PoolTogether Community Podcast #26 with Hazard from Rook

This is the PoolTogether Community Podcast. PoolTogether is the world's number one no-loss prize savings account. You can visit pooltogether.com to deposit. You're listening to the PoolTogether Community Podcast. I'm your host, Hot Mike, aka Fledgling Fletcher, aka the Safari, the DeFi Safari Guide. What's a safari guy called? A safarist, a DeFi safarist. And I'm here with Hazard from Rook. It's so exciting to have you here, Hazard. Thanks for giving the Pull Together community some, some of your time today. How are you doing? I'm doing extremely well. Yeah, it's great to be here. Thank you for having me. So good. I mean, we're, we are, we booked this out. I played with Matt. I was playing poker at East Denver and we were at the same table. And Matt's got game, right? I mean, he's, he's, he's, he, he got 10th out of like 150 and people like rebought. I think I got like 17th. And so, yeah, but I mean, he was just like Yoda at the table reading people's souls. And so we just, we just emailed each other after and he is like, hey, let's get KeeperDAO on the pod and we're doing it. And now, and now you guys are called Rook. So Hazard, that's my origin story with, with KeeperDAO and now Rook. What's your origin story? How'd you get involved in crypto? How'd you get here?

Well, you know, the first time that I, well, first I want to give a shout out to Matt. You know, he's our treasury manager and he's great. And we always make it a point for, it's good to have your treasury manager be really good at playing poker, right? So I'd recommend if anybody needs one, look for their poker skills. So my origin story with crypto actually goes, Decently far back, but before I was seriously involved. So I was at a hackerspace, um, and, uh, some people were trying to strap together 2, you know, 2 or 3 different motherboards to get enough slots to run a bunch of, uh, you know, Bitcoin miners or miners. I think they were just video cards, right? Um, I didn't really understand why you would want to do something like that. And their explanation didn't make any sense to me either. Um, it was kind of cool, but, uh, somebody had brought a software-defined radio kit and, um, that was really cool because they were gonna, I don't know, use their computer to tune a radio antenna. And, uh, so I was like, hell yeah, I'm going to go hang out and work on that. So, um, you know, uh, I think that's happened to a lot of people before they got into crypto where their first exposure was sort of like, what's that? You know, many years later, not too many years later, but I read my first white paper. So I actually read the Bitcoin white paper. I was working as a mathematician and I was just taken aback because it was very, you know, as a, it was just, it was very significant and nobody was talking about it. Nobody in the department was talking about it. And, um, I, it just was not the kind of thing that I would have expected because I was like, well, either I'm crazy and I don't know what I'm talking about, or there's something about this that people don't understand. And it's not really percolating through to the people that it normally would. And, um, so I became really interested in consensus and distributed consensus mechanisms. And this is something you study in computer science all the time, but nobody was talking about this one. Nowadays they do talk about it more, but at the time it hadn't really achieved that kind of cultural traction, I guess. And I actually wanted to do some research on distributed consensus mechanisms and was kind of laughed out of the department a little bit. They were like, uh, so around the time of the last bull market with 2017, 2018 with Ethereum, I started getting really interested in seeing the full potential, right? Um, it was a little bit of a shit show at the time, sure. But the potential was there. I mean, you, you know, you, you, you learn to trust the, you have to trust the math, right? And, um, everything kind of deflated though. And I, I had a lot of other stuff going on, so I went on to work in industry. Um, I mean, I'd run a couple of startups and I went on to work in industry and lead some teams at some big tech firms that most everybody here probably uses all the time. But, you know, I, I kept up with the literature a little bit and I started to see the developments, like things like these automated market makers and overcollateralized lending, flash loans, and this kind of train of innovative products that you didn't see anywhere in traditional finance. And, you know, as a mathematician, you learn this intuition that really significant things tend to bear a lot of fruit. You know, so there's results where it's just, it's just the result. And then there's this kind of gifts that keep on giving, right? And this, uh, this crypto stuff seemed to be one of those things because of all of these, um, new solutions that kept coming out of it. You know, each time there would be a challenge that would come up, you know, it would be overcome with a new solution and, and often totally new things would come out of it. Something like things like flash loans, which are just not possible. Right. Uh, in any other, uh, in any other medium. And you learn to, to see things and develop this intuition that there are things that are just kind of, they're just blessed, right? Like this is just a, this is just a solution which is going to work because the universe wants it that way. It's the right thing, you know, and you, you, you talk about this and it's a real thing and you can justify it in a really complex theoretical way, but The point is, if it's, if it looks like it's working and good stuff keeps coming out of it, it's probably, it's probably solid, right? It's probably not a dead end. And so I started getting more involved at that time and I came across a paper called Flash Boys 2.0, which defined the issue of MEV. And I thought, wow, this is really fascinating because how, you know, in this new blockchain style of trading, just like how you have things like flash loans that are not possible in a normal financial infrastructure, pre-blockchain. Now you have this thing, MEV, which is a unique consequence of working on a blockchain that kind of, it's sort of a form of, well, a lot of different things that you see in traditional finance, but in a more, it's somehow in a more precise way and it has to, has different consequences and it can be dealt with in different ways. It's just very fascinating. It was just extremely interesting to me, intriguing. And so I actually started tinkering with some software and looking at projects that were working on stuff. And one of those projects was KeeperDAO. And so I joined their Discord and started kind of, you know, spending some time there in my spare time and listening to what they were doing, seeing the updates from the team. And It was good. It was a good environment. This was kind of the start of this current bull market and a lot of promise. But, you know, when they would publish their blog posts and some stuff, it seemed like, you know, they weren't like, it needed, they needed some more people. It seemed like, frankly, like I felt like they needed some more hands. And Because I was so interested in this and interested in the success of the project, I believed in the project. I sort of organized with some other folks from the community and sort of volunteered, right, to, you know, say, hey, you know, let me, I'll copy edit some of these blog posts and kind of petitioned to be able to do that. So that's how it started. I kind of worked as a community ambassador, got them to bring me on as that and did some You know, some copy editing and some other things. At some point they learned that I knew how, that I was a, you know, a software engineer and mathematician, that I knew how all this stuff kind of worked. And they sort of wanted me to start working on, in their engineering stuff, um, on some of the, uh, the bots and the arbitrage and stuff. And we'll get into what that, what that is and, you know, how that relates to KeeperDAO or to Rook. But, uh, they wanted me to work on the more technical stuff. And so I said, well, okay, so that's interesting to me too. So I started working on that, more MEV engineering related stuff on the core team and started identifying some people in the community who were really good about a lot of different talent, types of talent that we needed for the project to succeed in my view that we didn't really have on board at the time. And so we had this kind of this great early core team of people who came out of the community and we continue to bring people out of the community today, but who were just, you know, creative directors and graphic designers and, you know, lots of software engineers and, you know, marketing directors and people managers and stuff. You know, if I, when I was running a startup, if I had access, such easy access to this many really high quality, contributors, I, you know, if you could just reach into a chat room basically and just lift them up, that would've been awesome. But, you know, I, that's not how it works in the real world, right? But here, that's, that's what happened. So I, I guess we got lucky, but, you know, I started to work on more of these big picture things and, you know, helping to bring these folks on board, get them set up and working and paid. Started working on our governance for the DAO. We didn't have that live at the time. And so worked in designing that governance while doing some of the engineering stuff and gradually transitioned to more strategic work about where our products are going, what the service does, how we describe it, how we talk about it, how we plan it and execute it. And as part of a reorganization that happened early in this calendar year, that was voted through by the DAO governance, which we had released and it was live. I became the CEO of the, I guess you could say the CEO of the DAO or of the Rook Labs, which is the contributorship that we have alongside the CTO and one of the co-founders, Joey Zacharel, who is a highly accomplished MEV trader. And many of the team that we brought on from those days, you know, just coming out of the chat room as well as lots of other people that we've onboarded over the last few months. So yeah, so it's interesting kind of, I mean, I, this, like I've said, this is a very DAO-like situation, right? Like I came out of the community, I was not a founder. And, you know, we think of this as kind of the You know, the, I don't know, the project kind of became self-aware and started, you know, managing itself and building itself through governance and onboarding itself. And I, you know, strong kudos to that core team of founding members for the fact that they wanted this to happen, right? This is what they welcomed this. They, this was what you know, they think that every founder should dream of, right? Is that especially in DeFi, you want your decentralized project or your team to kind of self-heal and care for itself, right? And that's what happened in this case. So really proud of that and proud of the fact that we have majority of our contributors come from the community still, vast majority. And so yeah, that's how I got into crypto and Rook. That's the long version.

