HomeTezosInterview: Berner Setterwall of Tez-Baking talks Tezos tokens and baking

Interview: Berner Setterwall of Tez-Baking talks Tezos tokens and baking

Recently, Tezos Insider’s Ken Garofalo had the chance to speak with Berner Setterwall, CTO of Tez-Baking, to discuss Tezos delegation and the prospect of a Tezos token standard similar to an ERC20 token on Ethereum.

Tokenized Bond Pool

As explained by Berner, Tez-Baking was the first delegation service to offer the ability for any Tezos coin holder to exchange their coins for the Decentralized Autonomous Baker (DAB) token which allows for easy access to the Tez-Baking bond pool.

According to Tez-Baking, “The DAB or the Decentralized Autonomous Baker is a smart contract that enables you to take part in our baking bond while retaining control over your Tez.”

With Tezos baking, there are two ways to earn baking rewards. The first is the most common way for most coin-holders who delegate their coins to a baking service. The coins never leave the possession of the owner, they are simply “delegated” to a baker by setting delegation on the KT1 account holding the coins. The baker must maintain an account balance equivalent of at least roughly 8% of total coins delegated to them. This means that as delegates fill up, they must increase the size of their bonds.

One way to increase your bond pool, as a baker, is to open the baking bond pool for wider participation. Before Tez-Baking’s DAB token, the only way to do this was to actually send coins to a baker to be included in the bond pool. This was risky for several reasons, the most obvious being the loss of control over your coins.

Tez-Baking attempted to solve this issue by making the process easy and controllable via smart contract.

“The idea is to have a decentralized, owned baker, so we made a smart contract where folks can join our baking pool,” according to Berner.

Watch the full interview to learn more about the process and don’t forget to subscribe to our YouTube channel for more videos like this!

Here is the full interview transcript between Ken Garofalo and Berner Setterwall, CTO of Tez-Baking.com

Ken: Hello everyone and welcome back to Tezos insider, this is the future of Tezos media and news my name is Ken Garofalo and today we have the pleasure to speak with Berner Setterwall, CTO of Tez-Baking.com. How are you doing today Berner?

Berner Setterwall: Very good thank you, thanks for having me

Ken: It’s our pleasure and we have some really unique questions and topics to dive into today a lot of it has to do with tokenizing on the Tezos platform and so what you’ve done is you guys have actually built a baking service where you have a tokenized bond pool so before we get into that, tell us a little bit about your background and do you want to just give a very brief overview on tokenized bond pool

Berner Setterwall: Yeah absolutely and so so basically when the Betanet launched we decided that we wanted to run a baker and we started playing around on the Zeronet and Alphanet and then eventually we launched our Baker and initially we thought that actually kind of attracting delegators would be like the big challenge but I think in those early days like a lot of people just kind of looked around for a baker and we managed to reach out and basically fill all the capacity that we had and at that point we figured you know maybe we should just invest some more and try to increase the bond pool but it came to a point where we felt that maybe we should actually try to open this up and try to actually use the blockchain to make a smart contract and the bond pool and so at that point we came up with an idea for the DAB which I guess was it’s it’s a little bit of a play on the DAO but the idea is to have, like, a decentralized owned baker so we made a smart contract where where folks can kind of join our baking pool or, a little bit, using like their own shed so to speak and and try to tokenize our baking basically.

Ken: Cool so yeah we’ll dive deeper into it but essentially this token represents some sort of rights to redeem the XTZ that people are contributing towards the bond pool

Berner Setterwall: Yeah exactly so basically you’ve entered the bond pool at a certain price and then the value of the token keeps increasing as we bake or at least we’ll deposit the profits from the baking towards the smart contract and then when you exit with your XTZ you will get your share of the profits

Ken: So I almost compare this, I’ve done a little reading about EOS, and recently they have the EOS DAC decentralized autonomous delegate which it seems similar to what Tezos has here in what you guys are doing here at the bond pool, you mentioned the DAO as well with Ethereum so before we get into any more of those details, why don’t you give us a little bit of your background. So what like where did you study at school and why did you get into cryptocurrencies?

