Matt Cutler on how Blocknative monitors blockchain transactions

0:01i'm ashton addison from block west capital for investmentpitch media in the Crypto Coin Show and today on blockchain interviews with matt cutler the co-founder and ceo of block native matt welcome to the show and thank you for taking the time to come on my pleasure thanks session thanks for having me i'd love to kick off our conversation by hearing a little bit about block

0:21native some of the solutions that you're driving into the cryptocurrency industry in the mempool and transactions and then we can dive into the details after that sure so block native we're we're experts in-flight transactions so on-chain data represents value at rest all the money stop moving we specialize in the pre-consensus layer everything

0:41that happens while transactions are are occurring and while money is moving and it turns out it's a very fascinating area and there's a lot of intricacies and challenges associated with this layer of public blockchain networks and we operate a global data network that captures about 100 percent of public blockchain mempools sort of the area where this all goes and then we make it

1:04very easy for traders and builders to work with that data so we sort of level the playing field as it relates to this whole area and allow new experiences to occur and new trading strat strategies to be implemented so it's pretty exciting time for us these days very cool great background and yeah it's not something that i personally hear about often in the mempool but you're

1:26right there are a lot of different implications information you can gather strategies you can employ with this information and i'm just i'm curious to know more about that but i'm also curious to know more about your background in blockchain and why you decided to start block native specifically well i like to say i'm a glutton for punishment depending on how you count

1:47i've done seven or eight technology startups and other sorts of startups i've built them grown them sold them split them merged them taking them public sort of all of the above my very first company was an internet company way back in 1994 long before it was fashionable to do internet long before it was fashionable to do it as an undergrad that one was called net

2:08genesis and was the first ever web analytics business and i like to say it was a nine-year overnight success a zero to ipo and at the time we went public was one of the top 35 ipos in history my most recent startup was called collaborate.com it was a mobile collaboration platform founded on the radical idea that people would actually use their phones to do work that was

2:26an early exit to cisco which was pretty awesome that's actually why i live out here in the bay area now and i was in executive cisco for about four years before leaving to start block native the reason why i jumped in was once i started to tune in and pay attention to blockchain and crypto this was 2016 2017. i really felt like i'd seen this movie

2:48before it felt a lot like the early days of the web and while i was building in the early days of the web i made a lot of mistakes and so i sort of thought it was pretty unlikely that an operator entrepreneur like me would get two bites at the apple and i have the opportunity to make all new mistakes this time around so jumped in the middle of what turned out to be

3:10crypto winter which was actually pretty productive for us because it eliminated a lot of the froth and we're a team of software developers who knows how to build infrastructure and so we were just heads down building and we focused on the mempool pretty early and it seemed like somewhat of an unusual esoteric area to specialize in and you know fast forward

3:31a few years and we look like we're we're ahead of the game right so sometimes lucky sometimes good and my business partner and i chris mizel he's our cto we've known each other for about 15 years and have worked together in various frames so it's super fun to be you know working and building and doing you know net new contributions in such a critical area

3:53fascinating and yeah another kick at the can and i feel like you know this one is in perfect timing right now there's a lot going on in the blockchain space and i don't think too many people are focused on the mempool and i want to elaborate on that more because a lot of people just don't know about the mempool the transaction sort of what happens before

4:13confirmations happen maybe you can talk about you know what is the mempool and why is it such a crazy place sure so it's interesting i always ask people you know you've done a transaction you know on the blockchain you submit it and you wait for a while and then it confirms you'd be like like what do you think happened is while you're waiting like i've never really thought

4:33about it i don't know well turns out that your transaction when you sign it and submit it becomes a candidate for inclusion and it goes to this area called the mempool sometimes called the transaction pool depending on which blockchain you're working with where it competes with every other transaction that's pending for the attention of miners or

4:54validators to be included in a block oh it turns out that almost the rules of this area of this pre-consensus layer sort of everything that happens before consensus is formed is almost entirely different than what happens on the blockchain so when things go on chain they're immutable they can't be changed well before consensus happens everything is mutable you can modify and alter and

5:18affect transactions in the blockchain sorry in the mempool and so you can replace them you can cancel them you can speed them up you can affect them in other ways and once your transaction gets written to chain it's kind of set and fixed doesn't really matter what anybody else does well the mempool because it's a real-time marketplace and competition for confirmation that

