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A

So the vision that we have for pith is that all the world's financial data should go through pith to be brought onto blockchains in a way similar to all the world's music going through Spotify.

B

Hi everyone. Welcome to Unchained, your no hype resource for all things crypto. I'm your host, Laura Shin, author of the Cryptopiens. I started covering crypto eight years ago and, as a senior editor at Forbes, was the first mainstream media reporter to cover cryptocurrency full time. This is the August 29, 2023 episode of Unchained, Arbitrum's leading layer. Two scaling solutions can provide you with lightning fast transactions at a fraction of the cost, all while ensuring security rooted on Ethereum, Arbitrum's newest addition, orbit, enables you to build your own tailor made layer three. Visit Arbitrum IO today at Token 2049 Singapore. On September 13 to 14th, Balaji Srinivasan Tyler and Kevin Winkelvoss, Arthur Hayes and 200 others will hit the stage, joining over 10,000 attendees. Visit token 20449.com for 65% off regular ticket prices with the code unchained link in the description. Buy, trade, and spend crypto on the crypto.com app. New users can enjoy zero credit card fees on crypto purchases in the first seven days. Download the crypto.com app and get $25 with the code Lora link in the description. Hey unchained listeners. As you know, it's hard keeping up with a fast paced world of crypto, so we've got just the thing for you. Subscribe to our free unchained daily newsletter at unchainedcrypto dot Substack.com dot. You'll get the latest crypto news and original articles from our reporters, as well as summaries of other happenings and bullet points, plus our meme of the day, all curated and written by our amazing team. It's still your no hype resource for all things crypto, just in newsletter form. Sign up at unchainedcrypto dot substack.com dot. Again, the URL is unchainedcrypto dot substack.com dot. Today's guest is Mike Cahill, CEO at Doro Labs. Welcome, Mike.

A

Thanks so much, Laura. Excited to be here.

B

You're a longtime pith contributor, and today you have some news about new developments in that ecosystem. But why don't we just start with your background. Tell us about pith, what it is, and what problem it's been trying to solve.

A

Yep, absolutely. So pith is a data oracle network and it is focused on bringing financial market data on chain in a trustworthy way with very low latency. My background is in traditional finance. I started at Morgan Stanley on the FX sales and trading desk out of college at a very interesting time where the markets for equities and futures had already become electronic and FX was undergoing that transition. I could sense out the paradigm shift that was underway and I tried to position myself to be in an opportunity to take advantage of it. The first thing I did was move over to electronic trading desk at Morgan Stanley, but then I realized that the winners were not going to be big banks, but instead trading firms. And so I made my way over to KCG, who is the largest us equity trader, and I helped build out the FX trading business there. And then in 2017, it was being acquired by another trading firm called Virtu. During that time of the due diligence, it was effectively pencils down. And so you had a bunch of basically hungry traders sat in a room. The ICO boom was well underway. And you can imagine the scene where we were very quickly learning about crypto. So we were all attracted to the very obvious arbitrages that were available on centralized exchanges. But what really ended up being a paradigm shift for me is as I started playing around and getting an understanding. The first trade that I did on ether delta was absolute eye opener. I had already understood that the blockchain innovation would allow for smoother remittance around the world, but this was the first time where I fully appreciated that something like wealth management or decentralized interactive brokers was possible. And you'd be able to effectively give these financial planning tools to, say, a kenyan farmer. Yeah. And so that was my journey down into crypto. I got a job, or as recruited to jump trading when the crypto desk was emerging. And I started there in 2019, and that's when I started getting involved in the PIF network. And today I'm announcing the formation of Duro Labs, of which I'm the CEO. We have got 20 people and we are a blockchain infrastructure company and we're really focused on accelerating the growth of the pith network.

B

Yeah. So let's give listeners more background on pith. You're trying to solve this oracle problem, which is a pretty sticky problem in crypto. Describe a little bit what it is, the problems that oracle providers face in the crypto ecosystem.

