The DeFi Scaling Engine is Here and You Need It

Good morning defiers! I interviewed Plasma Group cofounder Jinglan Wang, who believes she and her team have cracked the DeFi scalability puzzle. They’ve shifted gears from plasma to optimistic rollups, which can processes fewer transactions per second than plasma but supports smart contracts. The first demo of this technology was unveiled last week during Devcon with Unipig Exchange (which I cover here.)

DeFi projects often say they don’t need many transactions per second right now –and Jinglan explains why that view is flawed. She also talks about her past life as a Bitcoin maximalist and tells the story about her literal scar from the start of the 2017 crypto bull market.

Image source: Forbes

The interview is edited for clarity and brevity and I’ve bolded my favorite quotes.

Camila Russo: How did you first get involved in crypto?

Jinglan Wang: I tried to start a Bitcoin class at my university and it was rejected, but I was the co-president of the MIT Bitcoin Club. The environment there was really conducive to creativity and all the people there are super awesome. I organized the 2016 MIT Bitcoin Expo and through the process of organizing that, I met a lot of people who came to speak because I was their primary points of contact. And just looking into who these people were, what they could talk about, figuring out the agenda, figuring out who to invite, I learned a lot about the breadth and depth of the space at the time.

I was studying art and computer science at Wellsely College. I didn't finish my degree. I bounced to start a company called Eximchain and I left before they ICO'ed, around 2016 or 2015.

CR: What did you do after that?

JW: I was sort of like in a free float. I did some work with Zcash, some work with SIA, some work with various random projects. Then I was like, I need a real job and my parents are upset that I don't have a job or college degrees. So I started working at NASDAQ as a product manager for their blockchain projects. They had like seven different blockchain projects under their belt at the time.

CR: Wow, you were able to get this big job at a big company, having dropped out of colleague.

JW: NASDAQ was a sponsor for the IDEO blockchain fellowship, and I was one of the fellows. I think that was a really good recruiting pool for them, for blockchain savvy people.

I worked there for about a year, right before Ethereum hit $300. [She points to a small scar on her ankle] This scar is from that time. I was at a bar eating lunch with my coworkers and I saw that Ethereum hit $300, and I threw my hands into the air and I thought the bar stool was nailed to the ground as they are sometimes, but it wasn't. And I fell backwards and my ankle hit the metal bar stool and it split my ankle open. So now as the scar fades, I'm like, we've come a long ways in crypto.

CR: So to get so excited, you must have already been really into Ethereum?

JW: I used to be a Bitcoin maximalist but I think the vibes are different in the Bitcoin and Ethereum communities, and I was just really entranced by how friendly the Ethereum community was and how no matter what your skill set or what your level you were at, you were always encouraged to contribute.

CR: Cool, so you got into Ethereum for the people, more than the tech. So what did you do next?

JW: I moved to San Francisco to work on Handshake, a decentralized naming system project with Joseph Poon. I learned a lot from everyone who was involved in that project –a lot of crazy, brilliant people. I worked with them up until launch or announcement, about four or three months.

CR: How did you start Plasma?

JW: I was working on this course called Cryptoeconomics.Study with Karl Floersch, and it's now run by this awesome person named Kevin Ho. I was writing the plasma chapter of the course and I was like, wow, this seems straight forward. Why has nobody built it yet? Unbeknownst to me at the time there were people working on implementations, but we were like, why don't we build it? So Kevin took over Cryptoecomics.Study and Karl and I, as well as Ben Jones and Kelvin Fichter, who is no longer with the project, started Plasma.

CR: Can you tell me in very simple terms what Plasma is?

Essentially Plasma is what you would call a Layer 2 scaling solution. It is also an off chain scaling solution. Basically, people make all these transactions off chain, a party called the aggregator bundles these transactions and posts a digest, or a summary of it or hash, to the Ethereum main chain.

CR: So why the transition from plasma to optimistic rollup?

JW: Plasma can do a lot of transactions per second, like 20,000 easily. But it's only for simple sense and normal transactions. Like, I send you money, that type of transaction. It cannot do smart contracts and you can't build applications either. So we went around to the community and talked to projects and we were like, hey, we have this scaling solution, Plasma, do you like it? And they're like, oh, it might be cool, but can you do smart contracts? Can you do Uniswap? Can you do any of those cool things? We told them you can't, but you can get 20,000 TPS. Still, they weren’t interested.

We went back to the drawing board and created Generalized Plasma, which allows you to create applications on plasma and a limited set of types of smart contracts. But it still wasn't enough.

So we created optimistic rollup, which borrows heavily from the Plasma designs as well as Vitalik's Chatter Chains designs from 2014, and it can run full Solidity smart contracts on Layer 2, which is super sick. And now when people are like, can you do Uniswap? We're like, yeah, in fact we have a demo and it works and it's fast and it feels good to use.

CR: Can you explain more about what the impact of optimistic rollups on DApps and DeFi? Like does it enable all these projects to do?

JW: When you go to Unipig Exchange, there's an FAQ page and you can see we've had 2047 total transactions so far since announcing the game two days ago, and people have saved three 3.28 ether on gas and 3,582 minutes worth of waiting saved.