5:38what other people do can affect your transaction in all sorts of adverse fashions and so it turns out that this is a real time space where hey on ethereum for instance ever a block gets confirmed about every 13 and a half seconds but in the mempool it's sub second you know anyone anywhere in the world can submit a transaction at any time and so you have this discrete

6:00system of on chain data click click click moving forward and the mempool it's a real continuous system hey on a public blockchain everybody agrees on what truth is that's the definition of consensus and the mempool there's no such thing as the mempool there's actually thousands of unique copies of the mempool each of which are slightly different

6:20than their neighbors and when the network gets very congested there's a lot of traffic it can the differences can be quite substantial so it creates it's a very different type of problem and a very requires very different type of infrastructure and that's why we started to focus on this because we realized the mempool effectively affects terms of settlement

6:41you know does it settle yes or no what's the time to settle what's the cost to settle and what are the terms of settlement and all of this basically results in transaction risk and that most folks who are participants in the network aren't really equipped to deal with that transaction risk aren't even aware of the risks that are happening aren't aware whether transactions

6:58encounter problems aren't aware what they can do about it so this is why we built block native this is why you operate a very sophisticated very expensive global network to basically level the playing field here democratize access so that anyone who's participating can have the same view and can have the same intelligence that they need in order to have predictable

7:18transaction settlement so it's kind of foundational we talk about utility-grade infrastructure and it's sort of like no matter who you are in the network you need access to this you need understanding from this and we're here to help out definitely great background on that thank you so much matt that really helps explain the difference and now we're

7:39talking about how we functionally use that right and you mentioned working with developers i'm curious if you can elaborate on you know how dapps and protocols work with block native to turn that information into something useful sure so we work with builders and traders on the builder side of the house these are app developers protocol developers nft games

8:02dexes for instance what we do is we help with user experience so we provide basically full stack of capabilities from low-level mempool data all the way to front-end libraries for things like selecting wallets so for instance if you ever use curve and you connect your wallet and it presents a list of options to connect that's one of our libraries it's called onboard and it just

8:26facilitates a connection of a wide variety of wallets to a wide variety of dapps it's quite commonly deployed in the ecosystem with best-in-class support for hardware wallets as well then what we do is we provide visibility and in-flight transactions so this is generally used to improve user experience the basic idea here is knowledge is power that

8:47transactions when they're in flight are somewhat opaque i mean the state-of-the-art experience is you go to your favorite block explorer like etherscan and you press refresh repeatedly and hope that something good happens instead what we have are libraries and capabilities that push information back to the user and so dapps commonly will deploy our notify library to provide

9:06real-time updates of transaction status and that just improves transaction recency frequency and value so it's way of growing and then for protocols they build these composable protocols and they need to know how they're being used in the wild sort of what are people actually doing and so we provide protocol monitoring so that protocol developers can understand

9:28where their smart contracts are being called and when they're being called and what those transactions look like this is leading towards things like protocol protection so that you can begin to flag anomalous or attack ship transactions and potentially intervene so it's pretty active on the builder side of the equation we're lucky to be working with many of the top

9:48builders and protocols in the space whether it be maker liquidator bots whether it be synthetics whether it be curve as i mentioned before urine finance synthetics set protocol all customers and active partners of block native which is fantastic that's incredible and it's great to see so many different groups partnering so early on as well and

10:13speaking of early on i know in 2021 has really been a year of a lot of institutional adoption you know the most so far and you know the retail traders are trying to stay on top of it look for tools that institutions are using figure out what they're doing so that they can stay ahead of the game with these tools is it are you specifically catered to

10:38institutional investors as well or just retail traders or and like how can they go on to block native and be like okay i'm going to use this information to give myself an advantage in this next trade or in this investment strategy we see institutional adoption totally taking off it's been pretty a very active segment for us overall i think the what we're seeing is

11:00institutions are moving out of proof of concept phase and moving into actual deployment phase and they're really starting to understand the risks inherent in transactions and public blockchain networks and so hey they manage risk throughout their their traditional lines of business all day every day and they understand that the risks here are real but different and

11:20they need utility-grade infrastructure to understand and manage that and so we provide basically an off-the-shelf solution for monitoring large transaction volumes and trading platforms and ensuring orderly execution of trades from trading desks and things like that and so it's really been pretty active it's actually quite a different you know selling and

