokens and can send generalize messages. But has this trade off of being a little bit slower? Because we have to play within the realm of being able to send arbitrary state so we have to kind of pick our poison. Are we fast and cheap and somewhat less secure? Or do we focus on security and kind of give up on speed? Or are we secure and fast, but it costs a lot or takes a while to deploy? That's kind of the trilemma that I see from the settlement layer standpoint. For Connext, Connext plays in this category of liquidity networks, which includes other things like: Hop, Synapse, Stargate, these are all things- Synapse a little bit different, they cover both. But in the context of liquidity networks, these are all things that cannot meet their own tokens, but allow users to swap between existing representations. The second way of slicing it is the Verification Mechanism. I covered this as well. But really the most secure way is native verification. The less secure ways external verification where you're relying on some external actor, some, like meatspace person to be able to tell you that something is happening. And then the one that we've pioneered and are kind of like, pushing on the edges of in terms of like refining and distinguishing as a separate mechanism is the Optimistic verification where you rely on an external party, but then you provide a checks and balances.
And then the final way of slicing things up is around what is the relationship of the bridge to the layer one so for example, the Polygon PO0S bridge and the avalanche bridge, the A B, they're built by the layer one teams, right. And on these ecosystems, there's not really any competition, it's just you use that one because that's the one it coalesces around, but another layer ones that may not add the bandwidth or the desire to build their own bridge, there's often multiple third party bridges that all compete for liquidity and attention. And here is where I think it is really important that people pay attention to the security of the underlying bridge, because when a layer one has built its own bridge, like take, for example, the Polygon PoS bridge, it is an externally verified system. But the incentives are aligned very closely with the Polygon team. They want their L1 to succeed, so they need their bridge to be successful as well. And the only way there might be issues with it is like Hanlon's razor, something goes wrong inadvertently, rather than an intentional issue with other bridges that are third party bridges, that incentive is not aligned with the layer one at all, like they might be fine, even if the layer one gets rubbed right. And so really need to be careful about the quality of bridges that are being chosen, especially for ecosystems that don't have a designated one. Does that answer the question? Great.
Yeah, absolutely. Great. So yeah, I don't see any further questions. So we'll wrap it up here. Again, anyone in the audience, please feel free to hop in any of our discords get involved. All of our information is can be found on our websites, our respective websites, which you can find in our respective Twitter's we'd love to hear from you. We'd love to talk with you. We'd love to potentially work with you as well. So thank you to Pranay and Julian for hopping on and answering some of my questions and your questions. And stay tuned for more announcements from both of our teams.
Thanks for sharing. Thanks for having us. And yeah, I'm grateful for this partnership with Saddle. I think y'all are a great team and one of the many awesome applications that we'll be deploying on Evmos soon so if you all haven't given up most a look, I highly recommend checking them out as well and getting involved there. It's pretty exciting to have an EVM on the cosmos and I'm stoked for Nomad and saddle and other apps to be joining that ecosystem pretty soon here.
Awesome. We'll wrap it up here. Alright, thanks again guys. Everyone. Stay tuned for more announcements and we will see you in the discord. Take care everyone.
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