Smart Layer: The Future Is Centered Around Tokens and Users
Translated Interview between Orange Paper and Victor Zhang, Co-founder and CEO of Smart Layer
Original Publication: Orange Paper
One day, Victor sent me a cat NFT on the blockchain, claiming that this cat could play games, be fed, bathe, and even send messages to his cat — all directly from the wallet interface without needing to open any extra websites or apps.
I immediately felt there was something special about this cat. In all my years in the crypto sphere, I hadn’t seen anything like it.
This led to a two-hour remote chat with Victor, which resulted in this article.
Dressing Traditional Tokens in New Clothes
Orange Paper: Why can this cat NFT do so much directly?
Victor: Because it’s a smart token, entirely different from traditional tokens (ERC20 or 721).
Let’s look at how traditional tokens work. In the current crypto world, tokens, apps, and wallets are independent of each other. Take Dai, for instance, an ERC20 token. The wallet presents it with a standardized front-end interface, showing its name, balance, and a transfer function. To use Dai for more than that, like minting more Dai or redeeming its collateral, you need to open the Makerdao website. Since the website and the Dai token have the same issuer, it’s the most trustworthy anchor of trust. You connect your wallet to the site, proving you own Dai. Only when token, application, and wallet come together can you perform complex operations.
The experience involves jumping back and forth between the website and wallet interface, such as clicking “redeem” on the site, then confirming a transaction in your wallet, with no extra prompts from the wallet to indicate the operation is complete. It treats it just as a regular transaction.
This is how traditional tokens work. Without the Makerdao website, Dai is like going out in just underwear, offering just the basic functionality and transfer capability of a standardized ERC20 token recognizable by wallets.
The smart token approach sets the Makerdao website aside, capable of more complex logic and functionality. We add a front-end to the Dai token itself, also created by Makerdao and signed by Makerdao, ensuring its security and trustworthiness.
Using the ERC5169 standard, we link Dai’s smart contract with its own front-end. From now on, wherever Dai goes, if someone wants to interact with this token and sees the ERC5169 interface, they’ll know it points to its programmable front-end. Wallets or applications can then use this to access all of Dai’s functionalities.
For instance, if Makerdao wants to provide Dai users with an official default fiat on-and-off ramp, it can incorporate this logic into Dai’s front-end, secured with Makerdao’s signature. This way, Dai users can directly exchange Dai and fiat within their wallets, securely and conveniently.
Orange Paper: This example of Dai and fiat exchange is fascinating. It reminds me how newcomers to the crypto world are unaware of some basic knowledge, like where to buy Dai. They might end up following phishing links and losing their money. A safer approach is to ask a more experienced friend, but what if you don’t have such friends?
Your example essentially shows how Makerdao could use smart tokens to transform Dai, embedding a safe and default path within Dai itself, allowing new users to purchase directly without needing extra knowledge.
Victor: Following your point, even if you don’t own Dai and wish to buy some, ideally, the user agent (the wallet you’re using) could check Dai’s contract to discover an official purchase channel endorsed by Makerdao. The agent could then compare it to other channels you might use, marking the verified ones and warning about the unverified. It’s just one example, but it applies to various scenarios. Whenever you want to use a token, the wallet could interact with the smart token’s front-end to execute functions.
Orange Paper: I’m also thinking about how new users often buy fake meme coins. Could smart tokens help distinguish the real from the fake, such as verifying whether a coin and an official Twitter account belong to the same organization?
Victor: That’s entirely feasible. By adding a programmable front-end to a smart token, closely linked and secure, you could include various verifications, like your website’s signature or Twitter account attestation, proving ownership.
If we aim for tokens to achieve true mass adoption, we must incorporate off-chain logic since most of our real-life actions are off-chain. This blend of off-chain logic with on-chain smart contract functionality represents the complete form of a token.
Returning to the cat NFT, its smart contract already includes many functionalities, like verifying friendships between cats and actions like washing or feeding, which are on-chain transactions provided by the smart contract.
However, messages between cats, which are end-to-end encrypted, do not occur on the chain due to costs and irrelevance, akin to spam. These messages might be stored on a non-blockchain server, decentralized storage, or our smart network, a decentralized service network serving tokens, not apps.
Cat images, UI, and JavaScript for calling the smart contract can’t all be directly stored within the smart contract. The smart contract only has an ERC5169 interface, pointing to this programmable front-end. Where is this front-end stored? Again, it’s off-chain, whether in decentralized storage, a centralized server, or our smart layer network, making this front-end part of the off-chain logic too.
