Chainlink will Connect ALL of Crypto & TradFi with Sergey Nazarov

Episode Transcript
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Speaker 1 (00:00):
Hey, folks, we're recording at chainlink smart count event and
joining me is Surrogate Nasrov, co founder of Chainlink. Surrogate,
great to have you, Great to be here. Thank you
for having me, Sergei. Lots happening with chain Link. I'm
excited to dive into some of the latest and greatest.
But I'm curious what was the genesis the idea behind
starting chain Link.

Speaker 2 (00:19):
So we were building some of the first smart contracts
before even the ethereum.

Speaker 3 (00:24):
White paper or yellow paper.

Speaker 1 (00:25):
Oh wow.

Speaker 2 (00:26):
And we noticed even back then that the most useful
smart contracts were not about tokenization. They were about events
in the real world being synchronized with smart contract conditions
on chain. We had all kinds of smart contracts back then,
for trade, global trade.

Speaker 4 (00:46):
All kinds of things.

Speaker 2 (00:47):
Sure, we didn't really understand back then how big tokenization
was going to be was also an issue. It wasn't
clear then that that was like the killer use case
of blockchains. Sure, and so what happened is is that
as tokenization became the killer use case of blockchains, over
let's say the last seven eight years, you basically had
an environment evolve around tokenization of cryptocurrencies. Meme coins, NFTs,

(01:13):
all these things, and then you had DeFi appear, and
then DeFi was really the first place, was the first
type of contract that required an external data source, and
so we kind of really just hopped on that to
an extreme degree, which is why chain Link kind of
grew the DeFi industry from sub one hundred million to

(01:34):
hundreds of billions now and currently powers approximately seventy percent
of it yeah, globally, and over eighty percent of it
on top chains like Ethereum, and.

Speaker 1 (01:43):
You've seen incredible growth, Sergey. I'm blown away that crypt
native firms, other blockchain projects could be considered your competitors
and treed Fire integrating chain links services and products, which
is amazing. Are you blown away by the success?

Speaker 3 (01:58):
Yeah?

Speaker 2 (01:58):
Yeah, I'm pretty excited about our position in the DeFi community,
and we're doing everything we can to support DeFi in
many ways, technically, in DC in all kinds of ways.
And now what we're seeing is the institutional world start
to go on chaines, and institutional world has more and
more of those off chain data problems bridging between chain problems,

(02:21):
identity problems. There's actually way more of those problems to
be solved for the institutions. So chain link, I would say,
is even more critical to institutional success than it was
to defy success because there's just there's multiple problems that
need to be solved by chain link for a transaction
to work at all. And then the exciting thing that
I'm really looking forward to is the world where DeFi,

(02:44):
which is already on the chain link standard, and the
institutional smart contract world getting on the chain link standard,
and then that'll make it very easy and seamless.

Speaker 3 (02:53):
For these two groups to interoperate with each other.

Speaker 2 (02:56):
So then the capital and the client base of the
institutional world will be able to very easily use DeFi,
which will massively benefit DeFi right and massively benefit our
industry because it'll prove the value of our industry.

Speaker 1 (03:09):
And on that note, you know, I read just recently
the ft sc Russell. They are using chain link to
bring the Russell one thousand and the other index data
on chain that's pretty incredible. So you have stock exchanges
and indices and so forth using chain links technology. That's
really great.

Speaker 3 (03:24):
Yeah.

Speaker 2 (03:24):
We just in the last few months we've had SMP
with their data on chain which chain link using something
called data link, yes, which is an oracle specifically made
for institutions that want to put their data on chain themselves.
So SMP, which is the leading provider of risk and
scoring of all kinds of all assets really put see Russell,

(03:46):
Trade Web and bitch abores. That's just in the last
few months, and that's because I think that's that's a
clear signal, and it's because of old institutional.

Speaker 3 (03:55):
Demand for that data.

Speaker 2 (03:57):
Right. So we've been speaking with all of these institutions
data providers for many years, well over.

Speaker 4 (04:03):
Five years, way.

Speaker 2 (04:04):
Beyond five years, depending on the provider, and what we've
always found is that they were always unconvinced of the
amount of institutional demand for their data going on chain.
But as you can see now, they're putting the data
on chain very actively. And I was on a panel
yesterday with the guy from Standard and Pors where he

(04:25):
said the initial data he put on chain with us
was just the beginning, and there's plans to put more
data on chain from Standard and Ports. So at the
end of the day, I think chain will be the
kind of key orchestration and data and connectivity layer between
all of these key inputs and the contracts, enabling the

(04:47):
contracts to work and all.

Speaker 3 (04:49):
This institutional data is just one of those inputs.

Speaker 2 (04:52):
But the fact that the providers have assessed the market
and they see it as big enough to put their
data on chain I think is a kind of interesting
signal that the market is there.

