EthCC 2: Yaron Velner

yeah yeah okay so we'll start so good morning everyone I'm Ellen Bunner I'm city of cable network cable network is a decentralized exchange life for almost a year in at least in beta mode and this talk is about some lesson that we learned you know operating and exchange in market making over the last year first of all what is cable network cable network is an interface of a smart contact that allows a user to instantly swap one talking to another everything is ESA 20 of course based on material in a single exchange a so in a single transaction well everything is done on chain so simply choose your destination and s all your source and destination token you get the right if you are happy with this rate you do the transaction and you take it if not then you just don't use it okay we don't have any other book everything is instant okay so this is a demo that's if it actually works yeah almost yeah okay so it simply needs to go into our website connect with meta mask or any other private key device choose the tokens you want to swap and then okay so with single click plus a meta mascot result confirmations we get instant exchange everything okay this is a bit first of all because it's actually live online net now we will see even on it'll scan right so you see the tokens actually switch ends you got your token everything in a very nice and smooth user experience in a single transaction so so what happens behind the scenes so so behind the scenes so you just call this cable network and you want to buy this Nasus token so even he wants to buy the gnosis token note that in order for it to be in a single exchange tokens already should reside on the blockchain somewhere it's not an older book user cannot wait so there are several liquidity providers or reserve in the background that already offer prices and already have these tokens for the user to buy so the contract choose for the best offer eventually send a user little to this reserve and the reserve send you know she's talking to the user everything in a single transaction you know okay so all of this is done based to reserves is very complicated implementation architecture and operation which will be the subject to the most of the talk but before getting into the complex staff so what it's actually give okay so reserves the locally have in the background in order for user to have very nice interface but his interface is not only for users it's also for third-party application so having everything on chain without any obtain signatures or hint etc so it give rise to very convenient integration so this is like most of the big wallets in aetherium all of the integrated with us mighty wallet engine I am talking all of them provides kaibil exchange experience with within the native application and then fully on sharing makes it very easy for integration but being fully on chain give rise not only to world integration but also for they called a few applications or financial applications in general so the project Mellon port in Italy and now there are more that of idea hedge fund on chain or some margin trade etc and being fully owned chain so first of all it's easy for a smart contact to read the part so we could get price quotes from us and it's also easy to execute because no user hints are needed the just make all the trade function and does this work okay so this is what it allows in cabinet talk is a protocol but just being a protocol is not enough so what we learned over the last year is that you know so urgently we've thought ok we'll be you know because we are fully unchanged or decentralized users will be able will be willing to pay premium because you know we give premium of service it's fully trusted etcetera etcetera but now we found out that you know we have to be competitive also in the crisis we give and in the spreads so they slide it is not to say that we always give the best price but it means that a lot of work that is done at the back end which user is completely unaware of is to be in so that we can provide competitive rates for the tokens we of and I couldn't competitive rate so to be honest in most tokens we have even semi competitive all also with big exchanges like balance but in general in the decentralize world even offering a price for a token you know not having it empty order book is not trivial okay so we offer somewhere between 1% to 3% spread on 170 plus major tokens and in order to do that right so we apply market making technique so market making is market making some entity always fill the other book with buy and sell hotels so in capital user doesn't really see other book but you know in the backend so we do have contact that always give asking bid prices and the unique thing about carry bills as opposed to okay so market making is done in traditional markets in stock markets and everything it is now also pretty standard you know in crypto market but over centralized exchange but in Kyle it's one of the first and actually the best of my knowledge the only one where we will have fully owned chain and market making so yeah so this talk is so market making in general are not only on chain is about by discovery meaning giving prices to specific quantities of asking bid in about having enough inventory to offer all right so so prices covered how do we do price discovery so for some tokens its quote-unquote very easy because price discovery is not a loom Carol if a token is already in finance or any other big market so we just see the market the ID some markup or possibly reduce Makka pakka little inventory and then feed the small contact with that price so this is cool for you know the verdict with your canes like Oh mr. go 0x etcetera so we just see the market price and feed it to a contact periodically another option is to do something uni swap or Bangkok style so we have own inventory based pricing which basically just give you a price according to the amount of inventory so one of the earlier talk presented this automated market making care so it's similar only likely to have a different curve now these two have also combined because okay we take prices from centralized exchanges but depending on our inventory of our balance of imbalance we have we also add or remove markup from these feeds and finally another thing we we did which shall not to be quite successful so there are other on chain exchanges or protocol like all these units Pope and Dutch X so one simple option is just to take you know take orders immediately from there but what we did is we actually we have algorithms on top of it alright so