11:42engagement motion to work with institutional buyers as you might imagine and that's been pretty fun to get a chance to work with them and then you know we're just seeing sort of across the board acceleration of activity when it relates to institutional buyers and also traders on the institution side getting a lot more sophisticated and

12:02understanding they're up against some fairly sophisticated actors and they need to bring sophisticated real-time tooling to the table and when they meet us and they hear about my co-founder who's x nasa and x apple and xspotify and really begin to understand the nature of what we do at a technical level and sort of the low latency information that we provide it's pretty

12:22attractive for those players so it's been a fantastic segment for us this year definitely no that sounds fantastic and i'm also looking at it on the flip side you know looking at this information how can i take advantage of this make a successful trade the mempool there has a lot of information that's like about to go on the blockchain but not yet and i could

12:42also see perhaps noticing threats or vulnerabilities or maybe there's a smart contract bug or maybe there's a hacker that's siphoning funds is that another function that you know block native could use to not necessarily make a successful trade but detect threats and malicious intent yeah absolutely the nature of what we do is we see the future not kind of not

13:07sorta we actually can see what's going to happen in coming blocks which is a pretty powerful position we're not the only ones but we're pretty much the only public project that is providing sort of enterprise grade tooling and infrastructure for doing so and so the applications of this core infrastructure are fairly broad one is to you know identify trading opportunities to do

13:29this across chains so not just on ethereum but in multiple applications to do multiple chains like finance smart chain we support and polygon we support and bitcoin we support and others coming soon but to then understand what are the nature of those transactions so hey if i can see the future and i can see a big arb opportunity forming i can act on that

13:50but similarly if i can see the future and i can see a very strange transaction it's going to result in a very large balance change of a certain protocol or you know something very unusual seems to be happening there's all sorts of possibilities you know you have you know seconds to respond which seems like a short period of time for me and you but

14:08for automated systems and it's actually quite a long period of time to do to intervene and to create protections for protocols and trading systems to prevent or to circumvent potentially malicious transactions one of the other big indicators of this are gas prices so this is something that our system does pretty much better than anybody else is estimate transaction

14:31fees coming up and particularly under eip 1559 and again what we have seen historically is attacks tend to happen at times where there may be abnormal things happening with transaction fees and so anyways there's a bunch of very interesting things that mempool data in real time can provide clarity into so that everybody can better understand you

14:54know what's coming next and how to act accordingly definitely and you mentioned eip 1559 there i'm curious from your expertise in the mempool you know most people have heard of this change and that it's burning some ethers it's changing the gas prices it's making eth more deflationary or lowering the inflation i'd love to hear your perspective on you know how you saw the

15:20mempool change with this eip 1559 so eip1550 went live at the london hard fork and basically it's a fundamental reinvention of the fee marketplace and introduces there's actually a whole bunch of interesting changes that 1559 brought along we were the first project to support it we were ready at the at the london hard fork which was great and what it

15:45does in particular is it introduces this notion of a base fee which is set by the network this was not the case before the network was not aware of transaction fees or what levels of competition was and that base fee is required so regardless of how a transaction gets transmitted and set on chain the base base fee must be paid there's no way to

16:03avoid that the base fee is algorithmic it raises up to 12 and a half percent per block or decreases a maximum of 12 and a half percent per block depending on demand and eip 1559 also introduced variable block sizes to try to balance out supply and demand but in practice there's another component called the priority fee which is a tip for the miners to pay

16:27attention and what's interesting we see a lot of very interesting data around sudden surges on the network particularly around things like nft drops where what will happen will be there'll be a surge of demand and the base fee will rise very predictably and very smoothly based on the algorithms that dictate it but the priority fee will jump radically what actually we're

16:51seeing out there is almost a tabletop effect that you know at the moment of the nft drop it might cost at least 2 000 way and gas prices to get on chain but all of that's in the priority fee and just a little bit to the base because it basically hasn't caught up yet and as time rolls forward as block rolls forward the base fee rises and the priority fee shrinks

17:13and these two systems one is algorithmic the base fee one is psychology driven by transactors interact with each other and basically converge on this it's about two thousand way it depends on the nft drop sometimes it's more sometimes it's less but you'll have this very sunburst of activity which if you're participating in an nft drop you need to

