E161: Sui Founder Explains Why Ethereum & Solana Will Be Left Behind

Evan Cheng, Co-founder and CEO of Mist & Labs, discusses the importance of product market fit in the DeFi ecosystem and the need for robust infrastructure that supports rapid development on Sui. He believes Sui stands apart from Ethereum and Solana by challenging the traditional ledger model, which he finds inadequate for real-world complexities. Cheng envisions a future where platforms can effectively serve both retail and institutional users without significant differences in experience.

He expresses uncertainty about whether major blockchain chains will converge or specialize, focusing instead on creating a platform that evolves based on market demands. Cheng highlights Sui's ongoing innovation amid market fluctuations and predicts a drastically different landscape by 2025, driven by advancements in automation and decentralized systems. He emphasizes first principles thinking to navigate unpredictability in blockchain development, critiquing past approaches that prioritized immediate solutions over future needs.

Cheng notes that the crypto ecosystem has not expanded sufficiently to sustain itself, with DeFi showing limited growth despite an increase in chains and minted coins. He observes growing institutional interest in blockchain, particularly in stablecoins and real-world asset tokenization, while recognizing the potential of AI and automation in enhancing cryptocurrency transactions. He critiques existing models like Ethereum and Solana for their potential inadequacy in meeting future demands and stresses the need for adaptable blockchain infrastructure that supports complex configurations and privacy requirements.

The conversation touches on the necessity of private interactions in transactions and the challenge of programmably configuring confidentiality for different parties. Cheng critiques the one-size-fits-all approach, which often results in either complete transparency or total privacy, using Zcash as an example. He reflects on the inefficiencies caused by fragmented liquidity in the crypto market and the importance of understanding risks through a holistic view of counterparties.

Cheng acknowledges the historical adoption patterns of the internet and the need to anticipate future developments in building infrastructure, recognizing DeFi's value in transforming personal finance and lending practices. He discusses the limited impact of stablecoins in the broader market, with growth in volumes closely tied to poor token performance.

SWE has developed essential low-level infrastructure, including coordination and execution smart contracts and decentralized data management tools. It has created a common liquidity layer for protocols, contrasting with traditional models where each protocol must independently address liquidity. Early signs of product market fit are evident, bolstered by a strong brand reputation and community trust.

Looking ahead, SWE aims to enhance adoption by unlocking additional liquidity and engaging developers while expanding its product offerings. The podcast discusses increasing interest from financial institutions in on-chain platforms for issuing new asset types, which could improve access and efficiency. Institutions are exploring on-chain distribution models, offering benefits like T+0 settlement, potentially increasing the velocity of money and driving growth through stablecoin adoption.

Adoption dynamics vary among institutions, with early adopters likely to drive market changes. Successful partnerships between institutions and blockchain providers hinge on mutual understanding of needs and capabilities. Building blockchains for retail and institutional users should align fundamentally, though institutional requirements often involve more regulatory considerations. Transparency and privacy are critical, necessitating additional features in blockchain design.

Proper infrastructure development is vital, as poor groundwork complicates implementation. Composability in blockchain is essential, yet many current blockchains lack this flexibility. Insights from Gavin Wood suggest that while the best technology may prevail, differing opinions exist within the Polkadot team. The future of major chains remains uncertain, with most Layer 1 chains appearing similar despite performance differences.

Cheng emphasizes that SWE differentiates itself from Ethereum and Solana by moving beyond the traditional ledger model, which tracks uniform assets and their balances. He illustrates the concept of composability, where separate assets can combine to create new value, using examples like a digital baseball card that gains value when signed by a player. Traditional blockchains often focus on the quantity of assets rather than their evolving state, leading to limitations when dealing with assets that undergo changes.

The team behind SWE, including members from the Facebook Libra/Diem project, recognized the constraints of their previous work and sought to create something fundamentally different. They emphasize ongoing growth and improvement, noting significant consensus changes that have enhanced the user experience, making it faster and more advanced than before.