I love hearing that. I love hearing people's origin stories and just How different they are and very varied. I love how you're, you're working at, you know, a big, big tech, you're in big tech, and then you just hop in taking notes and like just copy editing and then boom, CEO. That's some like House of Cards stuff right there, Hazard. Uh, I'm sure it was gentle though. I'm sure it wasn't like, you know.

There were, there were a few, there were a few, uh, stops in between. in between that, but, you know, again, kudos to everybody on that core team for being open to these sorts of things. And really, you know, for us, it's all about the mission. It's all about the success of the project and who does something is less important that somebody does it and they do it well. And so, you know, me being CEO, whatever that means to be CEO of a DAO, It, it, I like to say it certainly doesn't mean that I'm the boss. It's kind of hard in crypto anyway to, you know, it's built on voluntary actions, right? So I can't compel anybody to do anything. I'm just sort of the traffic director, right? I help set the vision, get on podcasts like these and talk about what we're doing and make sure that everybody's doing well. And, you know, of course, if something goes wrong, well, I take responsibility for it. So. It's maybe, it's less dictatorial and corporate than it seems. We have a very loose organizational structure, which is very inclusive. Again, trying to keep alive all of that spirit that kind of got us here to begin with. But yeah, it is a little bit, it's not something that you could do in a traditional Web2 style company, I think. And we like that. I like that. And I, I know something that we like promoting.

Yeah, so I would love to hear more about the DAO structure and how everything is organized, but I think first we should probably talk about Rook and talk about what you do, what your value add is to DeFi, and then also the elephant in the room, MEV, right? I've seen some really hateful tweets on MEV. You know, there was a permissionless presentation where the person got up and was like, All right, raise your hand if you got sandwich attacked and then, or sandwiched or whatever. And then like, then raise your hand if you've traded on Uniswap. Okay, the people with their hands up now, you also got sandwiched. So just get, get used to it. So there's this MEV thing and for, for noobs, for normies, for people getting into the space, it, it's, it's, what is that? I, I see people making tons of money every day from MEV. So if we could just, if, Hazard, if you could just explain a little bit about MEV and how Rook solves that or empowers people within that.

