Episode 126 of the Public Key podcast has arrived, and it’s packed with insightful discussions! This episode dives deep into the latest advancements in decentralized finance (DeFi), focusing on a new protocol that has integrated an oracle directly into its Ethereum Virtual Machine (EVM) Layer 1 Blockchain. Our guest is Hugo Philion, co-founder and CEO of Flare Network, who shares comprehensive insights into the decentralized oracle ecosystem, explaining how Flare’s solution is making oracle services more cost-effective and secure.

Many enthusiasts in the DeFi space are familiar with Chainlink and Pyth Network, which are prominent for providing decentralized data feeds. However, Flare Network is setting a new precedent by embedding oracles directly into its EVM Layer 1 Blockchain. This episode features Ian Andrews (Chief Marketing Officer, Chainalysis) in conversation with Hugo Philion, who elucidates his journey from hedge fund trading to blockchain innovation, highlighting the urgent need for decentralized data in an industry heavily reliant on centralized data providers.

Philion meticulously breaks down Flare’s architecture, which offers cost-effective and secure data oracles. He contrasts Flare’s system with existing ones that often suffer from centralization and the potential for collusion. One of the critical aspects Philion touches upon is how Know Your Customer (KYC) and Anti-Money Laundering (AML) protocols can be seamlessly integrated by developers building on Flare, underscoring the importance of regulation in advancing the industry.

“Flare’s protocols are solving for cost, security, and flexibility by enshrining the oracles into the chain, integrating both the infrastructure and the security budget that is staking into one role and having a single token,” says Hugo Philion.

In this episode, we cover:

– Hugo’s transition from hedge fund trading to the world of blockchain.
– The reasoning behind Flare’s decision to build an L1 platform with integrated oracles.
– An examination of why data in the crypto landscape is fundamentally broken.
– A detailed explanation of enshrined oracles and their significance.
– An introduction to LayerZero and its solution to cross-chain interoperability challenges.
– Flare’s use cases with decentralized exchanges (DEXs) and DeFi projects.
– An exploration of significant oracle failures and the scarcity of reliable data providers in the industry.
– The emerging role of regulation, KYC, and AML in a decentralized crypto ecosystem.
– The announcement of Flare Data Connector solution.

For those looking to delve deeper into the topics discussed in this episode, Chainalysis provides additional resources:

**Ep. 79: Web3 Adoption in Traditional Finance**
– This episode discusses how bringing real-world assets onto the blockchain necessitates safe, reliable, and accurate data points. Kemal El Moujahid (Chief Product Officer at Chainlink) explains how Web2 and Web3 applications can be interconnected seamlessly and securely.

**Ep. 121: Explore IPFS, Filecoin, and Crypto Policy Developments**
– In an era where AI evolution raises questions about data authenticity, particularly during presidential elections, Marta Belcher (President & Chair, Filecoin Foundation) shares her expertise on decentralized storage, crypto policy, and privacy in the digital asset age.

Please note that this website may contain links to third-party sites not under the control of Chainalysis. Accessing such information does not imply endorsement by Chainalysis, which is not responsible for third-party content.

The Public Key podcast aims to provide informative content and is not intended as legal, tax, financial, or investment advice. Listeners should consult their advisors before making any decisions based on this material. Chainalysis does not guarantee the accuracy or completeness of the information provided.

Now, let’s dive into the fascinating conversation between Ian Andrews and Hugo Philion:

**Ian:**
Hi, everyone. Welcome to another episode of Public Key. I’m your host, Ian Andrews. Today, I’m thrilled to be joined by Hugo Philion, co-founder at Flare and CEO of Flare Labs. Hugo, welcome to the show.

**Hugo:**
Thank you, Ian. It’s great to be here.

**Ian:**
Hugo, I’m fascinated by what you’re building at Flare Labs. For listeners who might not be familiar with your work, could you give us a brief overview?

