How Interoperability Impacts Crypto Investing, With Galen Moore

Developments in interoperability will continue to shape DeFi, the metaverse, NFTs, and cryptocurrency in general. For many insiders, it’s the key to mainstream adoption and unlocking the full potential of blockchain technology. This makes it critical for crypto and NFT investors to be aware of the latest developments.

Galen Moore, Content Lead at Axelar joins the show to discuss the what, why, and how of interoperability.

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Episode Highlights

Secure cross-chain communication for Web3: “Axelar is a permissionless network and gateway that enables you to build secure cross-chain applications.” (Axelar)

Blockchain interoperability is essential to avoid the flaws of Web2: “Currently, the main use cases of interoperability are: first, the transmission of a given cryptocurrency’s liquidity from one blockchain to another. Second, allowing users to trade an asset on one chain for another asset on another chain. Third, enabling users to borrow assets on one chain by posting tokens or NFTs as collateral on another chain.” (VentureBeat)

Featured: Axelar Network

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Cryptogic is the show for crypto investors who are focused on long term results. Follow host Scott Hawksworth as he explores the investable world of blockchain technologies, Bitcoin, Ethereum, and other cryptocurrencies.

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Transcript

Scott: Hello, and welcome to another episode of Cryptogic. Scott with you, once again. And today, we’re going to be covering a topic that I feel is so crucial to cover, and that’s “Interoperability.” And don’t worry if you aren’t exactly sure what all that means. We’re going to dive into that. And joining me to help really explore this and talk about his organization that he’s involved in is Galen.

And he is content lead at Axelar and formally on the research team at CoinDesk. And he’s got a lot of experience when we’re talking about blockchain technologies, crypto. Galen, welcome to the show.

Galen: Thanks, Scott. It’s great to be here.

Scott: Well, thank you for being here. To kick things off, I always like to sort of set the stage, make sure we’re all on the same page. I said we’re going to be talking about interoperability. What is interoperability, and why is it something that’s crucial for crypto traders, NFT traders, investors, what have you, really, anybody interested in blockchain technology or DeFi to have a grasp of?

Galen: That’s a great question. I think for us, we think of it in terms of what do people need as they’re using and investing in cryptocurrency and using decentralized systems? And in the past years, we’ve seen the rise of a real multi-chain industry, right? We have now, you know, you could count maybe a dozen easily, I think, blockchains, Layer 1 blockchains that are doing smart contract applications, decentralized applications.

These are kind of…you know. If you’re familiar with Ethereum, right? These are sort of alternatives to Ethereum. Maybe they are more efficient. They don’t cost as much. Maybe they are sort of, in some cases, actually specialized to a certain kind of application. We’ve seen Layer 1s like that grow up inside the Cosmos ecosystem, for example, where the blockchain itself is actually geared toward a certain kind of application.

So, we really have seen a kind of an explosion of relevant and interesting and exciting platforms for building decentralized applications. And, you know, I think there is, like, one vision of a world in which all of those networks are kind of siloed and operate separately, but I think it’s become very clear that there’s a strong demand for assets and information to move freely in between these networks.

And that’s really what interoperability is about. If you back it out to a kind of a Web 2.0 or an internet of information rather than internet of value kind of a world, you know. Scott, I don’t know where you’re based but I’m guessing by the fact that you said earlier that it’s 9:08 where you are, that you’re somewhere in the Central U.S.

Scott: That’s right. Chicago.

Galen: You’re in Chicago. I’m here in Boston. You know, we’re on different networks. The fact that we can have a Zoom call and do this and communicate over rich media, over the internet is due to the fact that our two networks can talk to each other easily. And I think, you know, the sort of the vision that we have at Axelar looking to the future of Web3 is that different networks in the Web3 universe will be able to talk to each other as seamlessly as you and I are right now.

Scott: Right. And that’s really powerful. Like, if you kind of extract and you think about folks watching right now, maybe they are interested in acquiring crypto or do have a portfolio or NFTs or whatever it may be, or they’re using DeFi platforms, what’s maybe the importance there for them to really understand this?

Galen: You know, I think when it comes to sort of entering into cryptocurrency, people tend to make choices along a lot of different parameters. There’s a sense of, you know, where do I feel like the most exciting activity is happening? You know, I’m making an investment here. I’m buying a token. You know, I want to buy a token and participate in an ecosystem that I feel like is growing, and exciting things are going to be happening there.

I feel like this is a real strong future potential. So, there’s that. I think there’s also a sense of, like, community and culture. People join ecosystems where they participate in the group discussions and they feel like there are like-minded people there, they’re learning things. And, you know, also there’s a whole sort of category, there are different…right? There are people who are investing as kind of financial investors and then there are people who are investing their time and effort.