Sure. Yeah. MEV is one of those really hard things to explain adequately from a technical point of view, especially to somebody new to crypto. And it adds to the fear factor for sure. So I can give a sort of a brief concept of why it's there and how it happens. The basic reason is that, you know, when you click that button to trade something, on Uniswap, let's say, anywhere, the trade you want to happen doesn't happen right when you click that button. It's actually, you're making, you can think about it like you're making a request to trade, and that request gets broadcast out into a public database called the mempool. So it gets broadcast out and it sits there and it waits for somebody, a miner, Today, in the future, after the merge, a validator or a block builder. It waits for that entity, that agent to take your request, your transaction, and actually put it somewhere in a block that gets mined in. And only when that block is mined or becomes finalized does that, that thing, that trade actually occur. So there's this gap. Between when you click that button and when the thing actually happens. And the, the, the agents that mediate that gap, that control this process are today, let's say they're miners, but it could be other people too. And the thing is that for some things you want to do, so if you think about like a block, what is a block? So blockchains come in blocks, right? So each block is just a list of these transactions. These requests that you and many other people have made. And it's the block builder, the miner or the validator or whatever, who determines what order those requests happen in the block, right? When they, before they mine it in. And the order doesn't always matter, but sometimes it does matter. So here's an example of sometimes when it, when it, when it does matter. So if you're trying to make a trade and, oh, you see a really good price. You know, for Rook, for our token. Oh, this is great. So I want to make this trade. Well, okay, maybe there's 10 other people out there that also want to make this trade. They also want to buy it at this price, but you can't all buy it at this price, right? Only one of you is going to be able to be the one that actually buys it. And it's going to be the person whose request is first in that block of these 10, right? The other people aren't going to get that price. Second place, third place, I wasn't going to get that price. So the order matters. And because the order matters, in the case of making a trade, maybe you just get a little bit of a worse price, but there's more precise situations like arbitrage. So buying low somewhere and selling high somewhere else that really you don't even want to do that. And it becomes non-profitable to do that. Unless you're that first person, you're the one that makes the trade. Many other examples. Liquidating collateral is another good example. But there's many, many others to where really you only care about being the first person whose request, that first request in the block to do something. There's no prizes for second place for these types of things. And so in that situation, let's say There's an arbitrage that you want to do and it's going to make you— Okay. So you need to make— to make that $100, you have to be the first. Your request needs to be first in that block. It needs to be the highest request trying to do this thing in that block. And so what you could do to make sure that you get paid is to tell the miner, whoever's making this block, I'll give you $50 out of this $100 if you put mine first. That way, at least I'll make, I know I'll make $50. I'll have to give $50 of it away to you, the miner, but at least I'll be making $50. Whereas I don't know if I'm going to make $50 otherwise, unless I know it's going to be first, I might make zero. And, but the thing is that somebody else might come along and say, well, I'll pay you $60 because then I'll be the one that's getting in the lead. Right. And then this will continue, right? Until these folks have to say, well, I'll pay you $99 out of $100 if you'll put mine first. And the miner will say, okay, fine. And what happens is that arbitrage, this value that existed, right? There was something that was worth $100 if you were the first person. Oh. $99 of those $100, in reality, it's more about, it's about $95, of those $100 go to the miner, right? And you keep your $5, but really it's the miner who's, you know, enjoying the vast majority of the profit from this. And so there's all kinds of games that get played around these ordering problems. One of them is sandwich attacks people are familiar with, where you say, I want to trade here. And somebody says, okay, I'm going to pay a miner to let me trade in front of you and front run you and then trade behind you. and backrun you. So you get a worse price and I, I, I am the one who benefits from that because I can control the ordering by collaborating, by colluding with the block builder, right? Or I could just plain frontrun you. I could just take your— if I see you've got a nice trade, well, I might want that trade. And so what I'll do is I'll just pay the miner more gas than you are paying the miner to get that trade. And so I'll be in front of you in that block. And so it'll be my trade, not yours. So there's this disconnect between when you click that button and when something actually happens and gets mined into the block. And that disconnect is what causes MEV. And MEV, the, the, the abbreviation maximal extractable value is a little bit hard to understand, but you can think of this process whereby there was $100 of value in that arbitrage example I gave. There was $100 and it was all for the person that captured the arbitrage, but Because of the fact that they need to pay the miner in order to be guaranteed that first slot, they had to pay $50 and $60 all the way up to $95 to guarantee that top spot. And so that value, that $100, $95 of it was extracted by the miner from that order, right? And so the maximal extractable value of that order of $100 would be $100. But in practice, it generally is around 95. And so what Rook does is it says, you know, we take the view that the miner doesn't deserve this value because they're not really participating in the market. They're not trading, they're not capturing arbitrage. They're not really doing anything but building blocks and validating them. And so the fact that so much of the value of what we do on-chain is actually put into their pockets is, is a, it's a, it's a coordination failure. It's a quirk of the way the protocol was designed that needs to be addressed. And while some projects like Flashbots address it mostly from the perspective of how can we make sure that no one miner gets all of this profit, how can we spread it evenly among the miners? So that there's no centralization happening. But we take the view that this value belongs with you, the trader, or with the protocol, or wherever it originates from. MEV originates from applications and users, and that's where it should stay. And so our protocol allows for you to own the value in your transactions. So that this $95 that would've gone to the miner actually instead goes to you or to your protocol or whatever it is. It could be a smart contract, could be a protocol, it could be an application, a wallet, whatever. And so it's this interesting mechanism, which we don't see MEV as good or bad. There are certain bad attacks that you can do, like sandwich attacking, But generalized MEV, like arbitrage and liquidations and, you know, stuff like that or backrunning, this is very beneficial and crucial to how the blockchain and our protocols work. Without it, nothing would work, right? The prices wouldn't function. You wouldn't be able to make lending protocols solvent. Stablecoins wouldn't hold their pegs. Nothing would work. Really nothing would work. And so it's actually a vital part of our infrastructure. And what our protocol allows to happen is for all of the value in that, those transactions to flow back towards the users and to the protocols rather than down towards the miners where it really doesn't belong and really never belonged, right? And so we build a suite of products and technology that allows this to happen. And it looks a little bit like a really slick version of what you might think of as payment for order flow, right? Because if you think about it, we're saying, well, if you transact using the Rook protocol or using a Rook product, we will pay you the value of your order flow. So whatever you're doing, if you're trading or whatever, everything is going to happen normally like it would when you were trading anywhere else, but there's going to be some extra money just coming out of the side of it for some reason. And going to you. And some, one of our engineers called it, it's like mining your transaction flow or farming your own transaction flow, right? Which is an interesting way to think about it. But payment for order flow, it doesn't work that way in traditional finance, right? You don't get the money. Somebody else gets it. I don't know, Robinhood gets it or something, and you don't know how much it is and, you know, whatever. But, but here it's actually really simple and anybody can use it. So it's in a way, it's almost like a decentralized form of payment for order flow. But it's, uh, at its core, it's about redirecting that MEV that would've gone towards miners back to users and to applications. So it's really—

So in your byline, Hazard, in your About Me, you say making MEV, maximum extractable value, a public good. And so I love that. I love that idea. It's also, even in your, I mean, you had a really great explanation. I really appreciate you taking the time to walk us through that. But, but it's going to take— I'm going to go back and listen to that a couple of times. And I've read your documents and such and, and to get to kind of wrap my head around this. But it sounds really great. It's like, okay, well, I don't have to— Rook takes care of all that stuff for me. I can go out and make the trades. I can— I get rewarded for making the trade, like for swapping coins or tokens. I'm going to get some Rook out of it. So I get to participate in this ecosystem. Of taking MEV back, I guess, something like that. Is that, is that, uh, that's my normie translation of what you just said, or a little bit of it.