Speaker 1 (05:03):
So all this adoption that's happening and the growth that
you're seeing tell us a bit about how you're handling
that surge and volume and how chain link is a
blockchain and services can handle, you know, when it comes
to latency and much more so.

Speaker 2 (05:18):
Yeah, there's there's a lot of things that chain link
does in a kind of unique, highly reliable, highly secure,
high kind of speedway. One good example is the recent
AWS outage. Yeah, so there was an AWS outage that
took down not only the Web two Internet, but a
lot of the Web three Internet, including many, i think,
if not all, bridging providers, data oracles, the internal data

(05:40):
oracles that.

Speaker 3 (05:41):
Some people build for themselves.

Speaker 2 (05:43):
But chain Link, as a bridging oracle, as a data oracle,
as an identity system all stayed up. So it all
continued to operate as expected, and that's really what what.

Speaker 3 (05:56):
Chain link is built for.

Speaker 2 (05:57):
So the way to think about building reliable systems is
you'll have three hundred and sixty three days of the year,
which will be very easy, and they have two days
which will be very hard. There will be a lot
of volatility, there will be AWS events. Sure, there'll be
these kind of black swan events that'll affect that could
affect your.

Speaker 4 (06:16):
System, and the challenge is to find ways.

Speaker 2 (06:18):
For your system to resist those black swan events and
to work properly in the face of them. Which that
is really why chain Link powers approximately seventy percent of
all of DeFi globally, over eighty percent on ethereum. It's
why top institutions are now going into production with chain Link,
like UBS for their tokenized fund which was announced here
at the conference. It's because there's no other system for

(06:40):
bridging data any of these key operations that meets that standard,
and this recent AWS outage is clear proof of that.

Speaker 1 (06:49):
Absolutely, are you using AI in any way to manage
all of these things.

Speaker 3 (06:54):
At this point.

Speaker 2 (06:55):
We're testing AI, but we're not using it because it
it doesn't understand all the nuances exactly, and we're trying
to make sure that the protocol itself can handle most
of the nuances without relying on an AI. But we
do have AI oracles which process data or unstructured data
and turn it into structured data that can control smart contracts.

Speaker 1 (07:18):
Got it. Speaking of smart contracts, there was news of
a private smart contracts tell us about this and is
groundbreaking development.

Speaker 2 (07:27):
Yeah, So, private smart contracts, I think are maybe the
last big missing piece of what our industry is supposed
to provide to the financial system, because privacy exists in
the traditional existing system, yes, but it doesn't exist in
the blockchain world. And while that presents certain problems to
the public chain user, it actually presents much much larger

(07:48):
problems to the institutional smart contract creator and user.

Speaker 1 (07:52):
Absolutely.

Speaker 2 (07:53):
So what private smart contracts from chain in car about
is the ability to create privacy for smart contracts on
any chain using something called the chain link run time environment.
So the chain and runtime environment is where you would
run the part of the code from about the smart
contract that you want to remain private, and that you
want to remain private from everyone other than the people

(08:17):
you designate. So you can still share that code with
your counterparty. You could share it with regulators and they
can verify that the code that was run in the
chain lik runtime environment is the code that you told
them that was run there, but it was run privately,
and then there's proofs that are put on chain also
that the code was run as it was supposed to be.

(08:40):
This is using something called chain Link Confidential Compute that
we released a white paper about here at the conference
and that we'll be rolling out early next year and
throughout next year with more and more features. And it's
built on the chain link runtime environment, which is basically
the place where you write code to orchestrate all the
different chain link oracles and write a single piece of

(09:01):
code to manage all the different chains and oracles in
one place.

Speaker 1 (09:05):
Is it using ZK technology or is this something very new?

Speaker 2 (09:10):
So Chile Confidential Compute actually uses trusted execution environments, so
these are enclaves and tees. It also uses zero knowledge
proof technology, and it's going to be able to use
fully homomorphic encryption technology as well. So the type of
privacy that you receive from Chainly Confidential Compute is actually
configurable by you, so you can choose whether you want

(09:34):
the privacy from a trusted execution environment or zero knowledge
proof or fully homomorphic encryption or other types of encryption
that'll come up, and that'll be you know, increasingly quantum resistant,
like fully homomorphic. But the CIRE is really built to
be a flexible place where you can get all the
different oracles that you need, whether it's for data bridging, identity,

(09:55):
really any of your key building blocks. You can manage
contracts across all different chains, and now hopefully you can
do all that in a way that preserves the privacy
of those contracts and of the workflow. Yeah.

