Why the Creator of Starbucks Rewards is Bullish NFTs

Transcript

[Applause] all right everyone welcome back to another episode of Empire not a normal episode of Empire coming up here so santi's traveling today we're gonna do a Roundup um but we actually decided to switch it up so I was having a call with this guy Adam Brockman he was the creator of Starbucks loyalty program he was co-ceo of J crew um created I mean the Starbucks loyalty program that has I think 60 million members today it's the most uh impressive the most baked out the best uh Loyalty Rewards program and I I think you could argue the world um he now runs a company called Forum three they just raised 10 million bucks they created Starbucks Odyssey Starbucks's nft rewards program

um they've also worked with a bunch of other clients helping them develop their nft reward program I think you guys know I've been pretty skeptical on like these big Brands these big traditional Brands coming into crypto so I thought it'd be fun to record the conversation with with Adam um that takes up the first like 15 or 20 minutes of this conversation and then uh if you want to hear a deeper interview get back to kind of the more crypto native stuff we launched a new research podcast called Xerox research and the guys came out with a really really great uh podcast with the founder of dydx Antonio and so the first 20 minutes of this podcast is with Adam who runs Forum three used to run J crew used to run Starbucks's rewards program worked

directly with Howard Schultz CEO of uh of Starbucks and built out their whole nft platform so that's the first like 15-20 minutes then we get into the DUI DX interview if you don't care about either of those things that's totally fine and you just want to round up for the week bell curve is your podcast this week so head over to the bell curve feed uh Vance Michael uh Mike and I do just your normal weekly Roundup on that feed today so that drops later today at like two or three p.m so anyways hopefully that wasn't too confusing hopefully you guys enjoyed this Starbucks interview I thought it was pretty interesting kind of opened my eyes to a bunch of stuff uh if you want to skip that you can listen to the doydx episode so anyways now let's get into it see you guys on

the other side uh really exciting conversation today uh speaking with Adam Brockman of forum three Adam before Forum three uh was president and co-ceo of J crew actually and before that ran Global retail Ops that's Starbucks uh it's a pretty interesting guess not your uh your normal Empire guests running a D5 protocol or running a crypto fund but really really interesting uh retail background So Adam welcome to the show yeah thanks for having me yeah it's really excited about this um all right so you're now uh running form three you guys just announced this 10 million dollar raise but I wanted to bring you on because we've been talking a lot about kind of what retail brands are starting to do in crypto and you my understanding is that you either LED or you were pretty influential in helping

Starbucks come on board with Starbucks Odyssey and crypto so I think I'd love to just start there and just hear like the why behind that story yeah sure I mean that that story really starts um in the summer of 2021 believe it or not because I I got into to learning about blockchain and web3 and crypto and nfts all at the beginning of 2021 when my friend Andy sack asked me to help him be an advisor essentially to his blockchain based web3 fund that he was putting together so I I went on my own Learning Journey and when I stumbled across these non-fungible tokens uh digital

Collectibles whatever you want to call them I was it was in it was in February and March of 2021 and I was like Wow of all this stuff with blockchain that gets me excited as a as a consumer marketer and consumer brand uh digital executive if you will I I was like whoa this is really interesting because these these digital assets are both an asset a collectible but also can form a for a form of an access pass because they're um they're non-fungible you possess them and so community and loyalty and a bunch of things could sort of coalesce around

this digital asset and I'd never seen anything like that so I in the summer of 2021 I actually emailed the CEO of Starbucks and said look I'm not Chief digital officer anymore I was actually the CEO of a company called bright Loom that was a Starbucks sponsored company and I was like look if I were you I would look into these nfts I'd look into these digital Collectibles from a from a utility perspective and from a loyalty perspective and it opened up a conversation that ultimately didn't go anywhere until Howard Schultz came back onto the scene for his third tour of Duty as CEO uh in early 2022 and by that point Andy sack and I who had been working on this fund together had created a company called Forum three