A

Yeah. The oracle problem, by definition, is the shared state systems of blockchains don't have access to exogenous data and so someone needs to bring an on chain, and then there's a whole bunch of trade offs with who you're going to trust to bring an on chain. And we've lived through several cycles of them. And each time there's a big issue. I think a new Oracle network kind of gets created. So if you were to just start with building a application and you wanted to connect it to an oracle network, or you wanted to connect to an oracle, let's say that you were building a lending protocol. The most intuitive thing that you would do if you are not that custom to dealing with blockchains is connect to, say, the Coinbase API, and then you'll run into some problems with that. For instance, there is downtime with the Coinbase exchange, there's downtimes with their Coinbase API. They may update it at some point. They may not have all the assets that you want to have covered, or they may underrepresent the market like they may have one of the assets, but it mostly, say, trades on binance. And so your price on Coinbase may not be reflective. And so you can start to build out a case for having to add more data sources, and you effectively have to deal with certain trade offs. And most of those trade offs are around the speed with which you can update. And so the reason why we developed pith, or I started working on pith, was the prevailing solution at the time, a few years ago, which was Chainlink had two issues we thought with it. The first one was that it was relatively slow, so it was updating every, say, hour or 50 basis point move. Then the second problem with it is that it only uses free data. And when you're working at a kind of a systematic trading firm, there's two things that are drilled into your head constantly. The first one is that latency matters, and if you're slow, you will have adverse selection or you will lose money. And the second is that market data is pretty expensive. So financial market data in the traditional asset world was $6.5 billion in revenue in 2022. So if your model is predicated on getting that data when it's free, you're going to have a very high limitation to what is available. And so that's really where Pith decided to focus on in terms of the sector and how we were going to develop the network to provide that with the lowest latency possible.

B

And so how does pith do that?

A

So pith is inclusive. It's a first party data network, and it's inclusive of sources. So the nodes in the PIF network are the ones that are actually publishing the data or generating the data themselves. And so those consist of trading firms and exchanges. So there are 85 data providers in the fifth network. Today, we count pretty much every large trading firm, almost without exception from jump trading, DRW, Susquehanna, Jane street, and then we have pretty much every large exchange on the crypto side, from binance on down to the smaller ones, and also some traditional exchanges. So myx, IEx, memex are US equity exchanges. And in December of last year, Cibo Global Markets joined as a data provider. Now, to us, this is a very important component of it. And the analogy that I sometimes will make is that when we looked at the model that was not inclusive, so the reporter network, which relies on nodes that effectively go scrape data from the Internet and publish that on chain felt and looked a lot more like digital music in the late nineties, where you had Napster, that enabled people to, for a short period of time, make all the world's music available for free. Obviously, that model is broken because the intellectual property creator is not rewarded for it. And so you have this kind of tragedy of the commons. So what model worked was the Spotify model, where the content creator or the song creator is rewarded. And that is what we sought to do on the pith network. The pith network seeks to do, which is to be a place where all the world's financial data can be distributed through in a similar way to all the world's music being distributed through Spotify.

B

And the crypto markets are notoriously volatile, and there have even been flash crashes on exchanges as kind of professionalized as coinbase. How do you distinguish either volatility or flash crashes from something like price manipulation?

A

So typically what will happen with an oracle attack even, and we'll just use that as an example, because that'll give you someone who's deliberately doing this, and it'll give us a framework for thinking about how it could happen without. The deliberate element to it is that you will find a small exchange that's being used as an oracle, and you will momentarily move the price and then take some action on change. So, for instance, if you were able to take out a loan with something where you can make the value of it on the oracle go really high, you take out this loan and it comes back down. The lending protocol typically ends up with bad debt. And that sort of what's happened with like the mango Oracle exploit, it's happened on Venus as well. So those are obviously bad outcomes and something that you want to defend against. There was a really cool blog post written by Sam Cz Son a number of years ago that dove into the details of that, and his conclusion was the best thing to do is to slow things down. He advocated for some version of time weighted average price. And in fact, you've had many people use the uniswap twap as their oracle. And the idea is like, well, we don't really need updates all that frequently. We just want to have something that's not going to have this exposure. Now, from a trading perspective, as I mentioned before, latency makes you effectively lose money somehow. You can think about impermanent loss almost as latency arbitrage, with adverse selection being the LP holders, because they're dependent upon somebody who has faster information to come and update the market price at their expense. When you put this framework together, you know that it's not great to be slow, but you don't want to take all the risks of being fast and wrong. So what PIF has designed is very innovative. So the first thing is each of the data sources are required to update the block time for our pifnet, which is every 300 milliseconds based on this line of technology. But they're updating not just a price, a single price, at any point. They're also including confidence interval. And so you have a band with which you can use to determine whether or not that price is very trustworthy. And this innovation allows us to update prices very frequently and give the protocols who are downstream the ability to make more informed decisions. So, for instance, if something did flash crash on a single exchange, and all the other data publishers on the network did not represent that, then it would be represented through the confidence interval, because it would show you that the confidence is very low and the confidence band is wide. So the idea there is that you can basically interpret the price as saying this is generally where the price is, but it could be somewhere in this range as well. And so that was what allows PIF to be able to be very fast, but also very accurate.