Speaker 1 (10:11):
Privacy, like you mentioned, is so important to institutions, and
we can't have everybody's data out there running in the open,
So that's such a critical component and part of the
infrastructure what we're building here. So we've seen tokenization has
become this huge market now where there's a lot of
folks are putting equities, money market funds, and much more.
Eventually it seems like real estate and all these things

(10:31):
are going to be there. How does chainling fit within
the tokenization market? Is it kind of what you alluded
to earlier being the orchestrator.

Speaker 3 (10:38):
Yeah, the orchestrator.

Speaker 2 (10:39):
So chain Link is partnering with a lot of the
top systems that tokenize things.

Speaker 1 (10:43):
M HM.

Speaker 2 (10:44):
So we've worked closely with Apex, We've worked closely with fireblocks.
We've worked closely with a number of top tokenization providers,
tourists and others. So many many top tokenization providers are
already utilizing CCIP the data.

Speaker 3 (11:00):
Oracles proof of reserves.

Speaker 2 (11:02):
So the oracles now they can use CRE to do
efficient orchestration around all those tokens that they're generating and
for fun tokenization. I think CRE is particularly useful because,
as we announced with UBS yesterday, there's an ability to
provide transfer agency, there's an ability to provide key services

(11:23):
that are critical to doing fund tokenization. So there's a
way that the existing tokenization platforms use CRE. There's a
way that issuers of tokens if they want to have
deep personal control over tokenization, can use CRE. And there's
actually all kinds of service providers that are available on

(11:44):
CRE to make tokenization easier, so like transferation service providers,
data providers like.

Speaker 3 (11:50):
Those that we mentioned.

Speaker 2 (11:52):
So the chain liink runtime environment is really kind of
it's both a place to write the code that manages
all these complex smart contracts, but it's also the environment
where you get a community and an ecosystem of tools.
So when you go into the CR you'll have SMP
data futs, Russell data, trade web data, all the other
institutional data you need. You'll have bridges to chains, You'll

(12:15):
have transfer agent services from various transfer agency providers, and
so you know you'll be able to build all of these,
you know, advanced use cases for tokenization in the cre right.
And then if you want to manage the token that
you're building through custodies provider like fireblocks or Tourus or
tokeny from apex or these other other systems, you're able

(12:39):
to do that.

Speaker 1 (12:42):
I'm curious how your vision for chain link has changed
if it has from the ethos of you know, why
this was started, and where do you see chain link
by twenty thirty By twenty.

Speaker 3 (12:52):
Thirty, so five years so chain link.

Speaker 2 (12:56):
Often chain link has so much market share like DeFi
as an example, at seventy percent globally, eighty percent in
top ten chains like Ethereum, and it has such a
lead right now with institutions that if we're able to
get similar market share in the institution world, then chain link.
The answer to your question about where chain link will

(13:17):
be will have to be about the size and scope
of the industry. Sure, so right now, for example, the
size and scope of what chain link secures because of
its market share of DeFi is determined by the size
of DeFi. So really chain links goal now, which is
really beneficial to the industry is to enable the further
growth of DeFi by enabling technology, secure, reliable bridging, secure

(13:42):
data systems that maintain uptime and reliability during aws, outages,
during market events, all kinds of issues. And then you
also have the institutional world. And now we're really devoting
a huge amount of resources as a community to bringing
the institutional world on chaines to solving many of their

(14:05):
problems for them to bring them on chain, on the
chain link standard. And so if chain link can can
help grow institutional adoption, the way to help grow DeFi,
and it can continue to help to grow DeFi. Or
there's other factors that influence the growth of DeFi, you know,
which is the value of DeFi, which I think will
be a bigger factor frankly, or the institutional growth happens

(14:28):
because regulations become clear and you know, DCS very positive continually,
and I think that'll be what determines chain links overall growth.
In addition obviously to chain links ability to remain secure
and reliable, which is it's you know, the system's top priority, absolutely,
and the ability to provide all the features right, the

(14:48):
ability to provide all the bridges, all the data, all
the identity, all the AI connectivity, all of these key
inputs in the way and at the speeds that the
creator of the institutional smart contract and the DeFi smart
contract need. So as long as those conditions are true
and chain Link gains the market share and has the

(15:09):
market share that it's it's in the process of gaining
now with institutions, and it has already with DeFi, I
think in five years the determining factor of chain links
growth will be the overall size.

Speaker 3 (15:21):
Of the industry.

Speaker 4 (15:22):
Sure, but that assumes chain links market share position.

Speaker 1 (15:26):
Sure, and one of the contributing factors will be getting
clarity the market structure bill pass. Now, you and the
folks that chainlink have been doing a lot of work
in DC advocacy, educating. Tell us a bit about that work,
and do you see the market structure getting passed? Maybe
by Q one next year.

Speaker 4 (15:42):
So I've been in DC many times.

