Is Canton a Real Blockchain? | Canton Founder Yuval Rooz

Bankless Nation, we are here with Yuval Ruse. He is the co-founder of Digital Asset, which is the parent company behind the Canton network, which is a subject that we've got some questions about today here on the show. Yuval, welcome to Banklist.

Yeah, great to be here. I think my my first question and I think you probably watched me react to this when Ryan was telling me about the Canton network on the weekly rollup. That was the first time that Canton had ever been invoked on the show. Uh where did Canton come from? Because all of a sudden there is a multi-billion dollar network on the scene with some pretty impressive BD partnerships and I had no idea. Uh so where where did Canton come from?

Yeah. So first of all, uh thank you again for for having me. I'm I'm really excited and and you know uh funny story uh I was driving in Canada in the snow while listening to your end of year recap and there was a I have to say it it it meant to be because there was one point where you were talking about stocks and then you said well in in beginning of the year we're going to talk and just before you said that I was about to pause stop the car and take a note to talk to you guys about that and then you said, "Oh, we're going to be talking to you all." So, I was like, "That's perfect timing." But, um, we're not we're not the parent company of Canton, but we'll we'll talk about that in more detail. But, uh, long story short, you know, I started my career at Citadel, then moved to DRW uh, Trading, which owns Cumberland Mining, and I was fortunate enough to help start their venture team at around 2012. and my co-founder Eric uh helped start Cumberland at DRW and we started looking into this space very early on and you know we had a thesis very early on that everything will move onchain and you know I think that um to us uh what it meant is that in order to move everything on chain you need to solve for privacy and this is already at around 5-16. The reality and this is our view and you know time will tell um if we took the right approach was that to move financial services onchain and we can talk about what we mean by that is going to take time and it's not something that can happen overnight and it requires um really uh careful uh thinking about what is the problem that you're trying to solve, who are you trying to solve it for and you know what is needed to do that and the approach we took was a extremely conservative approach which was build the technology test it actually within w gardens do not launch a network and I'll explain in a second why and only after you prove the underlying mechanics of the architecture and kind of like what does it mean to build a decentralized infrastructure that can allow for all types of financial services and again we can talk about what that means in more detail only then we actually start thinking about the coin economics. How do you launch the network?

So start working on Canton you know in full speed around 2016 Um had the first version of Canton in 2020 between 2020 to 2023. It was a lot of different tests of Canton, different throughputs, different use cases and it's only in 2023 that we actually launched the network in the US under Gansler. We did a fair launch. Um, and that's that's maybe that just the quick intro to what we've done.

That's also kind of the surprising thing. So I think maybe uh what might have been funny to you when you heard me react to the existence of this like $3 billion network that I had I had never heard of is that well you had also started it like almost a decade ago and you were doing all of this work prior in closed doors behind behind you know closed doors uh and then you're doing the token thing last uh which is when a lot of the crypto natives pay attention because like oh now it shows up on coin gecko so now it's like real to us uh but nonetheless a lot of work have been done behind the scenes at least.

Yeah. And and listen, I think I think hand on heart it was a a pretty hard decision in 2017 not to do an ICO. It was really hard decision because it was extremely enticing. I mean look EOS. I mean uh you know um but we we can talk a lot about maybe Vitalik's post from two days ago which I actually think is an incredible post in a very positive way to be to be clear. Our view was that uh we're trying to launch something that will run different types of financial services in 20 30 40 50 years and doing doing the ICO in 2017 seemed to us like a very short-term kind of solution to a problem that we were not ready in our opinion to kind of tackle. And as a result of that we we we decided not to. And even in the uh pre-mine era uh we decided again we were not ready. And again I think that uh it's taken us quite a lot of time to really think about what is the right way to to take this to market and again time will tell if being patient and really learning from what the industry have done well and not so well. Um you know there are advantages to you know coming last. Uh there's also disadvantages and we can you know explore both.

