Exploring Blockchain Scalability: Key Insights from AJ Warner's Perspective
In this edition of the Crypto Trailblazer series, AJ Warner, co-founder and chief strategy officer of Offchain Labs, joins theCUBE at the New York Stock Exchange to examine the transformative journey of Ethereum over the past decade. As Ethereum celebrates its 10th anniversary, this conversation provides crucial insights into scaling solutions and advancements in the blockchain sphere.
Gemma Allen of theCUBE hosts this engaging discussion, introducing AJ Warner and their extensive experience with Offchain Labs, particularly focusing on Arbitrum and its role in enhancing Ethereum's scalability. The video highlights Warner's expertise in blockchain architecture, insightful perspectives on the blockchain trilemma, and the introduction of roll-up technology as a solution. Analysts from theCUBE offer additional perspectives, enriching the dialogue on innovation within the crypto space.
Key takeaways from the discussion include Warner's insights into the efficacy of the Arbitrum roll-up technology and its role in optimizing Ethereum transactions for scalability and efficiency. They discuss how companies such as Robinhood are leveraging Arbitrum for tokenized equities and outline Offchain Labs' role in driving innovation through partnerships and state-of-the-art protocols, such as the one-of-n security model to counteract bad actors.
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A.J. Warner, Offchain
In this insightful episode of the Crypto Trailblazers series hosted by theCUBE, Mike Cagney of Figure Markets sits down with analysts from theCUBE Research to discuss groundbreaking advancements in blockchain technology and their implications for the finance sector. This video is part of the NYSE Wired digital event, aimed at bridging the gap between Silicon Valley and Wall Street by integrating technology and finance.
Cagney, an eminent figure in fintech, shares expertise on the transformative role of blockchain in financial markets during this interview. Conducted by seasoned analysts at theCUBE, the discussion delves into Figure’s innovative contributions, including their blockchain-native loan origination and securitization process. He outlines how Figure leverages blockchain to achieve cost reductions, enhanced security and improved liquidity in financial transactions.
Key takeaways from the interview highlight insights on the evolution of the Web3 ecosystem, such as the emergence of stablecoins as pivotal to transaction processes and the rise of decentralized finance (DeFi). Oltsik states these developments signify a shift towards democratizing finance, wherein truth and transparency are foundational. The conversation concludes with a look at Figure’s pioneering efforts in creating a new financial marketplace utilizing blockchain technology.
#CryptoTrailblazers #FigureMarkets #BlockchainInnovation #Web3 #NYEWired #BlockchainFinance #DecentralizedFinance #Fintech #Stablecoins
Find more SiliconANGLE news and analysis https://siliconangle.com/.
Follow theCUBE's wall-to-wall event coverage https://siliconangle.com/events/
Learn about the latest theCUBE events https://www.thecube.net/
00:00 - Intro
00:05 - Emerging Innovations in Financial Technology and Market Dynamics
02:45 - Key Elements in Financial Ecosystem Dynamics
06:20 - Blockchain: Truth and Transformation
09:39 - Shaping the Future: Innovations in Financial Markets and Stablecoin Integration
13:15 - Enabling the Future: Navigating Disruptions in Banking and Lending
16:51 - Exploring Opportunities and Building Confidence in the Blockchain Ecosystem
play_circle_outlineEnhancing Ethereum: How Arbitrum’s Optimistic Roll-Ups Boost Speed, Scalability, and Transaction Efficiency for Layer Two Solutions
replyShare Clip
play_circle_outlineExplanation of the blockchain trilemma: security, decentralization, and cost-efficiency in blockchain networks.
replyShare Clip
play_circle_outlineRoll-up technology enables Ethereum to scale by combining multiple transactions into single ones.
replyShare Clip
play_circle_outlineExploring Arbitrum: Partnerships, Innovative Solutions, and the Fusion of DeFi with Real-World Assets
>> I'm Gemma Allen here in our studio with theCUBE at the New York Stock Exchange. This is our Crypto Trailblazer series, and today we are marking 10 years of Ethereum. Joining me now is a guest from a company who has made it a mission to make Ethereum faster, smarter, and more scalable. Welcome to theCUBE, AJ Warner, Chief Strategy Officer of Offchain Labs. Welcome, AJ.