They’re thinking, you know, “I want to participate in this world of blockchain and decentralized applications. I’m going to build something here.” And they’re thinking about where am I going to build? I think interoperability is important so that people can be free to make those choices without sacrificing access to other things that are happening in the world of cryptocurrency, Web3, and decentralized apps, right? We don’t want to be sort of…you know.

We might think, “Oh, you know, this is really the community for me, right? I really like the software that’s being provided here, you know. This is an ideal environment for me to build in. I believe in the future of what people are doing here. I want to own the token and invest in it.” I should be able to make that choice without fearing that I’m going to be shut out of something that might be interesting that’s happening on another blockchain next door, if you will, right?

Scott: Right. Yeah.

Galen: You know, so I think for us, that’s really the…you know, across the board, users, developers. People should feel empowered to make a decision about where they want to be investing without fear of losing access to what’s happening in other ecosystems.

Scott: Right. Without the fear that, well, I’m going to be stuck in this silo and that’s that, right?

Galen: Exactly. Yeah.

Scott: So, kind of turning our attention then to Axelar specifically, what’s the story behind Axelar, and where do you really fit into this blockchain ecosystem, particularly when we’re talking about interoperability?

Galen: Yeah, so I think, I mean, interoperability is not new. You know, people have been bridging assets between blockchains for some years now. And I think where Axelar fits in is we really are trying to do that in a way that is universal and secure. We provide secure cross-chain communication infrastructure. So, if you think of an analogy of like, you know, you’re in Chicago, I’m in Boston, we can sort of trade goods and services.

I can put something in a car and drive it to you and you can do the same, right?

Scott: Right.

Galen: We can kind of create our own solutions for commerce, if you will. What we’re trying to build at Axelar is more like an air traffic control network, a fleet of airplanes, and an airport in every city. If you think of each blockchain as a city or a country, you know. We’re establishing infrastructure on the ground in each of those blockchains where messages can be sent and received.

We’re establishing a routing network that understands what is the most efficient route from one blockchain to another. And also how are we going to sort of supply the fees that are necessary to get that transaction done? And we’re also supplying, if you will, a kind of a border control service, right? That’s saying, you know, “These goods and services are valid to enter. These are not, right? This packet can enter. This packet cannot.”

And in blockchains, that’s the most important key piece, right? It’s like how are you going to determine is this a valid message or is it a fraudulent message? I think when we look at the history of what’s happened, again looking back to people kind of building their own pair-wise connections, we’ve seen a lot of funds lost through that. And I know we’re probably going to talk a little more about that later on.

Scott: Yeah.

Galen: But I think, you know, our vision is that a permissionless and decentralized system for validating these messages between blockchains is the most secure system that we can build. And we want to build that in a way so that it’s universal and you know, connects these networks in the same way you might think of kind of air transport network connecting the world of cities and countries.

You know, to kind of take it back to Web 2.0 again for those of you who are, you know, sort of familiar, for those of your listeners who are familiar with, you know, internet investing in the early days of the internet. I think the most apt analogy is Akamai or a CDN, content delivery network. In this way, Axelar acts as like an overlay network that sits on top of all the other networks of Web3. And with visibility into all of those networks can then provide a user with kind of a seamless experience as though they’re interacting with a single network.

You know, being able to sort of have a one-click type of experience where you can take assets from one chain to another, or use assets that are on one chain to perform functions that are on a different chain.

Scott: Right. And that’s so powerful. And I’m curious if you could kind of tease out your perspective on the impact that something like this, that interoperability really can have on, you know, crypto marketplaces, NFT marketplaces. As this gets established, what do you see the impact there being?

Galen: Yeah, I think it’s…you know. I mean, first of all, like, going back to this thing of being able to participate in any chain, right? To come on board, build something on the chain that’s right for your use case. You know, look, today, there are I think some maybe 15,000 smart contract developers and, you know…

Scott: Or few.

Galen: The demand for those people is huge. There are maybe 15 million JavaScript developers in the world, right? We need to go orders of magnitude larger in terms of the numbers of developers that are working in Web3 if we’re going to achieve the kind of impact that the internet has achieved. So, how are we going to do that? You know, I think it’s going to be through…you know. There’s going to be a lot of work that needs to be done on building new on-ramps for developers, building new on-ramps for developers who are building specific kinds of apps or who are familiar with specific kinds of programming languages.

