DEXplosion: Unleashing the Power of Decentralized Exchanges - TOKEN2049 Singapore 2023

thank you everyone for joining us for today's panel my name is Sue I'm the principal at circuit circuit is a decentralized market making protocol and focus on providing liquidity for decentralized exchanges and today we're so honored to have three brilliant Founders to be with us Cindy Leo from drift less Jeff Yen from hyper liquid and Julian Khloe from ribbon Finance now Avo so we'll kick off with a brief introduction we'll start with you Cindy hey everyone glad to be here today I'm the co-founder of drift we're the largest Perpetual decks on Solana doing over 10 billion dollars in cumulative volume to date we are built using a hybrid emm order book which is fully on chain and uh hopefully basically tailored to bring more people using centralized exchangers to the Dex experience next we have Jeff Yen from hyper liquid hey guys great to be here uh I'm Jeff I lead engineering and product at hyper liquid uh hi pretty good we like to think of it as sort of uh the brand as like the people's decks so we try to bring the ethos of crypto to uh decentralized purpose trading so like Community ownership decentralization Etc so maybe one one popular uh product we have is hlp which instead of dmms and uh other market makers or special privileges we let users come in and provide protocol liquidity bootstrapping it and it's been a pretty successful experiment with almost a million dollars in piano since um four months ago when it launched uh all to the users and the fees also accrued to this Vault uh I guess similarly we try to list all the interesting new coins that people want to trade like friend Tech index other um roll bit unibot other tokens where it's hard to find purpose on other venues so yeah really trying to bring the spirit of community ownership without sacrificing uh you know centralized exchange experience and liquidity thank you Jeff next we have Julian Co from ribbon Finance now Avo hi um my name is Julian I'm the CEO and co-founder of ribbon Finance which has recently rebranded to Abel for some contexts Evo is new decks that's focused on options and perps we do majority of the option volume on chain close to 20 million dollars of open interest and we've recently started expanding to new products such as perps and a few other strategies and a few other things but yeah excited to be here today to talk about dexas and hopefully I can bring like an options angle to it as well thank you so much so to kick off kick off last since last year we have seen Texas gaining a lot of traction post the FTX events however despite the impressive growth Dex is still account for less than five percent of the trading volume than sex is so for all the Dex Founders here my first question is what do you think is the key issue that we need to address right now so that Dex can one day compete with the sex volume uh we'll kick off with uh maybe Julian yeah I think I mean the number one reason why dexes have not taken off is liquidity um I mean it's basically impossible to find a decks which has 10 as good liquidity as binance I would say on on majors and most pairs um so yeah I think most power users and institutional Traders will still choose to trade on the bigger centralized exchanges as long as liquidity is there but I think um I mean a lot of new D5 projects are trying new ways to get liquidity such as like the vaults and so on and I think like post FTX uh I mean one year ago FTX hadn't happened yet so this was like a very different conversation but post FTX a lot of Institutions are now sort of more wary of counterparty risk I think a lot of people are somewhat fearful of binance and a few other exchanges going down so yeah I think there has been like a recent shift towards Texas in the last six months um but yeah I mean it's still really early I think before we can actually beat some of the centralized exchanges we need to improve liquidity by an order of magnitude so every Dax is trying different ways to attract more liquidity great um Cindy or Jeff do you want to add on anything from our perspective we think that liquidity comes hand in hand with ticker flow as well I think market makers while post FTX have been more wary of going straight into D5 and jumping into the deep end to provide liquidity a lot of have even retraced from trading on defy I think it's clear that market makers will go where the takers and the retail are so one thing that like begs the question of is why are retails not on D5 yet and I think the the main question there is how can we make the experience better for an average retail to Simply you know plug money into an exchange on D5 as they do on centralized exchanges to trade like directly on the spot I think right now if you look at the average time needed to onboard into D5 it's it's pretty long right it could even take days if you can't get your money into crypto so that deters most people from from even coming in so I think one of the reasons that um crypto defy hasn't taken off as much as centralized exchange as is the like long onboarding times needed and once we solve that and give retails a reason to trade I think having unique assets that are untradable and binance is very important to actually push users to towards this direction sure and I guess I'll add I totally agree with the liquidity and the on-ramp so I won't talk more about that I think one last point is the actual ux of trading so I think uh as a space like deep High has come a long way since uh even a few years ago where you know all the trading was through uni Swap and you needed to you know figure out the wallet thing and fidget with every