If we less precisely compare smart contracts to the backend or a special type of server for tokens, then we could also pair them with other types of backends or servers.
In fact, we’re already doing this with Dapps (like Uniswap), where part of the backend is the smart contract, and another part is directly on a centralized server or IPFS.
Applications and smart tokens complement rather than replace each other.
Orange Paper: So, you’re proposing a new idea. Could we do without applications?
Victor: It’s not about doing away with applications but adding on top of them. It’s similar to how businesses initially had websites, attaching various functionalities for user interaction. Then, with the advent of mobile internet, websites remained, but we also created mobile applications. It’s not a matter of having one without the other; each has its own use case. So, for things suitable for tokens, follow the tokens; for things better done by applications, stay on the applications. It’s a relationship of complementation, not substitution.
Orange Paper: Indeed, on mobile devices, it’s particularly noticeable. If you need to switch between an app and a wallet, the experience is quite poor. If you could complete some operations directly in a wallet’s interface, like cat chats, that would be great.
Victor: Simple interactions like cat chats are especially suited for smart tokens, where both input and output are straightforward. But if there’s a cat world, similar to World of Warcraft, where cats can roam around, fish, fight monsters, and do various things freely, you’d need a website or application for that. It’s unlikely all those functionalities could be accomplished within a token’s front-end interface.
Recently, a team in our launchpad created a product for decentralized public accounts, allowing businesses to conduct private domain operations. They issue a smart token NFT to users, with simple information like membership levels and points directly recorded in the smart contract. Other information, such as coupons from partnerships with other businesses or discount coupons for specific member levels at regular intervals, can be presented through the programmable front-end. All these operations can be completed directly within the NFT’s interface in the wallet, closely linked to both money and users, hence high in both engagement and conversion efficiency.
Moreover, the sense of ownership is crucial for users. Could you say you owned a public account before? Could you say you owned a business’s app? No. But now, you can say you own a token given by a business, making it something you possess. In today’s business environment, convincing a user to try your product, whether it’s a website or downloading a mobile app, is challenging. But if you offer them an asset, regardless of its monetary value, most people would say, “Okay, give it to me. I’ll keep it.” They won’t say, “You’re giving me an asset? I don’t want it.” This subtle difference can be advantageous for conversion and distribution.
Thus, they want to use our technology for decentralized public accounts, combined with JoyID (a web-based wallet), enabling ordinary users to click a website link and simultaneously own asset applications and a wallet, all integrated. How is it achieved? The first part of the link is JoyID, followed by a long string of cryptographic proofs based on attestation technology. When a user clicks this link, they create a JoyID wallet, which reads the lengthy cryptographic proof from the latter part of the link, then directly imports the corresponding token into this wallet, making asset applications and the wallet fully integrated. A single link completes the process, allowing users to start using it immediately. They can also add this wallet to Google Wallet or Apple Wallet, making it easily accessible anytime, even offline.
Extreme Composability Requires Smart Tokens
Orange Paper: In your envisioned ideal blockchain world, many functions are implemented by tokens rather than primarily by Dapps as it is now.
Victor: Correct. Fundamentally, there are a few concepts to consider: whether we’re merely paying lip service to composability and portability, or whether we genuinely envision such a future coming to fruition. If we aim for extreme composability and portability, then the future will indeed be as we envision. The reasoning is simple. For instance, as a user, I might use 1,000 different applications over my lifetime, constituting my digital world. I am the only common link among these 1,000 applications. Therefore, if we seek to achieve maximum composability and portability, it must occur through me, rather than any of these 1,000 applications, because I am the center and intersection of all these applications.
Looking at the blockchain world, the wallet is with the user, centered around the user. The same goes for tokens. However, applications are not centered around the user. I can carry tokens everywhere; they are with me. Applications are external, beyond my control. Thus, tokens are the true potential carriers of maximum composability and portability, not applications. We cannot create a super platform application connecting various elements, as that would regress to a centralized era.
Decentralization doesn’t mean everything lacks a center; rather, it signifies a user-centric perspective. Every user is the center of their world, with everything else decentralized.
Therefore, tokens should be the focal point of the future blockchain world, with tokens as first-class citizens, not applications. Providing tokens with their own programmable front-end enables them to be utilized across different systems.
From “Getting It” to “Opening Up”
Orange Paper: I heard you’re planning to list on exchanges soon, and the pre-listing activities seem to be attracting a lot of participation. It feels like a significant shift for you guys, and I’m curious how this change came about.