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Yeah, I I I think for for the rest of this episode, we really want to explore basically may part of the reason we we hadn't heard about Canton until now, but just to give some context in terms of why we're having you on today. So David and I are just curious explorers of everything that happens in crypto. There's a lot of noise out there. Occasionally there's some signal. We see Canton with these big relationships it seems like. So on that rollup that David was talking about that that's our weekly episode. It was there was a headline the DTCC which I'm told settles quadrillions in assets every year. This is um the settlement layer for the largest securities network uh in in the world that the world has ever seen. you know, hundred of trillions of of assets and uh they selected um Canton network as part of their trial. So, it's like, wow, that's big. And I showed the the price chart to David and there was this token called the CC token. This is actually on chain. That's the Canton token. Um this morning, there was news of JP Morgancoin actually um deploying to Canton as well. If you go to uh real world assets rwa.xyz, XYZ, you see Canton in the standings as far as a network that has some real world asset issuers. And so we got to figure out what this thing actually is, right? Cuz it's bizarre to be doing podcast in the space and like not to actually know. So I think part of this is just us coming with an open mind and trying to figure this thing out. Maybe actually that's good framing.

So you mentioned the Vitalic tweet and for for those not familiar, Vitalic put out a tweet this week. I I assume you all this is what you're referring to. Basically gave um a direction a north star let's say for Ethereum and the Ethereum network and I'll this a long post I'll paraphrase it is basically Ethereum exists to provide freedom. It's a freedom maximization tool. That's its end goal. It's never going to be the fastest chain in the world. It's not going to do all of the things that that TRFI might want it to do. But it will do something that's crucially important, which is maximize censorship resistance, decentralization, and provide sovereignty and freedom to anyone who deploys an application on top of it. You said you really like that post. Talk about why. Why did you like that post and what resonates with you about Vitalic saying that? And how does Canton fit into the story here?

Yeah, listen, I think I think the reason the reason why I like it is because it's a very honest post and I think that that's something that this industry I wish was more uh focused on is is really focused on listen, we're trying to solve a problem. This is the problem. This technology is extremely unique. Uh I think it has very different applications that can be used. We as humans like to put frameworks because it's easy for us to grasp concepts, right? So we created these terms of decentralized and permissionless and open and all of these terms which are good terms because we need to find frameworks how to kind of discuss different topics. But clearly there's a lot of shades of gray in the world of openness, decentralization, you know, censorship resistance, like all of these things. And what what the reason why I like Vitalik's post, it is very honest around what is the north star, Ryan, as you say, of Ethereum, which is very noble. I actually see a lot of merits in it and it actually explains at least at least as a reader what is Vitalik trying to solve and and I you know don't know if Vitalik controls Ethereum I don't think he does but but at the end of the day he is the creator and and as a result create good guidance but I think that the reason why I like it also for selfish reasons is because it you know ahead of this ahead this podcast. I was going to say he's trying to solve a very specific problem and the post was very clear about that problem.

I think that we never came and said we want to replace Ethereum. That was not the the mission statement of what we were trying to do. Our view was that as we were looking at Bitcoin and even then Ethereum, we actually felt that the technology has an opportunity to make financial services more competitive, more accessible, and more efficient. And I think that, you know, that's the problem that we're trying to solve. and therefore you know comparing us to Ethereum is not really relevant because we're not at least at least again when I read that post are not trying to solve the same problem right so a lot of times people will say decentralization permissionless most important features in the world and I do think that they are important features but then they will say but RWA is the most important opportunity out there and I'm like okay but the second you have the world real world. Um, unfortunately, you open yourself to censorship resistance by the issuer. Doesn't matter that you put it on a decentralized infrastructure. And Ryan, David, do you guys use stable coins? Yeah, of course. You do? Cool. Okay. Well, the issuers of those stable coins, I'm pretty confident, have in the smart contract, a feature that allows them either to freeze your stable coins or to, in some cases, even burn them out of your wallet. So what does it matter that it runs on permissionless infrastructure? I mean there are reasons why it's good that it runs on permissionless infrastructure, but you're not getting what Vitalik is putting in his post. You're not getting that ultimate right freedom from corporations. It's just not it's just not happening.