AJ Warner
>> Thank you so much for having me. Really excited to chat with you.
Gemma Allen
>> So tell me, you have built a business and a mission around Arbitrum, right, around basically making optimistic roll-ups within the crypto space. To the humans amongst us, break that down for me. What does that actually mean?
AJ Warner
>> Sure. So let me walk you through how Arbitrum works a little bit, and I'll try and keep it as detailed as possible for your listeners and viewers to understand it, but not getting too much in the technical weeds of what we're describing. Like as you started with, we're here celebrating Ethereum, and Arbitrum is a core contributor to Ethereum and help makes Ethereum's mission of accessibility to the entire world viable. The way Ethereum works is to blockchain architecture in which it really has a high strong priority on security and decentralization. And we have something in blockchain called the blockchain trilemma. And the blockchain trilemma at a high level is... And a trilemma generally is you can only have two out of three properties. And with the blockchain trilemmas, you can maintain security, decentralization, or cheap fees. And the thesis behind it is, well, if you want to have security and also decentralization, which requires anybody to be able to validate the network, you want to make sure that validation is an accessible principle to anybody. In order to do that, you have to make it affordable to do it. You don't need a data center to validate. You should be able to do it like with Ethereum on your home computer, wherever you are in the world. The challenge with that, though, is that there's a constraint on the system of how much throughput that it could have. So, Ethereum can handle a certain amount of transactions today per second, not nearly enough to bring the entire roll to use blockchain technology. So what we've done together with the Ethereum core contributors is build something called roll-up technology. The way roll-up technology works, and you can think about this as the relationship between the SWIFT system or ACH and things like Venmo and PayPal, where under the hood, it's all of this complex settlement, but to the user, it's just super fast, super cheap, and backed by these core technological principles. And the way Arbitrum works is it's basically what we call a layer two blockchain. It's a blockchain that lives and sits on top of Ethereum. And when users do transactions and there's millions of transactions a day that happen on Arbitrum, what the Arbitrum protocol does is it takes those transactions and packages them together. So we might take a collection of 2,000 or 3,000 transactions, take all of the data from those transactions, and post it to Ethereum as one transaction. And the mechanism for that is basically is it allows additional scalability through layer twos like Arbitrum for Ethereum to collect the data as the world's global computer. The key thing with roll-up technology and the core of what we've been working so hard for years to build is how does Ethereum know that what Arbitrum posted on behalf of all of its users and consumers is true, correct, and complete. And that is the proof mechanism that we've built. We call it bold. It's an optimistic design to ensure that whatever happens on Arbitrum is confirmed to be true, correct, and complete. So the same way that if I send you $100 on Venmo, somebody else is not going to later say, "Wait, how did you end up with that money? Shouldn't that money belong to AJ?" You want the canonical source of truth to recognize it. We've designed our system for Ethereum to recognize the canonical source of truth of what happens on Arbitrum. And this allows Arbitrum to provide orders of magnitude of scale broadly to Ethereum. So we're doing millions of transactions a day on the public Arbitrum chain, but we also allow people to use Arbitrum to launch their own chains. Most famously, to some degree, is the Robinhood team. So we've been partnering with them closely for the last few months. Right now, all of their tokenized equities lives on the public Arbitrum chain, but they've publicly announced that they're going to be launching their own blockchain using Arbitrum technology. And all of those transactions are going to use the same architecture and roll up to Ethereum. So Ethereum will maintain the global database of all of that transaction activity as well.
Gemma Allen
>> Wow. It's truly fascinating, but what really fascinates me when I think about Offchain Labs and this company and this journey is that you guys were incubated in Princeton in 2014, 11 years ago, when Ethereum was a baby, right. It was also kind of in the -
AJ Warner
>> Before Ethereum was live.