CR: How can you do these transactions without actually paying gas? Somebody has to pay for computation right?

JW: You do, you pay a fraction of the gas that you pay on the Ethereum main chain. You pay a network fee and that network fee is a fraction of what you're paying on main chain. So what you do is you put all the transactions in a Merkle tree and you take the root of the Merkle tree, which is basically all the leaf nodes hashed up into one hash and you post that hash to the main chain. So it's not a very big transaction, it's simple transaction. You pay a little bit of gas, for all these transactions.

CR: What are some of some of the tradeoffs that people need to do to, to use this? Is it riskier to have all these transactions not on chain?

JW: So a tradeoff is that it's far fewer transactions per second than Plasma. It's like 200 something now, transactions per second. If we optimize with BLS signatures it might go up to 2,000, but we haven't actually done it yet. That's just an estimate. Also, I'm sure there are like bugs in our code as it exists today because it's only on testnet, we haven't gotten an audit.

Generally we rely on crypto economics or dispute games, to make sure that what the aggregator posts on chain is valid and so there could be security holes in these dispute games. A lot of really smart academics say that it's secure. I'm not a super smart academic, so all I can do is trust what they say. There are, there are certain types of attacks present in Ethereum that are also present in optimistic rollup, like censorship attacks and stuff like that. So the experience of using it is the same as Ethereum, except it's faster and cheaper.

CR: This demo is on a test net. Is the idea to bring this to the main net?

JW: What we want to figure out is do people want this? Do people besides Uniswap actually want this? Because nobody wants to be first into an empty network and people want to bootstrap liquidity somehow. We have to see who else wants this because we don't want to develop this in an academic silo where we create this perfect scaling solution and nobody wants to you use it or uses it.

CR: But for exchanges, is it not like as simple as implementing this and then people are already getting faster transactions? Why couldn't they use the current network and liquidity?

JW: You'd have to move the liquidity from layer one into layer two.

CR: That means market makers would have take their tokens to an entirely different contract.

JW: Yeah, they’d have to deposit to Layer 2.

CR: Ah, that's tough. Are you seeing interest, demand, or is it too soon?

JW: We published this optimistic rollup thing like two months ago and then one month ago we started working with Uniswap, so it's really only been a month. But my teammates are protocol wizards so I'm pretty impressed with what they built in a month. I'm sure we would have to go through some vigorous audits. Building this demo with Uniswap was really our way to get interest, figure out how many people are actually interested in using this.

People were interested in using plasma too. We got a lot of validation from the academic community with plasma. But optimistic rollup is simpler. It's more straight forward, building applications is a lot less complex. We're not sure yet, but it would be really cool in the future to have the experience of developing a smart contract on optimistic rollup feel exactly like developing an Ethereum smart contract. So we're trying to figure out how can we create a button essentially where you write the Ethereum smart contract and you press the button and it turns it into an optimistic roll up contract that would be sick.

CR: Do you think that's possible?

JR: I mean, it's definitely possible. The research problems have been solved with regards to how to do that, but it's not easy and it takes time and we have a really small team.

CR: So I guess a couple of hurdles you would need to overcome for this to become more used is the liquidity and to make it easier for developers to build on it.

JW: We're also a nonprofit though, so there's a question of, how far do you take this before you give it to somebody else. I think that with regards to optimistic rollup, this feels so sick. We are all super excited about this and we want to take it as far as we can go. But you know, we do have to think about our future. At some point, we will run out of money as a nonprofit, and public goods funding is hard.

CR: Where did you get your initial funding from?

JW: Ethereum Foundation, ConsenSys, OmiseGo, Status, Link Time, Matic, Gitcoin, and angel donors.

CR: Have you thought of like creating a for profit company to take this forward in the future?

JW: I think that's an option, we’ll see.

CR: To to finish, what are some of the applications you’re most excited to see using this scaling solution.

JW: I'm a huge ETH bull, and I'm very bullish on DeFi in general. There are a lot of cool mechanisms out there. optimistic rollup is really the DeFi scaling engine and whether it's decentralized exchanges or money-making protocols like Compound or Pool Together or you know, other cool financial instruments like dYdX, Gitcoin, whatever, I want to talk to those projects. Anyone who has users who need scale, we're ready to scale.

CR: Do you think there's the need yet? The projects I talk with say, we're fine as it is, we have some users but we're not running into scaling problems.

JW: I get this question a lot. Projects that are like, oh, we don't have that many transactions going through our protocol, we don't need scale. I'm like, okay, but your building on the same network as CryptoKitties and FairWin. When the network is congested, your users are also affected. I saw on Twitter a couple of weeks ago somebody posting how the network was so congested that they wanted to make a transaction to top up the margin of their CDP, but the transaction was so slow that the CDP got liquidated before they were able to top up their margin. So it's all user experience.

I'm sure there's not that many transactions per second from like Maker CDPs, but that argument is like saying, I don't need a subway card –if subways are an uncongested mode of transportation– I don't need a subway card because I don't really get out that much. But if you live in New York City during rush hour, it's going to be slow for you to be in traffic. You're going to want to be on the subway.