Welcome back to the IoV Lodge. Today we are hosting Kava Labs Chief Operating Officer and co-founder Brian Kerr, who is currently responsible for the company’s business operations and strategy.
I know this is the second blog-post in the history of the IoV Lodge and maybe it is too early to make a call like this, but I did not want to miss the opportunity to highlight that Brian was and probably will be one of the most interesting personalities ever to be hosted by this blog. He dedicated an outstanding amount of time to engage with us and to answer the questionnaire we prepared for him, without hesitating for a second to provide us with very insightful information about the projects and strategies being pursued by Kava Labs. It is very clear that he is here for the technology and has a strong interest to share it with folks around the world.
Kava Labs describes itself as: “…the world’s first Interledger solutions provider [ILSP] focused on bringing blockchains, wallets, and exchanges the interoperability of Interledger.”, and is currently leading the cross-chain efforts of the Interledger community to bring interoperability over the cryptocurrency ecosystem. Kava Labs says to be working with significant blockchain projects, wallet providers, and exchanges and exchanges in order to integrate their users, liquidity and services with the Interledger Protocol. Before diving into the amazing interview that Brian allowed us to have, I’ll try to cover, with a very high-level approach, the interoperability concept and how the Interledger Protocol fits into it.
Payments Interoperability. The missing piece.
Interoperability is defined by the Collins Dictionary as: “…the ability of a system or component to function effectively with other systems or components…” Likewise, the Cambridge Dictionary defines the aforementioned concept as: “…the degree to which two products, programs, etc. can be used together, or the quality of being able to be used together…”.
It is not inaccurate to say that interoperability is almost a non-existent concept in the world of payments. As affirmed by the Interledger initiative, payment networks today are siloed and disconnected, which means that they are separate and monolithic systems of trapped liquidity that are not able to function effectively with other payment networks. In addition, it is noteworthy to say that where connections between dissimilar payment networks exist, such connections are operationally conducted through slow and expensive manual processes that have no place in the twenty first century.
In other words, payments tend to be easier
when they are made to recipients that are using the same network (i.e.
blockchain, ledger, bank, mobile money operator, etc.) being used by the
payment originator. Although, there are considerable fees associated with the
utilization of services like PayPal, one could say that there is close-to-none
friction when using PayPal to pay someone that is also using PayPal. The
friction begins to appear when someone wants to use PayPal to pay someone that
has a Venmo wallet, this is, a dissimilar payment network with which it is not
able to communicate. The lack of interoperability has led to absurd situations
where online marketplaces such as Amazon, for instance, have been historically
forced to hire hundreds, if not thousands, of engineers with the sole purpose
to integrate dozens of payment systems into their platforms; this, in an
attempt to fight the serious trade-offs presented by the absence of interoperability
within the payments’ space.
Think about it objectively. How many online
purchases would you have dropped if your Visa credit card or your PayPal
account was not accepted by Amazon as a valid payment method, but instead, the
site required you to use the payment network of its preference? Let’s just say
that those kind of merchants would immediately loose a very large share of
their customers. Hence, the lack of interoperability is not only a real world
problem, but it is also one of the most significant pain points striking the
payments’ ecosystem today.
Interledger Protocol (“ILP”). Enabling interoperability.
As a consequence of the above, Ripple and, specifically Stefan Thomas and Evan Schwartz created the Interledger Protocol back in 2015 as an effort to dismantle the friction and costs caused by the lack of interoperability in payments. After realizing the potential that this open protocol had, Ripple handled the initiative to the World Wide Web Consortium (W3C), which is the main international standards organization for the World Wide Web with 453 member organizations as of today. Thereinafter, the W3C created a taskforce called “Participants in the Interledger Payments Community Group”, which has managed to aggregate 387 individual participants until now.
The following natural question is: What is the ILP? – As described by the Interledger site, it is: “…an open suite of protocols for connecting ledgers of all types: from digital wallets and national payment systems to blockchains and beyond. This will make it easy to transact with anyone, no matter where we live or what type of money we use. Sending value will be as easy as sending information is today. This is the vision of the Internet of Value”.
How does Interledger work? – Diving into the technicalities of this matter, it is fair to describe that ILP uses so-called connectors to route payments across different ledgers, whether they are public distributed ledgers or centralized monolithic ledgers. For these purposes, conditional transfers that use hash-time-locked-contracts (HTLCs), as known in the blockchain space, are used to secure multi-hop payments so funds cannot be lost or intervened while traveling. Over such security primitive, Interledger provides a packet address format, heavily inspired by the Internet Protocol (IP), to orient connectors on where to forward payments.