Speaker 2 (15:43):
I've spent you know, significant time with both sides of
the aisle, both the folks leading stuff on the Democrats side,
so Senator Jillibrand from here in New York is doing
a great job, you know, getting the Democrats to understand
and move in the right direction. And Chairman Scott on
the publican side is definitely a big advocate for our industry. Also,

(16:04):
lots of meetings with folks at the White House, lots
of meetings with other agencies, all kinds of agencies. The
SEC we've had some meetings that are now known publicly,
but also.

Speaker 3 (16:15):
Many other agencies.

Speaker 2 (16:17):
And our goal in meeting with the legislative branch, the
executive branch, and the regulators is to create clarity on
what smart contracts and oracles are capable of so that
they understand really two things. The first thing they understand
is that smart contracts and oracles actually make a better
financial system. So smart contracts and oracles are not going

(16:40):
to introduce more risk into the system. They're not going
to introduce more money laundering, they're not going to introduce
more problems for the financial system. They're going to make
the financial system less risky. It's going to have less
money laundering and it's going to have less problems that
they're concerned about. And that I think is the way
to get them fully on board with our industry. And

(17:02):
the second thing that we've been explaining to them are
the are the key detailed nuances of how to create
clarity without overregulation. So the example that I always explained
to folks is that you want to be in this case,
like Bill Clinton and al Gore, you want to not

(17:23):
regulate the Internet.

Speaker 3 (17:25):
So if you if you regulate.

Speaker 2 (17:26):
If Bill Clinton and al Gore had decided to get
all upity and regulate the Internet because one of the
use cases of the Internet was pornography and because gambling
and terrorists were able to send emails to each other,
then the us IS position and the us is GDP
based on the Internet might be in a different place.

(17:49):
But thankfully for all of the folks in the US
and everyone sees this as obvious now. Wasn't obvious back then,
it's obvious now. Is that you know, Bill Clinton and
al Gore's restraint and ability to provide clarity without overregulation
and allow the market and the regulators to on a
case by case basis define more of what's right because

(18:12):
of all the complexity and the ever changing landscape was
really the right decision. And so you want to provide
enough clarity that people are safe and people can transact,
and the US can become the crypto capital of the world,
and York can become the crypto capital of the world.

Speaker 3 (18:31):
But you don't want to.

Speaker 2 (18:34):
Create a level of overregulation that does what's been happening
happening over the last eight ten years, which is push
everything offshore. And the other thing I explained to them
is like, look the stuff that happened over the last
eight to ten years where everything got pushed offshore.

Speaker 3 (18:51):
You folks often talk about how do we bring the.

Speaker 2 (18:53):
Teams back, and I try to explain that, you know,
the size of our industry is going to hen to
one hundred x, and yes, you should be worried about
bringing the teams back and making this a good place
for teams and organizations to build, you know, crypto products,
DeFi products, institutions, more contracts. But what you should really

(19:14):
be worried about is a lady alienating the ten x
one hundred x more teams. And so I think to
a certain degree they can correct that there's a lot
of offshore stuff now, I think that can happen. I
think the more dangerous thing is if there's either no
clarity and therefore too much risk to do stuff in

(19:36):
the US, or there's clarity with extreme overregulation and then
the industry booms and it doesn't boom in the US
in that case, now it's going to boom somewhere outside.
So there are significant risks to getting this wrong. Right,
So you know, we in DC are really trying to
explain how beneficial this is. Technically, we're trying to convey

(19:59):
the idea that cryptographically guaranteed markets and smart contracts are
actually the best thing for the financial system and it
can actually help the US and the US financial markets
in massive ways. Yes, that is starting to be understood,
and you can see that in the Market Structure Bill,
because the Market Structure Bill back in the middle of

(20:19):
the year was more about cryptocurrencies, right, But now it's
more and more about DeFi and the financial system, right,
because they finally have this clear realization that it's not
about crypto coins. This is the next iteration of the
financial system.

Speaker 1 (20:34):
Right, the blockchain rails running through everything, right.

Speaker 3 (20:37):
That's right.

Speaker 2 (20:37):
Yeah, the other two things I think they're slowly starting
to understand.

Speaker 4 (20:43):
But that first one we've made a lot of progress on.

Speaker 1 (20:45):
There's definitely been a lot of progress. Obviously, we have
the Genius Act pass and the fact that this bill
is now in the Senate. Is this night and day
compared to what we experienced the past four years. Absolutely,
and I certainly appreciate all the great work you guys
are doing in DC because education so needed. With the policymakers, Sergay,
I'm so excited to see the future updates around chain Link.
I'm a Link token holder and I appreciate having you.

(21:08):
Thank you so much, Thank you for having me my pleasure.

Speaker 3 (21:10):
Thank you.

Speaker 1 (21:12):
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