Berner Setterwall: Yeah absolutely so actually I’m kind of a self-taught coder so I spent the of mandatory nine years in school in Sweden and then did another three years that is kind of very common but then prior to joining University I figured maybe I can just get a job as a coder and then study later and this later part has yet to happen so as I started my first coding job as a 19 year old and then that was in a networking hardware company after that I moved on to a startup in the spam filtering business and after that I found work through founded a start-up in the advertising business or advertising software like optimization software business and when we sold that company in 2015 I always have got kind of a lot of time on my hands or I mean obviously there was the whole kind of integrating with the acquiring company and all of that but like from Atlas from a kind of startup risk perspective I could focus on one thing and that coincided pretty neatly with the launch of Ethereum and I had heard about like cryptocurrencies from a lot of my other kind of coder friends and stuff but I hadn’t really had time to properly look into it so that gave me the time and opportunity to really do some reading and to buy some Ferriero mm and that’s how my crypto journey started

Ken: A lot of people we’ve talked to on this recent upward cycle it’s Ethereum that brought them in so if you started with Ethereum why did you progress on to Tezos?

Berner Setterwall:yeah so I mean Ethereum was a really interesting journey from the start and as time progressed people started exploring how different kinds of smart contracts could you actually build and one of the early prominent ones was obviously the DAO and we thought me and my friends that were into Ethereum discussing it on a daily or weekly basis we jumped on the bandwagon and basically put some Ethereum into the DAO and obviously when the DAO attack that was kind of a cold shower showing the potential risks of doing smart contracts

Ken: Yeah, so the rude awakening right

Berner Setterwall:But on the other hand I mean that’s how that’s the story of crypto from the beginning I think it’s ups and downs and the craziness all the time so that was a good lesson at the time and then obviously they managed to fork Ethereum and kind of resolve it  and you know enable people to be restored in Ethereum Classic and stuff like that so it wasn’t like super bad even though obviously that all-time high came and went. But it’s also changed like the whole community and thinking around smart contracts I think and kind of put a big brake on that for some time and then as kind of regular ICO’s started taking off I wasn’t like super interested in the alternatives that came up until until I heard about Tezos which which really kind of piqued my interest obviously because of the formal verification aspects which would kind of prevent another DAO-style event or at least make it less likely and I figured that that would be kind of really important aspect in building actual important infrastructure on top of the blockchain so that made Tezos look like an really interesting ICO and then I guess in my previous startup with a lot of functional programming in another language called Erlang so I was kind of familiar with the whole functional programming paradigm and that also made sense that Tezos was built in OCaml and it sounded like a really solid attempt to solve formal verification as well not just kind of that they were talking about it because obviously a lot of people were doing that but that it also sounded like they had they could, you know, walk the walk not just talk the talk.

Ken: Very interesting so coming from someone who uses these small smart contracts in real-world situations you’ve seen the value added that the Tezos project brings to the whole cryptocurrency ecosystem trying to solve this problem of formally verifying the smart contracts so if there’s any great store of value being put on these smart contracts you more than likely want them to be formally verified so you know the ins and outs are going to work properly the way you expect them to right?