B

And you mentioned some data providers that definitely come more from the traditional financial world rather than crypto. And I wondered how those conversations went. What does it take to get that kind of institution to want to partner with a company that is essentially trying to bridge from the traditional financial world to crypto? Are they open to it, or is it something pretty out of the box for them? Is there a lot of persuasion that needs to happen? Tell us a little bit about that.

A

There's basically two types of parties that are interested in providing data on PIF. So the first one would be trading firms, and their motivation tends to be that they've never monetized their market data in the past. I mentioned that $6.5 billion of revenue is earned through market data. It's mostly earned by the large exchanges, and the trading firms are not participants on that. They basically use the market data to be able to make trading decisions, and that's about it. So one way you can think about that is PIF, in this example is sort of like Airbnb. And the trading firms have these found assets where they can now monetize them for the very first time, and then the second group. So if we think about someone like Cibo who does monetize their market data, the way they think about it is it's about 20% of the revenues from all these large centralized exchanges. And what they want to do is be a part of the future, which they assume could potentially be 20% of the size of DeFi as a part of the actual data component of it. So they want to be early on the data. So those are really the two things that I think motivate most participants within the network.

B

And then also some of them are already creating their own, like, for instance, reference rate. I don't know how that differs from this. Is that something where those products would be competitive with what, you know, like if they were, like, if. Let's say, because I know CME. So you have CBO on your network, but I know CME, I think has these bitcoin reference rates. And so is, you know, would working with you be competitive with their own product, or is that complementary or. I don't even know how those really compare.

A

I think they're quite different. So a single sourced reference point is going, especially one that's going to be mostly off chain, is going to be a certain type of a market. And what pith does is it creates the references that are the pith prices through the combination of all these different data sources. Now, there's a couple of ways that you can classify pretty much every oracle network or solution, and I can go through them. Now, very quickly, there's basically four categories. The first is push or pull. The second is fast or slow. The third is first party versus third party. And then the final is sort of single source versus blended source. Okay, so on the first one, push versus pull. In a push model, basically the price gets updated to the shared state, to the ecosystem on a predetermined schedule. This is the way that Chainlink mostly operates, and for ethereum the schedule tends to be around every hour or 50 basis points. There's a sponsorship where the gas is going to be paid for by the nodes, but usually it gets subsidized by someone else. There are some conflicts with this, so if you're like a profit maximizing mindset, what you would try and do is degrade the product to the point where it's just above the switching cost in order to keep the sponsorship and update as infrequently as possible. So there's some issues with this, and then the other element of it is that if you as a user wanted something that was faster, you're sort of limited. The pull model, which is what PIF has created, means that all the prices are updated to a single repository at first. So Pith uses something called pithnet, which is, as I mentioned, a version of Solana. It's validated by the data providers, there's 85 data providers that are validating it, and it has all the sorts of transparency requirements you'd expect from sort of a layer one. And so you can kind of check the fidelity and the provenance of the aggregation. And any one of those updates is able to be delivered to any of the chains that Pith is connected to. Pith is currently connected to 30 block chains and all 320 symbols that are currently live or distributed to any one of those three blockchains. So that's the kind of the push first pull, fast versus slow. We went over before, and in order to be sort of the fastest, you need to be kind of inclusive. You have to have this first party network or slow. This twap idea was, I think one of the things that people thought about as being a potential solution for a little while, but we moved on from that first party, 1st, 3rd party. In the third party model, it's easier to set things up. You can go to websites such as Coingecko and Coinmarketcap, but you're limited to whatever is free. And so crypto market data has for the longest time been mostly free. And if you looked at the traditional market data, it was largely free for a long time, and then it became 20% of the value of the revenues from large exchanges. I would imagine something like that could happen in the future. Coinbase has started charging market data a little over a year ago, and we can expect that other exchanges do the same. And then first party, is it kind of inclusive? And then finally, single versus blended source is if you use a single source, there's going to be some of those constraints that I mentioned with using Coinbase versus a blended source, which you can just have contributors that add and create just a more robust price. So there's another example of someone who also does an oracle, which is binance. They have the Binance oracle, but they're also a contributor to pith. And so there's some users that may only want binance, and then there's others that would want to use binance as a contributor to pith.

