The Evolution of On-Chain Capital Markets - TOKEN2049 Dubai 2024

all right uh first of all a huge thank you to token 2049 uh for hosting this event especially given how crazy the weather was uh today and I hope everyone made it safely uh very excited panel tonight um we're going to start off uh very high level and let everyone introduce themselves as they take questions uh and we have a lot of different projects both to shill new product announcements we have some great Traders on the panel as well too uh so very excited to dive in so um this panel is very unique you have folks who have been through uh I think if not two maybe three Market Cycles uh and so as we're going through one now Julian I'd like to start with you to kick off um you've been through many of these Market Cycles can you describe a few themes and how liquidity has changed on chain over these Cycles yeah um hi I'm Julian I'm the CEO and co-founder of Evo um yeah as I said I've been around since like 2017 so third cycle now and yeah I mean I think in the in the 2018 cycle like 100% of trading was happening on these centralized exchanges uh mostly offshore exchanges um and it it was sort of spot only and and I think in the second cycle which was the 2021 Futures really started to take off um so pers really got super big it was sort of orders of magnitude bigger than spot trading um and that's sort of where we still are today but I think um in the last two to three years some portion of that volume has shifted from centralized exchanges to onchain so um new exchanges are sort of um appearing every single day in in defi some of them are focused on spot Futures options all sort of the whole spectrum and yeah I think in the last one to two years specifically the um onchain derivatives has started to pick up a lot so um yeah I think that's sort of one of the bigger Trends to look out for this cycle and how do you think about that Cindy uh relative to different chains uh first of all congratulations on the token launch this week uh when you think about that specific to salana how have you seen that change over time and how do you think about as a builder what chain to launch on to and the fragmentation of potential liquidity on chain absolutely um so hey everyone I'm Cindy the founder of drift we're perpetual's protocol on salana and um that's a great question to start off I think as new all layer ones have launched in the last couple of years um what we've seen with um liquidity is that a lot of liquidity kind of started on ethereum L1 and over the last uh we say 2 years layer 2os and ALT layer ones started popping up so we've been seeing more fragmentation um across different chains and initially started off with amm um in in in these different um all l1s and l2s kind of having similar liquidity for the same assets um but as we started seeing more liquidity t u new Innovations on salana for instance um new types of amm new types of aut book structures uh a lot more liquidity has flown into um places like like drift and salana um especially post kind of the the FTX um incident last year um we're seeing it very sentiment driven and very kind of points farming uh driven as well so as um protocols have gone into points air drop mode a lot more liquidities like flowing to these places um but yeah the environment at salanta has changed a lot since last year um market makers have started gaining more interest again and um that that's been the overall theme of the Cod this year and and about you sit in the perfect spot between seeing both defi CI institutional retail can you talk a little bit about um how that changes both on chain but also with the fragmentation you know a lot of times people are trading on chain maybe hedging in CFI and how that's changed at least from your perspective at Amber sure yeah um yeah my name is Amber Hall managing partner at Amber um and actually before Amber I was uh at a very early Dex um that was before Unis swap days and I think the issue back then is um first of all the infrastructure is not there it was difficult for a market makers to uh even kind of connect on chain uh lack of custodians lack of just like reliable um API infrastructure um that was back when centralized exchange just doesn't even have reliable um API or anything like that um and then that's where I think Amber came in trying trying to solve that bringing more liquidity um both on sunshi exchanges and also um on defi um but market makers were very liquid driven right it's difficult to to tell us um to go trade uh on chain if there's no nothing existing so I think that's why I think the amm model has really uh revolutionized a lot of this um boost strap initial and then with infrastructure more built out then more Traders like Amber like SCP are able to do a lot more on chain and now it's getting a lot more sophisticated um there is sort of like the Dex centrx exchange or recharge um that requires a lot more infrastructure build as well so you're you're seeing um kind of different market makers focusing um either like purely on centralized um venues um or on defi um but I would say there there is still a big hurdle for True like real uh institutional sites to come in to defi a stage um a lot of times we facilitate a lot of that at Amber because um a lot of our clients and these are like you know big hedge found clients they cannot um get their compliance approval to trade uh directly on drift or AAL um or to um you know stake some of these assets because of compliance issues or um regulatory concern so I think um I think the infrastructure is getting better the willingness to trade is there but I think the next uh hurdle is probably more so on um how we can uh actually on board uh these real institutional makes sense and going to you Kevin you're uniquely positioned as a user both on the CI side the defi side probably one of the largest funds Trading both on CI exchanges and dexes today how do you view it from a user perspective in terms of maybe some of the challenges things of that have gotten better over time whether it's Capital efficiency uh liquidity segregated liquidity and you know