Gemma Allen
>> Yeah. So, how you had that vision for this in a world that didn't really exist was hypothetical? Talk to me a little bit about that because I really find the-
AJ Warner
>> Yeah. It's actually a great story....
Gemma Allen
>> futuristic side of this fascinating.
AJ Warner
>> Yeah. It's actually a great story. So Ed Felten, who's a co-founder and chief scientist, was a professor at Princeton. And when the first white papers and academic research about smart contract blockchains were being built, Ed recognized very early on that this trilemma of cost, security, and decentralization was going to play out. There was no way we were going to have one blockchain that can handle the entirety of the world's data and also still remain decentralized so that anybody would be able to validate this network using their home computer. So this actually predated Ethereum. If you look on YouTube at the first mention of the word Arbitrum, it was Ed's fall 2014 class seminar where he's like jamming with his class on the board, and they were using a hypothetical L1 that had, they called it Bitcoin. They were using Bitcoin even though that doesn't have smart contracts. So this actually all predates Ethereum. What happened was Ed then went to the White House. He was Obama's deputy CTO. And when Obama's term ended in 2018, it was the first time Ethereum saw congestion. There was an NFT project called CryptoKitties that a lot of people were very excited about. And the price of Ethereum started escalating because of congestion on the network, similar to sort of how Uber, when there's a lot of demand, gets more expensive to use. At that moment Ed with two PhD students, said it's time to commercialize and build this. And that was sort of the beginning of the journey of this company and our ability. And then at that point, we identified Ethereum as if we're going to build this concept of layer two technologies, Ethereum is the best ecosystem layer one blockchain to partner with because it has the core principles of security and decentralization, and we can add the variable to ensure that we can maintain pure, cheap fees throughout congestion for users.
Gemma Allen
>> Well, when you talk about commercializing this, talk to me a little bit about market adoption and monetization. I'm sure also that has probably been quite the evolution, right, in terms of how this has scaled. Talk to me about a typical buyer persona for Offchain Labs.
AJ Warner
>> Yeah. Great question. So one of the things that's important to understand is there's really like Arbitrum as a platform with two products. It's what we call Arbitrum One, which is the public blockchain that we have for Arbitrum. And there's tons of people that can use it, and it's permissionless to use. So, anybody can deploy their application on it, any user can use the network the way they want to, and their system will validate their transactions. And there is a ton of variance in terms of who our core audience is. I would say Arbitrum is most famous for the convergence of DeFi, decentralized finance, and RWA, Real World Assets and traditional finance. And you have billions of dollars a day flowing through the network. So we have decentralized exchanges like Uniswap and GMX that are building trading on Arbitrum. And you know we have up to the tune of somewhere between one and $3 billion a day of trading volume happening on the platform. But then you also have traditional firms like I mentioned Robinhood earlier, BlackRock, Franklin Templeton, WisdomTree, Invesco, UBS, like traditional firms that we all know the names of that are looking at blockchain technology and saying, "Stablecoins are interesting, tokenization is interesting, permissionless blockchains are interesting."
And they look to us as a partner for understanding how they can navigate those worlds. So that's like the core public product called Arbitrum One. And then we also have on the platform the ability to launch your own blockchain. And a lot of teams and organizations are doing this and looking at this because they recognize the importance of Ethereum security. They want to maintain the principles of decentralization, but either for business reasons or compliance reasons, they need to have their own blockchain. It could be that they want to make certain customizations for a use case, they want to implement certain compliance checks depending on the regulatory framework, and they want to do that off of battle-tested hardware. They don't want to start from scratch. They want to be able to just use it. And we have hundreds of teams that have been looking and using the Arbitrum technology stack to do just that. The way the commercialization of this works is if you're doing a transaction on the public Arbitrum chain, the Arbitrum protocol captures the fees and pays Ethereum security costs on behalf of their users. And like a typical transaction is like somewhere between one and two pennies, depending on sort of the computer computation that you are digesting. If you want to launch your own public blockchain, the way it works is whoever the owner and operator of that chain is, they have a 10% profit share with Arbitrum where they get to keep the economics of their blockchain instance subject to sort of that, what we call the Arbitrum Expansion Program, which enables us to support ecosystems, enterprises, and organizations that want to take the innovation that we've used so that we can continue to invest in growth and improving the protocol in a sustainable fashion.