B

And so when you're vetting data providers to add to the network, what are the qualifications that you're looking for?

A

We are looking for institutional grade companies that have a strong reputation in so much, where there is more at risk for them to lose in another business than there is for them to gain by trying to manipulate the pith price. And so they're very much household names, all these 85 data providers, and they're all public. So you can go on the website of PIF network publishers, and you can see all the publishers are part of the network. At this stage of the network, it's very important for people to derive the trust from these names. And so it would be a crazy thing for Jane street to try and manipulate the price of something on PIF, because the amount that they would end up losing in terms of goodwill and on their name from kind of publicly doing this, is going to be much more than they could potentially gain from this. And so that is really the litmus test for whether or not someone should be a data provider into pith at this time in the future, when things move to a decentralized, permissionless setup, this will be determined by the governance token holders of the network, and they'll be able to do that based on the quality of the proposed data provider that gets added. And there'll be some staking and other kind of incentive mechanisms in place to protect anyone from coming in that doesn't have the best of intentions.

B

So something that I find so impressive is that you've integrated 30 blockchains. As far as I understand, that's a technical feat. Just talk a little bit about what it is to try to provide for so many different blockchains, just on an integration.

A

On a technical level, it is a lot of work, and my co founder and CTO, Jant, has lots of opinions on the best practices that he's learned by dealing with so many blockchains. Some of his insights that I think he would mention is that dealing with EVM, you get lots of benefits of ancillary tooling, so you get great wallets, great analytics and sample code that you can use to develop applications. And so that's actually a really nice thing within rust. So that'd be cosmos and Solana. There are great attributes, and those languages are not specific to blockchains. There is also kind of a rich history of other application development there. And so you also get very good libraries and resources on move languages. You end up having some really cool developed things specific for blockchains, but you don't yet have the full, robust suite of tooling, so that sort of needs to be built out. And so each time we expand to a different chain, we have to go through the process of learning how to operate on that chain. And it is very difficult and humbling to do. But it is a core tenant to what we at pith or at Duro would like to lead with. We want to make sure that we scale very quickly to as many blockchains and that as many projects as possible have the opportunity to use this data. And so far, it's been the case. So we're on 30 blockchains, and on ten of them, we have a market share of over 90%. This way that we think about a scaling pith to different blockchains has similarities to the way that Facebook grew. So initially it was just the social network for Harvard, and then it was the social network for Harvard and the rest of the Ivy leagues, and then it was us universities and so on. And so pith started out on Solana, and it grew to over 90% of the tvs there that used in Oracle, and it really has never left. And it was an advantageous time because this is where high throughput DeFi was really being innovated. And so high throughput Defi was first, only possible on Solana, and that was the first place that we saw on chain order books or on chain perpendic trading platforms. And now it's table stakes. High throughput DeFi is a trend that is sort of unmissable. You've got high throughput specialized blockchains like Optus and Sui, and then you also have the modularity of layer twos for the EVM world. And so arbitrum or optimism. And when we think about where we can kind of build up the most critical mass of users, we tend to find areas where this is a priority, because Solana has done such a good job in showing what was possible. And now other chains are sort of running with that baton. And that's how we think about scaling.

B

As you mentioned, Pif has grown very rapidly in recent months. So why is that? And how has it grown?