different chains and apps as well sure so hi I'm Kevin I work at symbolic Capital Partners we're a crypto Market maker that specializes in defi trading um you know in the last few years I still remember when um you had to create these very complex systems to access the most basic uh decentralized exchanges and over time the user experience has just become simpler and simpler and while we're not quite there yet in terms of uh security or liquidity I feel like the progress that's been made over the last two years is you know hopefully a harbinger of uh more and more institutions retail users Market making firms continue to use defi uh as a venue for trading um I think some of the biggest differences are the supply chain of what happens when you click Buy in your metamask or coinbase wallet to when it actually um the transaction gets finalized this entire process has become more transparent it's become more well known and previously um there were all sorts of Bad actors that were able to uh mess around with your with your information and I think that if defi is to become the future of Finance we need to kind of continue to progressively improve the uh the security the transparency and then the efficiency in the the user experience for anybody who uses it whether it's a retail user a trading firm like ours or uh Pension funds um and other institutions absolutely I would 100% agree with that going back to Cindy you I you actually mentioned on the token air drops obviously right now it's the points farming is pretty big with the reaking narrative um question for both you and Julian how do you think about uh some of the marketing strategies or sales strategies um or structuring even token strategies uh relative to liquidity on chain and even just garnering users to the platform the way that we thought about uh air drops and farming strategy is a way to actually attract liquidity on um one of our core thesis is that uh market makers will come where takers come eventually and we've seen that uh happen especially on salana with the the mem coin craze it's driven a lot of liquidity into the the ecosystem because there has been Traders um so when designing programs uh that incentivize trading um it's important to kind of distinguish between market makers and takers cuz takers don't necessarily get incentivized by uh the same kind of linear rewards that market makers might be incentivized by so there needs to be a lot more creativity in in what they are interested in if you think about what a Trader likes they like novelty um you know they they would maybe prefer getting a Lambo as a priz rather than like 10 drift tokens right so um whereas market makers prefer U rewards that are um core to their business uh as as their p&l balance sheet so that's how we thought about it so more uh more Lamborghini deliveries for Tak Julian what do you think yeah I mean I think um exchanges basically are a marketplace where you have the supply which is usually market makers and the demand which is usually Traders and the job of the exchange is to basically make sure these two supply and demand are growing in tandem I think if you have too much Supply um and zero demand you're sort of wasting uh the incentives that you have paid out and um yeah so I think what we've spent a lot of time on is just like how do we target our token incentives to getting it as much organic demand as possible and this can go wrong very easily I think if you for example incentivize volume uh you may get one guy doing1 billion of volume in like two days um so yeah I think a lot of work that we've spent um is just trying to actually figure out like how do we identify real human Traders um how do we incentivize them to keep trading on the platform and how do we grow the supply side in tandem with that as well so it's sort of this like balancing game that you need to grow both at the same time makes sense and I guess as a user I'm curious Kevin what what do you see the differences in these different platforms and their approach to you know whether it's token strategies or air drops points and so forth sure so um I feel like since since the Advent of amm there's been a lot more iteration on different types of exchanges Market micr structures it kind of feels like we're speedrunning the development of Finance over the last like four decades but in the last four years and um they're all just trying to cater to a different type of use case whether it's a central limit order book a perex like Avo or or like drift um or some of the new mechanisms like RFQ which are trying to give users more specific um outcomes for whatever they're seeking uh I can't say that one is you know better than the other I feel like part of my job this year is to figure out which ones users do want to use and then allocate our resources in that direction but what's cool to me is that there's a lot of experimentation and a lot of new Builders coming to the space trying to build on different platforms build on different blockchains uh create new mechanisms with all sorts of special characteristics to try to Target their their users makes sense and and about curious from from your perspective and the conversations that you're having today are you seeing more of those users migrate on chain or are we kind of at that same point in the cycle you know a few Cycles back where it's still the same concerns um and maybe it's perhaps just the prosumers that are really driving a lot of these volumes yeah I guess from our perspective because we speak to more uh more institutions or high net worth individuals uh less so retail so I think um definitely over the last cycle or two cycles we we managed to bring a lot more um of these folks uh on chain in the sense that um through us right so we would offer defi products uh AB away a lot of these complexities of dealing with um either you know dealing with staking we staking or even you know farming different points on Pendle and um you can really go down a rabbit hole but I think our clients trust us to to maximize um the return for them so I think there which is why you know a lot of these Prime Brokers