Yeah, that's right. I mean, the MEV comes from you, you know, or it comes from protocols or, or from you trading, right? The MEV, the, the value that gets extracted is coming out of your pocket already. It's going to miners. So we simply extract it on your behalf and then put it back in your pocket. Right. And it's helpful for us in various ways, but, um, uh, it's, uh, it makes settlement more efficient, um, uh, which can benefit protocols in other ways. But yeah, I mean, essentially you're, you, you know, you do what you do and that MEV that you would have kind of created as waste heat that you would have felt as slippage or as, uh, reverts or as, um, I don't know, impermanent loss or whatever it is, that'll instead be coming back to you and kind of getting recycled back into your— so

that sounds great. And, but then I'm also thinking, this is crypto, shields up, right? I need to, I need to be cautious, 'cause if something sounds too good to be true, probably is. And, and then I'm also reminded of Robinhood and Coinbase a couple weeks ago announcing that they're apparently getting rid of mainnet fees. So you can transact on mainnet in a feeless environment, but apparently the way that they're just going to make their money up is front run you. And, and so, yeah. How do I know that Rook's not front-running me?

So this is the thing, and I'll, I'll, I'll answer that question, but you're going to see this more and more because there's a payment for order flow. And that's what Robinhood and Coinbase are basically doing. It's a very seductive model that works in traditional finance. And I can tell you now, there's a lot of efforts in a lot of different places to bring it into DeFi, to bring it into crypto. And it will be catastrophic if we let that happen. It will cause mayhem. It'll centralize the network. It's just as big a threat as the threat of miner centralization was when MEV was first described and Flashbots, you know, organized in order to prevent that from happening. And so similarly, we see our mission at Rook as organizing to prevent this kind of payment for order flow apocalypse from happening. in DeFi because we want to build, the whole point of why we're all here is to build a financial system in which, you know, there's no actor who has some kind of systemic advantage, right? Over other participants in the marketplace. That's really important. And payment for order flow as it's practiced in traditional finance completely ignores that. And it's a very dangerous practice in crypto for a lot of different reasons. It's dangerous for the network. But you're right to be suspicious because what seems like a good deal when it comes to payment for order flow is actually a terrible deal almost always. Because the thing is, your order flow today makes you zero, right? So even if I'm telling you, well, I'll give you a, I'll give you a dollar or I'll just pay your fees for you. That's, you're already winning. So it sounds fair to you. It's fairer than what the status quo is, right? But you don't know how much that other person is making. Right off of you. You don't know. So when something like, uh, you have Citadel and Robinhood and it's like, oh, well, your, your trades are free. Robinhood pays for your trades for free. Okay. Well, you know, they pay for your trades and they, you know, get a few million dollars to fund their operations at Robinhood. But how much is Citadel making off of your orders? Do you know? They don't actually say, but you know, it's probably, I don't know, probably at least 10 times more. than they're paying you. And this imbalance is the whole point of the con. This is the payment for order flow itself is not broken. Like as a concept, it's very sound, but it's never been implemented in a fair way. It's because it's so easy to make it sound fair when it's not, right? Because hey, you weren't making anything before. So No matter how little, how shitty a deal I give you, you're making more than you were before. It's easy to make it sound fair and it almost never is. And so, but if you actually look at payment for order flow, what, what kind of a thing is it? Right. So it's, uh, it has these properties. One of the properties is that it's, um, it's, uh, it's non-rivalrous, right? So if I want to, uh, give you my orders, it doesn't, it doesn't reduce the ability for anybody else to give you their orders and have, uh, value discovered to be paid for. It's not like, you know, like a water fountain is rivalrous. Like if I'm using it, you can't use it. But payment for order flow is actually non-rivalrous and it's, it's actually anti-rivalrous, which is stronger. So the more people give their orders, the more value you can discover and the more you can pay for that order flow. So you, it has a network effect. You want more people to use it. And it also has this other property, which is that it's non-exclusionary, which Which means that anybody who, you know, on paper wants to use it, they don't have to pay a fee or anything to use it. So anybody should be able to because it's free, right? Like I give you my orders I was going to do anyway. And at, at worst, I don't get any payment for it. At best, I get paid for it. So I'm not paying a fee. You're paying me, you know, the payment for order flow system is paying me. So it's, it's non-exclusionary. And these are the 2 properties that define a public good. So to be a public good in the economic, in the formal sense, you have to be non-rivalrous and non-exclusionary. And in fact, it's stronger because it's anti-rivalrous. It has a network effect. So payment for order flow should be a public good. It meets all the criteria to be a public good, but it's never been implemented as a public good in traditional finance because they screw everything up. They are addicted to this private profit and to playing this con game with customers. And so we thought it would be interesting. How, what's the best way to get rid of payment for order flow in, in, in crypto? Well, you know, you can't really ignore it. You can't just hate it because any MEV that can be extracted, it, it will be extracted, right? This incentive is there. It's, it's coming, right? But what would be interesting is what if you just took payment for order flow and took it to its, you know, its theoretical limit? If you really made it a public good and said, I will give to you The user, all of the value of your order flow personally per transaction. And it will be trustless, it'll be transparent. You'll be able to look and see exactly what happened on the blockchain in an immutable way, right? There's no tricks up my sleeve. And we can make it so that the value for you is maximized using a credibly neutral auction. So, a credibly neutral mechanism. So, it's not like we've decided on a deal and this is how much it's worth. Each time you make a transaction, there's a just-in-time auction, which will occur among the most sophisticated keepers and automation and MEV searchers in the world. They will compete to settle your transaction for you. And whoever wins will get the right to do that. And the proceeds from that instantaneous auction will go to you as the payment for your order flow. So you can think of this as like per-transaction value discovery. It's being valued by this neutral auction, and you're getting that each and every time. And this is all trustless, it's all recorded on-chain. You can see everything. There's, there's nothing to hide here. There's no weird backroom deals in black boxes and stuff. And by the way, you also get, because these are the most advanced keepers in the world, you get, you know, state-of-the-art execution. And in, we've seen some wild things happen because these bots can compute some amazing ways to settle transactions in this hyper-efficient way. They can, you know, fill your transaction and like 5 other people's in a way that you'd never imagine. We had somebody swap about $100,000 of USDT for USDC, I think it was, and there was no slippage. They got, you know, $100,000 in and $100,000 out, and they actually made $34 of payment for that swap. So they didn't pay any gas, they didn't pay any fees. There was no slippage. It was an exact swap, stablecoin to stablecoin. And they actually made about $30 or $40 just for doing this trade, which is wild, right? I mean, it's like money coming from nowhere, but they can discover it and they can value it and they can get it discovered. So this is a form of payment for order flow that traditional finance has never, ever thought about doing, ever. And the reason that we can do it in DeFi is because we have all the tools to make this a trustless automated process. And we're not trying to please the, um, you know, I don't know, private shareholders and, and, and, uh, juice our profits. Like this kind of infrastructure can benefit everyone. Theoretically, it's a public good, but it needs to actually be public infrastructure that we can all use. Because if you're given the choice of, hey, would you like to be given, I don't know, free trading, or would you rather be paid for trading? Like the actual value of your trade, or would you like to have 10 or 20% of the value of your orders, or would you like to have 95% of the value? Well, that should be an easy decision to make. And you can program our payments, like you can program where that money goes and what happens to it. So if you're a protocol and you want to do this, you can program whether it goes to your LPs or whether it goes to, you know, some kind of a token pool or whatever you want to do with it. It's fully programmable. And it's all transparent. And so if there's a choice between going with a provider that is going to run the usual scam like they do in traditional finance, or a provider like Rook, it's going to be obvious, right? It should dominate the other ones. The only concern is making sure that it's reliable. Everybody understands that, hey, this is not payment for order flow the way you've normally seen it. This is something totally different. And it's actually going to be very, very funny, I think, Because when you take it to this extreme, when you take payment for order flow to this kind of logical conclusion, it makes markets better. It makes it better because it's more money in your pocket or in the pocket of these exchanges and of these protocols. And it, it takes these inefficiencies that existed, like you were going to trade and you were going to eat, I don't know, $50 of slippage, but look, here's $40, $45 back in your pocket. Well, then did you really eat that slippage or was there only $5 of slippage? You know, it can, you can, it's this sort of circuit, this little loop that can close these inefficiencies off, discover them, and then close them in the same transaction so that the whole marketplace becomes more and more efficient. And it's just this really interesting phenomenon. Um, and it's just so sad to see that in traditional finance and now kind of creeping into crypto as well, this kind of, this 40-year-old shell game of payment for order flow still being peddled. Well, you know, they're going to find out that this time it's not really going to work. Because, you know, we're, we're gonna, you know, we're gonna do it right this time and it's gonna shut out a lot of that, I think.