And therefore, I I just think that if I go back to the post again, it's like to me, you know, what I was hoping to discuss here is what is the mission of what we're trying to solve? And as a result of that, we had to take design decisions that are aligned with that problem. Maybe we could talk about those design decisions in a minute. Um, so far, I'm not sure that I've heard anything that I drastically disagree with. Actually, I don't think David or myself would say that a USDC stable coin, a tether issued by a centralized uh authority with you know the ability to kind of revoke and censor in the smart contract. We wouldn't say that is max bankless of course um that particular asset nor really any real world asset that we've seen. There are cryptonative assets where that might be true and then there are real world assets and I I guess by the nature of what you're saying real world assets aren't the max censorship resistant max freedom type of technology that Vitalik is talking about at least on the individual level maybe the platform that an asset issuer deploys to if you start thinking yeah like may maybe that's maybe that's different so so far I don't object there but it I guess maybe that it depends on how far you want to take that.

So is your implication you've all that therefore Ethereum is a bad place to deploy real world assets relative to alternatives say an alternative like Hansen or um you know an arc co like uh chain from circle or a tempo from you know stripe is that what you're saying no not at all um but but it's a it's a good question so so my my my my only point is that as long as we are in agreement that the second you have an issuer you are exposing yourself to restrictions beyond the permissionless world that's it I mean the second you are putting your trust in an issuer and by the way that issuer doesn't have to be literally an issuer of a stable coin you could take all the different issuers of tokenized stocks in many cases It's really like a derivative. It's not really the stock. But you are putting your trust Ryan or David. I think I can't remember who you used because I was listening, but you were saying here look I bought on my favorite super app. I bought stocks while we were talking. It was David. It was Ando was the issuer of tokenized Google.

Yeah. I mean again you're taking counterparty risk. You are putting your trust in a company that actually is holding. So my point is but that's also the product that I'm buying. So when I buy Google equity I am placing my trust in not just the issuer of said equity but also Google who is the the issuer of the security in the first place. So the product I'm buying is already trusted to begin with.

Exactly. That's kind of my point. And and and therefore the question is what is the problem now that you're trying to solve? We're already in agreement. I hope that the second that we move from pure crypto assets and to me again an undertoken is not a pure crypto asset. Ethereum is a pure crypto asset, right? Bitcoin is a pure crypto asset. The second you move you are effectively giving up on some of these pure intentions that Vitalik have put in his post. And then the question is, okay, well, if we're going to, you know, relax some of those features, well, then you're starting to move into kind of like an optimization problem. And what I mean by that is we started asking ourself, well, if we think that there's a massive TAM opportunity in RWAs, what are some of the things that we think we have to solve for in order to get massive adoption? Okay. And again, I am trying to explain we're we're moving away from this pure world.

And the first thing already in 2015 16 that we said would be privacy. And I don't want to conflate privacy with anonymity. To me privacy is the ability to share information on a need to know basis. If if you sign a contract, you remember in the confidentiality clause it will say it's the parties to this contract that knows about this contract. You are allowed to share it with your lawyers, with your accountants. And then it has like these special clauses. If you got subpoenaed by a court or by a regulator under those special circumstances, you can reveal it to them. That to me is privacy because I can see the contract. I can see the content of the contract and in special situation I'm even allowed to share that information with others. Anonymity is slightly different which is nobody gets to see the information. Right? And again for us this is don't take this as me saying anonymity bad privacy good. It's again it's a design decision that we said if I want XYZ byside firm to start managing their equity portfolio their fixed income portfolio on Canton privacy not anonymity is critical. If I want JP Morgan to do payments on Canton, privacy critical anonymity not going to work. That's again a design decision. We can be disagreed on, but that's kind of one of them.

The second thing, and I think this is, you know, maybe where where where we're going to start becoming a bit more controversial, but hopefully not, is we believe that the laws of physics do not agree that you can run all of the world financial services on a single ledger. That's our view. Um I'm happy I'm happy to to uh you know have conversations but and what I mean by that is when you think about Ethereum Salana and some of these other ledgers effectively all transactions go through a single consensus mechanism and as a result of that it really forces the design to do a few things first of all take a lot of the activity offchain because there's a lot of activity that why would I run it through the most expensive database in the And by the way, when I say that, this is not an insult. It's a very expensive database because it gives you very unique features that are worth paying for those transactions. But that means that a lot of transactions are not they don't live to that level of importance and therefore let's do a lot of things offchain, which to me is a bad outcome as a result of that because of what we're trying to do. That's one thing.