a lot of these sort of intermediaries exist to um to cater to these larger institutions who have the capital uh and willingness to deploy on chain but at the moment I think I touched upon that earlier right the infrastructure is good but for them right finding a qualified custodian uh being able to um deal with sort of like the the admin side of things is still very difficult um maybe Bitcoin ETFs or all of these new things will will help address that but uh I don't really see that as the same as you know bring liquidity directly on chain so um I think our goal is to be able to um on the one on the one side um keeping up to date with all the new developments in the market working very closely to um all the projects out there um and then on the other hand wrapping them into products directly to our clients maybe a you could give us a uh a pitch on on what August does because from what I understand you guys do something kind of similar packaging it into a product for institutions yeah so uh thanks Kevin um so uh today August is uh an onchain onchain Prime broker that's wrapped into a smart contract wallet uh and it uses account abstraction which I promise the panel I will not spend 30 minutes uh talking about um in order to make abstract away the tech techology and make it just very easy to use while also uh customizing The Experience both on the bar and lender side of the equation um so I think to your point you know Annabelle and and everyone here on the panel um it takes a long time to build this kind of technology and I think you know obviously with these Cycles people expect it to be built in you know 18 months and the reality especially with you both being you know builders on chain is that it's just very difficult to do so and so I guess you know question is what is one thing that you've seen happen at least in this cycle most recently on the technology side that you think has helped abstract away some of the you know difficulties that you know the prime desks are basically solving for their clients that maybe can bring more folks on chain yeah one Innovation that's been interesting to watch U from a drift's point of view has been um like these experimental forms of liquidity so we actually have a hybrid liquidity model um and I won't go into dep don't worry it's an amm plus a uh just in time um auction and an order book and what's kind interesting is that a year ago a lot of the liquidity was actually on the amm side where they were passive stakers and people who didn't want to do active trading on chain um but this year we're seeing a lot more activity on the Jus in time liquidity side um and what's been driving this is that there's been a lot more active market makers to have strategies um that can tackle kind of the intricacies of doing just in time strategies that uh retail just don't have access to and what the effect of this has been is that um people are seeing much faster fills they're seeing deeper liquidity even though that's not present in an order book so um it's a lot more Capital efficient than than passive staking so um we're really interested to see more and more active market makers come in and close efficiency gaps on the order book and does that just in time also work with liquidations on the margin side great exactly because obviously a big issue is you know when liquidations happen in defi uh they're very unforgiving uh and you will get wrecked so um Julian I mean you've seen this across a number of different products you built how would you think about that yeah I mean um my sort of spicy take is like I feel the big thing that has changed this cycle is like the proliferation of mem coins like these meme coins are born on chain and like the initial liquidity is on chain and I think anyone who trades them understands that um to win in this PVP game you just need to be early so you're sort of forced to be on chain and yeah I think if this trend gets really really big uh people will go through these steps of onboarding on Phantom or metamask getting their funds on on Unis Swap and a bunch of these dexas um and it's sort of something that CI just cannot compete with cuz by nature CI exchanges have a listing team they have a listing process but anyone can create a a market on Unis swap like without asking anyone else so just the nature of it being permissionless means that um sort of it if a lot of these coins getting created every single day people will sort of have to be forced to be on chain to participate um so yeah that's a big thing that I'm thinking about and how we can capitalize on that a bit more but um yeah that is one unique Advantage which I think def has over CI just to add on to Julian's point I think we should keep in mind like why we're here like we want to give access to you know Financial Services to people around the world and currently that means we need to compete against centralized exchanges offer similar services offer similar levels of liquidity you know generate volumes that are in the ballpark but over time we want to do things that are not capable on centralized exchanges um things that can make things open to people from any jurisdiction who can access uh liquidity from you know places where uh they don't get told no just because of where they live uh have transparent liquidation processes or um uh account um guarantees that the funds are not being used in an various way um and yeah so hopefully we'll continue to see more experimentation in this because uh just being as good as Ci or trafi is is not good enough yeah because it's so operationally difficult to on board into the space today until we abstract that away 100% I mean um you obviously have products like Athena uh which is bringing more of like you know the basis product on chain and making it acceptable um you know are there any other products that you're excited about obviously your products that you have today um or even Annabelle when you talk to a lot of your clients I mean you know there's a token that launches a day so how how are how are they thinking about it relative to the absolute size of the token list that keeps growing yeah