BBW23 – Day 2 – Market Making & Trading On Chain: The Future of DeFi

[Music] um okay so welcome to our panel this is Market making and trading on chain um the future of defi I thought we can just quickly start and do um a little bit more quick introduction um so my name is Isabelle vagi um I'm a co-founder at grin um we study liquidity providers and uh liquidity pools on chain and developing um strategies for trading on chain um all right hi so I'm gber um the uh co-founder and CEO of pen optic we're creating an options protocol on ethereum we're kind of Reinventing options to make them work better within the compin of the blockchain we're uh launching our Alpha this week we'll go on a beta so keep an eye open p optic on Twitter we're pretty active there um hi I'm Emily I am a protocol developer at Unis swap um yeah so I've been doing smart contract development for for a while now and yeah that's my background uh hi everyone uh my name isan Lan I'm the managing director of data me so um we are doing onchain research and data analytics and my personal background is corporate data analytics like data warehousing and all of this stuff and I came to crypto to just um fix the issues um that we have in crypto with data quality and data FIB here cool um so this may be a little bit of a technical panel so I just want to start when I say defi I mean decentralized finance and so that's basically at its heart and soul is just the idea that a lot of financial transactions um and products can be handled by relying on blockchain technology um including uh smart contract technology um and so the belief is that you can facilitate all of these transactions by relying on the technology and getting rid of the intermediaries or um the middle parties involved um so for a lot of us especially those deep in the space and I think for a lot of you guys when we say defi um decentralized exchanges are kind of the next word out of our mouth so dexes um so this is as opposed to um coinbase which is offchain um uh binance uh FTX those are all offchain centralized entities we're talking about onchain decentral Iz using the technology so um one of the most popular and kind of the Pioneer in the space is unis swop um so this question is kind of a little bit geared more towards em just to get us started Unis swap was the pioneer of the automated Market maker of building smart contracts to facilitate swaps And Trades between different types of tokens and coins um this summer they've just released their code for their next version version four which introduces Hooks and the Singleton contract um thought you could maybe kind of talk about the evolution of Unis Swap and what these new changes mean and what they are sure yeah there's been four well we just came out with the fourth version of Unis swap it's not live yet but it's under active development in public um yeah from version one you could just trade an erc20 token against ether and V2 we introduce erc20 to erc20 and uh also made the the pools oracles um so people had access to onchain Oracle since getting off information is pretty tough um V3 concentrated liquidity um so yeah as you said V4 um has a few new features um first you mentioned Singleton um so in all the past versions of Unis swap every time you wanted to create a new pool um where two tokens sell each other it was a new contract um and all pools had their o very own contract on ethereum um with the new version we got iously put um all of the pools in one single contract so V4 will be one contract with all the pools inside um and all the liquidity inside and that's really just a gas optimization um obviously gas fees are a big part of um trading in defi you want to get those as low as possible so big gas savings on V4 um but the bigger maybe the bigger um addition is hooks um which is pools can have call out to a hook and it can be any hook um and that will um perform arbitrary logic before or after certain actions you take in a pool so what that means is people can really customize how pools work and build features on top of them um so try to do this as quick as possible um yeah so it makes things possible like maybe democratizing Arbitrage auctioning off Arbitrage opportunities making sure LPS can get a share of that um we do like uh build dollar cost averaging long trades over time over pools it just makes a lot of things possible um and what it really does is it allows Unis swap you know Unis swap was built by Labs uh for the most part but now it allows people to come in and collaborate with us and start working on all different types of pools um and I'll say um yeah I mean I guess that's it um well G and Ivan do you guys want to maybe uh like goine on what you're excited about with you before ex exactly so in panoptic we're building on top of moft V3 and then we're excited to build on top of unof V4 the key point is that again we're creating options protocol derivatives we can touch that but it's easy to integrate with existing protocols in defi it's not as if you have on one side some exchange and some other Exchange in a different city even it's all integrated integratable so the openness of V4 and now allows could be me on in my own basement to create the best hooks possible and I'll attract all the volume so it democratizes access to developers and also it makes the Innovation much easier