So, we see interoperability potentially bringing a flood of new development and new applications into the blockchain ecosystem. So, that’s number one. You know, I think number two is the kind of applications that you can build. And this may actually usher in kind of a new paradigm for application development that we don’t even see on the internet today.

So, for example, I was talking a moment ago about kind of a one-click experience. If you think of your NFT investor who owns an NFT, let’s say that was minted on Avalanche and wants to use a borrow-lend application that is developed on say a Cosmos chain. So, the ability then to be in their Avalanche NFT wallet and stake that asset, that NFT as collateral in the Cosmos-based DeFi application, right?

Use it as collateral for a loan, for example. That’s kind of an application that can now be built, you know, using Axelar, using a secure cross-chain communication infrastructure. And when you think about the ability then to compose different functions across blockchains, bring them together into one single user experience on a single blockchain, that kind of enables what we like to think of as, like, a Web3 super app, right?

If you’re familiar with the concept of a super app, it’s a fairly new idea. WeChat Pay is kind of a canonical Web 2.0 example where, you know, anything you might want to do from discussing what movie you’re going to see to looking up different movie listing times, to buying tickets, to making a dinner reservation, to booking an Uber.

All of these things can be done inside a single app. So, we see a future in Web3 where any function, whether it’s NFTs, whether it’s DeFi, whether it’s games, all can be composed into a single user experience. And the key to that is the permissionless nature of Web3, right? And in a kind of Web 2.0 world where you either have to build it yourself or you have to secure some kind of partnership in order to make it possible for that kind of experience to occur, in Web3, if it’s there, you can access it, assuming that you have the interoperability infrastructure to do that securely.

Scott: A hundred percent. And again, you can see how this could open up so many new avenues, new paths, new opportunities for folks that are investing in NFTs, investing in crypto, wanting to, you know, provide liquidity, whatever they might be doing. Those types of things are really incredible. I want to take another step back and just kind of look at the bigger picture here.

When we’re talking about interoperability, why decentralized interoperability? Why is that so crucial? Because I think there’s always this centralized versus decentralized push and pull across all of crypto and blockchain technology. So, I’m curious to your perspective there.

Galen: Yeah. So, I think that’s a great question. And I think, you know, the way we view decentralization is it really is a spectrum or a process. You know, there is often a need to make trade-offs between convenience or user experience and decentralization. But what we can say is at the core of kind of how we’re approaching this problem is what we would call permissionlessness.

So, on Axelar network, transactions are validated by a permissionless validator set. That means that anyone can validate transactions on the network. Anyone can run a validator and come on and vote as to whether a transaction is valid or not. And if a supermajority of the validators approve the transaction, then it goes through. So, you know, that has implications for security, it has implications for liveness, and it’s the same model, you know.

At core in sort of its spirit, it’s the same model on which Bitcoin is built, right? Bitcoin takes governance of money and turns it into something that anyone can provide who can mine Bitcoin. Same thing with proof of stake systems like Cosmos or Avalanche enabling anybody who can accumulate enough stake to validate to do so on the network.

And, you know, as we’re connecting these proof of stake networks like Cosmos, like Avalanche, like Polkadot, eventually Ethereum 2.0 as it transitions to proof of stake, you know, we believe that a proof of stake security model, you know, consensus model is the right model to apply in between. So, you know, again, like, are there going to be sort of centralized pieces of things that are operating on one chain or on another or in between chains?

Yes, there are. And, I mean, as an example, like, one of the services that Axelar provides is a microservice for calculating gas fees on each of the hops that might be necessary in a transaction, right? A transaction might involve multiple back and forth between chains as a…you know. Something happens on the other chain triggered by an event on…you know.

Something happens on chain B triggered by an event on chain A, then chain B has to send a message back to chain A verifying that that thing happened. So, we’re talking about potentially a fairly complex series of moves cross-chain, each step involving potentially gas fees, transaction fees that have to be paid, you know, calculating that transaction and banking it so that the user can pay that in one place.

That’s a service that Axelar provides. We don’t monopolize that service. Anyone can provide that service, but if you are relying on Axelar to provide that service to some extent, then your transaction is centralized, right? So, bottom line, we believe in building a permissionless core technology over which perhaps more centralized services can operate, but at core, we’re validating transactions using that permissionless validator set and that proof of stake model.

Scott: I’m curious, what are some of the challenges currently that are really standing in the way of more blockchains achieving interoperability? What are some of maybe the obstacles there?

Galen: Yeah. You know, look, actually, there are a lot of ways in which it can be very easy, you know, a number of blockchains have standardized on the Ethereum Virtual Machine, the EVM standard. So, you see those blockchains are actually finding it fairly easy to connect and to pass messages. I think, you know, that still leaves open the question about security between chains, and is there something that can provide kind of an equivalent level of security to what I’m getting on my source or destination chain?

