Pluto (Harbor) on the fate of DeFi after KelpDAO (EP.717)

“The way that they were able to do that was by effectively exploiting the OFT, which is basically a cross-chain boundary bridge between two chains. In this case, it's an implementation provided by LayerZero. But the infrastructure can actually be run by anyone. They were trying to lock a value which was not actually held on Arbitrum, and they effectively spoofed a packet saying that Arbitrum received 116,000 RS ETH, and now you're clear to go ahead and release that to this address on maintenance of Ethereum.”

“I think the real breakdown here was, you know, not necessarily that KelpDAO ran a one-of-one between Arbitrum and ETH Mainnet, but it's that Aave allowed it to be a collateral asset without properly vetting the bridge risk of the one-of-one. I think Aave is not without fault here. They did have, you know, one of their key risk teams walk out earlier this month. That was Chaos Labs. And Omer Goldberg did a very good post on X, explaining like a lot of the things that we could have added in terms of sanity checks and circuit breakers.”

“I still think that the models flatten to a commodity over the long run and just that the harness, how the harnesses are really good and that Anthropic has a ton, or OpenAI has a ton of compute power. But I don't see it being, I see it being likely that people will be able to use open-source models to devise the same caliber of attacks as we're seeing today. So I really don't see certain nation states having an advantage over others that are purely due to model dominance or even compute.”

“We need to build better infrastructure and not have one of one DVNs that are governing, you know, the ability to move value that quickly. And then, you know, aside from that, like how do we eliminate the blast radius on other DeFi protocols like Aave? Aave should not be accepting deposits that are that large from brand new addresses without those being flagged. If we're feeling downtrodden right now because we're really facing the music of DeFi in general potentially being at risk here, to me it's just a wake up call that we need to double down on our efforts on securing this infrastructure.”

“Proof of work, scaling on Ethereum, it's worked well enough that it still costs less than one cent to send any amount of USDT in normal gas times. So if I can spend less than one cent in gas fees to send any amount of value on Ethereum, what's the purpose of something like Arbitrum in the first place that offers decentralized scaling for Ethereum? It's like, no, either use the full corporate chain tempo or use Ethereum mainnet. I don't really see the reason for having Arbitrum anymore.”

“We want to enable value to be communicated as quickly as possible, but like any time when it is about to leave the boundary, you want to just like spend a little bit extra time because it's important that our orders match at sub microsecond in like HFT, but it's not important that the actual funds settle between institutions and TradFi in sub microsecond, right? That takes longer. It takes hours, if not days. There's reasons for that. There's circuit breakers. There's people on both sides checking. There's middle offices like everything that TradFi has built in terms of circuit breakers. We're just speed running, relearning those things in crypto.”

“Well, I think one of the major design principles is effectively to segregate the base layer or the validator network that's actually witnessing transactions on those source chains and then attesting them into the blockchain. And then basically making a general abstraction, which we call subnets that allow multiple different, you can call them subnets or layer twos or whatever. But you can basically have like the base network, which is only responsible for custodying the L1 assets. And then those are being credited to networks that can have their own validators set. Our first subnet is our exchange, which is a limit order book.”