A

Yeah, it's been really remarkable. It's exceeded my expectations for sure. So basically, pith has gone cross chain in January of this year. And on the pithnet side, we create a supply, or creates a supply of 320 symbols that are updating, call it two times a second. So it's, roughly speaking, 50 million aggregate prices. Now, in January 2000 of those were being requested per day to be delivered, and then in May, we saw a spike to about 150. In June, we saw about double that. And then in July, it was around 1.3 million per day. And this month, so far, we've been seeing update requests for over 2 million. So why is this? The first power user of PIF was synthetix on optimism when they upgraded to v two with their new perpetual markets. And what they realized was that having a low latency pull model oracle would enable them to create an unprecedented trading experience. So perpetual markets a year ago were not all that common within deFi, and theyve grown very, very quickly. Part of the reason for the growth has been the lack of FTX and the desire for people to now have self custody in their trading. And so weve seen perpetuals on chain explode in terms of their growth. Now, because pith has been able to help synthetix in creating a kind of best in class trading experience, I think that most of the competitors or people that would like to build something similar have found pith in similar capacities. Today. If you were to do a derivative or take a derivative trade on a Dex, there's a 50% chance that it's powered by pithead, which is really remarkable growth given the short time frame with which we've gone multi chain.

B

And how is pith? What are the range of ways that pith is being used?

A

Like most oracles or most protocols that require oracles, the two largest use cases are lending protocols as well as trading ones. But we also see things like structured products and other kind of collateral management protocols that use PIF. But generally speaking, those are sort of the broad two categories. It's kind of trading and then creating collateral for lending.

B

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C

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B

Back to my conversation with Mike. So as we mentioned earlier in the show, you are now launching this entity, Duro Labs. Tell us how it will be working with the PIF network, and I believe there's a task coming up very soon which you might want to talk about this Perseus upgrade.

A

Absolutely. We're very excited today to announce the launch of Doralabs. DoraLabs is a company that has 20 people, ranging from contributors that were at JMP previously, to alumni from Goldman Sachs or AWS, Chorusone and many others. And what we're looking to do is build out tooling and development for the network and really try and accelerate the growth. Now, the pith network has had a few stages of big technology upgrades. And so, as I mentioned before, Pith started its lifecycle on Solana, and that was in September of 2021. And the idea was we needed to be on a layer one blockchain where there was going to be the characteristics that could give people the necessary assumptions for trust. And we wanted to make sure that you could use a Solana block explorer and look at the aggregation back into the math of it, and kind of really understand how it was working. And so a layer one blockchain was important, but we always viewed that PIF needed to be on multiple chains. And so because latency is such an important component characteristic of valuable data, and the type of data that pith wants to provide, we needed to be on the blockchain with the fastest intervals. And so that ended up being Solana. You know, decision criteria was quite straightforward to begin with, given those constraints. And we knew that we'd go to cross chain. There were times where Solana became so popular and it became very congested. There were NFT mints, and landing pith data on a congested Solana was very difficult. And there was also downtimes from time to time. So we realized that we needed to create an application specific chain. And if we can do that and we can convert to this poll model, we would be able to scale very quickly to the number of symbols and number of data providers without having to have a new variable cost with how much we grow, the variable cost be downstream. And so this is our v two and the emergence of pithnet. Then we plugged in Pithnet to wormhole and started growing cross chain about eight months ago. And now we've grown to being on 30 different blockchains. The Perseus upgrade is a continuation of the development in the pithnet architecture that gets sent over wormhole in such a way, we're now using merkle trees for proofs, and that allows for way more customizable delivery. In the past, we were relying on basically preset batches to be delivered to various blockchains, but now they can be fully customizable with a single proof that anyone can use to validate the messages that were sent so this allows us to see a decrease of gas from anywhere from 40% up to 90%, depending upon how many symbols you're using. We can increase the publishing frequency to other chains by a factor of about two. And it allows us to really continue to scale and grow the network to make sure that it's constantly the fastest and cheapest it could possibly be.

B

And one other aspect that I think is coming is a permissionless state with token led governance. What will that look like?

A

So right now, becoming a member or a node in the PIF network is managed by the pith data association, and that eventually will get turned over to governance holders. And so that and other key features. This is where pith as an application will have critical areas such as which symbols to add and which data providers do what managed by the token holders. So this is an important transition in kind of the lifecycle of pithemental as.

B

It continues to decentralize in a decentralized state. If you're going to add new data providers, how does that work? Maybe there's a proposal to try to talk to this other centralized party, and then are certain people delegated to represent the network that way? I'm just wondering how a decentralized entity interfaces with all these decentralized entities.

