Why The Internet Is Too Slow for Trading Now

Austin Fadera from Double Zero discusses the challenges of internet speed for trading, emphasizing the need for optimized networks. The Double Zero network aims to create a new internet tailored for blockchain and high-performance systems, enhancing censorship resistance. Fadera highlights the concept of "layer zero," a foundational layer in the blockchain stack that contrasts with traditional classifications, noting that many blockchains are misclassified in the OSI model, obscuring performance differences.

Trading firms prioritize optimizing software to interact directly with hardware, avoiding inefficiencies from operating systems. The public Internet, designed for resilience rather than performance, leads financial firms to rely on private networks. Innovations like Fire Dancer and Agave on Solana explore low-level hardware optimizations. Double Zero has partnered with contributors, including trading firms and bare metal providers, to build a global fiber network that addresses high latency and jitter, which complicate market makers' execution times and risk management.

Fadera clarifies the difference between latency and jitter, noting that while latency measures connection speed, jitter reflects the variance in that speed, significantly impacting trading efficiency. High latency connections are often easier to manage than those with high jitter, which causes data to arrive out of order and necessitates buffering. The most time-consuming aspect of a transaction is retrieving data from RAM, which can take up to 95% of the total time.

Double Zero aims to mitigate jitter by offering a dedicated, flow-controlled pathway for data, akin to a highway compared to the public Internet's convoluted routes. Market makers currently depend on the public Internet, facing challenges such as significant latency and variability, especially when their servers are distanced from blockchain data processing locations. The discussion references "Flash Boys," illustrating the lengths traders go to optimize data transmission paths, although many conclusions drawn by Michael Lewis regarding high-frequency trading (HFT) have been disproven over the past two decades.

The Double Zero Network seeks to establish a consortium owned by contributors and token holders, focusing on high-performance direct routing for transactions. Partner Jump contributes a portion of its fiber network to Double Zero, which outperforms the public Internet by 82% in certain metrics. High-quality fiber is predominantly utilized in traditional financial markets, where high-frequency trading firms rely on extensive data transport networks for market analysis.

Effective communication between trading servers in different cities is crucial to prevent conflicting trades. The conversation also touches on blockchain consensus networks, suggesting that connecting various blockchain validators to specialized systems can leverage technologies unavailable on the public Internet, such as multicast for packet replication. Using multicast allows votes to be sent to a group rather than individual nodes, significantly speeding up the consensus process.

The founders of the project, with backgrounds at Citadel and Jane Street, have launched a decentralized exchange called Phoenix, which has seen significant trading volume. The Double Zero network connects validators through software tunnels, creating a virtual connection that outperforms the public internet in terms of data delivery consistency. The network is still in testing, with few RPCs currently operating on it. Validators not opting into Double Zero may face disadvantages, similar to traders lacking a private fiber network.

The conversation shifts to the economic model involving validators paying a seat fee based on their earnings, with complexities arising from potential side deals or arbitrage activities. The RPC model operates on a pay-per-transaction basis, charging based on blockchain state modifications rather than arbitrage success. Token distribution involves diverting a portion of validator earnings into 2Z tokens through DeFi, with 50% of rewards burned to reduce supply.

Integration of Double Zero into blockchains requires minimal modifications, primarily to support multicast and data prioritization, and can be completed in about a day. The total connected value of assets from validators on Double Zero is currently $23 billion, with 30% of Solana utilizing this system. The conversation touches on whether validators will retain double zero tokens indefinitely or adopt a just-in-time model.

The necessity for RPCs to receive payments in a specific currency is discussed, along with strategies for timing currency purchases to manage volatility. The feasibility of using Bitcoin for gaming is deemed unviable due to network verification issues. The discussion contrasts the proof of utility model of the network with proof of stake systems, emphasizing that rewards for link providers are based on actual utility rather than token holdings.

A billionaire plans to invest in Madagascar and operate a validator there, which could enhance the network's value. The conversation highlights the importance of staking for resource providers and independent verification, suggesting that verification efforts will be compensated through reward diversions. The project operates differently from Layer 1s, likened to "decentralized AWS credits," which may have influenced the SEC's decision to issue a "no action letter," indicating that the transactions in question do not violate securities laws.

The project emphasizes real infrastructure and tangible assets, aligning with the SEC's views on utility and contribution. The double zero token sale was specifically for validators, but the presale fell short of its target. The demand for the double zero token exceeded expectations at launch, causing market distortions. The conversation highlights the significant impact of sentiment on perception, citing the FTX collapse's effect on Solana's reputation despite its stability. Maintaining a positive narrative during crises is deemed crucial, with the goal of keeping the community informed to empower them in their decision-making regarding the token.