and I think actually I wanted to touch on upon earlier that what Julian and Kevin said it is sort of like the different R Spectrum um so that you know some parts would be allocated to defi because it's uh potential higher return so you're willing more willing to jump through the hurdles to get on board um versus like Ci you know things are maybe more developed more mature so um you the the time to liquidity and time to experiment new things is different the risk evolve is different so I think similarly for our clients it's the same right they some of them probably trade mem coins but it's nothing you know it's probably basis points compared to what they hold in Bitcoin um so um going back to your question I think it would be interesting to maybe unlock a lot of that liquidity within know sort of their major Holdings what we can do with your idle Bitcoin or ethereum actually more things in ethereum right now than Bitcoin so um what you can do with those in a in a safe way um a lot of our clients they're they're never going to delicate um Bitcoin and put it on some centralized venues so defi is a more natural way for them to uh be engaged so you know there are teams like Babylon or other teams are trying to unlock that maybe you can provide native yield um directly to um your on chain right Bitcoin own chain so that's something that we're definitely watching yeah I think you bring up a really good point and to the points made earlier um you know Meme coins definitely being the on-ramp into the space for liquidity but also the liquid reaking token narrative um you know Pendle when a Pendle pool has a 60% yield uh you know it's hard to look away from um and so to your point you know being is that the way that we onboard you know these new users into the space going to liquid reaking that's been a pretty big thing how how has that changed over the last three months any thoughts or hot takes as you have potentially traded it or compared your product to it or helped clients trade it yourself I think um I was just looking at each other um I think what's interesting with uh these kind of native assets is that they're actually being generated on chain uh entirely and like for instance stable coins are um like ethum are being generated completely from like an onchange perspective they're not like a real asset that's being um remint onchain um meme coins everything they all exist in in this onchain spectrum so what's interesting with lrts is that D5 products are actually now serving um more like the wealth that's generated on Chain versus um wealth that was generated from a lot of these um L1 assets and we're almost becoming like an investment bank for for these um for for these assets out there and it's a new type of wealth that we haven't necessarily seen before and I'm really interested to see um what sort of hedging products um what sort of um the OTC products rfg products can be offered for these like natively onchain assets and how do you think about that um coming from from you know CI and Prime how do you think about that as these products launch initially in dii uh and then you know start to get supported by exchanges but let's say your clients want access to it beforehand what does that migration typically look like how do you value whether or not you know something's a little bit too risky like a dog with hat radium pool or you know something is perhaps less risky like a Pendle WRA e e token yeah I think the the staking reaking space is interesting because um it's sort of like building a financial Market um based on sort of solving infrastructure problems you know share security whatnot so it's not that the yield is not generating from nowhere uh per se it is there's some basis to it and it's exciting because it then it brings like a lot of these Financial der derivatives that are that are possible now so staking sort of introduced the risk free rate of ethereum and reaking is probably introducing more like um corporate bond market um where you can choose uh you know which ABS you want to delegate to and based on the risk return um so it's interesting to us as a financial service provider because it uh really combines both sort of like providing security um or infrastructure solutions to ethereum to um actually providing Financial products on top um so the way that um we explain to clients is also similar in that sense um and um for us we offer either native staking native reaking or if a clients want access to specific lrts then um then we also will help them understand the risk uh and reward yeah I mean um I think the LRT stuff now it's very popular because even though I mean I mean I think that the truth is a lot of the these like yield stacking things is pretty safe right now because um stuff like slashing is just not enabled on these protocols yet but I do think once these protocols mature and you can actually have the risk of losing your e By by reaking it I think um basically that'll change a lot of things but now everyone's sort of still partying because it's just like free yield and there's no risk of loss um but yeah I think it'll change a lot in the next like six months when you think six months yeah okay oh maybe sooner you heard it here first sck your pend in six months maybe now is a good time for a disclaimer that while we're kind of talking about this stuff like we've we have it all figured out it's very much still in a evolutionary um mode and to borrow a couple of quotes from my friend uh Matt Hong we're kind of building a a casino on Mars right now um and that's really you know that's that's really fun for users but uh there's a lot of hard work going on um behind the scenes in the in the engineering space in in the research space and like ultimately what drives user excitement is what's currently the most important but over time things like resilience reliability um performance these are going to become more and more important and uh yeah like if inside of this like Casino if it's like a trojan horse and inside we just want to create something that can scale to like every user worldwide whether it's for using crypto for payments