I do think building that kind of proof of stake permissionless layer in between chains is a very difficult challenge. The rules about, you know, when can a validator enter? When can a validator exit? How are validators slashed if they break the rules? All of those things, you know, coordinating those between chains is not trivial.

But where I think actually some of the real challenges come into play is when the consensus mechanisms that are operating are different. So, for example, Cosmos to EVM. That is not a trivial thing to do. You know, being able to translate between those two different consensus mechanisms, being able to install software on each chain that will talk so that those consensus mechanisms can overlap as it were, right?

That’s challenging. And I think, you know, Cosmos isn’t the only example, right? Bitcoin and the sort of Bitcoin family of chains have a proof of work UTXO model. So, integrating those chains is more challenging, right, than integrating another EVM chain or another Cosmos chain. So, I think, you know, some of those things I think are kind of the technical obstacles.

I would say, you know, at Axelar, you know, we started building on the Cosmos SDK. We’re not a Cosmos chain, but we used the Cosmos SDK to build the Axelar Layer 1, the proof of stake network that we have. And so we are, from day one, Cosmos to EVM capability is there, and we do have Bitcoin on testnet.

So, Bitcoin integration is also something that we’ve thought a lot about and built and are looking forward to deploying to main net in the not too distant future.

Scott: Absolutely. Absolutely. Shifting gears a little bit, I feel like we’ve been touching on it, but I really want to dig into it because it is something that so many folks…it’s top of mind and that’s… We’re talking about security. Anytime there’s a hack, anytime a network gets overloaded and goes down, you know, that’s huge headlines in the media, and price fluctuations happen as a result.

It can call, you know, certain protocols into question, all of this. So, I guess really what’s the approach, maybe some of the challenges when we’re talking about interoperability and security and saying, “Okay, well, we’re going to connect all these blockchain networks?”

How do we do that? And without getting too technical, make sure that the security is there and that, you know, folks… There’s this whole idea and really fact, the more bridges you have, the more weak points you potentially have of where someone could jump in there and say, “Well, actually, that’s my Ethereum now,” or, “That’s my crypto now,” right?

So, I’m just curious to your perspective on the security and how to navigate all of that.

Galen: No, I think it’s a really important point. And we’ve seen, I mean, the sort of interoperability hack or the bridge hack has become the exchange hack of 2022. This is really where we’re seeing the majority of the funds that are being lost in cryptocurrency is happening in this space.

And I think that’s… You know. Look, in one way, I think… We actually had an analysis looking at Axelar published by an independent analyst yesterday. Tascha Labs is the name of the analyst, and she made an excellent point, which is that anytime you see people continuing to use something even though it’s really problematic, it’s a good sign that there’s a real strong and lasting demand for that service.

So, you know, on the one hand, we see the cross-chain hacks, the bridge hacks that are happening as, you know, the tragic and very unfortunate events, but on the other hand, it’s also a strong signal that there really is demand for this kind of service. And, you know, our goal at Axelar would be to provide it securely. I think when looking at security, it’s important to ask the question, you know, how many entities need to be compromised in order for this bridge to be compromised?

And, you know, if you look at most of those hacks, they are not a breaking of the consensus but they’re a compromise of the validator, the entities that have the ability to authenticate transactions. And on most of these cases and in most of the bridges and interoperability architecture that we’ve seen out there to date, most of it is built on what we would call a multisig or a permission to multisig or a proof of authority type of structure where the entity providing the service designates who can sign transactions.

They have sort of a preapproved list of validators, which is a much easier and straightforward way to set up kind of a security model in between chains. And we’ve seen those range from, you know, 2 of 2 up to, you know, 20 of 30 multisigs. But ultimately, it’s an M of N model.

And I think at Axelar, you know, we believe that the battle-tested strongest approach to security is the permissionless proof of stake, where again that N can be any number, simply depending on how many people decide to buy stake and run validators.

Scott: A hundred percent. And I love that point about the demand still being there. And we’ve seen that over and over anytime there is, you know, an unfortunate hack or something like that. Yeah, it makes a lot of noise, but then, you know, folks go right back to doing what they’re doing and markets recover.

And we’ve seen that time and time again, so I think that does say a lot. When you’re looking at… Go ahead.

Galen: There’s definitely an expectation in this space of risk, right? I think, you know, we’ve seen it in Tether, for example. I think everybody is aware of the risks underlying Tether and the potential for problems there, but it’s still widely used. And I think, you know, it speaks to sort of the demand for the product and also the sort of risk tolerance in the space.

