Hi, this is Charles Hoskinson broadcasting live from warm, sunny Colorado. Always warm, always sunny, sometimes Colorado. Today is June 22nd, 2023. I'm making a quick video to talk about a few things: some housekeeping items and some advertising.
First and foremost, we have a new podcast released from IO, featuring Lilly and Paul together. The podcast is called Block 45, and the inaugural episode is about Ouroboros Leios. For those of you actually paying attention and participating in things like empathy and good faith, you realize that 24 hours a day, 7 days a week, we're building Leios. There's a website showing the commits in real time, and now the single most important milestone in the development of Leios is just about to happen tomorrow. Ouroboros Leios is entering the testnet phase, meaning that we actually have a live running copy of it.
The team got together and decided to call the testnet the Musashi Dojo. The five rings represent the ideas of earth, water, fire, wind, and void, with each phase testing various aspects. Earth is about validating the basic design. Linear Leios is a slight divergence from the paper; it's easier to implement, screaming fast, and it's about as good as you're going to get for Cardano's throughput on an uncharted model. Water involves exploring and tuning the protocol parameters. Fire tests it under real-world conditions with diverse hardware and operating systems from global operators. Wind is adversarial testing, where you're intentionally attacking the network and putting it under the harshest possible conditions. Finally, void is the smooth reactive state where final validation is complete before the mainnet, and it's also where third-party integrations work their way through.
Currently, Cardano operates at about 4.5 transactions per kilobyte per second, and we want to scale this up to about 200 kilobytes per second. If you do the math, that's about a 44X increase. We want to start at about two to five times under the earth part of the network and then showcase how that can be scaled up. This effectively puts Cardano in the several hundred TPS range, with a direct line of sight on how we would be able to get into thousands of TPS. The network currently operates under about a 20% or less load, so with a protocol like Leios coming in, it should provide enough throughput for the next three to five years, assuming quite aggressive growth of Cardano and no utilization of the partner chains and Hydra. In other words, Cardano is going to run as fast as it needs to.
This is the biggest single upgrade; it touches everything—the ledger, the network, the incentives design, how stake pool operators operate and run, and all these other things. It's not a small deal. Our intention at Input Output is to get all this work done and get the entire testnet through no later than November if we can avoid delays. The reason being is that once it's done from a development viewpoint, the challenge is that the Cardano network and all the surrounding infrastructure have to accept that and then initiate the hard fork. I can't initiate the hard fork on your behalf. As you know, we have multiple hard forks now that have been pushed by the community. The most recent one, for example, is slated for sometime in July. We were done with the engineering in May, but there were some last-minute additions that came through, and third-party people are working their way through and discussing it.
Given the magnitude of Leios, it's going to require quite a bit of coordination to get it out. On our side, we're going to do everything humanly possible to encourage the totality of the Cardano ecosystem to upgrade once the final version is done. However, it's up to the Cardano ecosystem when and how they upgrade. We can't pull that final lever. That said, the testnet is a critical component because it allows people to integrate against it. When that final version comes, it's a formality instead of a real integration touchpoint. We're going to encourage as many people who are building infrastructure—whether it be the Cardano Foundation, third-party node operators, exchanges, and others—to integrate as quickly as possible. This way, when the final version is done, we can get it to mainnet rather quickly.
The powers that be in the community can decide to test it a little longer because it's such a significant change. I don't anticipate much slippage, but it could potentially be a quarter. I don't expect it to be six months or a year after the RTM is done because most of the initial testing can be done upfront with the Musashi testnet that's running right now. Given that it's the biggest change in the history of Cardano outside of governance, I understand if people want to err on the side of caution.
I'm very optimistic, and it's actually an incredible accomplishment. In my view, the Leios family solves and reconciles the blockchain trilemma. We have found a path to scale at 50% Byzantine resistance with fast finality, thanks to Paris, while maintaining a high degree of decentralization. There is no other protocol currently in production in the entire cryptocurrency industry that has these properties. We should take enormous pride as an ecosystem for this, and we have a very beautiful step-by-step process for people to test it, integrate it, and get it done.