Gemma Allen
>> So talk to me about the philosophy of decentralization, right. It's I think everyone understands that core principle of which this whole crypto space is built upon. It's about democratizing access to finance. It's about inclusion, accessibility, utility. You guys have really taken a very one-for-all approach with this, especially with the bold protocol that you announced earlier this year. How do you manage for scale and security and bad actors? When I think, and again, maybe you can break this down for me and for the audience, but my first question when I first listened to one of your colleagues talk about the whole protocol was, how do you ensure that that doesn't become a more accessible situation for bad actors to be part of the validation network, right? How do you think about those challenges?
AJ Warner
>> So, the Arbitrum design is actually extremely elegant to defend against bad actors because the way Arbitrum is designed is it's permissionless to validate the network. And that means me, you, anybody in the world has the ability to validate and defend the Arbitrum protocol. Where other blockchain systems might rely on either a majority consensus or a two-third honest assumption, Arbitrum has what we call a One-of-N principle. That means that as long as there is one honest actor that is using the software to prove that the chain of transactions is true, correct, and complete, even if the entire world disagrees, that actor will win. It's actually a very empowering principle because, in many ways, from the perspective of... Again, there's really two layers of this question that you're asking about sort of around bad actors. But in terms of the software functioning as supposed to, if I send you funds the software, regardless of who wants to dispute that, and that is a true, correct, and complete transaction. Regardless of whether the rest of the world wants to dispute it, if the code proves that that's true, correct, and complete, that transaction will be honored. So, from a protocol perspective, in the camp of should code be law, the protocol has the ability to enforce that to ensure that bad actors cannot disrupt the processes of the system. In terms of generally the relationships between sort of bad actors and blockchain technology in general, obviously, we work very closely with stablecoin issuers, compliance organizations, et cetera, regulators to make sure and ensure that just like any software that's in existence, it can be a tool that's used for good and for bad. And obviously, we think blockchain technology is empowering people. It is providing opportunities that people might not be able to have. And we ensure that we have the right partners in place to make sure that it's being used appropriately across the system. I mean, just touching on your point earlier of innovation, there are incredible things that you can see that blockchain technology can do, particularly around accessibility to people in emerging markets, developing countries who don't have access to stable assets for savings. They live in countries that have very high inflation. They don't have mechanisms for savings. Blockchain technologies, one of the large saviors for these places in the world to ensure that they have access. I remember my journey when I was in law school, my first attraction into this space generally was, it was a time when companies were going public later and later. If you weren't an accredited investor, you couldn't get access to very good investment opportunities. And I saw Bitcoin, and I'm like, "I don't know if this thing is going to do well or not, but I love the fact that it's available and accessible."
And I think it's a very empowering component to the culture of blockchain technology and what it can do to improve systems. We've seen this with a lot of the early-stage DeFi projects that are building with us, together with us on Arbitrum, whether it's in the form of capital formation. We have one project called USDai, which is the crowdsourced mechanism to lend against GPUs and other data centers and AI infrastructure. And in their first month, they've collected over how half a billion dollars in assets in order to be able to have access to collateral.
Gemma Allen
>> Wow.
AJ Warner
>> So it's a very empowering crowdsourcing mechanism. Obviously, you want to make sure it's done appropriately and compliantly, but it really does have the ability to have zero to one innovation, particularly on capital markets and capital formation.