The creators of the ILP usually present an analogy to explain what Interledger is. Hence, they affirm that the ILP is for payment networks (i.e. blockchains, banks, mobile money, digital wallets, etc.), what IP was for Internet dissimilar networks (i.e. WiFi, Bluetooth, Ethernet, etc.), this is, an abstraction layer that enabled communication between base networks that were previously unable to communicate with each other.
In this sense, Kava Labs has positioned itself as the first Interledger solutions provider (ILSP) to leverage ILP connectors with the purpose to enable seamless, cheap and efficient interoperability between dissimilar distributed public blockchains (e.g. XRP Ledger, Ethereum and Bitcoin). Important: This kind of interoperability is not to be confused with blockchain-enabled atomic swaps.
Moreover, while Kava Labs is able to integrate ILP with blockchain services providers, including wallets and exchanges, it also removes the friction associated with cross-chain transactions, improving both interoperability and liquidity. Interestingly, ILP is a decentralized protocol that allows users to retain the custody of their assets and leverage the on-demand liquidity provided by connectors, such as the ones provided by Kava Labs, in order to send cross-currency payments.
The above means that a
blockchain wallet services provider would effectively be able to integrate only
one cryptocurrency (i.e. XRP) and offer its users the possibility to deliver
ETH or BTC to their payees in a seamless manner, with an insignificant
counterparty risk, without the need to lock-up or handling the custody of their
funds and with ultra-low latency levels.
Brian Kerr. Talking about Kava Labs.
With that introduction, we should now move into our interview with Kava Labs’ Brian Kerr:
Meeting Kaba Labs Team
Q1: “Kava Labs’ website states that the company is currently integrated by a team of 6 very talented individuals. Could you provide a brief description of the team as whole? What led you into cryptocurrencies?”
A1: “The team comes from a wide variety of backgrounds, but all have certain natural affinities for crypto and blockchain. Scott and Kevin come from poker backgrounds that got hit by regulation very hard a few years ago, making the whole industry look at alternatives to the current financial system. I come from a background in gaming – digital native currencies are common place in the gaming world.”
Q2: “Would you say Kava Labs team is expected to continue growing in the near future?”
A2: “We have a ton of interest around the technology and products we are developing from most of the top blockchain projects and foundations behind top market cap coins. I expect us to scale our team as fast as we are able to transfer our knowledge and expertise to others.“
Q3: “Is Kava Labs currently hiring? If affirmative, could you provide a brief description of the positions you are currently searching for?”
A3: “We are always hiring passionate engineers and product people. We currently don’t have JDs up, but we’re looking for people who have expertise in blockchain and traditional payments/finance ecosystems.“
Q4: “If you had the opportunity to start your business again from scratch, what would do differently?”
A4: “That’s a good question. I think crypto and blockchain is evolving quicker than any other industry we have experienced… and I come from esports which has been completely overturned with explosive growth over the past 10 years. The main thing I think we should have done better is choosing what not to focus on and executing on one thing well. There is so much to build in crypto and so many opportunities, but one thing my entrepreneurial experience has taught me is that its great execution and go-to-market that always matter the most. ‘A perfect plan and poor execution will be trumped by a mediocre plan and great execution every time.’“
Q5: “What are the competitive advantages that Kava Labs team has versus other crypto companies?”
A5: “We have been looking at interoperable payments longer than most and we’re in touch with pretty much every large project that matters. Being in the space pre-2018 has a ton of advantages. I’d like to think Scott and myself previously being entrepreneurs in other industries gives us a leg up. Every start-up has different challenges, but having done it before allows for you to smooth over some of the bumps. The most important thing is that the Kava team is curious and not afraid to get our hands dirty. We like to research things, but we love to apply things even more and see how it all works in a non-theoretical environment. We have built up such a great understanding of all the current blockchains and payment networks. We understand the trade-offs between consensus models, payment channel constructions, and how different implementations can impact things for different use cases.“
Q6: “Could you please tell us a bit about how Kava Labs team got involved with the Interledger Protocol?”
A6: “We met Ripple officially at a SWIFT conference when we were researching different opportunities to improve payment systems with blockchain technology. After speaking with Evan and Stefan, we did a very deep dive into Interledger and compared it to everything else out there and realized its design was perfect for solving the scalability, liquidity, and interoperability issues within crypto and payments.“
Q7: “Can you tell us if Kava Labs always preferred Interledger Protocol over other abstraction layer protocols (i.e. second layer protocols)?”