because of the openness of the platform itself yeah I also with that that uh we actually um have done a lot of research on um what's happening in real like trades and liquidity provision on un swap version two and version three and we see uh that while this protocol has an enormous like uh amount of trust uh from the community and Traders uh there are still something to be improved and we believe that V4 will actually is is actually doing a good job at this because like Emily has mentioned uh one of the thing is arbitrage and this uh space is like it's not complet completely fair so it's getting there um with the rise of block builders on ethereum for example on other blockchains it's still something to catch up but I think um the first core use case for us V4 would be democratizing Arbitrage because um you just for as a Trader you will definitely choose a pool that gives you cash back on your uh swap rather than just giving this value to Arbitrage boards something like this so I think I think it has a tremendous potential but uh of course there is some level of ambiguity of this transition period uh where the liquidity will be migrating from V3 to V4 uh but I'm sure that would be like success in the end of the day um so Gom you mentioned a little bit in your response um basically about what panoptic does um but as they were saying so Unis swap V1 was very much simple you're trading um you know this V1 V2 you were trading tokens back and forth they're just simple swaps V3 introduced price ranges and so that's concentrated liquidity so you could choose at what price points you want say like Bitcoin I want to trade between 24,000 and 26,000 um so that you can kind of set yourself up for stop losses and you can kind of get out earlier you've put out a lot of research on V3 so if you guys have time check him out on medium his medium post are great um but you studied a lot on V3 and you kind of discovered this natural need as as markets evolve you need these kinds of options you need derivatives layers um can you talk a little bit about that and did you see this as a natural evolution of the space is it like necessary is it just an added bonus yeah exactly so let's take a few step back steps back and think about the history of even uni swap so I mean blockchain are exchanges of value very secure way of transferring value from one place to another you need to change between tokens you need to swap you need a New York Stock Exchange of tokens if you want and before before unisoft came out uh with unisoft B1 you had ether Delta or DX which were order book based exchanges very similar to what you have again in your trading account but then it was uh inefficient it was hard to kind of scale and even ether Delta got a notice from the SEC and they had to shut down and it was shut down because it was very very similar to what was done before so Unis swap came in made the whole thing permissionless trustless you can't even stop it in a sense because it's a that a smart contracts and that is kind of the shift that we need to see between swapping to make it permissionless immutable unbreakable same thing with Landing protocols you have a similar system now there's still Oracle there still ways that uh you have flaws but moving forward we see that the the tra The Lending protocols also adopt this more permissionless open Nature that you cannot really see in trafi uh you have perss which are kind of Futures these are traded heavy in centralized exchanges you have a few protocols still migrating towards this open permissionless fashion to make Futures so the Natural Evolution of where we see is that you have swapping you have lending you have Futures you need options to kind of satisfy everything that you can do in trafi to the world of defi options and derivatives are huge in terms of notional value traded every day more options are traded than stocks in the stock market every day but it's hard to do it on chain and again Sim similar to e Delta and the precursors of Unis swap had a very skur morphic and tradire like approach that could get shut down the existing Protocols are still trying to kind of match what happens in trafi but then that means it's it's that's why we haven't seen that much traction in terms of options so again starting from scratch we decided to create a new better way of doing derivatives options could be purpose as well but in a way that is again espousing the values that Unis swap kind of is pushing forward and that's why again in in P optic the front uh the front facing uh or the front end looks very much like an options protocol you can buy options puts and call you can buy GameStop like you can buy calls Sim way you did it with GameStop you can buy puts you can also sell options but in the background it's all permissionless we're actually integrated into Unis swap V3 where the liquidity is kind of communicating with the liquidity in Unis swap it's a very integrated way again that you cannot do in in trafi so the one kind of missing piece in the world of Finance which options we think we've solved it but the key point is that you move forward by making it more maybe different more different calized than what you see in kind of in trfi and and hopefully this is going to get in traction but even if I'm the only one trading options because it's a permissionless system I'll be