Gemma Allen
>> Yeah. I mean, I think the recordless nature of it certainly offers so much promise. And like you said earlier, especially to parts of this world and globe and communities where digital access and financial literacy has been somewhat left behind. So completely agree with you there. Lastly, Ethereum. You guys are obviously a big partner and player in the space. You've been all in with them since the beginning. Tell me a little bit about the partnership, the relationship, and the journey ahead as we mark 10 years of Ethereum here at the NYSE.
AJ Warner
>> Yeah. On a personal level, I remember when Ethereum was announced in 2015. I was probably like a year and a half into my journey in this industry. And I thought it was the coolest and most ambitious thing that could be done. And I had immense respect for Vitalik and everybody else who contributed to it. And when I look at it 10 years later, it's incredible to see how well it stood for its principles in spite of its growth. Sometimes you sort of see, it's very easy to hold principles when you're small, but as you grow, you sort of have to adapt. And Ethereum's obviously had its forms of adaptation and as it's gotten more adopted. But the core principles of we want everybody to have the ability to trust the network for it to be the world's global computer, security, decentralization, the ethos and culture associated with that has continued to shine through. And at OffChain Labs, we play two key roles in Ethereum. With Arbitrum, we help the network scale and allow accessible to users through cheap transaction fees and advanced cryptography to allow people to be able to do what they want using blockchain technology. But we also help with our other product called Prysm Validate the Network. And it's exciting to work with so many different contributors within the Ethereum ecosystem. And I can't wait to see what the next 10 years have in store. We're starting to see the beginning of stablecoin adoption. We're starting to see the beginning of tokenization, and we're starting to see the impact that we can make in bringing real value and real access globally to anybody and everybody in the world. And it's an incredible industry.
Gemma Allen
>> Well, we're excited to be here on the wing watching you connecting Web3 to Wall Street. AJ Warner, thank you so much for joining us on theCUBE.
AJ Warner
>> Thank you so much for having me.
Gemma Allen
>> I'm Gemma Allen here at the New York Stock Exchange. This is our Crypto Trailblazer series. Today, we're marking 10 years of Ethereum. Thanks so much for watching.
>> I'm Gemma Allen here in our studio with theCUBE at the New York Stock Exchange. This is our Crypto Trailblazer series, and today we are marking 10 years of Ethereum. Joining me now is a guest from a company who has made it a mission to make Ethereum faster, smarter, and more scalable. Welcome to theCUBE, AJ Warner, Chief Strategy Officer of Offchain Labs. Welcome, AJ.
AJ Warner
>> Thank you so much for having me. Really excited to chat with you.
Gemma Allen
>> So tell me, you have built a business and a mission around Arbitrum, right, around basically making optimistic roll-ups within the crypto space. To the humans amongst us, break that down for me. What does that actually mean?
AJ Warner
>> Sure. So let me walk you through how Arbitrum works a little bit, and I'll try and keep it as detailed as possible for your listeners and viewers to understand it, but not getting too much in the technical weeds of what we're describing. Like as you started with, we're here celebrating Ethereum, and Arbitrum is a core contributor to Ethereum and help makes Ethereum's mission of accessibility to the entire world viable. The way Ethereum works is to blockchain architecture in which it really has a high strong priority on security and decentralization. And we have something in blockchain called the blockchain trilemma. And the blockchain trilemma at a high level is... And a trilemma generally is you can only have two out of three properties. And with the blockchain trilemmas, you can maintain security, decentralization, or cheap fees. And the thesis behind it is, well, if you want to have security and also decentralization, which requires anybody to be able to validate the network, you want to make sure that validation is an accessible principle to anybody. In order to do that, you have to make it affordable to do it. You don't need a data center to validate. You should be able to do it like with Ethereum on your home computer, wherever you are in the world. The challenge with that, though, is that there's a constraint on the system of how much throughput that it could have. So, Ethereum can handle a certain amount of transactions today per second, not nearly enough to bring the entire roll to use blockchain technology. So what we've done together with the Ethereum core contributors is build something called roll-up technology. The way roll-up technology works, and you can think about this as the relationship between the SWIFT system or ACH and things like