And then second of all, the reason that it it you know it it's not good is because it it will eventually create what in my opinion happened in Ethereum. And I think that a lot of the L2s will say they are a good thing for Ethereum. I personally think that they were a bad thing for Ethereum because in my opinion if you are an asset on one L2, you are not composable with another asset of another L2. You have to use solvers. you have to use uh um uh bridges. And let's just hopefully agree that uh solvers and bridges are not the value proposition of blockchain composability. And as a result of that, rather than than creating like a really nice model of a global composable world, which is in my opinion the whole value proposition of blockchain, you have effectively bifurcated an incredible ecosystem, which in my opinion is not a good outcome. So by the way the reason for the name canton is really this idea that the world is first of all not homogeneous it's actually heterogeneous different applications different geographies different use cases have different requirements so if you think of a lot of our R&D most of our R&D is in Switzerland if you think about the Swiss federated system they all have their different canton they don't even spell can on the same way in every place different tax rates have different rules but when you take a train you don't feel like I'm going from one country to another I'm still at in Switzerland right so the idea was can I actually create something not to be mistaken with L2s but look similar this idea that I can create all of these different cantonons that have different requirements when it comes to privacy when it comes to accessibility when it comes like I can I can have very very uh open configuration and all of those different things but at every given point of time if I wanted to compose a transaction across different cantonons I can do that atomically no bridges no solvers and I have effectively get a user experience as if I am on a single layer one just by the way the technology that we're using to do this podcast takes the same architecture. We use the internet. We call the internet a single internet as if it is a single network, but it's not. The internet is a protocol that actually connects multiple networks together. So, Canton kind of draws a lot of kind of inspiration from that. And that's that's really I would say kind of like from a technology perspective some of the major kind of design um the economics and the tokconomics is is a whole different we can talk about the language there's there's there's a lot of different minutia and and what are the complexities that privacy also create that I wish we didn't have to deal with but but there are there are challenges as a result of that.

Yeah. Yeah. I think we've been just kind of talking about the contours of the different philosophies around Canton network versus I think probably what our listeners are more familiar with with Ethereum and other public permissionless chains. I do want to kind of just dive actually straight into that conversation and make some of these things a little bit more tangible and and concrete kind of as I understand it. Um, Canton has done some pretty solid BD work to win some some business with things like the DTCC and as I understand it, as I'm guessing, so there have been some architectural choices that Canton has made in order to make these partnerships work. Uh, and I'm wondering if we can kind of just go into what are the big properties or features or differences about the Canton architecture that somebody would would make note of that's meaningfully different from a public permissionless blockchain like Ethereum? Like what are what are the things that like are worth highlighting that like, oh, this is very different than some of the philosophy from Ethereum. Uh, what should we talk about first? I'm sure there's at least a handful of them.

Yeah, I would say I would say that the easy one the easy one is privacy to be honest. I would say that privacy is is probably the easy one. I will mention a point that is not necessarily a technical design but actually a governance design feature that is I think just as critical. I think that you know we want to envision a world where there's no regulation and everybody just get along together and and and then and then you know the rubber hits the word you know the road we see a protocol fights uh we see swap and and and the reality is that governance is just as critical. So if you are the DTCC or you are any one of these large financial institutions whether we like it or not honestly like this is not this is not about like my personal opinion but the reality is that the DTCC given the fact that they do actually sit on 100 trillion worth of assets are extremely systemically critical to the US economy and as a result of that they are highly regulated and as a result of that it makes their life very complicated. Running the DTCC is not a trivial task. We can say that they can do a lot of things better and they probably could and I don't think that they would even disagree with it. That being said, they do actually have quite a serious responsibility on their shoulders and I think that as we launch the network and this is again, you know, looking back and and saying I think I think earlier David I was saying to you like hey patients might might have been the right decision or or or not but one of the things that we looked at throughout the years is governance of these networks right And I I'll give I think it was in your episode you were talking about quantum resistance with Bitcoin.

Mhm. And I think you guys said no no they should definitely start looking into it, right? And it was I think that was the same episode that I was listening to. And it's a great point. I mean at the end of the day these networks have to evolve. There's no way even we working on something for 11 years before launching it. I can promise you we did not get everything right. Not even close to that.