Victor: Well, we’ve taken our lumps over the years. Frankly, when we first entered this industry, we were a bit pretentious, thinking of ourselves as technologists, not coin traders. So, we didn’t pay much attention to the investment aspect of tokens, focusing instead on their application potential and functionality — what they could do, where they could be used, what scenarios they could enable. Eventually, we realized that ignoring the investment aspect wasn’t feasible; we needed to consider it. We had to have a token, and our token needed to emphasize its investment potential. Now, we’ve come to accept the current market for what it is. The greatest momentum we can leverage comes from the asset aspect of tokens, not their application side. Assets and applications are two sides of the same coin. You can never strip a token of its asset nature; it embodies ownership, and whether or not it’s transferrable, it’s an asset, like your brand and identity, which are non-transferrable assets. Not to mention those that are transferrable, all of which have asset characteristics, so you can never separate these aspects.
Previously, we emphasized the application and functionality of tokens, framing our narrative from this angle. What did this narrative connect to? The potential for mass adoption and various complex applications down the line. On the asset side, what does it connect to? The current hottest market in crypto retail, token trading. The application side is scattered, covering tickets, cars, loyalty programs, and more, while the asset side is highly concentrated. So now, when friends discuss projects with us, I ask how their project abstracts a tradable, speculative object. This object can then significantly leverage the current crypto market.
If you’re working on a crypto project without tapping into the most crucial current crypto market, then don’t bother. Go start a regular internet business, delve into AI, or wait another five to ten years. If you want to survive in this market, your application or infrastructure must abstract a tradable object, a token capable of value discovery. Only then can you connect with the largest crypto market and draw nourishment from it.
I feel like we’ve come to this realization a bit late. Otherwise, look at our past applications. Autograph NFT, for instance, was well-received but not a hit. Why? Because it lacked a speculative object. If we had integrated something like friendtech’s bonding curve mechanism and included the token for value discovery, the application itself might have taken off.
Orange Paper: I remember Autograph being quite popular at the time. Did anyone suggest turning it into a speculative asset?
Victor: There were suggestions, but we couldn’t see the forest for the trees.
Orange Paper: What was the key to changing your perspective? Recently, a friend mentioned that “getting it” is easy, but “opening up” is hard. I’m curious how you managed to open up.
Victor: To some extent, I think we were forced into it. At the beginning of our venture, everything from funding to self-sufficiency was smooth sailing. When we started considering issuing a token, financing went well too. When things are going well, you believe your approach is viable, that you can continue on this path. Previous market downturns hardly affected us. During the first downturn, we were profitable on our own; during the second, we had funding. But this recent downturn has impacted us. We expanded for a while, realized something wasn’t quite right, and had to reduce our staff. It was a painful process, as we had gone to great lengths to bring in highly talented individuals.
Looking back, nearly seven years have passed. Many investors who trusted us haven’t said much, but you feel like everyone has been waiting a long time. These factors, I think, pressured us into change. You realize many of your previous ideas were misguided. Additionally, seeing the wealth effect in action makes you think. Friendtech, for instance, generated over twenty million in protocol revenue in just two or three months. If you’re just starting out, the first five years of entrepreneurship might be okay, but then these thoughts increasingly occupy your mind. How do you create wealth for your investors? How do you enrich your community and users who believe in you? What are people really here for? It’s not just to join you in realizing your vision. Most people entrust you with something expecting a return. You can’t indefinitely drag this out, making everyone wait with you. So now, I’ve opened up.
Our main focus now is to unite our community and users, forming a circle to venture out and make money together. Remember the cat loot we released a while ago? That was fun — a smart token xNFT with asset backup. If you didn’t like it, you could redeem it; it had several pools. This was a great experiment, our community working together to profit from those outside our circle. We released a thousand NFTs, and everyone involved was thrilled.
Orange Paper: That’s great. I’ve noticed many friends around me undergoing a similar transformation, moving from rejecting speculation to at least accepting it. I’m not sure if it’s embracing it, but their experiences are quite similar, whether due to pressure or the motivation that pressure brings.
Victor: People like us tend to be slow learners.
Orange Paper: No worries. I think even though it took time, once you’ve opened up, there’s no going back.
Victor: It has its advantages too. It’s more grounded.
Orange Paper: Exactly. The lessons and experiences you’ve accumulated over the past are invaluable.
