“Undercover Bitcoin Maxi”: A Talk With Osmosis Co-Founder Sunny Aggarwal

With a market capitalization of over $740 million, Osmosis is presently the third-largest decentralized change in crypto and a central piece of the Cosmos ecosystem. Its co-founder, Sunny Aggarwal, can also be the co-founder of Sikka Tech, which builds infrastructure for decentralized networks and is among the greatest validator units on Cosmos Hub. 

One other factor to find out about Aggarwal is that he confirmed up on stage at Cosmoverse this yr sporting medieval chainmail armor for the only real goal of constructing a pun about mesh safety.

So it was with enthusiasm that Crypto Briefing sat down to speak with him about Osmosis developments, ATOM 2.0, the Terra crash, bridge safety, Bitcoin, and the Cosmos ecosystem as an entire. 

Crypto Briefing: Your title doesn’t seem on the brand new Cosmos Hub whitepaper, but it surely’s arduous to suppose you didn’t collaborate with the authors. Had been you concerned in fashioning the proposal or consulted?

Sunny Aggarwal: Probably not. So take into account I work on Cosmos, the ecosystem, after which Osmosis, the chain. I don’t actually work an excessive amount of on Cosmos Hub/ATOM stuff. As a result of ATOM is only one factor within the ecosystem. It’s not one thing I deal with, or spend an excessive amount of time on. 

However I believe a whole lot of these concepts that went into the ATOM 2.0 stuff got here from discussions that we began. This entire, like, Interchain Allocator module—that truly began as a joke that I made 9 months in the past. This was when OlympusDAO was all the recent rage and everybody was asking “Oh, what’s going to be the OHM token of Cosmos?” There have been like 5 folks making an attempt to construct Olympus on Cosmos. And on the similar time, that is when all of the dialogue was beginning round needing some new imaginative and prescient for ATOM, of what it was going to be. So I used to be simply hanging out with folks there and I used to be like, “What if ATOM is the OHM of Cosmos.”

It began as a joke, like, “ATOHM”, however then we began fascinated by it and we realized, really, this makes a whole lot of sense. What was Olympus on the finish of the day? It was a approach of doing protocol managed worth—PCV—and having or not it’s used to extend the protocol’s personal holdings. Proper? The best way they utilized it was this very “ponzinomics” kind of mechanism, which wasn’t nice, however the elementary thought of the bonds and the PCV have been directionally appropriate. In order that turned an enormous a part of the Interchain Allocation system.

And clearly, a whole lot of Interchain Safety stuff and all of that—these are additionally issues that I’ve been contributing to. 

CB: You stated that 9 months in the past folks have been discussing Cosmos and ATOM extensively. Did something particularly occur to set off this dialog?

SA: No, that was simply when a whole lot of the dialogue was beginning. Like, “Hey, what are we doing now with Cosmos Hub and ATOM?” What occurred is that the ATOM group made this wager in 2021 on Gravity DEX and the Gravity Bridge. And people didn’t actually play out very properly for them, as a result of Gravity DEX acquired outcompeted and Gravity Bridge moved onto its personal chain. So I believe that’s why round December of final yr these discussions have been being held, like, “Okay, what’s the following factor Cosmos Hub ought to attempt to do.” 

CB: If I perceive accurately, the Interchain Allocator might find yourself giving Cosmos Hub a bonus over Osmosis when it comes to liquidity provision. Is there a priority that the Hub might find yourself siphoning liquidity away from Osmosis?

SA: No, I don’t suppose so. I don’t see why the Allocator would siphon liquidity from Osmosis. On the finish of the day, what issues is the place your customers are, proper? Right now, when somebody needs to purchase Cosmos-based property, they arrive to Osmosis. And liquidity follows the place the customers are. Institutional quantity follows liquidity, however liquidity follows retail quantity. 

So our aim has all the time been to construct the very best product, construct the very best UX. Every part else will fall into place. Simply because the Cosmos Hub has ATOM to spend… To start with, to construct liquidity markets you don’t want simply ATOM, you want two sides of the market, you want the opposite tokens. And all the opposite tasks launched in Cosmos know Osmosis is the go-to market.

CB: How do you suppose Osmosis suits within the Cosmos ecosystem if ATOM 2.0 is applied? Does its place change? Does it keep the identical?

SA: I believe Osmosis just a little bit impartial of what occurs to ATOM. Osmosis has its roadmap that it’s centered on transport—like constructing this DeFi ecosystem. However having extra sturdy chains within the Cosmos ecosystem is simply good for everybody. As Osmosis, we’re already the largest DEX and liquidity venue. If Cosmos as an entire grows, that’s good for Osmosis. So if ATOM 2.0 helps the Cosmos ecosystem develop as properly, on the finish of the day, that’s useful for us. But when it doesn’t work, I don’t suppose it will affect Osmosis considerably.