Berner Setterwall: Exactly and I mean a lot of people have asked us you know it is your contract audited you know and obviously I have a lot to really tech friends so I have some some people that I know and trust to audit my code and of course like having been in the computing space for a long time and having had computing security as a major interest for like maybe 17 years now it’s it’s kind of always in the back of my mind and there have also been some really helpful people in the Tezos community who have reached out to us giving us some pointers or possibly like tech vectors but that kind of got me thinking, what’s the next thing to build on Tezos? Should it have built like a smart contract where people can provide a signature for other smart contracts as a kind of proof of audit or something like that is this a possible business model drama on the

blockchain but then I started discussing this with some people and you know what it comes down it comes down to is that humans make mistakes sometimes and even though you know the top ten reviewers on a smart contract reviewer to come and check my contract it’s no guarantee

Ken: Right it could still be missing you know whatever level of verifiability

Berner Setterwall: Maybe there are you know adversarial cases where somebody is kind of signing contracts and then hacking them later you know there are all those kind of crazy scenarios and the only kind of viable solution to this I think it is formal verification because if you have a math proof then you have to break math and that’s a lot harder I suppose

Ken: Yeah, I’d rather trust math then trust the human right yeah as always

Berner Setterwall: Sadly but I guess that’s that’s also the power of blockchain that it’s kind of trustless trust or something like that

Ken: Yeah absolutely that’s very interesting stuff so let’s move on to the conversation of token standards on Tezos so this is a relatively new project we’ve only seen Mainnet live for a handful of months here and there’s no current standard of token like we see with Ethereum, the ERC 20 standard that’s not yet happening on Tezos do you want to give us a little bit of insight on what you’re seeing as far as development in that area?

Berner Setterwall: Yeah absolutely so obviously as somebody who is kind of tokenizing a baking bond this is a really interesting question because obviously we have people that they enter that buy DAB using one address and then they get a new ledger and they want to put their DAB tokens on the ledger and currently we opted not to support transfers so they would have to exit and then re-enter our smart contract and it I think from that perspective alone it would be really helpful to have like a standardized token standard and we have been researching the different alternatives like even when we wrote the first version of the DAB back in October and we basically researched different alternatives and so far I think there’s no like real clear winner some of these are still like the possibility you know template contracts are still seeing commits or are saying like at least semi-active development and to my knowledge none of the blockchain explorers have implemented any tokens standard in the same way that for example, Etherscan supports ERC20 tokens but one of the token standards that we have been considering and following kind of close is the implementation or like the sample token implementation made by OCamlPro who also have built Liquidity smart contract programming language on top of Michelson which is I guess our current go to programming language for Tezos and I think that’s that’s kind of a really solid contender especially given that OCamlPro is also the guys building TzScan which is one of the best explorers for Tezos.

Another alternative that we have been looking into is the token standard proposed by Catsigma who is also a Tezos Foundation grantee and they also have kind of an experimental decentralized exchange that at least was working on the Alphanet for some time and obviously tokens that can be traded or that are supported by some major DEX on Tezos would also be kind of a really interesting property because maybe people would want to kind of exit or enter a baking pool in a bigger volume or that demand could change the price of baking pools in ways that that kind of a fixed smart contract would not support itself

Ken: Right there’s all these like ancillary services that need to be developed to help support the tokens once they’re standardized right so you have the decentralized exchanges that will be built that are needed to be utilized to trade these tokens versus the XTZ or versus other tokens and you need sort of like wallets and explorers that are gonna recognize the tokens

Berner Setterwall: Yeah exactly the support is huge I mean also for like building smart contracts like when we started out there wasn’t even full smart contract support in TezBox, for example, we had to do like a proposed implementation ourselves and then they caught up and made a better version but I mean yeah it’s it’s a young ecosystem and a lot of this stuff is kind of yet to be beat so we’re we’re trying to follow this pace really closely

Ken: In your eyes what is your best estimation of time until we’ll see a standardized token on Tezos

Berner Setterwall: Yeah this is kind of the tricky part right you could go ahead and just take the Liquidity token and said you know somebody still has to kind of pronounce it the standard and I think you know maybe TzScan are in the best position to do that because I suppose they are like the biggest site for exploring the Tezos blockchain but I’ve been trying to poke them to actually implement it but so far I haven’t gotten any firm date it and obviously like if there are no tokens there’s no need to have a token standard kind of support in the explorer or like it’s a kind of chicken and egg problem but I suppose sooner or later it will be resolved but it’s kind of a problem that needs to be solved from both ends I think