So you said there's 2, uh, keys that you need for a public good, 2 features. One is non-rivalrous, which is, this is anti-rivalrous, like it's got that network effect. And then there's also, it needs to be non-exclusionary. Wouldn't arbitrage also be that? You could make arbitrage a public good?

Yes, yes, yes. So in arbitrage, so payment for order flow here. So any arbitrage that occurs, uh, occurs, uh, on behalf of some market. There's some market where the arbitrage is occurring. So let's say that I was tired. If I was a, I was a pool, a Uniswap pool, and I was sick and tired of, you know, getting arbitraged and having all our value drained, I could plug into something like this, right? And that way, anytime the arbitrage happened, it would be rebated to me. You know, 80, 90% of that would be rebated to my pool. And so, well, my arbitrage would look a lot, it would be a lot cleaner, it would be a lot nicer, right? I would be, my pool would be maintaining more value rather than having it drained through this kind of toxic arbitrage that occurs. So you can plug it into many different places and payment for order flow in this scenario, because we're talking about really it's MEV for order flow. We're discovering and rebating you MEV. And so under that umbrella of MEV exists arbitrage, liquidations, which is kind of a specialized form of arbitrage. All kinds of things like oracle updates have a form of MEV associated with them. Portfolio rebalances, any kind of large trade, any kind of centralized and decentralized exchange arbitrage or price spread that can exist there. And there's all sorts of different, different kinds of varieties of MEV. Many of them boil down to a form of arbitrage if you, if you look hard enough. And so, yeah, the infrastructure itself, this payment for order flow infrastructure is a public good because it creates the opportunity for arbitrage. And when that arbitrage occurs, it's to the benefit of the people or the protocols who originated that opportunity by passing their orders through this system.

So this, So you're, what you're saying, Hazard, is that arbitrage is also happening here as well, like, like within Rook?

Certainly. Certainly.

Yes. Okay. Okay. Got it. Got it. So, so yeah, I'm looking, I'm looking at the site. You guys are on mainnet only, right?

Uh, well, it's interesting because the core coordination infrastructure that we have that allows all of, so we have this sort of network of searchers or keepers, we call them, right? So this network of bots. that can perform all of this advanced arbitrage and MEV and stuff, basically calculate the perfect trade or the perfect way to satisfy, to settle your transaction and other people's transactions perhaps at the same time. So they're all kind of synchronized through this piece of technology called the coordinator that we've developed, and that is on mainnet. And some of them, some of these bots operate on mainnet. And by the way, you know, the fact that they can't coordinate, in the wild is why MEV gets extracted to miners because they'll be competing with each other in the wild and that bidding will go to the miners. So, this coordination is really, is really the key here. But we have that on mainnet, but that doesn't mean that they have to settle the transactions on mainnet per se. They can actually undertake actions on any chain or any L2, if you like, as long as they're, these keepers are able to settle on that chain and they can run these auctions and this other kind of coordination stuff on mainnet. And that's no problem. And so really our catchment, if you like, our coverage is the union of all of the keepers' coverages. So as we add more keepers into this network, we get more coverage, more coverage, more coverage until we can kind of COVID everything. So today we've got keepers who can settle on Optimism and Arbitrum and Avalanche and Certainly on Ethereum as well. And, but that core piece of coordination infrastructure that does exist on mainnet.