CB: Bridges have proved to be susceptible to exploits, particularly up to now yr. Any worry that the Cosmos ecosystem as an entire might find yourself changing into a goal when extra liquidity flocks to it? And is that this one thing that’s worrying?

SA: Yeah, undoubtedly. As the quantity of property sitting on these bridges will increase, they change into extra of a honeypot. And you realize, the current BNB Chain exploit concerned some Cosmos software program. There’s undoubtedly a necessity for extra deal with safety. So we’re doing that proper now. After the BNB Chain hack, we took time to do inside auditing of our software program stack once more. And we discovered some regarding stuff—that’s what this entire dragonberry factor was about. We discovered a problem and we have been like, “Hey, okay, let’s have this rollout to patch it for the ecosystem as an entire.”

So I believe there’s going to be a renewed effort in direction of that. However I believe there’s additionally different methods of accelerating the safety of issues. For instance, we’re big believers on this thought of fee limiting. I believe that fee limiting is the way you construct safety. Axelar, which is our main bridge supplier for Osmosis with EVM, has applied fee limiting, and we’re really including fee limits to Osmosis’ IBC in our subsequent improve in mid-November. What that does is that we are able to determine to solely enable, say, 20% of our bridge’s (or our IBC channel’s) TVL to move off each six hours, or one thing. You need these circuit breakers. When you have a look at conventional techniques they all the time have circuit breakers. 

We’ve all the time been believers in Cosmos, on the consensus layer, of this concept of security over liveness. If there are ever points, if one thing is appearing abnormally, the consensus protocol pauses. We ought to be constructing these concepts, “security over liveness,” into our application-level designs as properly. We’re constructing them into the bridges, and that’s one factor that might be reside very quickly. However we also needs to construct them into the AMMs, construct them into lending protocols… I believe extra issues want these fee limiting-based circuit breakers. Truthfully, the affect of a whole lot of previous bridge exploits may have been massively mitigated if they’d these types of issues.

CB: Mesh Safety decreases the ecosystem’s reliance on Cosmos. Has there been pushback from Interchain Safety advocates? It’s my understanding they consider Interchain Safety would supply additional utility to ATOM and assist place the coin as a reserve forex for your complete ecosystem.

SA: Yeah, however I believe any pushback has simply been a knee-jerk response, like, “Oh, that is competitors in opposition to Interchain Safety.” When you ask the people who find themselves really constructing Interchain Safety, they’re like, “Oh, yeah, that is nice, that is apparent.” 

All Mesh Safety is saying is that we want a free marketplace for Interchain Safety. There’s not going to be one hub-and-spoke system, proper? We all the time knew there have been going to be a number of safety suppliers. We’ll all the time need folks to have the ability to select between them. You don’t even have to choose only one supplier; there’s no cause you may’t get safety from a number of suppliers. So Mesh Safety will allow a greater free marketplace for safety.

And why not run this bi-directionally as properly? There are completely different markets. You’ve your larger chains, let’s say your Osmosis and Axelar—already very high-value blockchains—they usually each need to ensure that the opposite chain is safe, they usually need to have extra safety themselves as a result of it will suck for Osmosis if Axelar acquired hacked, and it will suck for Axelar if Osmosis acquired hacked. So there are pure financial relationships between these chains which might be going to need to forge safety alliances.

I additionally suppose Interchain Safety goes for a really completely different market, which is the bootstrapping of latest chains. It’s extra for, like, “I don’t need to launch a sequence, I don’t need to have a validator set, I simply need to launch quick.” I believe that’s what the Interchain Safety market goes after. I believe these are two very completely different markets. I believe Mesh Safety coupled with Interchain Safety will make a freer market. So sure, the Hub will present safety, however Osmosis will perhaps additionally present safety, Juno will present some, and Saga, and so on.

There are a whole lot of tasks at present launching on high of Osmosis, however we finally need them to spin off onto their very own appchains. Mars is beginning like this. Mars is launching on Osmosis and spinning off onto its personal blockchain. We would like to have the ability to do Mesh Safety with this ecosystem of tasks which might be spinning out of the Osmosis chain.

CB: The staking APR of OSMO tokens is at 22.69%. From my understanding, this solely comes from token emissions. Liquidity suppliers additionally obtain huge liquidity mining rewards. Is there any plan within the works for Osmosis to detach itself from emissions and rely extra on precise sources of income? 