Ken: Yeah well that’s definitely some good insight from someone on the know you know someone who’s participating creating their own token and dealing with all these services so interesting with the decentralized exchange I would love to see that pop up on Tezos and that would go hand-in-hand with the standardized token and that’s something that would really put us on par with other protocols that are doing smart contracts like Ethereum

Berner Setterwall: Exactly I think it’s especially like a market function can be really interesting for for people also you know trying to build other type of services because obviously like we have been thinking about okay so maybe we take the proposed standard by OCamlPro we publish like a transferable token and then we make our own like decentralized exchange for just one token type that is our Baker tokens and it will kind of look like our smart contract today but that’s kind of a lot of work to that when we could just piggyback on one or more of the decentralized exchanges that that maybe invest more in their user experience and attract the wider audience as well so I think it’s it’s it would be really great to get those sort of players on the Tezos blockchain

Ken: Yeah absolutely I mean even breaking it down to a simple ICO smart contract where you’re giving tez and you’re receiving the token of whatever the project is that you’re funding you know that’s to me the simplest version of it

Berner Setterwall: Yeah exactly and I mean I did like a little bit of a Twitter poll to see what the interest was but I heard a lot of like pushback with people not wanting ICOs on Tezos and I suppose that a lot of people have become kind of scared because like obviously at least some sites are talking about you know the sell pressure on Ethereum that’s kind of created by all the ICOs and obviously it’s the whole ICO thing is kind of a Wild West but at the same time I think that if fear of the future is stopping you from doing things you’re not moving forward

Ken: It’s a great quote we’ll have to put that in quotations on the edited version here so let’s move into some of the questions we have lined up here about your baking service so again this is Tez-Baking.com and you are the CTO so you are the one that set up the node created the token you’re the technology guy but what do you want to see in terms of tools provided to the ecosystem that would make your job easier

Berner Setterwall: Yes I mean I think that more monitoring code tools for like the whole node and baker and the whole setup would be really great obviously there is there is at least one provided by now I forget the name but is it’s like it’s a baker monitoring thing. It’s called Kiln or something like that it’s hard to pronounce but yeah that’s a really great tool that but I look forward to them building more monitoring tools to kind of ensure the quality of the baking especially if we are going to face like more spam attacks like the one we saw or in and around kind of network upgrades or like running test networks for proposed features I think that is a whole area that will be kind of interesting to follow. How can we quality assure you know if somebody proposes a change to the Tezos protocol let’s put the vote it’s put into the test network phase and how can we kind of ensure that it’s behaving like we hope that’s the whole kind of tooling area that is yet to be built I think.

Ken: Right that’s a good point because you’re responsible for the reward generation for everyone that’s delegating towards your baking service

Berner Setterwall: Not only that like imagine that somebody commits a really complicated patch and then there is you know, say Zk-SNARKs or something, and then you know if there is some code in there that would kind of generate extra rewards for somebody in the special case I don’t know like that’s the whole point of running like the test version but it’s also kind of like the whole incentivisation schemes of like blockchains are kind of I suppose harder to reason about so I think that that’s an area that we need more kind of tooling to make it clear what these proposed changes mean as they arrive I mean some with the simple like you know like the block time maybe they would be kind of straightforward but as we get into kind of more interesting evolution of the blockchain that’s where we’ll need more and more tools both as Bakers and also as kind of voters in the in the Tezos voting system

Ken: Exactly, agree with you on that and so going back to your tokenized bond pool so how do users actually go about buying the token for the bond pool and how do they store it is this all done in-house on your website?