time you want to do anything like um you know if you wanted to place and cancel an order and you needed to like sign something each time and like 10 of the time it like bugs out like that's just like not acceptable behavior for people who are used to the smooth centralized exchange experience um so I think a lot of progress has been made there um ultimately it'd be cool to see the wallet entirely abstracted away from a user but even now it's like way better than a year or two ago like you cannot most platforms have like one click trading at least so maybe you on board with your wallet but then after that you can basically like you know squint your eyes a bit and it feels like a centralized exchange so I think a lot of uh cool stuff coming there too cool that sounds really cool um actually on that point so what do you think is actually something that dexes do so much better than sex of course we run through the issue of liquidity our ramp and UI ux but anything that we can offer that they cannot the core thing that I think drives us as an organization and is a reason that we built a decks in the first place is censorship resistance um I think the trend that we've been seeing post FTX is centralized exchanges have started shutting off access to most users and most regulations and I think that trend is going to spike up to the point where it's going to be unusable like in Hong Kong only High net worth individuals are actually able to trade perks um on on you know centralized exchanges so I think the core feature of dexos is really to be unruggable and ensure that you know reserves are always there ensure that there is always a liquidity point for users to be able to access so the Omni presence is something that's very important to us so something that has an extremely strong foundation and is unable to be resistant an essential censorship side anything else for anyone to add yeah I think for us transparency is sort of one of the big reasons why people would trust the decks over a centralized exchange I mean like looking at the solvency of the exchange is almost as trivial as going to Ether scan and looking at like the tvl like are there actually Assets in this contract uh what does this contract actually do is there like some backdoor function where you can where like the admin can basically withdraw all user funds or does it use some sort of other permission system for um to to hold all user assets so yeah I think that's something that centralized exchanges cannot offer I mean they can do these Audits and so on but um I mean there are a lot of issues with that with um some some exchanges May lie about that fabricated use like some metaverse auditor or whatever to to prove their their assets but I think like dexes are sort of forced into proving solvency um and yeah I mean I think people use this also hold access to that standard as well like if your contracts sort of not verified people sort of point that out people call you out for for not um I don't know being transparent so I think obviously this thing is not like a zero to 100 thing on day one I think that's like a progressive way to open up your code open up a bunch of stuff um but yeah I think dexes are sort of pushed towards the transparent side of the spectrum compared to centralized exchanges yep yeah and maybe just to add on that uh I think like at the end of the day people are in crypto for a reason and it feels very ironic to be trading these coins that are supposedly the the governance tokens or the you know native tokens of these protocols that like change how we do things you know remove these centralized actors uh and but we're trading these things on this like web 2 technology uh stack it feels very ironic and the reason that it's happening is just that the ux and on liquidity on on ramps everything that has been mentioned so far uh it is really like why people are settling for this but once all that stuff is figured out like I don't think you need to ask like why Dex is it's really like why would anyone trade on a centralized exchange um yes I'm very bullish on like everything being built here I think like you know in a couple years uh these panels will be very different like you know maybe the centralized exchange will be up here and you'll be asking like why why should you still be around you know but yeah yeah I think like another really big signal that we can see is I mean every almost every major centralized exchange has like their own blockchain and a lot of those blockchains have taxes so some of these centralized exchanges uh I'm sure they are aware that dexas could be existential risk to their business and they are also trying to diversify away from their main business so I mean we need to compete with those taxes as well but yeah clearly it's not like they don't know taxes do have advantages of a centralized exchanges as well yeah I mean on that point of transparency let's dig a bit deeper on the tech side so um why did you choose the tech stack that you did using an existing L1 or L2 or you're doing it uh developing on your own Chang and what's the rationale behind it for this one maybe you can kick off with Jeff yeah sure uh we made a pretty interesting decision here we initially wanted to build on arbitrim which I think a lot of uh dexes do and they make it work uh but we found during our test net phase that it was kind of hard to do specific things they wanted to and we just kind of we think it's like the past the least resistance in maybe one year or two years but at some scale of growth uh you kind of see that with dydx you kind of need to significantly re-engineer everything to be truly decentralized um and we basically