Scott: Absolutely. Absolutely. Yeah. I always encourage folks, you know, of course, do your own research, and when you’re getting in, realize that the space does have inherent risk, especially anytime you’re doing something new and things are continuing to be developed, right?

Galen: Indeed. Yeah.

Scott: So, I’m curious, I guess, what networks are really leading the charge when it comes to interoperability? And do you see any that are more poised for success on that front than others?

Galen: You know, honestly, we have to tip our hat to Cosmos and the IBC protocol, you know. This is the vision that Cosmos I think and its founders articulated from the beginning. The inter-blockchain protocol, you know, is a method of interoperability. And I think Cosmos, and I would say Polkadot as well both saw this vision of, okay, we need to have the ability to have specialized chains but they need to have the ability to talk to each other.

You know, I think Ethereum itself may be kind of moving in that direction with its sort of embrace of Layer 2 development, right? You sort of have this side chain model that’s developing on Ethereum. But I really think that Cosmos has been a pioneer there and that IBC, you know, set the path, set the road, like, developed the model and the map to follow in terms of what secure cross-chain communication should look like.

In terms of what Axelar is doing, you know, we view it as sort of accelerating the Cosmos IBC model. IBC is great. It is the most secure cross-chain communication possible, but it requires some level of uniformity between the consensus models on the two chains, and it requires a fair amount of development work as well to install light clients on each chain to make that possible.

So, you know, we haven’t seen it adopted outside the Cosmos ecosystem for those reasons. And I think, you know, at Axelar, we would like to accelerate that vision and see a world in which the Cosmos ecosystem and others are connected externally in a way that makes it, you know, very easy for developers to make those connections without having to sort of build additional security themselves at the application layer, which we all know can be disastrous.

Scott: A hundred percent. A hundred percent. As we wind down our discussion here, I always like to turn the attention to the future. What’s coming next? Where is it all going? So, when you look at the landscape, what do you see in the future for interoperability, and really Axelar’s role in that, and what’s next for you guys?

Galen: Yeah, I mean, I think for us, the thing we’re most looking forward to are the applications that are beginning to develop on Axelar. We are in the midst of our main net rollout. You know, again, that vision of a kind of a permissionless validator set comes with having an openly available token, which is a milestone we hope to achieve within the coming month or so.

Scott: Awesome.

Galen: And, you know, we’re beginning… You know, at this point, we have a validator set that is validating transactions over the network. We have applications building on the network. We just announced the close of a first round of our grant program where we’re supporting those applications. And I think, you know, that grant program comes out of our desire to see this new generation of cross-chain applications built and built securely.

So, you know, we want to support people who are doing exciting things. And for us, really the most important milestone is seeing, you know, what kind of applications will come about that maybe are something that today, we couldn’t even imagine, right? I think, you know, we’ve seen a lot of exciting things built already.

We’ve seen people starting to build cross-chain NFT marketplaces. We’ve seen cross-chain yield aggregators, cross-chain automated market makers, you know, composing liquidity from different chains and enabling relatively complex assets like NFTs to kind of flow seamlessly. So, that’s really exciting, but I think, you know, the most exciting thing is the thing, you know, that blows our minds completely that we couldn’t even see, that’s a 90-degree turn from where we are today.

And I think that’s really going to be, you know, the milestone that we’re all looking for is, you know, what is the application that’s going to kind of change the paradigm in Web3 and on the internet, in general?

Scott: A hundred percent. I think it’s something we’re all keeping our eye on. Galen, thank you so much for joining me on the show today, really providing such an insightful overview of interoperability and what Axelar is doing to drive all of it forward. And if folks want to find out more, connect with you guys, where can they do that?

Where should they go?

Galen: Yeah. Thanks. Best place is definitely our website. It’s axelar.network. That’s A-X-E-L-A-R.network. Information there on our Discord, Twitter, and other communication is there. Our docs are there, links from the website, or you can find them directly at docs.axelar.dev.

So, yeah, encourage developers to check those out and encourage, you know, investors and users to learn more about what we’re doing. There’s a lot of information available at a high level and at a technical level. And, yeah, Scott, it’s been great being on the show here. Really great questions, and yeah, looking forward to continuing the journey with you here.

Scott: Absolutely. Looking forward to it. Thanks.

Galen: Thanks so much.

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Scott Hawksworth

Hailing from Evanston, Illinois, Scott is co-founder of Cryptogic as well as host of the several popular crypto podcasts. Scott believes that cryptocurrencies and NFTs represent a once-in-a-generation opportunity for investors of all types to participate in the future of decentralized networks.