Yeah, I would say the Ethereum philosophy is large largely in agreement with that. Like like Ethereum has always been uh rough consensus, but the ability the only blockchain that as I know it that can't upgrade because it's so incredibly radically cyberpunk is Bitcoin and and also on on privacy as well. Like Ethereum in the long-term roadmap does actually intend on being a private blockchain in a pretty cyberpunk fashion. And so I'm not sure if these are the things that I think are really differentiating Canton's philosophy from some of the other I didn't I didn't mention I didn't mention I was mentioning the the Bitcoin but my my point is for us governance and the ability for people that are putting significant bets on the network and want to run systemic critical uh infrastructure want to know that there is governance of a network and of a code base that they can see evolve and improve at a pace that adheres to the fact that they have these responsibilities. Definitely again I took that example with Bitcoin. Sure. And then and then that's the most extreme and then you have all shades of gray in terms of smart contract chains. Definitely evolving. It started as a proof of work. It's no longer proof of work. it has done improvements over time. The question is what is your governance model?

We launched the foundation in the US under the Biden Biden administration and we said well the people that understand where the puck is going from a technology perspective are the cryptonative companies and they it's critical to have them at the table and at the same time you need to get the trafi organizations that again I'm not here to say should we get them onchain or or not. We are trying to do that. That's what we want to do. And if you want to do that and you want them to use your technology, you have to get their perspective. You have to understand what are the daily problems that they deal with. You need to understand what are bank holding regulations and what does that mean? Does it mean that there's any impact on the features of your technology? Like so I think the governance of Canton have been another very helpful component in the choice and then scaling scaling and then the last thing that I would say is again when you launch your own canton you have full sovereignty and control over your canton. What I mean by that is think again back to the the design of the internet. You know, if a country outside of the US said, "Hey, we want to block LinkedIn for whatever reason," they can do that, right? You still use the same internet protocol, but you have sovereignty and control, right? You have, you know, you have the same uh uh protocol, but you have sovereignty and control over your canton. In a public permissionless network, you do not have that. And as a result of that, you have to do a lot of things offchain as redundancy. I'll give you an example. There was the sooie hack. If you remember, I can't I can't remember what what what it was some kind of a protocol and everything. And you know the reality of that hack is that hacks are bad, right? People lose money, not a good outcome. And if you remember, they decided to kind of fork and kind of reverse the hack. But I think what did they prove? Well, they they proved that blockchains are not immutable. Immutability is a social construct. It's not

Can I just say one thing on that? They pro they prove that some blockchains aren't immutable or some blockchains are much less immutable than others or some social contracts are much different than other social contracts for blockchains. Would you agree that's true?

Yeah, I agree that that's true. But as long as as Ryan is you stick to the fact that it's a social contract and not a guaranteed and that's kind of where I go back to the design features that I don't think in today's world um a regulated institution top tier regulated institution would be able to go to their regulator as of right now and maybe that will change in the future as of right now and be able to say I'm choosing this chain because they have a very strong social contract. I don't think that they would be able to convince a regular. We're going to put our books and records. We're going to forget about Tradfi offchain books and record. We're just going to put our books and record on that because they have a very very very strong social contract. That's just a personal view that I have and I don't again and this is while agreeing with you about certain chains have a very strong social contract but at the end of the day it's not a technical design it's a social contract uh and that's the difference that's that's that's just the reality. So when you even look at some of the announcement recently on native native equity on chain when you write read the fine detail you always still have to have an off-chain redundancy in case that social contract or something else breaks. So our view and this goes back to kind of where we were a while ago is but wait a minute anyway you're taking risk on the issuer anyway you are exposing yourself to censorship or something that they can do to you then why not actually give a very strong technical guarantee that said issuer has full sovereignty and control over their ledger. No third party can fork their ledger and by doing that they can actually do everything onchain. Nothing offchain right. So again it's it's not it's not it's not trying to say this is bad this is good. We're just saying hey you've already put a lot of trust in the issuer. Why wouldn't you just actually then give them also technical capabilities of them saying great I can actually have full sovereignty and control over my ledger and now I will let it interoperate or be composed on a fully permissionless infrastructure.