I'll make money I'll be able to kind of sell them buy them myself you don't need the volume you don't need the the the market makers you see in trafy to gain adoption it's all kind of permissionless built within kind of Unis swap theas ecosystem uh for for liquidity awesome I an Emily you guys want to jump in and add anything to that or uh well I think um the decentralized exchanges bring uh a lot of disruptive advantages uh to the like financial markets because um I I just don't want to to to talk a lot about obious things like 24-hour operation per it's permissionless it's uh um you actually uh have a control over your funds so all all these things but it also brings a lot of opportunities in terms of transparency because imagine traditional exchange so the only thing you see is like order book uh so you don't know who sells who buys what's happening behind the scene uh even for like regulated exchanges for OTC market it's even more uh like you don't understand what's happening in in um decentralized exchange you can actually see all the uh trade activity you can see all the liquidity events and uh you can uh you can actually analyze the whole history of what what what has happened you can even gain access to the uh trade orders before they actually got executed by looking into the man pool so um that's really a lot of opportunities um the only problem here is that um this opportunities are still a little bit um a little bit upset by the complexity uh of the space so um uh if you imagine like traditional like tra Trader or hedge fund um you immediately U like think about with big screens Bloomberg and definitive subscriptions and things like this and this is something that you don't have in crypto right now so you have this great uh advantages and opportunities uh in terms of transparency but uh you don't have the right analytic tools to actually get the most out of it and um uh that's actually the think that uh I think has great potential right now so glad you brought that up Ian because that brings us pretty well halfway through our next question honestly um but one of the most exciting things about blockchain right is that it's all a decentralized public ledger so that means anybody can go and look at all the transactions that's happened on Unis swab we can see all the trades um now obviously easier said than done right um and Ivan's group is a data and Analytics uh blockchain group um that makes sense of all of these hashes and you know without groups like him a lot of people are just looking at hashes and are kind of looking at ether scan logs and trying to figure this out um so like I said one of the exciting things is being able to rebuild that order book and as we've evolved from version one now to V4 and with groups like panoptic that are bringing out the options exchanges um what are you seeing from a data side of things that you still think there needs to be a lot of work done on the analytics side what are you excited about as the am evolve in the space uh yeah as I said that the complexity of the space uh lies that um in the fact that you have all the data available so it's readily available you open as scan you see all these bits and bites but the question is how do you actually um give them um actionable interpretation so and to do this you actually have to understand uh the logic of protocols and for example what we do we um do the abstraction layer over the uh different decentralized exchanges to represent the data in a familiar way for the Traders or investors um so they actually can um see something similar to what we see on uh like Bloomberg terminal uh but uh even more than that uh so as um the centralized exchanges they also provide a permissionless way to actually be a market maker in a sense so we can take your money and invest in the liquidity pool so that automated M Market maker would make Market making on your behalf and um uh the complexity here is um it's happening because you it's it's still uh really hard to calculate your proper p&l do proper back test back testing and do proper estimates of your future rewards because uh I just uh put simply so every most most of all tools you have uh like on the web then you like uh open some liquidity stake in user interface and you see this uh projected APR like 70% 90% uh this is obviously will not be true in in reality because what they show it's just like a fee crew projected uh fee given the current like trade volume current liquidity Etc uh but um we see a lot of improvements in the space um from different angles so uh we see like automated liquidity managers uh on one side and on the another side that's where we are active uh we see uh professional groups uh that um help those who want to invest this liquidity or build a profitable strategy to actually do this analytics but I would actually hope that uh in the future more and more of these tools would be generally access accessible by the public um okay so let's take a step back a little bit I'm going to ask the group um to kind of opine on where they see kind of big idea broader future of AMS what uh defi is going to look like in a few years so by that I mean um do we need more integration with oracles that bring in offchain data so what's going on in centralized markets or you know that could that could mean anything you know sports scores or you know