made a decision to do that pay off that Tech debt earlier rather than later so we built an L1 that is um custom built for hyper liquid the hyper liquid L1 so it doesn't it's not general purpose it doesn't support smart contracts it really just runs the state machine that is the decks but because it's so custom built and optimized it has the throughput uh you know 20 000 transactions per second can easily be pushed by another up to 10 I think if if push comes to shove but it's enough to support the full order book margining everything on chain so it really makes Mev like much less of a concern it also gets rid of the need for a centralized sequencer or off chain matching so it's a little bit annoying to us we need to like to solve these sort of hairy infra problems while trying to push the product and get the adoption but it's uh it's something we believe in strongly uh like the right long-term solution so I think we're on the other side of the spectrum you know we we chose to build on Solana we were one of the earliest Sexes there and there was a point where we were also deciding hey should we build an L2 should we build out one of our own or should we you know Bill and Solana I think the reason that we went with um building on an L1 that already existed was because it satisfied all the trade-offs that we were looking for at least I'm in the bootstrapping phase while preserving the decentralization Tendencies because we're inheriting the security of the entire L1 versus building um you know the validator network and all the heavy lifting of doing and nl1 and we felt that that would be a sufficient trade-off for us we have a fully untrained order book that runs I think pretty much the only chain that is able to support it is Solana as a result um we yeah sort of do share block space with with other DFS but are still able to mature not the performance that we want to see um that's it though I think there's a lot of there's still a lot of um resources that need to be shared like rpcs like block space and I think Solana has done a good job at trying to ring fence that as much as possible to maximize the performance of everyday like looking at priority fees that helps Traders on on a single D app prioritize their transactions over the others so overall I think the trade-offs made sense for us too to build an L1 versus doing own yeah I think uh for us we also uh thought that we needed like an isolated environment for the exchange I think the primary reason for that is because in times of like Market volatility that's when you want to trade the most um but I don't know if Bitcoin just dumped by 10 in like two minutes and like there's an another nft mint that's that's going on and sort of clogging up block space that gets really really annoying for Traders and I mean we have seen this happen every month in the last two years I think one of the recent examples was um like we were also thinking of building on arbitrum but you know when the arbitrim token launched like the whole blockchain was congested for I don't know a few hours all the block explorers were down users couldn't really make transactions and I think it's sort of mission critical for the exchange to be up even in any period of volatility so yeah we did realize we needed to build our own isolated environment and the trade-off was like do we build our own layer one layer two or uh or something else and I think like at that point in time the tech for Uh custom roll up so it's just getting sort of mature enough to use so we were like the first op stack chain where we just basically used the same code base as optimism um changed a bunch of parameters but basically we got like our own isolated environment but still managed to inherit the security of of ethereum so yeah I think for us it was important to be ethereum aligned um over the last two years of our main product uh uh all our users came from ethereum all our TBR came from ethereum and we just felt like we would prefer to stay ethereum aligned so yeah building like a custom roll up using one of like the most mature attack Stacks which is like the op stack felt like the perfect set of trade-offs for us but you know I mean in a few years things may change again so I think we're not sort of married to this stack forever I think it's what works best right now last time to add one more bit on that sorry can I add it of course of course yeah that's a really good point I think with the congestion like if a decks if the if the success if you're successful trading on a DEX is negatively correlated with how prices are moving that seems uh like a pretty bad user experience so I think the congestion is a really big deal um I think we I think one thing for us that the custom L1 uh really works well with is that you can bake in the like some perp exchange specific functionality like into the L1 itself so like this is really good for guaranteeing like platform solvency and like really extreme scenarios so like if you for example need to like do some liquidation system or deleveraging you can have that happen like at the validator level not at the like user trigger transaction level funding is another good example that's less Edge Casey so like if you can trigger some stuff within the consensus itself it actually makes these sort of like otherwise annoying batch operations um a lot more trivial so it's like the hard work shifts from working around the eoa based system of an L2 or general purpose L1 to like designing the more like infrastructure level but then some of these other problems actually become easier of course yeah feel free I think yeah one of the I think that's that's an important point but I also think