And for the user who's trading, they're trading on mainnet as well, correct?

Yeah. So we have, so for our trading product today, yes, we're trading on mainnet Ethereum. That may change in the future, but yeah, for other systemic integrations, we can settle on other chains as well.

Right. For somebody who's listening right now, that this sounds very appealing, like for me, for example, me, I'm very intrigued by this. That, that would be the easiest way to get involved with Rook is to trade on, on the platform on app.rook.fi. I'm noticing though that you generally want to be trading in the thousands of dollars and not in the hundreds of dollars, correct? Yeah. You, this, this works better at larger amounts.

It works better for larger amounts, which is the opposite of how most, you know, AMMs are going to work. It works best with small amounts. So here it's sort of the opposite, right? So the bigger the trade, the better. And we did a, I think an $80 million trade a few weeks ago, and that went great. It got, the guy got like $60,000 of payment for order flow out of that. But, and no slippage, by the way, no fees and no gas, just pure profit. But For, yeah, so for the, the average trader, if, you know, ideal is you're trading around $5,000 minimum. There's no, we don't enforce that, but you'll find that things are going to work best trading around that size and above. And there's some pairs where they're more liquid, like, you know, Bitcoin, Ethereum or something. And you can, you can certainly make smaller orders on those, but for certainly for more liquid pairs, or more illiquid pairs, as well as if you want things to happen promptly, higher sizes is actually, is better. That said, we have some tools that will kind of help you gauge where to price your order and place your order that are really interesting that you can, that you can work with. And so overall, certainly with the more liquid pairs, I think you'll be able to trade those smaller sizes easier. But it just, it may be a slightly different experience. You may need to wait a little bit longer for the orders to trigger. You'll still get trading at your, you know, selected price and stuff. You may need to wait a little bit longer or wait for people to kind of be able to put those orders together. But you, I think you'll find that if you're on the more liquid pairs and you're trading in the thousands of dollars, and certainly any other pairs, if you're trading $5,000 and up size per trade, It should work pretty well.

Okay. So you have the trading, then there's rewards in Rook that come to, you know, I guess as you're, as you're using the platform, you get rewarded in Rook that you can stake. And there's auctions here. And, and then there's like 2 main ways to get other ways other than using this platform that I'm finding. One is to run a market maker and then one is to actually run A keeper, correct?

Yeah. So you couldn't, so I, like I said, so if you want to run a keeper in the network, it's a pretty, there's a pretty high bar, right? 'Cause like I said, these are the, these are the top MEV searchers and, and keepers in the world. And so to win these auctions and to hit these trades, you need to be, you may already know us or we may know each other or you'll know of us. So it's a pretty, Like it's a pretty high bar and we think there will be a time in the future where that bar may get lower as we get more people who want to come in and work on lesser traded chains or more long tail stuff. And maybe they want to be specialized with that. And we want to make sure that that happens because we want a diversified network. We want it decentralized and everything. But today, that's a pretty high bar. Now, if you're a market maker or if you're just an automated trader that likes to trade on chain, You don't have to be an institutional market maker, but this is really great. This trading protocol we have is really great because it looks like an order book. The whole on-chain, everything on-chain looks like an order book. Everything's kind of handled by these keepers for you. So none of the gas and fees and settlement and stuff, you just worry about where do you want to, you know, place your orders and everything just kind of works. And then you get paid as well in Rook for any, like, you know, MEV or any kind of spread that that opens against any other kind of marketplace. So we aggregate all the liquidity from all these different DEXs and the centralized exchanges too, in fact. And just make sure that you get the best price wherever you, you know, wherever you place your order and then deliver that price improvement to you as Rook. So I mentioned there's this kind of instantaneous auction that happens when you send an order or a trade or whatever. That auction, the token that's used to bid in that auction for that right to settle your order, that token is Rook. And so Rook is sort of used by these keepers. It's purchased at market and they stake it, and then they use it to bid on these auctions, in these auctions. And then the winning bid then is in Rook, and that's what's returned to you. And then you're free to stake that Rook if you like. And when you stake it, you receive a, a percentage of the, everybody else's auctions from then on, right? So there's a little bit of this auction revenue, which is given to the protocol and given to stakers. It's just distributed to everybody. And so if you think about it, you know, you get, I don't know, $60 of Rook for your big trade, and then you can stake that, and then you can earn a portion of everybody else's rewards from then on that ever trades on the protocol. And this isn't inflation, which is really important because a lot of projects, especially in the last, you know, 6 months or so, have really run off of inflation. So this is not inflationary. This is actually deflationary. A little bit of this Rook Each time a, an auction happens is also burned and there's no additional issuance of Rook happening. Supply is, supply is capped. So it's actually deflationary. So you have a non-diluting share in the future, you know, MEV delivery of this protocol. If you stake your Rook, it comes into your, your staked Rook amount from then on. So it's pretty interesting.

That's great. This is, I'm so pumped about this. So I'm looking at, you have open roles here at Rook. Uh, there's, there's, everybody seems to be hiring. I see a lot of, um, uh, interestingly here, I don't see much dev. There's a, there's a researcher being hired. There's an executive assistant. There's some marketing stuff. There's some graphic design stuff. But on the dev side, it looks like you're set. Is that right?

Well, you're never really set, right?

That's right. That's right.

Yeah. Um, but you can never have enough, uh, really high quality engineers. So I, we don't really post roles for everything that we need because a lot of times it's those folks will kind of find us. And certainly we work with a lot of people who are qualified and we have other ways, other recruiting avenues than just advertising on the site. So for the more specialized roles that we find difficult to identify, we have these posts on the site. Um, but certainly we're always looking for engineers, but I would say that right now we do have a good complement of engineers, uh, and a really good mix. And we actually doubled our headcount in the, uh, at, by the end of the first quarter of this, of this year from where we were. So we're in a process of sort of rapid growth, but, um, also that comes with some challenges, right? So I would say that today we're sort of, um, we're digesting, you know, some of that growth and we're making sure that these engineers—

You're consolidating, right?