they do pass discovery based on that and some internal inventory and eventually give some price so this thing is kind of special to unchain stuff and also here we have this caveat that our strategy in essence is fully visible which could give rise to attacks this is why we do so we do make it open source but we change the strategy of an another thing that is very special to unchain market making is that so as opposed to view machina combined and so Nasdaq so everything is done instantly here we need to feed the prices to an Italian contract so it takes time it takes somewhere between 15 seconds to 12 minutes we don't always know how much time it will take of course as always trade off between the gas Felipe's and how much how quickly it will be updated as we said so we give price feed so now it's even more than 40 is around 60 plus tokens if anyone here is a developer it can imagine that you know if you want to do it every two minutes it will take huge amount of gas so what we have in our smart contact is it is very efficient optimization that actually allow us to so to feed okay so now it's over 60 prices with only 5 50,000 gas cost and if some of you are aware of so like the minimal transaction cost in the tearoom is 20,000 gas so we only have 30,000 gas overhead for over 60 prices so we have this trick well you know we are some token will not change too much so the the small changes only take one byte per token so it's very efficient and so inventory so yeah so for example if you miss ago you know use a bottle of a Mesa go so we want to take it now from vine and so other place so can we just so we have automated system in the back end of chain of course that interacts with vine and other exchanges also we sell contract and then we need always more miss ago we just withdraw it from violence or other exchanges but of course this is not so simple because withdrawing from finance can take somewhere between 10 minutes and 5 hours all right so there are always this trade-off why did we just play along see what works best so these are fully automated the systems we have semi automated systems well the rebalance for example you have your digits token so datak's is not available in any exchange so what we do is we just buy large quantities and this gold token is is fairly ok because the goal token is stable so it's okay to hold big chunks and then once you get the plated or you know we have access so go and do OTC in the usual channels completely manual yeah and finally okay we also have unchain resources so as I mentioned we could take from UNIX warp was this adult X's okay so the thing about okay so all these things maybe beside the unchanged resources so they require you know to have reasonably non negligible size of buffer because it takes time to withdraw from this centralized exchange because it takes time to do an OTC and then okay so holding given $10,000 of some token given that you have 70 tokens and given that we are in variable markets or give rise to very big inventories yes so one thing we were able to do is to get some collaboration from some token projects who actually bought us the tokens and then we are less vulnerable to inventories so in the Toa square okay so your fill $10,000 of token for sale it doesn't matter if people are buying or not but the token price goes down by 50% and this happens now all the time right so you just lose yeah okay so kybella is lives in separate 2018 I actually was in beta mode until April 2018 but almost a year almost now 70,000 tokens our market-making okay so in Cabell we do boss the protocol we have the market making and we are not the only market making but these numbers for our market mega team so it is profitable when we don't lose money Kaiba recently have a lot of traction many from die and make a play deal so we do have nice daily volume scope with respect to the centralized exchange and these are the lessons we learned okay so one question people always ask us okay so you know exactly so they used to ask about Bank Oh a lot now UNIX WAP is very hard so okay what's the difference where you approach is better or worse so so if you'll remember the inventory risk I mentioned before so so yeah okay so for those of you who don't know so when can you swap our fully so they have this fully automated market making which is a predictable and deterministic formula on a smart contract so in bank on UNIX or to get the same liquidity or the same okay liquidity here I mean spread for a given quantity and to serve the same volume the they need almost 10 times more inventory than we do okay and this was maybe firing in a bull market but right in a bull market all in average market these tokens of a risky so for example unit swap so we swap of a very good spreads on on-die and mkr but they have over three million Seminole dollars of token the right which is completely unrealistic to expect for every talking to have 1 million dollar inventory just an example for missing day so you need to apply something like two hundred thousand dollars of two USD which is kind of the US dollar less stable coin and is there two hundred thousand dollars of inventory they offer war spread and selfless liquidity then we do with on $15,000 of to USD so yeah okay so you can say right previously it's pretty safe to hold but if it was another token unstable it's another lesson is how we stop to in fear of arbitrage board so you know like how main concern initially okay we have to be very careful with surprising otherwise arbitrage boats will come in hit us right away so first of all they don't hit you right away so because arbitrage board with centralized exchange is pretty hard but even a beginner lesson that it's not a bad I mean it's not a bad thing as long as you profit you can profit by being arbitrage so firstly you know obviously if the second part is you know the second side of the arbitrage is Bank Uyuni swap on average you always be profit but you know even if not even if you have been arbitrage from time to time as long as in the bottom line you make it's it's fine and it doesn't world you know you know what all the hustling of being very conservative with the price rates yeah and II did we say that you know of a third of our volume is due to our because both many ways Banco and now in this work okay so next lesson is what are the popular talk and so if you see go to call knock it up and you know you will sell short volume according to Akshay and so immediately you see you mr. Bao for example is the big top talking a lot of volume on centralized exchange but but almost not a very