Venmo and PayPal, where under the hood, it's all of this complex settlement, but to the user, it's just super fast, super cheap, and backed by these core technological principles. And the way Arbitrum works is it's basically what we call a layer two blockchain. It's a blockchain that lives and sits on top of Ethereum. And when users do transactions and there's millions of transactions a day that happen on Arbitrum, what the Arbitrum protocol does is it takes those transactions and packages them together. So we might take a collection of 2,000 or 3,000 transactions, take all of the data from those transactions, and post it to Ethereum as one transaction. And the mechanism for that is basically is it allows additional scalability through layer twos like Arbitrum for Ethereum to collect the data as the world's global computer. The key thing with roll-up technology and the core of what we've been working so hard for years to build is how does Ethereum know that what Arbitrum posted on behalf of all of its users and consumers is true, correct, and complete. And that is the proof mechanism that we've built. We call it bold. It's an optimistic design to ensure that whatever happens on Arbitrum is confirmed to be true, correct, and complete. So the same way that if I send you $100 on Venmo, somebody else is not going to later say, "Wait, how did you end up with that money? Shouldn't that money belong to AJ?" You want the canonical source of truth to recognize it. We've designed our system for Ethereum to recognize the canonical source of truth of what happens on Arbitrum. And this allows Arbitrum to provide orders of magnitude of scale broadly to Ethereum. So we're doing millions of transactions a day on the public Arbitrum chain, but we also allow people to use Arbitrum to launch their own chains. Most famously, to some degree, is the Robinhood team. So we've been partnering with them closely for the last few months. Right now, all of their tokenized equities lives on the public Arbitrum chain, but they've publicly announced that they're going to be launching their own blockchain using Arbitrum technology. And all of those transactions are going to use the same architecture and roll up to Ethereum. So Ethereum will maintain the global database of all of that transaction activity as well.
Gemma Allen
>> Wow. It's truly fascinating, but what really fascinates me when I think about Offchain Labs and this company and this journey is that you guys were incubated in Princeton in 2014, 11 years ago, when Ethereum was a baby, right. It was also kind of in the -
AJ Warner
>> Before Ethereum was live.
Gemma Allen
>> Yeah. So, how you had that vision for this in a world that didn't really exist was hypothetical? Talk to me a little bit about that because I really find the-
AJ Warner
>> Yeah. It's actually a great story....
Gemma Allen
>> futuristic side of this fascinating.
AJ Warner
>> Yeah. It's actually a great story. So Ed Felten, who's a co-founder and chief scientist, was a professor at Princeton. And when the first white papers and academic research about smart contract blockchains were being built, Ed recognized very early on that this trilemma of cost, security, and decentralization was going to play out. There was no way we were going to have one blockchain that can handle the entirety of the world's data and also still remain decentralized so that anybody would be able to validate this network using their home computer. So this actually predated Ethereum. If you look on YouTube at the first mention of the word Arbitrum, it was Ed's fall 2014 class seminar where he's like jamming with his class on the board, and they were using a hypothetical L1 that had, they called it Bitcoin. They were using Bitcoin even though that doesn't have smart contracts. So this actually all predates Ethereum. What happened was Ed then went to the White House. He was Obama's deputy CTO. And when Obama's term ended in 2018, it was the first time Ethereum saw congestion. There was an NFT project called CryptoKitties that a lot of people were very excited about. And the price of Ethereum started escalating because of congestion on the network, similar to sort of how Uber, when there's a lot of demand, gets more expensive to use. At that moment Ed with two PhD students, said it's time to commercialize and build this. And that was sort of the beginning of the journey of this company and our ability. And then at that point, we identified Ethereum as if we're going to build this concept of layer two technologies, Ethereum is the best ecosystem layer one blockchain to partner with because it has the core principles of security and decentralization, and we can add the variable to ensure that we can maintain pure, cheap fees throughout congestion for users.
Gemma Allen
>> Well, when you talk about commercializing this, talk to me a little bit about market adoption and monetization. I'm sure also that has probably been quite the evolution, right, in terms of how this has scaled. Talk to me about a typical buyer persona for Offchain Labs.