or for continuing to trade um assets initially only cryptocurrencies but maybe later um actual Securities um like stocks uh or whether it's for Lending and borrowing Services uh this is what we're ultimately trying to supply and I think institutions are going to slowly ask for more of this we're they're still kind of in the exploratory phase right now but the the challenge for everyone on stage here is to continue to come up with new ideas and to actually build them out because it's not trivial to to do all these things absolutely how do you think about that as the market opportunity perhaps also decreases as you know it gets more and more um as more and more of these players institutional players especially come on chain it is to your point not sustainable to have a 60% yield um and you know that likely brings in potential new users but is it's not going to stick around until what we call the next cycle so how do you think about that changing and what would you say is your timeline for that for my company you know things have just been getting harder over the last few years we were one of the first to invest into building trading strategies on decentralized exchanges and um over time there's been competitors coming up first it was you know a couple of uh uh Dutch guys that like uh in their early 20s and they're you know fighting us and then now it's like you know the the the major hft trading firms around the world um and it's only going to get harder so our our bet is really that crypto will continue to grow crypto trading will grow and uh specifically that onchain trading will continue to grow at a fast enough rate to compensate for the increased competition but ultimately the the winners are like the users um the people that get to uh have access to these services that uh we're facilitating we' love to hear that and very bullish yeah I'm not sure what a timeline is I think in the next couple years we're just going to continue to see exponential uh growth and evolution in the ideas that are being tried out and yeah there's a bit of a winners uh like selection bias of the ideas that do work but um yeah I'm just excited to see so many people uh investing into the space continue to build in the space and I think we'll we'll get this figured out in the next couple years absolutely focusing last question focusing just on 2024 um let's go around the panel what most excites you about obviously we have the the having this week um which is going to be a big narrative we have the ETF narrative which has been big as well uh this year but what excites you most as you think about the next few months and 2024 can be anything Tech liquidity reaking points what have you I'll start with E and we can go around yeah to to the conversation about meme coins I'm actually very excited about the infrastructure that's being built to support um mem coins because I think it's actually it's almost like an unbounded prediction Market that anyone can launch in a second and it's actually created so much efficiency around um instant liquidity upon launches and that's forced us as an exchange to for instance really quickly list deriv this around around mcoin so we're super excited uh about this space because I think it brings in something a lot more fundamental to uh allowing anyone to to create U prediction markets of their own so we're pushed to create um Innovations around supporting these um launches yeah I think I'm most interested in in um adoption this year just from like like normi or mainstream adoption I think basically every major centralized exchange now has their own layer 2 or crypto infrastructure play which they can funnel their tens of millions of users into so hopefully you know users who onb into coinbase and birge into base would end up using AO at some point in their life cycle um and also a bunch of these new um sort of like abstracted wallets uh more more onboarding stuff like privy um a lot of these dexes now actually let you login with like an email and a password um and they they use like encryption and a bunch of stuff behind the the scenes to keep your key safe so I think stuff like this would make it a lot easier for people to just participate and use onchain stuff um so yeah hopefully this year we'll get at least a few more onchain users cuz I think now it's still very small yeah I think for me it's similar like although obviously we're building a more um CI Focus product but I think my passion's always been Defi and um and we've come a long way I if you asked me six years ago when I was building airap that you know we'll talk about potentially you know trading FH uh hft on chain that would be um on think of but um I think similar to what Julian said like more onchain use cases maybe it's unlocking more liquidity by um utilizing a lot of the idle assets on chain or by create or having new value creation on chain um obviously I think we'll come into a risk management problem uh but then I think as every cycle goes right we will see through that um and I think maybe that'll happen by 2024 I think uh I'm currently very excited about some of the performance scaling improvements that we made I guess to Echo what Julian said um seeing centralized exchanges like coinbase develop and uh spend resources on things like Bas uh seeing salana find a lot of uh product Market fit in this uh meano season seeing Next Generation blockchains like monad who are touting the ability to Ser as the Bedrock for for ethereum these are all like the most exciting things to me because um having continued Evolution U continuous iteration and Improvement I think this is like the the main thing that keeps me excited about the space uh if you just kind of froze everything now and then expected everyone to become interested in using crypto it probably wouldn't last very long but as long as we have like uh Innovative Builders over here or like ogs who've been uh helping bring in new attention to the space I think we're we're going to be in good shape perfect and with that I just want to thank everyone uh for this incredible panel um and token 2049 for hosting us today uh that's it