A7: “We build payment channels modules for all sorts of blockchain projects. One of the most important challenges today is getting users onto second layers. We don’t really care how you do it, but to have a good experience it is required. Our BTC Interledger integration actually leans on the work of lightning. Lightning can be great for scaling BTC, it has adoption, so we went with that. We are fairly agnostic overall to solutions. If some other second layer solution for BTC comes out in the future that is superior to lightning, we will make an implementation for Interledger that supports that as well. As Evan wrote in his article, Interledger is more like a layer 3 protocol, it can work with layer 1 stuff, but it will be slow, expensive, and not a great experience for a number of other reasons – so for most use cases, having support for layer 2 is usually what we focus on first before building an integration for Interledger.“
Q8: “How has your experience been on working with the guys behind the Interledger Protocol (i.e. Ripple, Coil, Interledger, etc.)?”
A8: “Ripple, Coil, Xpring, the Interledger community folks are all really great and everyone is really passionate about what we’re working towards. It’s a tight community that is growing each and every day so it’s been very cool to be a part of it since it was small.”
Q9: “Could you share with us if Kava Labs team has preference for any cryptocurrency? If yes, could you briefly tell which one and why?”
A9: “Kava Labs is agnostic to different currencies. We want to support them all. We do care about adoption and performance for certain use cases though.
Each person within Kava has different leans towards different crypto. I can only tell you what I personally lean towards. I’ll caveat and say it changes almost every month depending on new things I learn about them.
I am pretty bearish on the market and most currencies in terms of value. With that said, I think the projects behind the coins are building amazing things behind the scenes. ETH for example has an amazing community and built some of the most important infrastructure for the industry. I don’t have a ton of faith in ETH appreciating in value, but I do believe in the community behind it.
As of today, I hold BTC, XRP, MKR, and a few of the new alt coins like GRIN and BEAM mostly because I like to have skin in the game when I follow new projects.”
Q10: “Could you please elaborate briefly on why is Kava Labs so interested in facilitating interoperability between dissimilar value networks?”
A10: “Efficiency equals value creation. Interoperability is what made the advent of the internet such an impactful thing. Small computers could finally network together and share messages and ideas.
Interoperability of financial networks has the same potential. So much of the world is being held back by the current financial systems due to inefficiencies, high costs, and rent seeking intermediaries.
In addition, interoperability will be very important in the near future for web3 applications. We wrote extensively about it here: https://medium.com/kava-labs/emerging-opportunities-of-the-interoperable-web3-stack-253123dc2cc Developers in the future will need interoperability infrastructure so that they can combine blockchain services to build superior applications than what we have today.”
Kava Labs. The first Interledger Solution Provider (“ILSP”).
- Hisory and Background.
Q1: “What were the biggest concerns when you decided to incorporate Kava Labs?”
A1: “Why didn’t we do this sooner?”
Q2: “Why did you decide to be the first Interledger Solutions Provider?”
A2: “Someone had to lead the way. We were the most suited to do so.“
Q3: “Is Kava Labs a member of the Interledger initiative?”
Q4: “For how long has Kava Labs been operating?”
A4: “Officially since January 2018 I believe. Maybe it was early February, I forget. Most of the team has been working together since mid-2017.”
Q5: “Did Kava Labs try to build on top of other technology before meeting Interledger?”
A5: “Of course, we’ve built on top of most of the major blockchains. We like to try before we buy”
- Technical and regulatory challenges.
Q1: “Could you share if you have found a clear solution for cross-chain transactions’ lack of liquidity? Are market makers a part of Kava Labs’ ecosystem?”
A1: “Kava Labs operates as a market maker in some situations and on behalf of clients if they need help doing so. Partnering with others and peering over Interledger to pool liquidity is a nice feature“
Q2: “I’m genuinely excited with the idea of non-custodial trading. Would you say that retail consumers are ready to take this step? Or could you elaborate a bit on how you would expect custody to take place (i.e. 3rd. party custodians such as Bitgo)?”
A2: “I assume you speaking about our Switch API. Our aim is to allow wallet providers to use this and Interledger on the backend to enable their users to get funds onto layer 2 and trade all within the wallet. We don’t expect this to replace the complicated trading tools that centralized exchanges have built, those have a place. Our API can enable non-custodial trades, but it will really shine for seamless payments by users who want to pay right from their wallet to someone off network.”
Q3: “Would you say that Interledger has solved the scalability problem in its entirety?”
A3: “No not quite. Transactions off-chain solve that. In my mind, that’s more about the payment channel system built for each network.“
Q4: “Is there any significant regulatory burden that could stop Kava Labs from going mainstream?”
A4: “We are a B2B company working with blockchain projects, wallets, and exchanges. I think going mainstream is more of a consumer thing. We can help our partners by improving the experience for their users.“
Q5: “Would you say that cross-chain interoperability could be a window for money launderers?”