anything like that or is it maybe integration with different protocols like a deeper integration there so that a so a lending protocol can better integrate with a a swapping protocol and you can kind of do them all at the same time and take an option out at the same time um kind of what are your big picture things that you want to see or you think maybe you're heading towards yeah um yeah I think like well maybe a big narrative right now that's going around is intense and unisoft just released an intense based um protocol which basically means you know when you sign a message to trade on Unis swap you're telling ethereum blockchain exactly um what you want to do and how you want to do it but with our new Unis swap X protocol you kind of just State sign a message this is what I want however you get it to me um that's up to you and I you know similar to like cow Swap and bring trade and um and 1-in fusion um so that's I definitely see um a future where this becomes more more popular um I think that um amms will still hold their place especially for things like longtail tokens and being able to bootstrap um you know new projects like for all these like the the infrastructure for all this new stuff is going to get more and more complicated and there's going to need to be a lot of more moving parts and and a lot more just just infrastructure um but the cool thing about amm is you know you deploy it on chain and it's there and it's kind of like rudimentary in a way and it will always be there um and it's really interesting for things like panoptic where I think amm's kind of especially with concentrated liquidity where we came out with an V3 even though it's liquidity providers and swappers swapping across that I think like despite kind of the basic um setup of how these pools work there's a lot more to it like than beats the eye and I think pen optic is a really good example of that how you can use something simple as a building block for like a decentralized u permissionless options protocol um so yeah those are those are some of the things that I think about um especially at Unis swap with these two like where we're headed and what we have already um so yeah say that yeah and and on my side I think I'm um a bit again taking the other direction I'm an oracle free Maxi oracles mean that you need to transmit information from outside of the blockchain to the blockchain and that guides okay what can you do what cannot you do I feel like the same way the New York Stock Exchange doesn't need an oracle to say what the price of Tesla stocks because it's traded there a lot of what you see in the blockchain world defi is self- referential and we should embrace it a bit more I feel like uh the the future will be more of a uh ecosystem that works more integration more exchange more kind of building on top of other protocols but all of it will be self referential in a way that you don't have external risks you don't have any external externalities that can prevent you from operating and that that is difficult to do this is the the the baby steps that we went through for even Landing protocols they have to rely on price feeds uh I feel like again the future will be can we figure out a way to make it so that it's an ecosystem it works in a way that doesn't need any external externalities and it it's it's a kind of self-contained environment again you can do swapping currently in a way that is very very decentralized all of the other major Financial activities aren't there yet if we want to go broader even more of that you you need to kind of convert so that the blockchain is where the exciting stuff is happening and not necessarily somewhere else and we need to kind of transmit or beam that information to the blockchain um I'm going to move just uh we can squeeze one more question question in here that I think is somewhat topical that I think a lot of people will be interested in but um I saw a recent report uh from McKenzie that was you know take that as you will but they they were claiming that um one of the big issues is scale a lot of financial institutions want to see scale can it handle scale um and so stable coins right they are about circulating surprise probably around1 120 billion and um it probably moved roughly they estimate like 500 billion a month um in trading volumes um so they're saying like a lot of Institutions are seeing it yes scale is possible and this is kind of you know the first for and we saw PayPal launch their stable coin um so stable coins on chain probably some of the highest volume pools and the highest volume trades and trading pools and um are half of them stable coin or stable coin stable coin um and as more either companies adopt stable coins or countries start bringing their own stable coins we have there's a Euro stable coin um how is that going to play into the defi ecosystem is it going to end up becoming you know possibly a for a Forex you know a decentralized Forex Market where if I go to Europe I can just swap 50 bucks so that I don't have to go to a you know um uh I know the word in Kian but an exchange desk in in Europe um so yeah just want to hear your thoughts on the stable coin market and how that plays into defi especially okay um so regarding the stable coin Market I think uh the um uh two perspectives here so one perspective is like uh what we have