Berner Setterwall:Yeah so basically it’s all hosted on the Tezos blockchain so you send Tezos to the smart contract using some parameters which is you know how you interact with more complicated smart contracts that actually have functionality I mean the KT1 addresses are also smart contracts and our smart contracts is also a KT1 address but it has more code so that means that you need to supply some parameters and we have guides for this on our website but basically you send some amount of Tezos that will buy you a certain amount of tokens and this is then recorded in the smart contracts this is kind of very similar to how it would look in an ERC20 contract or in the future Tezos token contract and then basically we will use the Tezos that you provided for baking and providing capacity for the baker and then when you want to get your Tezos back and the profits you will then send a zero amount but a different set of parameters to the smart contract which will then kind of cash out your tokens or a certain amount of your tokens

Ken: Okay. so it’s these parameters that you outline on your site that make the difference you can’t just go ahead and send the XTZ directly to the smart contract

Berner Setterwall: Exactly so you need a higher gas limit a higher storage limit and you need the parameters and this is kind of I think this is also kind of a user experience thing that will be worked out in the wallets in the future that basically these parameters are kind of predictable how they will need to look so if you look at the Try-Liquidity developer tool provided by OCamlPro they actually kind of create the smart contract and provide like these are the functions these are their names these are the way the parameter should look and I think that in the future like the wallets will probably or at least the good wallets will implement similar kind of interaction functionality for like any smart contract so that it’s easier to use but currently you need to kind of copy/paste the parameters from our web page or that’s the easiest way at least

Ken: Okay that’s good to know so this leads us into how you deal with over delegation in your baking service I know this is a situation that has arose people are discussing this in the Reddit forum all over the Internet of how bakers are going to deal with over delegation so what’s your plan?

Berner Setterwall: Yeah so basically I mean we’re currently in cycle 64 so the kind of pig bones requirement has more or less happened I think and the strategy that we that were implemented was that basically as we were getting close to our delegation capacity we were kind of trying to predict out what kind of capacity we would have during the peak and that’s that’s kind of now but when when we were getting close to that amount we basically increase the prices of baked or like charged to delegators by a lot so we used to have a five to ten percent pricing scheme where we basically got to discount the longer you stayed with us and then we said four new delegaters become the short like 20% fees and that basically switched the incentives around now after that it looked much more like a much better deal to join the DAB obviously to be part of our pool and I think that move enabled us to get more people into our baking pools so we currently have a 33 addresses participating with the total of a little bit more than 540,000 Tezos and that enabled us to kind of get the capacity and needed so when we felt that that we had kind of accelerated a DAB with we had a discussion with some our DAB holders we have like a special telegram group for people in the bond pool and we kind of collectively came to the conclusion that that we should lower the pricing to 15% to kind of ride out the storm and that’s where we are currently at so in terms of delegation capacity we could bake another 400K today so I think that was the kind of trade-off way we tried to both make the pricing less attractive for delegates and more attractive for bond pool members and and then try to look ahead and see that we weren’t over-delegated yet without kind of knowing about it

Ken: You guys have definitely a very unique solution there and it is because the tokenized bond pool that you have so definitely glad to hear that’s how you guys are managing and dealing with over-delegation. So let’s turn to profitability. Is running a baker profitable for you now do you plan on it being profitable in the future what’s the whole breakdown there?

Berner Setterwall: Exactly we actually plan to make a loss… so at current prices running a bakery is not super profitable I would say that maybe it’s even a little bit unprofitable but not by a whole lot so I mean that’s the current situation I think it’s it’s kind of in a sense the situation in a lot of the crypto space not specifically Tezos but like a lot of miners or other kind of stakable cryptocurrencies are also in that situation and I think for our service we have the abilities to sustain it using other means because we have like a group of companies we also run a company doing like internet growth consultancy so where that’s kind of our advertising roots so so we’re obviously like supplementing the the revenue from from the baking with other cash flows currently but I think that you know it’s this is crypto and things go up and down and but generally you know up and to the right so sooner or later this is going to look like a really attractive business but I was talking to a friend who is like a true Bitcoin believer the other day and he said that you know it’s when the miners start you know nearing bankruptcy that’s when it kind of changes direction and we have a company in Sweden that survived you know a couple of crashes that was in the mining industry they actually finally went bust like just prior to the last boom of Bitcoin so that was sad for them of course but I think that it’s kind of part of the whole cycle dynamic and fortunately for us we haven’t invested in ASICs that will go obsolete because of new ASICs or whatever other reason in a few years it’s just kind of pretty generic hardware and then obviously like the Tezos investment as well