A5: “Maybe in the future when interoperable payments grow in orders of magnitude. I don’t have the latest stats, but I think in ~2009 1.5 trillion US dollars were laundered globally through our existing financial systems (~3% of global GDP). I think that given today´s market cap of crypto people who really care about money laundering should focus on the 95% of laundering that’s right under their nose.
In the long-run, I think crypto will be decrease cash usage and tradability, ultimately improving the horrendous laundering activities that happen today.“
Q6: “What has been the most significant obstacle for Kava Labs?”
A6: “Awareness and funding. Getting Interledger recognized as a superior solution is happening amongst top developers finally. In early 2018, very few knew little about it. Capital raising was quite hard in 2018 because we ended up pitching a ton of crypto funds that went illiquid due to the market. Ultimately it worked out better for us because we got VCs and long-term partners instead.“
- Current situation.
Q1: “Could you share with us if Kava Labs has already integrated its interoperability solution with wallets and exchanges?”
A1: “Currently we’re in discussions with a number of big players, but I cannot comment on who or the timeline.“
Q2: “Could you tell us a bit about the transactional volume that you are currently handling?”
A2: “I would ask Strata Labs about the volumes they see over Interledger. It would be a better metric to look at I think.“
Q3: “In your opinion, are there opportunities to profit from running Interledger connectors?”
A3: “Spreads could be favorable in the early days of the network. Long-term spreads could get tighter and connectors more competitive. There is likely a network effect to connectors, however, and running an early connector could have huge upsides in terms of long-term value capture.“
Q4: “Could you elaborate on the latest funding round secured by Kava Labs?”
A4: “The press release and announcement includes all the details. I am really happy to have found the partners we have.”
Q5: “Do you see Ripple’s Xpring and Coil as strategic partners?”
Q6: “Are Kava Labs operations limited to the United States or are you able to work on a cross-border basis?”
A6: “We have international operations.“
- Kava Labs future plans.
Q1: ” Are you planning to offer Interledger connectors that enable interoperability with fiat currencies? If affirmative, could you tell which currencies?”
A1: “This might make everyone too bullish ~_~.“
Q2: “Is Kava Labs interested in providing cross-asset interoperability? Example: Crypto/tokenized securities.“
A2: “It depends on the asset and liquidity. If it’s a small security, likely not. If it’s a tokenized apple stock, maybe someday.“
Q3: “Are you open to collaborate with other companies in which Ripple has invested through Xpring (i.e. XRPL Labs, Securitize, DharmaProtocol, and Coil)?”
A3: “Of course. We are collaborative generally. I don’t think we really have competitors in this space.“
A4: “I was not aware, but it could be interesting.“
Q5: “Could you tell us a bit more about Switch, the Interledger wallet and non-custodial trading app that you have been working on? What kinds of assets is the wallet going to be able to support? Will users be interacting directly with first ledger or, instead, everything will happen over second layers?”
A5: “We will have blog posts about this. I will share erc20s are next in line for us to add support for.“
Interledger vs. second layer protocols.
Q1: “Would you say that Interledger’s routing is better than Lightning Network’s onion routing? Could you please provide a brief explanation?
A1: “Interledger could support onion routing in the future and other options to its default. I don’t think a direct comparison is necessary – they do different things.“
Q2: “Could you elaborate a bit on why Interledger provides a better alternative to HTLCs?”
A2: “I think a number of articles and smarter people than me could answer this better than I. The most important element is that Interledger eliminates the free call option problem when doing transfers between different currencies. Generally this is why I think Lightning is fine for BTC, but not great to support multiple assets.“
Q3: “Could you describe how Interledger routing protocol contributes to reduce counterparty risks?”
A3: “Streaming packets minimized the in-flight risk HTLAs limit number of counter parties you will have making the overall risk arbitrarily small.“
Q4: “Would you say that Interledger is more decentralized than other second layer protocols?”
A4: “Not necessarily – but I do remember reading a figure that lightning has some decent centralization of nodes.“
Brian Kerr’s opinions.
Q1: “Where do you see Interledger in 5 years from today?”
A1: “Streaming payments for the web, developers hold one currency, but pay/use many other services getting liquidity on demand via Interledger. Lots of foundational use cases.“
Q2: “In your opinion, which is the best digital asset available today for Interledger’s purposes?”
A2: “Fast finality blockchains – XRP, Tendermint-based assets, etc.“
Q3: “Would you say that digital assets, such as XRP, are good instruments to draw liquidity from in order to bridge value between dissimilar networks?”