SA: Yeah, undoubtedly. That’s one thing we’re engaged on proper now. The Skip staff put up a proposal [in the Osmosis governance forum] to construct extra MEV-capture instruments into the protocol. I believe that may be an enormous income. And anybody could make a proposal to activate a charge swap. For some time, the protocol wasn’t charging any charges on swaps—that was a development tactic. If the group feels that now’s a great time to show charges on, that’s a fairly affordable factor to do. 

Our view has all the time been that generalized blockchains don’t have precise income sources. Transaction charges are by no means going to be a significant income. So what are attainable sources of income? I believe both app charges (which, in our case, are swap charges) or MEV seize. These are the 2 issues that may finally exchange emissions. However the aim proper now’s to maintain increase extra quantity. Each the swap charges and the MEV seize are depending on the quantity of quantity within the system. So the primary aim proper now’s to do no matter we are able to to drive up quantity relatively than pondering short-term.

CB: I used to be going to ask you about Skip. The satellite tv for pc seems to be fairly cool. How do you suppose distribution will work? Will the MEV-captured worth be distributed amongst OSMO holders, DEX customers, LPs? Or all of them?

SA: It would clearly be up for governance. However for me, it is smart that a whole lot of it goes in direction of OSMO stakers after which into the group pool. Yeah, in all probability a cut up between the 2.

CB: What have been among the challenges for Osmosis throughout the bear market?

SA: I imply, the worth of OSMO emissions has gone down. Which suggests now we have to be just a little bit extra conservative, particularly with our grants and stuff. There’s a grant program that began off with a a lot larger treasury than what it has proper now. So now we have to be just a little bit extra conservative with that. 

Really, I actually suppose the largest affect for us was the Terra crash. Simply the affect that Terra had on Osmosis particularly and the Cosmos ecosystem as an entire. That was in all probability the largest factor for us personally. However there’s been good and unhealthy sides to it. The unhealthy aspect is apparent, proper? Nevertheless it’s been very attention-grabbing to see a brand new influx of developer exercise on Osmosis and in Cosmos from Terra. I inform those who Terra was like a supernova: it exploded, but it surely despatched stardust all through the cosmos. Now, all of those builders from the Terra ecosystem, which was fairly massive—I’d say the overwhelming majority of them have stayed inside Cosmos and are constructing new appchains. And a few are constructing on Mars, or on high of Osmosis. So I believe that’s been one of many issues that triggered new development and pleasure round Cosmos. 

CB: That’s fascinating, as a result of after Terra collapsed we noticed a whole lot of chains, like Polygon and Algorand, making an attempt to poach Terra builders. 

SA: Yeah, you had all these tasks that have been dangling these big bounties in entrance of individuals. However I believe all of the prime quality builders actually resonated with Cosmos. I imply, they went to Terra as a result of they believed on this appchain thought, proper? Terra was an appchain. It was perhaps a nasty selection of design an appchain, however you realize, I believe a whole lot of them believed on this thought and needed to stay round on this ecosystem. They knew the stack properly, they usually actually aligned with the philosophy. Even earlier than the crash, Osmosis was the largest DEX for UST, so there was already fairly a little bit of group overlap, because it was. 

CB: Would you thoughts going into element about how the Terra crash impacted Osmosis?

SA: I’m really engaged on a weblog submit on this proper now, I’m going to publish on the six month anniversary of the crash. Look, half of the liquidity on Osmosis was made up of UST and LUNA in some unspecified time in the future. Possibly barely lower than half. And the way in which that Osmosis is structured is that, as these two tokens crashed, folks offered out of these property into OSMO, then offered OSMO into ATOM, after which offered ATOM onto centralized exchanges. So the crash had a value affect on OSMO as properly, and a whole lot of our TVL was worn out—half of it simply went to zero. 

However usually, in crypto at massive, my hottest take is that Terra’s mechanism was attention-grabbing. I believe they acquired grasping and the Anchor rip-off mainly killed the goose. I don’t know, I believe it’s a setback. One of many causes I actually consider in crypto, that I actually like working in crypto, is that I like experimenting with algorithmic financial coverage. And I believe that Terra simply set that again so much.

CB: Does Osmosis have plans past the IBC ecosystem? Are you seeking to construct on LayerZero, or Celestia? 

SA: So we already use Axelar as our main bridge for connecting to non-IBC chains. We made the choice to decide on only one bridge supplier, so we are able to deal with constructing a lot deeper integrations, a lot better UX. So when you go on the Osmosis web site at present, when you attempt to deposit ETH, it’s built-in actually seamlessly into the web site. You don’t even have to depart our web site. I believe that’s the UX that individuals need and have come to count on. 

