Nov 16, 2024
Hugo Philion: Crypto's Brutal Truth and 3rd Generation Blockchain
An interview with Hugo Philion, Founder of Flare
Founder Focused
"Too many of the same projects doing the same thing just about money, just about finance. I think myself and my team wish we didn't have to be associated with most of the people in the industry."
That's Hugo Philion, CEO and co-founder of Flare, delivering one of the crypto industry's most brutal self-assessments. While most blockchain leaders are busy hyping their latest token launches, Philion is building what he calls "3rd generation blockchain" - technology that could finally make crypto useful beyond financial speculation.
In this candid interview, Philion reveals why he believes most crypto conferences are "nonsense," how Flare is solving DeFi's trust problem, and his vision for blockchain applications that people actually want to use - from uncensorable social media to AI-powered gaming economies.
Watch the full interview now on EO's YouTube channel! Below is the complete transcription of the interview. Minor edits have been made for clarity and readability.
Key Highlights:
"Too many of the same projects doing the same thing just about money, just about finance. I think myself and my team wish we didn't have to be associated with most of the people in the industry."
"What you see when you go to conferences, most of what people are talking about is either nonsense or incredibly dull."
"There's not too much you want to do actually on the blockchain, there's not too much you can do on the blockchain."
"You shouldn't be doing anything based on trust because you don't know the counterparty and you don't have any legal recourse."
"The idea that there could be a technology that removes that from the equation is very, very appealing."
"What you see when you go to conferences, most of what people are talking about is either nonsense or incredibly dull."
"There's not too much you want to do actually on the blockchain, there's not too much you can do on the blockchain."
"You shouldn't be doing anything based on trust because you don't know the counterparty and you don't have any legal recourse."
"The idea that there could be a technology that removes that from the equation is very, very appealing."
Beyond the Hype: Building 3rd Generation Blockchain
Can you introduce yourself and tell us about Flare?
Hugo Philion: Hi, my name is Hugo Philion. I'm a co-founder and CEO of Flare. Flare really is the only blockchain which we describe as 3rd generation. It enshrines data directly into the chain. 1st generation being Bitcoin, simple transactions, 2nd generation being Ethereum, adding logic to those transactions, 3rd generation, Flare, adding data to the logic.
It just hit about 100 to 150,000 daily active users, so they're bringing value from other blockchain ecosystems to Flare to be used on Flare, the data provision services that are provided by Flare's within the blockchain environment.
It just hit about 100 to 150,000 daily active users, so they're bringing value from other blockchain ecosystems to Flare to be used on Flare, the data provision services that are provided by Flare's within the blockchain environment.
What's the fundamental problem with DeFi today that Flare is solving?
Hugo Philion: You shouldn't be doing anything based on trust because you don't know the counterparty and you don't have any legal recourse. Essentially what DeFi is doing today is it's using a trust-based model which is very similar to TradFi except it's TradFi bound by laws, whereas an oracle provider has no laws.
In order for DeFi or any other application that relies on data to be valid, you need to have a way to secure those oracles that is clear, open, and provides a similar sort of safety as the blockchain itself. We think the best way to do that is to put the oracles fundamentally into the chain, bring DeFi actually decentralized.
In order for DeFi or any other application that relies on data to be valid, you need to have a way to secure those oracles that is clear, open, and provides a similar sort of safety as the blockchain itself. We think the best way to do that is to put the oracles fundamentally into the chain, bring DeFi actually decentralized.
From London's Financial Markets to Blockchain Revolution
What's your background and how did you end up in blockchain?
Hugo Philion: I grew up in London, which is pretty much the world's financial center at the time when I was growing up. Very small startup community, very little technology community. The financial markets were the only choice and obviously a place where one could potentially make large amounts of money, which is very interesting to think about when you're 17.
I studied risk and financial engineering. I worked at a number of hedge funds in London. After about 7 years, I decided that I was just trying to eke out financial returns in order to make essentially myself richer. So I left finance, went studied machine learning in London, and that's where I met my two co-founders, and I knew I probably wanted to be a founder.
When looking at machine learning, it is heavily dominated by very large companies and therefore gives you no opportunity really. If you look at OpenAI, he ran Y Combinator. I certainly didn't have anywhere near his network to do anything in machine learning.
I studied risk and financial engineering. I worked at a number of hedge funds in London. After about 7 years, I decided that I was just trying to eke out financial returns in order to make essentially myself richer. So I left finance, went studied machine learning in London, and that's where I met my two co-founders, and I knew I probably wanted to be a founder.
When looking at machine learning, it is heavily dominated by very large companies and therefore gives you no opportunity really. If you look at OpenAI, he ran Y Combinator. I certainly didn't have anywhere near his network to do anything in machine learning.