A

Yeah, so it is an interesting point, given that the pith network has probably more contributors than most decentralized protocols today. It is going to be a little bit of a challenge. But I think this is something that will get proposed in governance and a framework that will allow basically general participation. There is a couple of good models out there where we see highly participatory governance structures. Synthetix is a good example of one. And then there's kind of other models that are more like, say, Aave or compound. Synthetix uses sort of committees. AAvE and compound are sort of just like token holder votes. And so we'll allow the community to make proposals on how this will work, but I think that it's an exciting place to kind of experiment.

B

Do you have a sense yet of how tokens will be distributed?

A

No, we haven't had any announcements around that yet.

B

Okay. Yeah, I'm sure probably the regulatory environment in the US is perhaps going to complicate that discussion. So tell us a little bit more about the plans for dura labs. Will you contribute exclusively to PIF, or do you think in the future you might extend services to other projects?

A

It's totally possible that we could extend services to other projects, but for the moment we are laser focused on really developing PIF's network. We have a whole lot of embedded DNA with contributing to PIF from myself and co founders Karen and Jant. So that's where we think that we can add the most value. But who knows? Over time, I think that there's certainly within scope for us to be able to do and work on other projects.

B

And so the focus for duro Labs will be contributing tooling for just tell us, like you're servicing developers, is that it?

A

Exactly. So it'll be continuing to advance the development of the network. And so that could include additional upgrades like the Perseus one. It could also be helping build out the network by working directly with data providers to go through the governance process. And so those sorts of things.

B

The crypto markets are in a really interesting place right now. The volumes are down. We have market makers that have been withdrawing. It looks like finance is in a precarious state. I mean, there's just so many things that make it feel right now, like. Like the crypto market is just changing generally. And I was curious for your thoughts on kind of where it's going. And I feel like also you'll have an interesting perspective because you've seen so much growth during a period when everything else has been kind of in this transitional state. So, yeah, where do you see the markets going?

A

You're absolutely right. It is such a weird time. We've now seen bitcoin make new lows at a time where I think people felt like we bottomed out for a bit. And I think that's sucked a lot of the air out of the room. So the interesting thing is we have not seen a general retreat in terms of the number of builders. So pith has had three new applications per week integrate. And that to us tells us that people are still building things. And that's where the optimist in me thinks that we've got the potential for some real long term value. And if the markets become exciting for the general public, again, way better toys than we used to have for better tooling. The meme is builders build in these bear markets. We think it's the case, and I think that looking at pith's growth in terms of all these metrics around usage underscores that. And so it's maybe a happy story for us to try and take a rosy view on things. But if we were to get things to turn around, I think in terms of just the market sentiment, there's just way better tooling and applications possibilities than we had sort of in the last couple of cycles.

B

And what vision do you have? For once things work in a sort of ideal state or in a fully mature state, what will that world look like?

A

So the vision that we have for pith is that all the world's financial data should go through pith to be brought onto blockchains in a way similar to all the world's music going through Spotify. And what we hope to have happen is for the vision of defi being what I understood as kind of that paradigm shift when I first did the trade on ether delta. It's a decentralized way for people to gain access to capital markets. In all the other trends that like major growth trends that have been enabled by technology, things become cheaper, but they become much more broadly distributed. And so I think that's one of the big benefits that we have within crypto and moreover, within the potential of Defi. We would expect to see sort of the kind of the general usage costs go way down, but in order to compensate for that, the number of users go up incredibly, which will increase the benefits for people who just haven't had access to these tools before. And that's what excites me. If you thought about places that didn't have taxi drivers before, and now you can go get an Uber anywhere, it's just a way better experience for you as a user of the technology. I think that that is what's going to be enabled by crypto when it's at its full potential.

B

All right, this has been a fascinating discussion. Where can people learn more about you.

A

And your work so you can learn more about the pith network? At Pith network, you can learn about Doralabs at Doralabs XYZ, and you can find me on Twitter at mdomkhill.

B

Perfect. Well, it's been a pleasure having you on unchained.

A

Thanks so much.

B

Laura, thanks so much for joining us today. To learn more about Mike, the Piph Network and Duro Labs, check out the show notes for this episode. Unchained is produced by me, Laura Shin, with help from Kevin Fuchs, Matt Pilchard, Zach Seward, Juan Aranovich, Sam Sriram, Megan Gapus, Ginny Hogan, Leandra Camino Shashank, and Margaret Courier. Thanks for listening.