A3: “Early currencies on Interledger will get a network advantage. XRP should have a great lead on Interledger. If you can stomach currency volatility, XRP is a great tool for settlement in my opinion.“
Q4: “What are your thoughts on streaming payments? Do you think they are a good use-case for cryptocurrencies?”
A4: “I think streaming payments unlock a ton of use cases – like paying per API call, IOT, web monetization, etc.“
Q5: “What do you think about distributed hosting platforms for smart programs, such as Codius?”
A5: “Love them. Wish more people developed around them and that ecosystem. I think they will replace a lot of what people think blockchains are useful for.“
Thoughts by the IoV Lodge’s fireplace.
After such an amazing interview with Brian about Kava Labs and covering the some amazing things that can be achieved with the implementation of the ILP, such as enabling seamless cross-chain interoperability, I would like to display a brief list of the different projects and initiatives that have found usability for this protocol:
- Ripple – xCurrent: xCurrent is Ripple’s enterprise software solution that enables banks to instantly settle cross-border payments with end-to-end tracking. Moreover, using xCurrent, banks are able to message each other in real-time to confirm payment details prior to initiating any given transaction and to confirm delivery once it settles. xCurrent includes a Rulebook developed in partnership with a bank consortium led by Ripple called the RippleNet Committee, that ensures operational consistency and legal clarity for every transaction.
It is noteworthy to say that xCurrent has not only been successful by itself and, therefore, adopted by more than 200 customers as confirmed by Ripple, but it also has been leveraged by diverse financial institutions as a core product to create new remittance and money transfer applications, such as the following:
- Banco Santander – One Pay FX: One Pay FX is a money remittance application built by Santander for iOS users. The App allows users to make regular international payments of up to £10,000 a day in a) Euros to al nineteen Eurozone countries, and b) US dollars to the USA.
- Coinone’s – Cross: On December 2018, Coinone introduced in South Korea for the first time, a blockchain-powered remittance mobile app and web service called Cross, which offers faster, lower cost payments to Thailand and the Philippines. Unlike other remittance options in South Korea, Cross does not rely on traditional banking rails. Rather, it provides a safe alternative for those with or without a bank account, and the increased payment transparency and reliability inherent to Ripple’s advanced blockchain technology.
- Japan Bank Consortium – MoneyTap: The Japan bank consortium, led by SBI Ripple Asia, is comprised of 61 banks covering more than 80% of all banking assets in Japan. The consortium worked in the development of a collaborative application and thereinafter launched MoneyTap, the first mobile App of its kind. MoneyTap allows allows customers of the bank consortium to settle transactions instantly, 24 hours a day, seven days a week, only requiring a bank account, a phone number or a QR Code.
- Bill & Melinda Gates Foundation – Mojaloop: Mojaloop is an open source project that was first designed in collaboration with several fintech companies, such as Ripple, Dwolla, ModusBox, Software Group, and Crosslake Technologies. This project aims at creating payment platforms that are interoperable, connecting digital financial service providers and customers that are not able to transact with each other today. The basic idea behind Mojaloop’s financial inclusion driven project is to bring connectivity between multiple Digital Financial Services Providers (DFSPs), so they are compelled to compete within an interoperable network in order to maximize opportunities for poor people to get access to financial services with low or no fees. For more information about financial inclusion projects that are currently seeking to adopt Mojaloop in both Africa and Asia, look for Mowali and WOCCU, respectively.
- Coil: Coil is a fintech start-up founded by formerly Ripple CTO and ILP creator Stefan Thomas. With the utilization of the Interledger Protocol and digital assets, such as XRP, the start-up is trying to reinvent the way in which the Web is monetized today. Coil allows Web visitors to stream real-time payments to content creators in exchange for exclusive or premium content, effectively bypassing the burdensome and annoying advertisement industry, as well as the walled subscription models.
- Hyperledger – Quilt: Quilt is a blokchain initiative initially contributed by Ripple and NTT Data to the Hyperledger blockchain consortium that “offers interoperability between ledger systems by implementing the Interledger protocol (also known as ILP), which is primarily a payments protocol and is designed to transfer value across distributed ledgers and non-distributed ledgers.”
This is just a sample of the multiple interoperability-focused developments that are happening simultaneously, as we speak, thanks to the ILP. Overall, the potential for disruption in regards to how value is currently being moved around the world is simply outstanding. This technology is able to bring together hundreds of thousands of dissimilar payment networks and make them able to seamlessly communicate and transact with each other. That is huge! If you are a fan of the Internet of Value, you should be following this space really closely.
I hope you enjoyed your stay at the Lodge and I hope to see you again soon.
Special thanks to Brian Kerr.