What drew you specifically to blockchain technology?
Hugo Philion: One of our co-founders had built inter-vehicle communications based on a distributed network like Bitcoin, and I'd had some exposure to blockchain from people I knew in the financial community. Ultimately it was a very interesting idea to me that we could do everything, especially financial things, without having to care about the counterparty, and I think that was one of the fundamental reasons why blockchain at the time and still does promising technology.
So we started Flare in 2018 and we had a very small office in the basement, someone's photography studio, but as we were a team of three, I think 1.5 desks at the time.
So we started Flare in 2018 and we had a very small office in the basement, someone's photography studio, but as we were a team of three, I think 1.5 desks at the time.
The Bitcoin Bridge Problem That Started Everything
How did you identify the specific problem Flare needed to solve?
Hugo Philion: They didn't enjoy the benefit on Ethereum of smart contracts. Essentially the largest source of Bitcoin was known as wrapped Bitcoin, which is managed through a custodian. Essentially antithetical to the concept of Bitcoin, meaning you're relying on a middleman in order to use your Bitcoin on a smart contract platform.
We started looking at, OK, well how can we get the data around Bitcoin. We devised protocols to be able to get that data from Bitcoin. To build a bridge that is overcollateralized, meaning it has more value securing it than the amount of Bitcoin that has been bridged using that bridge. And in order to do that we needed price.
So we ended up with these two data protocols. The first being a protocol that allows you to quickly and securely get data from another blockchain and also to be able to prove that a particular thing hasn't happened on that blockchain, and that's pretty key.
We started looking at, OK, well how can we get the data around Bitcoin. We devised protocols to be able to get that data from Bitcoin. To build a bridge that is overcollateralized, meaning it has more value securing it than the amount of Bitcoin that has been bridged using that bridge. And in order to do that we needed price.
So we ended up with these two data protocols. The first being a protocol that allows you to quickly and securely get data from another blockchain and also to be able to prove that a particular thing hasn't happened on that blockchain, and that's pretty key.
How did this evolve beyond just Bitcoin?
Hugo Philion: So originally we designed the data protocol just to be able to build this bridge for Bitcoin. Ultimately we very quickly realized that those data protocols were much more interesting, that we could bring in data from any open system. Pretty much any system in a decentralized way. That's the key point. It's decentralized and it has security.
So this allows you to do everything you can do in DeFi today but with Flare. That's just the first step. What really interests me is then, OK, what can we build with that? This means that people can build the rules of an application they're building.
So this allows you to do everything you can do in DeFi today but with Flare. That's just the first step. What really interests me is then, OK, what can we build with that? This means that people can build the rules of an application they're building.
Beyond DeFi: The Real Applications People Want
What applications do you see being built with this technology?
Hugo Philion: Second aspect is then for us off-chain compute, far more data from other sources than can be used by the chain. So where are you going to use that? You can prove very, very large amounts of data, but you need to be able to use that off-chain in order to build applications. So I think the blockchain today is at the limit, more or less of what can be built until you add in further compute, and that's when we can start building applications that people actually want to use.
So for me the first and most interesting thing to do is genuinely decentralize and make uncensorable social media or news platforms or video platforms. We see an increasing set of issues in the world where there is very high censorship, where people are struggling to express their opinions.
So for me the first and most interesting thing to do is genuinely decentralize and make uncensorable social media or news platforms or video platforms. We see an increasing set of issues in the world where there is very high censorship, where people are struggling to express their opinions.
What about gaming applications?
Hugo Philion: Another set of applications around gaming. Ultimately, the experience that blockchain has offered to gaming has been so inferior to the Web 2 or existing gaming product, it really hasn't taken off. But there are interesting things you can do when you essentially financialize components around gaming.
If I can truly understand what has happened in each computational step of a game, then I can give people skins. I can give people assets based on exactly what they've done, and those assets can be real and tradable as opposed to simply in-game.
If I can truly understand what has happened in each computational step of a game, then I can give people skins. I can give people assets based on exactly what they've done, and those assets can be real and tradable as opposed to simply in-game.
Any other areas of interest?
Hugo Philion: I do have a third thing there. I suppose the last area that really interests us as a team is probably machine learning, or as most people call it artificial intelligence. There are some very interesting things you can do with distribution of users. Again, there's not too much you want to do actually on the blockchain, there's not too much you can do on the blockchain.
I suppose the decentralized and economically secure substrate of a blockchain provides a very interesting place for machine learning to be expanded and to be made safer through having multiple participants.
I suppose the decentralized and economically secure substrate of a blockchain provides a very interesting place for machine learning to be expanded and to be made safer through having multiple participants.