Finally, the aim is to change into extra than simply an IBC DEX. We need to make it in order that, in case you have AVAX on Avalanche and also you need to swap it for ETH on Ethereum, it is best to be capable of do it in a single click on. We’ll be larger than simply the Cosmos DEX.

One enjoyable reality is Osmosis is presently the second greatest DEX for DOT. We’re slowly going to be including extra of the native property of different ecosystems, beginning with ones that don’t have very properly developed inside DeFi ecosystems, like Polkadot.

CB: I keep in mind you mentioning that Osmosis was the largest marketplace for EVMOS and different massive IBC chains, even together with centralized exchanges.

SA: Yeah. I don’t know what it’s proper now, however after I checked just a few months in the past—I used to be trying up which crypto property within the High 100 by market cap had a DEX as their main market. Even Uniswap, the UNI token, its main market is a centralized change (Editor’s notice: Binance). So out of the property within the High 100, not together with stablecoins, solely OSMO and—at the moment it was JUNO, now it’s EVMOS—these are the one two property within the High 100 for which the first market is [a decentralized exchange,] Osmosis. I imply, we’re making an attempt to compete with centralized exchanges right here and, like, when you’re not even the largest market in your personal asset, and also you’re not competing with them on buying and selling volumes, then… you realize?

CB: You name your self an undercover Bitcoin maximalist in your Twitter profile. Clarify that to me?

SA: [Laughs] I imply, I all the time preferred the thought of Bitcoin as this core retailer worth, digital gold asset. I believe that Bitcoin has the obvious thesis of the entire high crypto property. I consider in both appchains or going for this “moneyness” kind of factor. Appchains have apparent methods of capturing worth. However when you’re going for being “cash,” I believe Bitcoin is the one one which has an precise product market match proper now. ETH is making its approach, however I believe it nonetheless doesn’t know what it needs to be when it grows up. However Bitcoin could be very clear. There’s no aim, we’re not going to attempt to do anything. We’re simply specializing in being cash. 

One cause I began engaged on Cosmos is as a result of I needed to construct the applying layer for Bitcoin. I used to be like, “Hey, Bitcoin is an appchain; it’s only for funds and we’re issuing this asset, proper?” However we nonetheless have to construct this economic system round it. So we have to get BTC off of the Bitcoin blockchain and use it because the reserve asset—as a reserve asset, as a result of I don’t suppose there’s any such factor as a single reserve asset—as a reserve asset inside this bigger crypto economic system. In order that’s why I name myself just a little little bit of a Bitcoin maxi. 

And I believe the story is so attention-grabbing. Like, I don’t have any tattoos, however when you instructed me at present to get a crypto tattoo, I in all probability wouldn’t get an Osmosis tattoo. The one tattoo I’d be prepared to get could be a Bitcoin one. Even when crypto dies tomorrow and all of us go discover different jobs and return to regular life… Bitcoin remains to be the image that represents these 10 years of my life, this period, this factor we have been constructing in direction of. I believe that symbolism is necessary.

CB: Would you prefer to see Bitcoin as an IBC chain?

SA: Yeah! Undoubtedly. What’s IBC? IBC is a sort of standardization round safe bridging. I don’t see Bitcoin switching to Proof-of-Stake anytime quickly, at the least not throughout the subsequent 20 to 30 years. However you may construct safe bridges to Bitcoin.

There are ranges of stuff you need to have the ability to do. First, primary bridging into Bitcoin. Counting on wBTC like that is foolish. That’s loopy. One firm holds the important thing. So let’s transfer it to a extra decentralized, multi-sig fashion bridge utilizing Axelar or Nomic. The subsequent factor is that this performance in Bitcoin that was presupposed to be constructed referred to as “covenants” which is able to make the bridging course of far more safe. The multi-sig operators can’t steal the BTC.

The subsequent factor is one thing referred to as “drivechains.” Drivechains is this concept of the miners controlling the bridge. So it’s fairly much like IBC itself when it comes to safety. Drivechains are just like the Proof-of-Work model of IBC. It would take some time to get there with Bitcoin simply due to its glacial velocity of growth, however I undoubtedly think about a safer bridging system—whether or not you need to name that IBC or not—might be reside on Bitcoin inside 5 years.

I’m an enormous fan of Jeremy Rubin. He’s a Bitcoin core developer, he’s the one who’s been pushing a whole lot of the covenant stuff lately. He’s like, this concept of Bitcoin progressivism, you realize, “I nonetheless consider in Bitcoin.” There’s a gaggle that wishes Bitcoin to maneuver quicker. Lots of people have given up on Bitcoin. We simply haven’t given up on it but.

Disclaimer: On the time of writing, the writer of this piece owned OSMO, ATOM, BTC, ETH, JUNO, and several other different crypto property.