Maybe Ryan I have a question for you if you don't mind this this is for you to ask me questions but would you say that uh layer 2 that have a centralized sequencer is permissionless? Is it public? Is it private? Is it open? They have a centralized sequencer running by one company.

Yeah. I think the thing that a layer 2 when designed, it's not it's not quite a binary, but the thing a layer 2 does when it's designed and it reaches kind of stage one, stage two uh maturity is it gives users a specific set of property rights, particularly the property right to be able to withdraw their assets at any time. And so the centralized sequencer, the operator can't freeze those assets. Now they could still censor grief attack in the short run, but even with kind of a properly designed L2, you can kind of get around that. So the thing that is preserved in a layer 2 design is Ethereum grade or close to Ethereum grade user property rights. I think if your argument is that well real world assets already sacrifice property rights to say the DTCC or to the nation state or to circle as an issuer such that it's all overkill anyway to try to preserve property rights for real real world assets that's only necessary for cryptonative assets then I think I maybe partially agree I have some reservations but it reminds me of a debate that we actually had between two professors on this exact subject and I'll throw you that episode after this one. We'll include in the show notes for for any listeners, but it was um Omid and Austin Campbell. And basically Omid said, "No, real world assets do require decentralized permissionless blockchains." And Austin said, "I don't see why that should be the case. They don't at all." And they they went on for an entire hour uh about this very issue. It was a great debate and I think both of them had valid points, but I could see you're it seems to be the case that you're making yeah you're falling on the Austin Campbell side of the argument which is hey like once you already have real world assets then you don't really need to like max preserve decentralization and property rights because you've already given that up in the first place.

Yeah. So so by the way I I 99.99% agree with what you said. Um I the only slight um distinction is I don't think you give up property rights. I think what you're doing is you're giving up potentially short-term inconvenience that again Vitalik's approach is saying should never be happen. What I mean by that is if I hold something at the DTCC it's legally mine. I have full property rights over it, but I am exposed to DTCC freezing it, doing something, and if I think that they've done it in an illegal way, I have all the rights in the world. Unfortunately, though, to resolve it outside of onchain. That's my point. So, I I haven't really gave up property rights, but I'm taking operational risks with respect to this asset.

I get it. But even then with the DTCC example, you still have your legal property rights, but that those legal property rights are conveyed to you by the operating system of the United States of America and its legal framework. And for a pure cryptonative asset, it's outside of even the United States of America's jurisdiction, right? It's super national. It's it it doesn't have a jurisdiction on any nation in the planet. That's the entire idea.

I agree on that. Okay. 100% agree on that. But that but my point is an RWA on an L2 will subject you in my opinion on a centralized sequencer to the same risk with the DTCC.

You've all I know in the uh Canton architecture there's something called a super validator. Uh so seems like there's a two-tier architecture in the in the network and we've seen this architecture in in other ecosystems before like Dash famously has nodes but then master nodes they have like master nodes as a little bit more power and control. Can you define what a super validator does as opposed to just a regular validator and like what privileges does a super validator have?

Yeah. So, so the the unfortunate of uh finding different names for for different things. So, so here's here's where um privacy becomes tricky. So, um when you um want to do and and and I'm taking maybe a bit of a sidetrack to explain. So there are certain there are certain things that you know there's an approach that using encryption um you could solve for privacy. There's all kinds of regulations again whether we like them or not they exist that would say hey David if I took your personal information I encrypted it with the best encryption in the world and I sent it to Ryan I have invalidated your privacy. That's it. And I'm going to say, well, but Ryan cannot decrypt it. And they would say, well, not today, but potentially in a year, maybe if Ryan sends it to his Chinese friends, they will decrypt it today. Like the reality is I have given your information. Maybe it's not readable today, but it's readable in tomorrow. And the reason why this side story is important is because the approach we take for privacy is that David, if you and I do a transaction on Canton, Ryan will never have the zeros and ones associated with this transaction on his note. It will never even make it there. A and therefore what we're trying to say by that is that the validators, not super validators, and we'll get to the super validators in a second. It's the nodes at the edge. They are the ones that actually do the validation on the business logic of a smart contract. It is not the super validators. The super validators in in in the case of