that um inheriting the same like block space as funds that are already on the L1 it helps reduce the the likelihood of it just being another centralized exchange because at the end of the day I think um L2 and L1 operations do rely on a centralized sequencer in that new validator operations um and that can be somewhat of a segmented experience from the rest of the the crypto like D5 space so composability at getting this one point there that we haven't really touched on um that is a benefit of like being on a shared space but yeah I think it's yeah I think like the main drawback of isolated environments is we give up composability like local I mean composability with apps that are sort of near your ecosystem um so for example it's like you you break composability with uniswap if you don't build on layer one uh or if you're an arbitrum you sort of can plug into your these different apps but we sort of give that up in exchange for like isolated environments I'm pretty sure in like the future most of these layer ones that are sort of built specifically for exchanges we'll also have multiple apps built on it uh like sales trying to do that so I'm pretty sure there'll be like along the spectrum of fully composable or single app that's sort of like a middle ground as well where there are multiple apps that fit similar profiles that fit trading um there's also Taylor for tailored for the layer one yeah I think bloody Parr for Dex is that's definitely something that we're very good at so let's switch the gear a little bit and talk back to the liquidity issue so realize that hyper liquid drift and now circuit have all launched the market making vaults so wonder if you can share a bit of background of what's the you know what's the origin story behind that and why is that important for dexas sure um yeah for us it was a bit of a basically we our background is in uh crypto hft like Market making and so after the FTX collapse and the whole Alameda debacle we were about to launch maintenance so we really wanted to make sure distance ourselves from that and then uh it turned out to be like a cool experiment because it really led us uh engage the community and really create this like protocol owned liquidity while not having it be dumb liquidity it's like there have been a lot of studies on you know like if you just put if you just put funds in this passive pool that gets armed then you're just losing money on every trade and that's not sustainable for a protocol but hlp is this like Middle Ground where it takes the uni swap model where uh I guess instead of spot assets it's just usdc collateral but that is provided by um just the decentralized community and then the algorithm itself runs more like an active strategy that a market maker would make um yeah it's worked pretty well like uh it's been an experiment the whole time it's really like a bootstrapping thing like we do we want to leave room for other market makers to come in and do the parts the legs of the trade that maybe hlp cannot do um like as a fully Unchained strategy that's isolated to the hyper liquid L1 it cannot hedge on a centralized exchange but another Market maker can come in take hlp's position um and collect the funding rate spread between the hyper liquid and a centralized exchange so it really is meant to be like a building block in this ultimately um this like ecosystem of of Market actors much like you see on all the other exchanges so uh yeah that was that was the thought behind it first we launched drift liquidity provider about two months ago we hit on seven mil of liquidity since then and the motivation behind launching DLP sort of like looking at glp success initially and thinking about doing and replicating this in a smart contract level on an order book I think what we were interested in to explore was what if we could build a primitive for users providing liquidity on an order book and when I say this is fully Unchained the strategy is actually happening on the emm level where the amm decides how wide the the spread should be in the order book and then also skews sudden way depending on the inventory so similar to a market maker it has some intelligence baked into it um unlike a regular you know univ2 pool that doesn't rebalance um we and I think the experiments like hlp and DLP and even circuit I'll be interested to hear about is um can users as easily provide liquidity to an order book as they did to a unib2 pool and I think that's the kind of primitive we need for retail provided liquidity to actually happen within perps and I think once we crack that then similar to what happened with ub2 amms then the the retail flow will like really flood in so yeah I'm really excited and very bullish on these Innovations yeah so for circuit we pretty much share the same ideology behind that is that we're trying now the Vault model and see whether we could be what doing what unit swap V2 is doing for the spot market for the amm market a motto and then we're doing it for the order book model and we just launched our first partnership with drift as well so really excited for that um so as we're approaching to the end of the session um we have uh one last question for all the speaker here which is something that probably everyone's most excited about um so what are you working on right now and any exciting product launch to share uh for each of you anyone wants to kick off first yeah I can start I think um basically we we started this project called ribbon Finance like two years ago and the core idea was like a lot of users were too they didn't really understand uh options much and sort of the yields in D5 were pretty low and I think we saw these