AJ Warner
>> Yeah. Great question. So one of the things that's important to understand is there's really like Arbitrum as a platform with two products. It's what we call Arbitrum One, which is the public blockchain that we have for Arbitrum. And there's tons of people that can use it, and it's permissionless to use. So, anybody can deploy their application on it, any user can use the network the way they want to, and their system will validate their transactions. And there is a ton of variance in terms of who our core audience is. I would say Arbitrum is most famous for the convergence of DeFi, decentralized finance, and RWA, Real World Assets and traditional finance. And you have billions of dollars a day flowing through the network. So we have decentralized exchanges like Uniswap and GMX that are building trading on Arbitrum. And you know we have up to the tune of somewhere between one and $3 billion a day of trading volume happening on the platform. But then you also have traditional firms like I mentioned Robinhood earlier, BlackRock, Franklin Templeton, WisdomTree, Invesco, UBS, like traditional firms that we all know the names of that are looking at blockchain technology and saying, "Stablecoins are interesting, tokenization is interesting, permissionless blockchains are interesting."
And they look to us as a partner for understanding how they can navigate those worlds. So that's like the core public product called Arbitrum One. And then we also have on the platform the ability to launch your own blockchain. And a lot of teams and organizations are doing this and looking at this because they recognize the importance of Ethereum security. They want to maintain the principles of decentralization, but either for business reasons or compliance reasons, they need to have their own blockchain. It could be that they want to make certain customizations for a use case, they want to implement certain compliance checks depending on the regulatory framework, and they want to do that off of battle-tested hardware. They don't want to start from scratch. They want to be able to just use it. And we have hundreds of teams that have been looking and using the Arbitrum technology stack to do just that. The way the commercialization of this works is if you're doing a transaction on the public Arbitrum chain, the Arbitrum protocol captures the fees and pays Ethereum security costs on behalf of their users. And like a typical transaction is like somewhere between one and two pennies, depending on sort of the computer computation that you are digesting. If you want to launch your own public blockchain, the way it works is whoever the owner and operator of that chain is, they have a 10% profit share with Arbitrum where they get to keep the economics of their blockchain instance subject to sort of that, what we call the Arbitrum Expansion Program, which enables us to support ecosystems, enterprises, and organizations that want to take the innovation that we've used so that we can continue to invest in growth and improving the protocol in a sustainable fashion.
Gemma Allen
>> So talk to me about the philosophy of decentralization, right. It's I think everyone understands that core principle of which this whole crypto space is built upon. It's about democratizing access to finance. It's about inclusion, accessibility, utility. You guys have really taken a very one-for-all approach with this, especially with the bold protocol that you announced earlier this year. How do you manage for scale and security and bad actors? When I think, and again, maybe you can break this down for me and for the audience, but my first question when I first listened to one of your colleagues talk about the whole protocol was, how do you ensure that that doesn't become a more accessible situation for bad actors to be part of the validation network, right? How do you think about those challenges?