little volume on decentralized ones so so what we learn is that you know first of all the popular tokens are one which are not listed in okay centralized exchange at all or not in any of the big one or popular one like by NAND and one example we say okay so heartbeat corner to initially large which is a bit convict token also a collaboration with bid go and other exchanges as well but this four different talk index we see which is backed by world so these are also there is very popular so this these are not offered overly offered in any good exchange central exchange another line of tokens is died with the cedar play mechanism and he us back in the days where it was Oct 20 and the ICO was still ongoing so there's a lot of arbitrage you're not even a little activity over the die because users open CDP they have to close it they are willing sometimes to buy died at whatever price because otherwise they will get liquidated in day outside co and it was still active so prices well known it was arbitrage with market price so the lot of direct arbitrage of statistical arbitrage there so it also gained auctions and to this day you know so there is still a main token by file and I think in general it's the most popular in most the excess volume and finally we say that you know we saw several phenomena some wave want to dump a lot of tokens so it doesn't even dump them on kaibil he dumps them on other decentralized exchange maybe in hope that the central exchange do not affect the market which is not really true but once it is some in some audio book exchange then arbitrage boats come and take you know so we kind of reflect the market price so they come to us and arbitrage for example we saw delay or another you know maybe to be realistic on the volume one could expect so this is an example of the digits talking right so you see this is the volume on Kaiba and to all of you it could sound very low and you see these exchanges you know over half a million dollar volume but if you go to this actually this is the audio book this is the asking bid prices so maybe you are not a trader so you not know about this Freddie is over 50% which means this is completely fake so this is a very you know like strong example but it's true for most tokens right so so we are quite quite ok with you know having volumes in the order of three hundred thousand dollars in may be slow days to half a million plus in better days so this is currently you know you cannot expect much from decentralized exchange for quick lessons that you learn so maybe no higher level like a take-home lesson is that in general or uncheck market making is still very different than classical market making even for crypto because it involves a lot of you know like unique knowledge and combination of both development and blockchain knowledge with financial and trading knowledge but once you master it can do it well so we give rise to a lot of new applications and integration excetra and if you are developer I welcome you to visit our developer portal at developer.com about network you can and how to integrate with us we also have a telegram channel for developers we will give support yeah so is that I conclude and thank you [Applause] so suppose talking in the boss talking in detail and okay let's say you know maybe I'm not doing it maybe it isn't my benchmark but you have to also keep a lot of token alright so I can give you concrete numbers so like now we knew it's probably up to one hundred thousand dollars of 2 USD and they offer bigger spread and Kaiba and Kaiba you know gives Carroll has $10,000 of true USD so but there are no magic see right we can only do it because we have a system that once you know you are depleted of the inventory we go to buy Nantz and we buy more 2 USD there's no magic I'm just saying you know it's it's more efficient you know because if now you need to hold hundred thousand dollars of some very small token a month from now you will lose $50,000 even if nothing happens just because the price will go down yeah [Music] ok so another downside maybe compare some you know to unislope ok so actually until two months from now no you have to do you know like full kyc full legal things you have to you know maybe do you unless they will find someone who will do it for you and now we also have permission is smooth well you don't need to talk with us at all but you know we not provide liquidity for you you have to do it yourself so did 70 tokens of yeah I mean all of them hopefully keV I said with a fully girl yes yeah it's um bite like so you know like in general you could say that the price is an integer right but you could say that you okay maybe I have about base price and maybe like only another extra bite that you know maybe like now every unit of this bite is maybe 0.1% alright and then sorry so then one bite is enough for like plus/minus 12% so like most of the updates are like that and then you know if it changes over more than 12% then okay you do the full update which is more expensive but that's more well yeah yeah okay but like if you have one bite right so you could store 32 prices right in one store so no it's nothing oh so okay generally or like in the protocol just in a transaction you can decide on the price however you want in practice when you want to do price discovery and you know every self can do its own algorithm but like one simple approach is to you know check the price on Finance and kind of meme you know feed balance price to try to the but again it's not something automatic I mean you have a system that you know Justin just read it from by Nance and Senate transaction it's not in any way you know like fully localized also yeah okay so it's not on the slide but actually okay so so one thing we already did is this up to Bitcoin which is less question flavor more like us DTF level we school custodian with licensed custodian who's holding the Bitcoin we did initially announced a plan for years to helium so it's called the water blue bridge it's still in research but they're actually we have a plan to have a two-way relay between your sanitarium so I already did proof of concept is supposed to be so relatively cheap because okay some technical details so else is proof of stake so we only have to send the only have to relate the validator set and in the converse direction yours has no face so you can send all the children blocks that you want and cost you nothing so this is one question plain so this is four euros for a Bitcoin we have something you know more centralized and this is going to so but okay thank you [Applause]