like brokers in Asia sell these Structured Products do like Bitcoin miners ethereum Miners and other crypto whales and we were trying to think like can we replicate those types of products on chain um so we've been doing that for two years I think some of the major issues with that was these products are not sort of Evergreen they work in different Market regimes uh sometimes they do really well sometimes they do really badly but I think um a lot of D5 users want something that's simpler and they don't need to think about what kind of Market regime am I in like do I want to sell ball and balls low they don't they don't really care they just want to earn yields so I think we are working on what we call Able strategies which is basically like a V2 version of what we did at ribbon and we're trying to add some intelligence to execution some intelligence to when these products sell options when they buy options when they do different types of things instead of it being like a dumb strategy that just does one thing all the time um so yeah I think we are looking forward to building these strategies and some of it will be protocol will come from the protocol some of it we're trying to partner with other people um and yeah I think basically we're trying to cater to the D5 users who are looking for sort of some sort of sustainable yield product that they kind of understand the risk profile but it's also safe for them to use so that's the major thing we are working on other than growing our options and purpose other book as well going to be having Q4 that's really cool um what about you Jeff any new product launch or any new perks that people can trade on yeah always thinking about new perps that are interesting uh it's it's cool it's like a unique opportunity as a DEX to really embrace the spirit of uh crypto and try to list these things that centralized exchanges are are incapable of doing so that's always on top of our mind um maybe like we're most excited about in the coming quarters is like thinking about how to like align incentives within the ecosystem we've been kind of putting this off for a while like you'll see hlp it was made like almost a million dollars for the depositors and you know more than seven million tvl it's really been growing like exponentially but the value capture so like the important thing is to have the value go to the protocol but it's very unoptimized right like right now it's like very Capital inhibition there's like way too much capital for what is needed uh for the market making and so like thinking about how depositors Traders market makers can all come together um and really like begin to decentralize this protocol uh is is what we're it's like the big project ahead of us yeah it's cool what about you Sydney anything on drift yeah a bunch of stuff that we've been uh cracking up so I think three things at the top of mind uh one is we're building a metamask snap that's actually launching today that allows users sending users with a metamask wallet to connect to to drift um via snaps and one of the we're the only Solano protocol that enables this right now so that opens up I think the ethereum alignment and that the area that we're starting to go into as well to really truly be a chain agnostic decks secondly we're also launching a couple of incentive programs coming up that are more unique and has a unique spin to it so I think um one one thing we're excited about is this idea of you know giving a sweepstakes Lottery style um to to users where they can trade and use their trading volume to actually win a share of protocol profits so I think that's like some interesting experiments that we're looking at and third obviously I think larger programs too to attract more like community market makers um Traders as well and really focusing on how we can you know align the interests of the the people on the protocol as well I think we have like keepers who maintain the order book we have Traders market makers liquidity providers so there's just a lot of entities right now that are involved in the protocol and like like Jeff as well I think we're interested in unifying all those and and making sure their interests are aligned with out of the protocol yeah totally and for circus site we are also very honored to launching our first ball together with protocol so all the wireless user can now test out the Vault and deposit into the wall to be a liquidity provider for drift's order book so it's really exciting what we're building together and I'm sure in the future we'll see more involvement in a deck space and one day I'm sure that there's more Innovation coming from us that centralized exchange want to learn from yeah so thank you so much for everyone's time counting coming coming to today's panel and lastly how do the audience get in touch with you what's the best way um Twitter telegram um yeah yeah Twitter is the best way um we're at drift protocol or myself Cindy the Ott yeah would love to chat yeah Twitter's good I think for us the best is Discord we like to talk to users pretty active it's not all serious stuff you know shoot the with us uh but yeah it's a growing Community we would love to have you uh hop in and say hi and ask any questions uh for us is Twitter um Evo XYZ at Twitter or my personal Twitter which is at julianco um yeah we just try to respond to most DMS so feel free to just send us a message or or something sounds great I'm sure all the speakers will be around so if you have any questions feel free to reach out to them individually and thank you everyone for joining us today my name is Sue and thank you for all the speakers as well um yeah thank you see you again next time