Decentralization is great because it makes the ecosystem more resilient. The only downside is that it removes tail predictability. It's hard at the final stages to know exactly when things are going to land because the people who build it can do all the work, get it done, and then it can sit in the queue of pending. An on-chain process has to be initiated, and the actors behind that have to be comfortable, including the SPOs, that they think this thing is ready for primetime. The best we can do is say that at the current velocity, we think we can cut it in November and hit that 2026 deadline, saying we're Leios ready, but then the mainnet has to adopt it and push it through.
I'll keep saying it to make sure people understand, because unfortunately, some misunderstand it. We should really focus on the win. The win is that we've solved the blockchain trilemma. The win is that we have something that's going to be at least 40 times faster than what we have. The win is that we now have, as of tomorrow, a collaborative place where everybody can start testing integration and getting everything tuned and put together. The not-win part is the unpredictability of when the network is going to hard fork to it. That is the nature of a decentralized network, with many businesses and different pieces of infrastructure, from Omigos to DB Sync to third-party nodes. It's important to understand that everybody has to come together and be ready for this.
As the protocol builder, our job is to coordinate as many people as possible. That's why we're announcing through every channel, including our new podcast, that this testnet exists. We're reaching out to all the different parties and saying, "Please help us go through these five phases so that we can get this into production sooner rather than later." I've noticed that it takes a little time to do hard forks these days. From when we're ready to when it actually happens, it's several months. If that trend continues, November can quickly turn into January or February if we're not careful. We'll be working with the Cardano Foundation, with Intersect, with Pragma, and other actors to coordinate as many people as possible. If anybody's falling behind, we'll see what we can do to accelerate things because we really would like to see a hard fork before the end of the year.
Historically, Cardano has managed about one to two hard forks per year. That's been our cadence of change. The July one has been particularly difficult to get through because it's been a rolling target. Things keep being discovered in an era of mythos that need to be fixed, and so things get pushed. Hopefully, that's less of a problem with the Leios era, given the interest across the ecosystem. We'll see if that trend continues or if we can accelerate it a little bit.
On our side, we're very proud. This is the last major update that's going to happen under Input Output Engineering in the old way. It’s really a capstone of over ten years of work that we've put into creating a research lab, building a world-class engineering team, and bringing product engineering and technology together in just the right way while working with partners. We work with Blink Labs, Sunday, and dozens of others in that prototyping process, and they all carried their weight. We're very happy with the output and outcome of that.
Leios has been an exercise in finding the right configuration of compromises to reach a good point. The other cool part about Leios is that it’s kind of like a tick-tock, almost like Intel processes, where now we can comfortably as an ecosystem be on a schedule. We do a major enhancement to throughput of the system, then we spend about a year in prototyping and research, and then we implement it and turn it on the following year. Every 24 months, you can see a huge uptick in throughput capabilities of the network to keep up with the growth of demand. This effectively puts us back into the game and makes us a solid DeFi choice, allowing us to leapfrog others through the next iterations and add more complexity along the way. We can preserve and protect the crown jewels of Cardano, like extended UTXO and Hydra, which are alternative and complementary scaling mechanisms inside the system. The core engine gets faster, but there are supplemental things that get faster as well.
We're excited that this cadence can continue, and it lends itself well to a vendor-driven process where Arc and IOR can do a tremendous amount of research, simulations, prototypes, and specifications, publish SIPs, and then third-party firms can take that. Those firms will be able to implement it over a predictable period because the design has been de-risked. Getting into that cadence is great because then you get predictable speed increases for free. As a builder, you just wake up, and the network work is much faster, similar to how silicon gets smaller and smaller process nodes, allowing you to get more transistors for free with the same amount of space due to those upgrades.