17:35know to participate but if you're not you know you're you're cruising along doing your everyday d5 stuff and then suddenly gas prices go out of control you don't have any context as to why you don't know what you're going to do next and this is why our infrastructure provides a lot of clarity and a lot of reduces transaction anxiety for users because it makes it a lot simpler to

17:56understand what's happening right now and it makes it a lot easier to decide what to do next either oh i need to really ramp up my gas fees i need to replace my transactions i need to be really aggressive about getting transactions on chain or you know what this isn't that urgent gas prices are a little out of control i'm going to hang off and wait a

18:15little while and you know this is the sort of broad-based capability that we provide to all members of the ecosystem and increasingly what we're seeing is wallets themselves incorporating our data and api into the user experience so the user doesn't have to know to go check block native gas estimator or to go get this data feed the wallet can actually present that

18:36directly to the user so that it's just one less step for new users of the ecosystem to have to understand and go through so that they can transact with confidence definitely yeah great information and you're right about new users using d5 you know the transaction fees are if you're trading a small amount they're fairly high and when they jump up and

18:55these nft drops and other special events where everyone's transacting at the same time people are trying to figure out you know why did the fee just double you know it's it's sort of unexplainable until you look at block native and you understand what's happening so yeah it turns out everybody cares about gas prices it doesn't matter who you are you know no one wants to overpay

19:14no one wants to underpay and it's a tricky problem particularly under 1559 it changes how you need to think about things quite substantially and so that's been really great for our business we have one of the lead in gas estimators you can find that at gas.blocknative.com and it will tell you about the base fee and the priority fee and how they're

19:31changing and it's a really great resource for anybody who's transacting in the ecosystem today very cool and i want to look forward matt you mentioned you're working with multiple blockchains already i'm curious if you have any hints into what other major updates are coming for the roadmap for block native for the end of this year and into 2022. we have quite a bit planned we have a

19:53very aggressive road map we've built sort of our base foundation infrastructure and now we're we're building things on top and fundamentally what we're focused on is improving our gas estimator and gas api because there's been a ton of focus on that recently gas now shut down which is one of the top gas estimators out there because they're based on spark pool based in china so

20:14the whole operation shut down we've seen a massive influx of activity and interest in what we're doing so we're adding new capabilities to our gas estimator available at gas.blocknative.com we're expanding our capabilities of our gas plug-in so today we support chrome and brave we're seeing a ton of requests for firefox support and there's a whole rich road map that we're

20:34building there we have a lot of new capabilities coming to our mempool explorer which is a visual front end for working with mempool data you can get that at explore.blocknative.com and we have a historical data archive of over 100 terabytes of historical memo data that we're getting a lot of requests now for access to we don't have public apis for that yet but we have all

20:54the data and so we'll be introducing you know apis to our archive that will effectively allow replay of prior transactions so hey this attack happened what was going on in the mempool we have all that data or hey if i had this algorithm this trading strategy operating at this time how profitable would it have been what would have happened right so we allow sort of

21:17it's almost like tivo for the mempool and we'll be commercializing those capabilities and bringing them to market in the coming months and then looking out at 2022 we have a whole bunch of exciting things planned that we'll be sharing with the marketplace as soon as they're available very cool matt thank you so much and for the viewers that are looking to

21:37learn more about block native go into the communities and also you know start using the explorer and using that information to make important decisions what's the best way for them to get involved so best starting point is going to be our website blocknative.com you can access our entire portfolio there you can get started we provide free access to set of prototypes here to go hands-on

21:58We also have a great blog that has tons of information about mempool and memphis data and all the stuff i've talked about today the archives of our blog are really quite useful and then we have a vibrant discord community as well again you can access that via our home page but bottom line if you have questions if you want to talk to and connect to other people who are

22:16active block native users our discord community is the best place for that and then finally twitter we're at block native on twitter you can follow us on social but we're really happy to engage with the community wherever the community wants to engage with us and we're really just fortunate and humbled by the level of interest in what we're doing and we're growing the

22:34team very rapidly right now so folks who are looking to join a vibrant project that is really deep technical credentials and a very competent technical team go to our career hub on our web page and we're constantly adding we've been growing quite a bit we've been really successful in hiring recently and any of your listeners who would like to join the team in almost

22:55any role we'd love to hear from them too okay amazing thank you so much matt i will leave all of those links in the description box below all the best with block native moving forward and let's follow up in the near future awesome thanks so much ashton appreciate it