AJ Warner
>> So, the Arbitrum design is actually extremely elegant to defend against bad actors because the way Arbitrum is designed is it's permissionless to validate the network. And that means me, you, anybody in the world has the ability to validate and defend the Arbitrum protocol. Where other blockchain systems might rely on either a majority consensus or a two-third honest assumption, Arbitrum has what we call a One-of-N principle. That means that as long as there is one honest actor that is using the software to prove that the chain of transactions is true, correct, and complete, even if the entire world disagrees, that actor will win. It's actually a very empowering principle because, in many ways, from the perspective of... Again, there's really two layers of this question that you're asking about sort of around bad actors. But in terms of the software functioning as supposed to, if I send you funds the software, regardless of who wants to dispute that, and that is a true, correct, and complete transaction. Regardless of whether the rest of the world wants to dispute it, if the code proves that that's true, correct, and complete, that transaction will be honored. So, from a protocol perspective, in the camp of should code be law, the protocol has the ability to enforce that to ensure that bad actors cannot disrupt the processes of the system. In terms of generally the relationships between sort of bad actors and blockchain technology in general, obviously, we work very closely with stablecoin issuers, compliance organizations, et cetera, regulators to make sure and ensure that just like any software that's in existence, it can be a tool that's used for good and for bad. And obviously, we think blockchain technology is empowering people. It is providing opportunities that people might not be able to have. And we ensure that we have the right partners in place to make sure that it's being used appropriately across the system. I mean, just touching on your point earlier of innovation, there are incredible things that you can see that blockchain technology can do, particularly around accessibility to people in emerging markets, developing countries who don't have access to stable assets for savings. They live in countries that have very high inflation. They don't have mechanisms for savings. Blockchain technologies, one of the large saviors for these places in the world to ensure that they have access. I remember my journey when I was in law school, my first attraction into this space generally was, it was a time when companies were going public later and later. If you weren't an accredited investor, you couldn't get access to very good investment opportunities. And I saw Bitcoin, and I'm like, "I don't know if this thing is going to do well or not, but I love the fact that it's available and accessible."
And I think it's a very empowering component to the culture of blockchain technology and what it can do to improve systems. We've seen this with a lot of the early-stage DeFi projects that are building with us, together with us on Arbitrum, whether it's in the form of capital formation. We have one project called USDai, which is the crowdsourced mechanism to lend against GPUs and other data centers and AI infrastructure. And in their first month, they've collected over how half a billion dollars in assets in order to be able to have access to collateral.
Gemma Allen
>> Wow.
AJ Warner
>> So it's a very empowering crowdsourcing mechanism. Obviously, you want to make sure it's done appropriately and compliantly, but it really does have the ability to have zero to one innovation, particularly on capital markets and capital formation.
Gemma Allen
>> Yeah. I mean, I think the recordless nature of it certainly offers so much promise. And like you said earlier, especially to parts of this world and globe and communities where digital access and financial literacy has been somewhat left behind. So completely agree with you there. Lastly, Ethereum. You guys are obviously a big partner and player in the space. You've been all in with them since the beginning. Tell me a little bit about the partnership, the relationship, and the journey ahead as we mark 10 years of Ethereum here at the NYSE.
AJ Warner
>> Yeah. On a personal level, I remember when Ethereum was announced in 2015. I was probably like a year and a half into my journey in this industry. And I thought it was the coolest and most ambitious thing that could be done. And I had immense respect for Vitalik and everybody else who contributed to it. And when I look at it 10 years later, it's incredible to see how well it stood for its principles in spite of its growth. Sometimes you sort of see, it's very easy to hold principles when you're small, but as you grow, you sort of have to adapt. And Ethereum's obviously had its forms of adaptation and as it's gotten more adopted. But the core principles of we want everybody to have the ability to trust the network for it to be the world's global computer, security, decentralization, the ethos and culture associated with that has continued to shine through. And at OffChain Labs, we play two key roles in Ethereum. With Arbitrum, we help the network scale and allow accessible to users through cheap transaction fees and advanced cryptography to allow people to be able to do what they want using blockchain technology. But we also help with our other product called Prysm Validate the Network. And it's exciting to work with so many different contributors within the Ethereum ecosystem. And I can't wait to see what the next 10 years have in store. We're starting to see the beginning of stablecoin adoption. We're starting to see the beginning of tokenization, and we're starting to see the impact that we can make in bringing real value and real access globally to anybody and everybody in the world. And it's an incredible industry.
Gemma Allen
>> Well, we're excited to be here on the wing watching you connecting Web3 to Wall Street. AJ Warner, thank you so much for joining us on theCUBE.
AJ Warner
>> Thank you so much for having me.
Gemma Allen
>> I'm Gemma Allen here at the New York Stock Exchange. This is our Crypto Trailblazer series. Today, we're marking 10 years of Ethereum. Thanks so much for watching.
Gemma Allen