We are consolidating. Yeah. Yeah. And so this is a little bit of a rebuilding time while we make sure everybody knows what they're working on and, you know, building that good rapport. And then I think we'll likely continue that growth process. But that said, you know, the right candidate can always come across the DAO and find their way coming in the door. So we onboarded a great, engineer, um, just, uh, last month or 2 months ago. Um, and, uh, she was actually brought on during a hiring freeze and she was just so impressive. It was just, you know, you can't say no. So there's always going to be those kinds of people too.

So, and I'm noticing that here in the description, you're talking about like who you hire. And, um, and a lot of this is like big tech. These are, these are people from big tech. like Web2 companies. So this is my classic question that I've been asking, and I've gotten various answers to this, but how do you run a Web3 DAO organization by hiring big tech people in Web2 and not let the, and not have the Web2 creep in? You know what I'm saying?

Yeah. Yeah, I do know exactly what you're saying because I worked in big tech. I've seen the creep happen. I've worked at several places. Some of them were that culture, From the start. And some of them, that's not what the starting culture was. And it kind of crept that way because you bring in people and their way of doing things and that's how it comes to be what it is. So again, so one of the main ways that we look to prevent that is, like I said, we try to hire from the community first. So if you're already in our Discord, right, and we discover that you've got some kind of hidden past where you know how to do something, well, that's a pretty strong selecting pressure, selective pressure, right? You're in our Discord of some Web3 projects. So that tells me a lot about your willingness to experiment and to, um, uh, to kind of, uh, drink the Kool-Aid on a new way of working, right? And that's been really successful and that's kind of set us up with a lot of folks who are, um, can kind of be the kind of the anchors of a, of that kind of Web3 culture, right? Um, it doesn't work for it. You can't hire everybody that way. You'll kind of pass up on good candidates. So we like to look for people who've either had past experience at Web3-related technologies, which there are a number of, or folks who have worked in an organization that does something kind of analogous in some way. So you may have heard of teal organizations, or there's all kinds of different sort of models that look sort of like Web3. And this can kind of give them an opportunity to really spread those ideas and realize those ideas in a more, maybe a more receptive context, right? Rather than just a corporate, I don't know, system they have to struggle against. For many folks, especially for engineers, it can be very liberating to work in a Web3 environment, right? For the right kind of engineer. And it's important that it's not, not everybody thrives in a Web3 and a DAO. You know, and that's a lesson that we, you know, we had to learn and we, it's not surprising 'cause it's true of the corporate world too. Not every, you know, great engineer, great contributor can thrive in that world either. And so it's important to find people who want to do the work in the way that we sort of have to do the work as a DAO. And there's certain things we have to do. You know, we have to be available to the community. We have to be transparent about things like our compensation and what we're working on. We have to deal with just a lot of different things. Like, you know, maybe some of your coworkers will be anonymous and, you know, maybe you won't be meeting physically very often. Your primary way to look at things will be on Discord and maybe Notion stuff. So there's a lot of things you have to accept and a lot of autonomy that you have to be ready for to work in a DAO. And we've been very successful about finding people who are comfortable and who thrive in those environments. And if somebody isn't, then it's just, you know, it's not the right fit. And we try to take a proactive approach in making sure that they're set up someplace where they can, they can have that impact and that's more designed for them. So we, it starts from the top and we, you know, we are really all in on this concept of doing this as a DAO because it's such a sensitive thing handling so much order flow as we you know, hope to do for a system as decentralized as Ethereum. I personally, you know, even taking my CEO hat off, I would not be comfortable having that be done through any kind of private organization or something. It needs to be open. It needs to be community sort of owned and accountable to the broader community. And there need to be levers in place to ensure that it's sort of, that it's able to be steered and to be directed and to be, you know, managed in a way that's more public and more fitting for the kind of responsibility and the systemic nature of what it needs to do, right? So we're fully committed on being a DAO and it's something we do a lot of training on and a lot of selection on to make sure that we preserve that. And, you know, if we don't one day preserve that, the DAO will take care of that for us by getting rid of us. So, you know, that I'm sure of.

Okay. So can you just share with us your secrets of how you get stuff done as a DAO? Because I'm told it's, I mean, the question is what, what have DAOs, I mean, this is, this is a tweet, right? This is copypasta. What have DAOs ever done? You know, what, name one DAO that has created something, but you, you guys have created something. This is really exciting. So how, how do you manage working in the messiness that is a DAO structure?