talked a lot like today and yesterday uh is that stable points are um um a way to like enter or to to do some like on ramp offramp transactions and this is very important for crypto industry of course but another thing which is uh all frequently overthought is that um when you do something some like profit and loss calculations uh and when you even think about your profits you need to have some baseline and this Baseline is currently like for most of the Traders is USD and that's actually why um uh for some extent uh stable coins pet to USD are so popular because uh you need to have a way to like fix your profits uh and you have no way um to do this if you have only crypto native assets like for example you have ethereum you have B&B you have like I don't know aox uh but if you don't have a USD um like Benchmark then how do how would you calculate if you are in profit or or you are in loss and um if uh speaking about this in from some like holistic perspective uh um to truly um uh develop the crypto as a um like decentralized and fully independent Financial ecosystem we need to have a stable coins that are not pged to some like local currency we need to have some um stable coins that are ped to the whole like GDP or to economy growth something that would be like uh inflation invariant so something like this of course we are like still very far from it and uh but and before that stable qus are the keys and we will have we will see some like uh defi Forex of course um but uh uh I think in like maybe 10 to 20 years uh a lot of like this like economy packed stable points will will gain traction cool do you guys want to jump on it yeah yeah I think like going back to the keyote too like before this talk like crypto is like not that easy for people to use so when you brought up the example of like going to the airport and like exchanging your Euros I think onboarding is just like the huge bottleneck for like there ever just being like this really easy way to go from stable coin to stable coin so that's definitely an area of improvement and I agree that like you know when the kind of the banks were failing and we thought maybe usdc wouldn't be backed anymore um that almost brought down like all of the ethereum stable coins cuz they in turn depend on usdc So that obviously is a huge area for improvement um as well yeah maybe on a on a brighter note I think stable coins and currencies have a natural fit to the blockchain and we can go beyond that it could be Futures Trading I mean you can Trade corn Futures it used to be Traders shouting in a pet now it's electronic if you talk to the CME the Chicago Marti exchange the next level for them is the cloud so they are maybe 10 years uh behind us saying we're going aw it's not going to be a data center in New Jersey it's going to be the cloud so the blockchain is what I see as a natural fit for allot of these exchanges you can have again decentralized exchange of currencies Futures contracts stocks eventually again you may not see your Amazon stocks being traded on chain but then all the new companies will have tokens tokenized equity and again we're setting up the rails for this brand new kind of financial infrastructure and at at the end of the day this is going to be like the 24/7 open and permissionless system that we can access all of us can access as opposed to now going through ation entities I cannot even trade options myself I had to go to through classes to actually get to a point where I could actually be trusted with my own money so I feel like the the the openness trusting the users making sure that no barriers are there because there's no need for barriers it's all very secure back by smart contracts means that you can actually get to the point where hopefully in the near future most of the financial activity will happen on chain and we'll look at everything else that happened again the DAT Center in New Jersey as a very stupid and a CCT thing that kind we moved forward and then moved on from awesome um I do want to let room for one or two questions um Ian anyone we that one way over there uh yes um so I just had a question in terms of how the market is evolving to trade uh like Commodities like soy and corn I don't know if you're familiar with the project Agro coin I mean aggro token I think it's called uh if you can elaborate they basically uh connect farmers and then able to uh take loans on on their actual Harvest and then that way it gives them International liquidity instead of just local liquidity yeah sure and I feel like the these Futures markets these options markets came out because users Farmers wanted it to happen it's not the The Entity that says we're going to offer it to you it's from something from within and again I I be be happy to sell my coin Futures when I see a thunder storm coming in the middle of the night I don't have to wait for the open uh opening of the market but yeah I feel like the maybe this is maybe similar to what we saw with minars it has to come in from within you need something maybe we should create a bank credit union to onboard and offboard users more efficiently farmers will have to come together also kind of trust the system but again the the the the Legacy system had a similar history in the past we can maybe repeat it or learn from it and do it in a more exp exped way for sure [Music]