Ken: Yeah that’s sort of the point that I keep trying to pound home during all these videos years to invest in mining Tezos or baking Tezos you have to buy the XTZ really that’s your greatest expense you know. Mining Bitcoin your greatest expenses the ASICs and the GPUs that go obsolete you know almost immediately so there’s a benefit there in Tezos

Berner Setterwall: Yeah, for sure I mean we for a time considered to be like an Ethereum miner because we yeah we’re into it like I mean this was maybe 2016 we’re discussing it and it would probably have been profitable for some time during 2017 but I I don’t regret the decision not to be a miner in Ethereum today

Ken: So let’s let’s move on here to the question of how would you encourage more people to become bakers do you think this is gonna happen maybe when the price of XTZ starts going up or how would you see that?

Berner Setterwall:Yes I mean I think it will happen gradually both from when like the user experience becomes more easy I mean if you were a baker a few months ago during the hack attacks and all of that or like sorry the spam attacks and all of the upgrades and like that was a pretty tricky time to be a baker and and for us we were kind of simultaneously updating our rewards payment software so that was kind of stressful and then you know fees changed and it was yeah that was a bit chaotic but I think that as we get more and more mature in the kind of change process and we had you know all the performance testing already done that we put or like make baking an easier job so then obviously that will enable more people to come on board and of course also the profitability I suppose is a big kind of driver for baker adoption but I think that’s kind of also the beauty of Tezos that we for some time we were also considering if we should try to be like delegation or like block producer Lisk but then there was the problem that there was already they have like a system where where there is a hundred and ten people that actually get to make the blocks and then if you’re not in that position you basically can’t do any of their blocks and to get in that position you needed I don’t know what it was like 300 million Lisks or a huge amount these kind of delegated to you and we just figured that we were too late to the race and there was no possibility to even become like a small block producer or like staker for that cryptocurrency and I think the same situation I mean the situation is in a worse for like if you want to be an EOS block producer we would have to get into a secret magic club and you know that’s a huge strength for Tezos that basically all you need is 10,000 Tezos and you don’t even have to own them all yourself you could get delegations and you’re kind of up and running as a baker and I mean Arthur [Breitman] talks about cutting the bond requirement like the minimum roll size by 10 in the in the future so that will make it like highly distributed so that’s I think that’s really cool and and really something that makes me you know believe more in Tezos as a decentralized blockchain

Ken: Yeah a hundred percent agree with you as well there’s less barrier to entry it’s not politically driven you don’t have to gain votes to get in the top 20 positions to in order to participate. So I’ll end it on this. Do you have any future plans or news announcements that you wanted to drop on the show here today?

Berner Setterwall: No I think currently we have some ideas and we’re playing with some concepts but we haven’t really pulled the trigger on actually launching those projects yet so we’re still in the kind of ideation phase would say with our other crypto projects.

Ken: Well that’s awesome that’s a good follow-up we’ll have to have you back on the show if anything else does arise and thank you so much again this is Berner Setterwall, CTO of Tez-Baking.com and I am Ken Garofalo thank you for watching Tezos insider the future of Tezos media and news thanks so much Brenner take care!

Berner Setterwall: Thank you! Bye!



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Managing Editor of Tezos Insider. Nathan is a full-time software developer with a love for studying and learning every facet of cryptocurrency and blockchain. He is also an avid blogger and enjoys writing about crypto and other technology-related topics.