The Bitcoin Value Debate: Technology vs. Speculation
What's your view on Bitcoin's value proposition?
Hugo Philion: Some people may believe that Bitcoin shouldn't have value, and I understand that mentality. You have to differentiate between the technology and the value. It has some logic to it. Bitcoin is only backed by hashing power, it's not by the ability to levy taxes, nor is it backed by the ability to force other people to use your medium of exchange.
Bitcoin doesn't have either of those two things, but perhaps it has one other thing rather than forcing people to use your medium of exchange, but to get them to voluntarily use it, and that's interesting, but you'll never convince people that don't want to be convinced, especially as an awful lot of people have a reason, a financial reason not to be convinced about that thing.
Bitcoin doesn't have either of those two things, but perhaps it has one other thing rather than forcing people to use your medium of exchange, but to get them to voluntarily use it, and that's interesting, but you'll never convince people that don't want to be convinced, especially as an awful lot of people have a reason, a financial reason not to be convinced about that thing.
How do you see the broader blockchain technology beyond the monetary aspects?
Hugo Philion: If you take away the it's a monetary asset side of the equation, it's fairly nascent technology. I think being able to distribute computation and consensus will become more and more useful over time. Essentially, there is value in being able to come to consensus across some item of data across various different verticals.
Our biggest space, the space we're most interested in researching, thinking about, is around the outputs of machine learning models. Probably provides the answer to what is blockchain useful for.
Our biggest space, the space we're most interested in researching, thinking about, is around the outputs of machine learning models. Probably provides the answer to what is blockchain useful for.
Finance, Crisis, and the Case for Decentralization
How did your finance background shape your view of traditional markets and blockchain?
Hugo Philion: My exposure to finance was really post the large financial crisis. The ideas around what something is worth fall apart when currency is printed. People were making trades based on an expectation of government action rather than based on any fundamental strength in the economy.
The sort of large excess of capital that was put into the markets post the GFC really led to a position where valuations massively out of whack. And so when you spend your days thinking about the idea of taking the fundamental thing that values assets, it's a very interesting thing because it removes that ability of a group of people to pervert essentially the entire transmission mechanisms of all financial markets, and that's what has happened.
The idea that there could be a technology that removes that from the equation is very, very appealing.
The sort of large excess of capital that was put into the markets post the GFC really led to a position where valuations massively out of whack. And so when you spend your days thinking about the idea of taking the fundamental thing that values assets, it's a very interesting thing because it removes that ability of a group of people to pervert essentially the entire transmission mechanisms of all financial markets, and that's what has happened.
The idea that there could be a technology that removes that from the equation is very, very appealing.
What real-world adoption are you seeing?
Hugo Philion: People started using Bitcoin in places like Venezuela to hedge out insane inflation that was collapsing their currency. Crypto broadly has solved the question of how can I move dollars across the world really quickly and easily without having to enter an IBAN.
The DeFi that is built fundamentally around essentially a dollar-based stablecoin system and native tokens, because that's essentially what DeFi is, and I think that could expand as people use crypto tokens more, whether it be stablecoins or the native tokens.
The DeFi that is built fundamentally around essentially a dollar-based stablecoin system and native tokens, because that's essentially what DeFi is, and I think that could expand as people use crypto tokens more, whether it be stablecoins or the native tokens.
The 5-Year Vision: Data Infrastructure for All Blockchains
Where do you see Flare in 5 years?
Hugo Philion: So if we're lucky, Flare will be one of the key components in how people use data on blockchains. That's what we're building. That's essentially where we're going. We're not a smart contract project focused on DeFi. We have a much, much larger ambition, and that ambition revolves around data and off-chain compute.
So in 5 years' time, I'd like to see a non-trivial percentage of the data that is used in blockchain being sourced from Flare. Regardless of whether it's being used on Flare as a chain or whether it is being used on Ethereum or any other new chain that comes up. Success to me would be that the data came from Flare, moved from Flare.
In 5 years, it's feasible that our off-chain compute strategy could result in applications that go way beyond DeFi, way beyond having value for speculative reasons, and much more involved in people's day to day lives because it's a valuable application in and of itself.
So in 5 years' time, I'd like to see a non-trivial percentage of the data that is used in blockchain being sourced from Flare. Regardless of whether it's being used on Flare as a chain or whether it is being used on Ethereum or any other new chain that comes up. Success to me would be that the data came from Flare, moved from Flare.
In 5 years, it's feasible that our off-chain compute strategy could result in applications that go way beyond DeFi, way beyond having value for speculative reasons, and much more involved in people's day to day lives because it's a valuable application in and of itself.
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