I like the fact that we have a consensus tick-tock, and we believe there's quite a bit of durability with the Leios roadmap. Future iterations of Paris should also improve finality, and adding in Minotaur and leaning into the partner chains model will enhance it. Overall, Ouroboros is back and it's here to play. It took quite a bit of time to get to this moment. It was tremendously difficult because we didn't want to make compromises. We wanted to solve the blockchain trilemma and showcase that Ouroboros is really the best proof-of-stake protocol ever developed. Now that all these pieces come together—the self-healing, the telescoping properties, the liquid non-custodial staking, the high decentralization, the increasing decentralization over time, and the ability to provide consensus for multiple chains simultaneously—it's truly amazing how much progress has been made.
It seems like a short ten years. I can remember just the other day when we were trying to figure out how to implement adaptive security and put in VRFs and have a semi-synchronous network back in 2016. To see how far we've come and what we've achieved is truly remarkable. The fact that we were able to build this together with more than a dozen different companies has been a lot of fun, too. It's really cool to watch small and large firms work on all of this together. So, it's a good day for Cardano—a long overdue day—and it's the capstone of the Ouroboros agenda as we had planned it out ten years ago. Having that fast finality paired with strong throughput and a roadmap where this can be increased regularly as needed is truly remarkable.
Looking to the future, there are a few more things we have to think about and do. The extended UTXO model is about 75% complete. It's a massive upgrade and innovation over what Satoshi provided. The challenge is that we don't have a concept of long-running agents or daemons inside the system. Star Stream is bringing a lot to bear in terms of data availability and incremental computation, interleaving, and algebraic effects. Star Stream would add another 10%, and having this concept of persistent long-running agents to look for events would be the final mile.
I was in a space a few months ago with David Schwartz from XRP, and he mentioned this as one of the reasons why the XRP ecosystem didn't take smart contracts too seriously. He's absolutely right to point out that the model and paradigm proposed by Vitalik has been popularized but is held up by some very inconvenient truths. Namely, all the things that make those smart contracts work in practice don't live on a blockchain; they tend to live with an Oracle service or a persistent application on an off-chain server somewhere. These are really hybrid applications that are not fully decentralized. He's not the only person to say that, but I think he said it quite eloquently.
My belief is that the extended UTXO model is the only way to resolve that. Having an account system with a persistent mutable state is a nightmare for long-running things, and you simply can't do that. If they wake up upon activation from a signal to a UTXO, there's a much better chance of being able to build these types of things. We're going to enter into a deep research phase where we systematically deconstruct some of the ideas from Star Stream, some of the new ideas that have come out of the Aleo world, and look at persistence, event orientation, data availability, and scalability.
Fee markets are another research thread that have to be pushed through, and layers now introduce the plumbing and stubs for that conversation. It's going to become quite vogue next year as well. There's a lot of work we need to do along those lines to clean some of those things up and get them where they need to be. I'm quite optimistic that we can move in short order.
The Cardano DeFi kernel concept has come up quite a bit. This is because a lot of people are moving to protocols where the fees aren't just for passively moving a transaction, but rather for complex DeFi activity or ledger service. Those fees would go directly into the purchase of ADA and send that ADA into the treasury. This would create upward demand for ADA, similar to what we see with hyper-liquid and other app chains. I believe there's a path where a common DeFi kernel could be conceived, invented, and integrated into our transaction system and UTXO system. The usage of that would generate protocol revenue, which would then go into the treasury of Cardano and grow the ecosystem's financial capabilities, increasing scarcity in ADA.
Rusty, I believe it was Fallen Acris, has come up with a DeFi kernel concept, and that's something, like the Star Stream concept, is on the bleeding edge with a lot that can be done. We'll work with Draper and the upcoming waves of dApps and DeFi coming into the ecosystem. We'll work with Alpha Growth and others to create some basic principles and consolidation, hoping to bring those principles into the Cardano DeFi ecosystem and allow some degree of abstraction of some complexities. This will vastly improve the developer experience and create revenue for Cardano.