Yeah, like I said, there's some people who thrive on it and some people who struggle. And so let's say you thrive on it. It's still a bit messy and it's still a bit chaotic, right? So we try to treat the Discord as kind of our, our office and ask that people sort of be there, participate in conversations, our work Discord, and kind of, you know, um, be available. So that's a basic thing because otherwise it can be kind of like gig work or contract work where it's like, yeah, tell me what to do. I'll be back in 2 weeks. I'll check in with you and see. You can't really build a shared culture that way. You can't really orient people that way and get to know each other in the right way. And so we, we try to make sure that there's, we have some kind of a virtual connection, right? That we all know each other. Um, and it's, uh, you can reach your colleagues pretty easily. Boundaries, um, departmental, you know, team boundaries or whatever, much easier. You can kind of tune into what you want to tune into. And make sure that the right people are on the right problems at all times. And so the core challenge here comes down to making sure that there's communication, that everybody knows what's happening, what's going on, they can access those opportunities to contribute and making sure that everybody knows what it is that we're doing. And that's really where my focus is as the CEO is making sure that, because like I've explained it to you, it's Somewhat complicated, right? It can be difficult to know if you're a new contributor, what, what am I doing? How does what I'm doing roll up into whatever the heck our mission is? And so it's up to me to really make sure that there's a, a very clean, simple mission that everybody has and that every working group or team has that can help orient them to know that whatever they do, any action they do is going to move towards that goal. And then that makes it easier for the DAO at large to also kind of you know, fact-check us and make sure when we do our quarterly reports that, hey, you did move towards that goal. That's good. These can be super simple. So our product team, you know, our, uh, Pangolin, our, uh, you know, our wonderful product team director, I asked what, what the mission should be for the product team. And he said it should be volume in. That's it. Like 2 words, volume in. We want more volume. Give us more orders. We need to, you know, get more volume in, volume in. I was like, okay, you know, that's what their primary overriding goal is, volume in. So they're judged on how much volume do they add to come through the protocol. And so stuff like that can be really impactful with making sure that, you know, work gets done. So it's good to have a mission. And in our case, we're fortunate that our mission is sort of existential, right? If we don't provide this infrastructure, it'll be provided by a bunch of con men that come in and do it instead, centralize the network and kind of ruin the fun for everybody. So there's an important mission at play and how we break that down into each individual contributor's role is something that I do in association with our organization leads and make sure that everybody knows exactly what they're working on and why. And that can be something that's shared publicly as well. And give them really challenging problems to work on, which is really easy to do because we've got a, you know, we've got a truckload of them. And make sure that we're communicating all the time. And communication is exhausting. And that's why, you know, we actually bring on, we have close to as many operations folks as we do engineering folks, technical folks, which is somewhat of a rarity in a DAO. And we actually compensate pretty aggressively for operations compared to other projects because operations are really important. And communication and all of these sorts of quality of life things that you do internally, it's easy to think that you can do without them until you try, and then it doesn't really work. It'll work for a little while, but for the long haul, it's not going to work out. And so we do prioritize that to make sure that All of our development and product and everything is moving in step with our development as an organization. We have people that study these, study DAOs, how can we make ours more effective? And you have to lean on your strengths as a DAO. And there definitely are strengths. The crowd, the hive mind has led to many interesting product feature ideas and investment opportunities and actually, you know, actions that We've taken. And we've also brought a lot of talent on board straight from the Discord. So that's, you know, being able to reach the right people is another really great thing that DAOs can do. And accountability, of course, is, you know, not something we, you know, we're acting in good faith today, but there could come a day when, I don't know, we all wake up and turn evil. And in that scenario, the DAO is there to kind of step in and keep that from happening. I think that's wonderful as well. So there are things that DAOs can do that you can't do in a normal setup. The challenge is making sure that we can remain as competitive and as agile as any other company, the kind of companies that we need to outcompete so that we can deliver on this technology. And so, you know, I think we're doing a good job of doing that. We'll see how that continues and yeah, hopefully we get it right.

Okay. Our time is wrapping up, but I gotta ask you one more question, Hazard. What's on the horizon for Rook? Like what, what's up and coming? What are you excited about? Uh, any alpha that you can share with us?

Yeah, so I'm really excited about this payment for order flow narrative. Um, we've been doing a lot of R&D and, you know, I think that the narrative here is gonna start, you're gonna start seeing it because we've seen this coming about a year. We've been building this. And so I'm excited to kind of ride this wave, um, and show people that there's a better way to do this. And it was invented here in DeFi and only we can do it. We can actually outperform traditional finance, like in a key way that, you know, so I'm interested in how what we're doing generalizes. So we built this to be a general purpose infrastructure. So today you can go to app.rook.fi and you can trade, you can trade on-chain, do all your trading there. You get paid for it. It's amazing. It really is amazing. It's an amazing product. You could build a whole DAO and a whole project just around that trading product, and you could be very successful, and it will be very successful. But that's actually only one part of the picture for Rook because we have a generalized engine that allows this payment for order flow to happen. So it can happen with trading. It can also happen for generic transactions that you make through your wallet to do anything. You could use it as an RPC endpoint. the same way that some people use Flashbots Protect today. So if you're trading on, I don't know, 1inch or Uniswap or something, you could actually save money there or save money for doing anything. You never know, some keeper might invent an interesting strategy that uses, I don't know, some random transaction that you've never even thought about in part of a strategy and they'll pay you for it. You were going to do it anyway. So it's sort of a transparent way to plug into this. It's also nice for applications to plug into anything that they would send, any transactions they might send, Through like, let's say Flashbots RPC, they could send through this and actually realize a revenue stream now. So that's very interesting. And that's not necessarily related just to trading. It could be many other things as well. We have a lot of partners we're working with on this product as well. We've got a really big trading upgrade coming that'll make the trading that we do have much more, much, much more efficient, easy to use for small order sizes. That's going to be a really big upgrade and turn that into a really great trading venue. I think it's going to be one of the best out there, if not the best. And then of course we've got, we're thinking also about direct smart contract integration. So how can you plug your smart contract into this system so that directly as you have users trading on your smart contract, so if it's an AMM or if it's a lending protocol, How can that action of trading or whatever it is actually be protected by default and have this payment be rebated back to the smart contract in order to kind of, you know, provide that back to liquidity providers or stuff. So there's this whole spectrum of use cases where you can plug something into this. It goes way beyond just trading. And ultimately the goal is to take all of the MEV in the application layer. For users and applications and pass all of that through this kind of filter to make sure that all that MEV stays with these applications and with these users and whatever makes it past into the consensus layer, into the miners and stuff. Flashbots is there to deal with that. And there will always be that kind of MEV. We think that we can take the vast majority though, capture the application layer. So that's what I'm really excited about. So it's not just trading, it's— Yeah. It's gonna be full spectrum.

And when Polygon, when Optimism, when other things for the trading specifically?

That's a great question. Right now when you trade, it's off-chain and it's free and it's feeless. So, and it's as good as it would be if it was on any of those, if it was settled in any of those. So I would encourage you to try it out, but That said, I think we, we may have some additional things to talk about there once we release the upgrade to that protocol. And yeah, so look forward to that.

I love it. I'm so excited for other protocols to take advantage of Rook and partner with, with, with Rook in that. Very encouraged by this conversation, Hazard, and thank you for, for giving the PoolTogether community Some of your time. This has been really educational. We got the note taking note gifts going off in the chat, but thanks, thanks, Hazard, so much. And I look forward to seeing Rook explode in growth in 2022.

Thanks. It's great to be here. Love the community. Love the product. Thanks for having me.

Thanks for listening to the Pool Together Community Podcast. You can visit pooltogether.com to deposit. And we'd love to hear what you thought about today's episode, so visit the Pool Together Discord and let us know.