**Hugo:**
Absolutely. At Flare, we aim to create the best platform for data in the blockchain space. Flare is an EVM Layer 1 network that uniquely integrates enshrined oracles directly into the network. These oracles handle prices, Web2 proofs, and Web3 proofs, enabling developers to build feature-rich applications with highly decentralized and secure data sources.

**Ian:**
That sounds exciting. Before we get into the technical details, could you share a bit about your background and how you transitioned from hedge funds to blockchain?

**Hugo:**
Certainly. I started as a derivatives trader at hedge funds, primarily dealing with commodity derivatives. By 2015-2016, I felt disillusioned with that career path—it was unfulfilling and monotonous. I decided to pursue machine learning at university where I met my co-founders. However, I quickly realized that working in AI and ML would likely mean joining large tech companies, which are also centralizing forces. That led me to explore blockchain technology instead.

**Ian:**
It’s interesting how your background in statistics and financial engineering dovetailed into blockchain. What inspired you to create a new Layer 1 platform like Flare?

**Hugo:**
We observed that data in the crypto landscape was fundamentally broken. From 2017 to 2019, we researched extensively before deciding that building a Layer 1 platform with enshrined oracles was essential. Our goal was to ensure that data was as secure as the network itself by integrating oracles into the network’s core architecture.

**Ian:**
Can you elaborate on why data in the crypto landscape is considered broken?

**Hugo:**
Sure. The issue lies in centralized data sources feeding decentralized compute systems. This contradiction means that despite billions being spent on decentralized infrastructure, the data itself isn’t decentralized or secure enough. Most existing oracle systems have too few data providers, making them vulnerable to manipulation.

**Ian:**
How does Flare address these issues with its integrated oracles?

**Hugo:**
Flare solves for cost, security, and flexibility by merging infrastructure and staking into one role with a single token. This allows us to offer data at a much lower cost compared to third-party oracles like Chainlink or Pyth. Our model also maximizes decentralization with a high security budget—our validators also serve as data providers.

**Ian:**
That’s a significant advancement. How does this model compare with Ethereum’s architecture?

**Hugo:**
In Ethereum, validators focus solely on transaction processing and block production. In contrast, our validators also handle oracle data provision. They earn rewards only if they participate in both roles. This ensures maximum decentralization and security for our data feeds.

**Ian:**
Let’s talk about cross-chain interoperability. How does Flare facilitate this?

**Hugo:**
We’ve partnered with LayerZero for cross-chain messaging and interoperability. Their decentralized validation network (DVN) model offers modular security that can be tailored based on transaction value. This flexibility makes it superior to other models like CCIP.

**Ian:**
That’s impressive. Who are some of your notable partners or projects currently building on Flare?

**Hugo:**
We have several DeFi protocols including Gnosis Safe Multisig Wallet and Kenetic’s lending protocol Sceptre. We also have partnerships with professional validators like Google Cloud who contribute to our oracle data provision.

**Ian:**
What about integrating KYC/AML protocols into Flare? How important is regulation in your view?

**Hugo:**
Regulation is crucial for integrating real-world assets into blockchain ecosystems. We are developing an over-collateralized bridge for Bitcoin and XRP that includes optional KYC features for entities requiring it.

**Ian:**
Can you explain more about how KYC is integrated into your bridge system?

**Hugo:**
Our system allows entities providing collateral to choose whether they want to conduct KYC on their counterparties. This can be done through off-chain KYC providers initially but we aim to bring this entirely on-chain eventually.

**Ian:**
That’s groundbreaking. What’s next on Flare’s roadmap?

**Hugo:**
We’re launching our Flare Data Connector around September-October this year, which will allow proving Web2 events on-chain using our data providers. Additionally, we have a hackathon focused on our off-chain compute strategy using trusted execution environments.

**Ian:**
That sounds exciting! Is this hackathon open to everyone?

**Hugo:**
Yes, it is open to all developers interested in exploring our technology.

For more details on these developments and other exciting topics discussed today, check out the full episode of Public Key podcast!

Stay tuned for more insightful discussions as we continue to explore the dynamic world of blockchain technology!