Bitcoin DFI is also on schedule, and we're going to have the first mirrored Bitcoin capabilities. I see some people commenting on our relationship with Bitcoin OS. We never had a partnership or relationship with them, and I only appeared once on stage with Eden Yago. We did not invest in his company, and we have a competing product with Pogen. Our position on Bitcoin DFI has always been clear; it has been Pogen, Omar's team, and we've been working on it nonstop for over a year.
From Input Output's viewpoint, our philosophy on how it ought to be done is through the Pro-Pogen project, which is imminently turning on capabilities both on the lending side and the Bitcoin mirroring side. We're seeking partnerships to create yield opportunities and translate those into Bitcoin revenue for Bitcoin holders. We also intend to expand that to Litecoin, Dogecoin, and other UTXO systems. We've had discussions with the Flare people about bringing this to the XRP ecosystem through Flare as a DVN on layer zero. It's going to be quite easy through the layer zero network to move XRP into Cardano. I believe we can create a mirroring mechanism very similar to Bitcoin, where it can be lent to a stablecoin, in this case, USDR, and then placed into assets in the Cardano ecosystem to generate yield.
More capital aggregation is definitely possible, and Cardano is now in a good state with Leios coming to make good use of all of that. Our developer experience has improved to a point where it's straightforward for people to build great experiences. We're starting to see with Strike and others the next generation of Cardano DeFi protocols coming. Overall, I'm very happy about where these things are going and how they're getting there.
The sentiment mood will be a trailing indicator of progress. Even if we make progress, people are still going to be negative until about six months after success comes. Understand that right now is the worst it's ever going to be in terms of sentiment. But as builders, it doesn't dissuade us or bother us. We just have to move forward.
What else can we do? Make Cardano 40 times faster. Build partnerships for Cardano. Activate new entities like the Orion fund with Draper and get people like Alpha Growth involved. Continue doing integrations with the pentad, lean into our competitive differentiators, and try to commercialize the system. Input Output has three separate commercial vehicles launching on Cardano: RealFi, PoS Gain, and we've already launched Midnight. That's all we can do, and we have pushed those things forward.
We also need to solve the governance problems. In short order, we're still in conversations about the governance Discord and the principles therein. We're pushing hard on setting up a political party and getting some delegated authorities so we can push governance to the next level and create some executive function. Many of these things can stop being ad hoc and become ecosystem-wide, with a lot more clarity and simplicity behind the approach. We can make better use of public money because right now there's too much redundancy in the funding.
Overall, things are good. The markets are bad; it is what it is. People will be toxic and horrible because of that. Don't pay any attention to them. You have to broaden your perspective to a wider time horizon. When we look to the future, we realize that Cardano is a leader in scaling and UTXO DeFi. We have a lot of good things coming down the pipeline and great relationships turning on and activating. I think our governance experiment is exactly where it needs to be. It's deeply frustrating, which, like a hermit crab, means we have to find a new shell. Our governance system has to upgrade and change. If it were comfortable, it wouldn't. The fact that it's uncomfortable and we all acknowledge that, along with our ability to grow, evolve, and change, is a healthy thing for the ecosystem.
Midnight is a great example of that. It was a concept with a white paper this time last year. Now it's a fully launched mainnet cryptocurrency with amazing capabilities,
I hope the testnet that's shipping tomorrow can convey that to you. We never stopped innovating. We never stopped pushing forward. Yes, there have been some heavy hits, and regrettably, some people have left the ecosystem. However, that opens the door for new bodies to come in, new people, new ideas, and new growth. If we can integrate them into the right structures, I firmly believe they can create a tremendous amount of value. I still believe Cardano's best days are ahead of it, and I hope this is a good indication of that. Thanks for listening.
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