that it was sort of a side company that I was working on while I was at Breitling and we were getting into this thesis we had about digital Collectibles as an incredible storytelling and loyalty mechanism and we were working with the author Ben mesric and we were working with the Boston Globe and Howard Schultz was like Hey I'm I'm bringing some of the band back together at Starbucks and I'm coming back and you know my team and I had a good run for 10 years as Chief digital officer at Starbucks working on what is today this you know really important ecosystem they have around their app and their loyalty program and he was like look would you tell me more about what you and Andy are working on it for him three tell me more about why you guys are so excited about

digital Collectibles as a brand engagement and loyalty tool and we got into it and you know it was like a red pill in session over like three days and um and he's like would you guys you know come in Adam would you come back as Chief digital officer Etc and um and or would you know can I hire form three to work with our team to architect and develop a web 3 strategy that takes advantage of the thesis and we of course Andy and I were excited to do that so that was in April of 2022 this year and for the last six months we've been working closely with the Starbucks team and some of my old teams some new people just a big cross-functional team at Starbucks that led by the rewards team by the way because right away you think

about it Starbucks has a industry leading loyalty program we're coming in saying digital blockchain based digital Collectibles can be an incredible loyalty tool and storytelling tool and brand engagement tools so the Loyalty team at Starbucks was the primary Champion under the CMO Brady Brewer and Kendra and then Ryan butts who's the VP of loyalty that team was amazing they were instantly able to sort of grok the opportunity once we started advising and explaining to them you know how this could work and and together Forum three and the Starbucks cross-functional Journal team started to put together an architect a plan for Odyssey and that's what's getting rolled

out you know now this week yeah and so all right so you so you led this you led the design when you were there like led the design of Starbucks's mobile like order and like pay system their app and Rewards program when I think about Starbucks reward it's like it is the most successful loyalty program in retail it's 50 60 I don't know the real number 60 million memberships worldwide something like that drives probably half the business like just this this incredible Loyalty Rewards program why you need uh like why why like what's your pitch to the board or the team when you're like all right we need these nfts and they're like okay well we don't because we already built this incredible Loyalty Rewards program why do we need nfts here yeah a couple thoughts one great question and you're right about

everything you said except I think that and this is a testament to Starbucks and their brand DNA and Howard Schultz's leadership and the current you know team under Brady and Kendra and Ryan and and and you know there's a great team under the Loyalty team there they they don't just stand still like if you're not innovating you're dying if you're not moving faster to understand the pace of change inside your organization to make sure it's faster faster than what's happening outside like you could be leading one day and you could be dead the next day I mean just you know to be cliche about it you know ask Myspace you know Etc so like there's there's you can be on top of the world you cannot rest on your laurels and a lot of that by the

way was imprinted in that DNA of being Innovative and moving fast is imprinted into the culture at Starbucks by you know from the top right you know obviously from Howard Schultz and and others and um so it's not it's notice how I was like hey you should do this thing even though you're industry leading because to me where the world's going is that the consumer is changing the consumer wants to have more control of its own data the consumer wants to be more participatory in the brands it loves it does in fact it doesn't want to be a consumer it wants to be an owner a participant a Community member it wants to be part of the story of the brand that's particularly for Gen Z and Millennials but I just think in general

like we live in this hyper digital world and the consumers moving into a different mindset and so for Starbucks the opportunity is to build a layer on top of the Loyalty program notice Odyssey when you hear about it it's not it's not a different loyalty program it's not a replacement of its loyalty program it's taking advantage of the foundational assets that you have with you know tens of millions of engaged customers that already have a login already love the brand already are frequenting it so why can't you give them a kind of meet them where they are to be to give them rewards and in and engagement that's not just this like

linear like I spend money I get discounts I spend money I get discounts so don't get me wrong I spend money I get convenience and discounts it's so important that it's table Stakes like you said it's it's the majority of the business um so you know don't you dare take it away right it's foundational but it's not enough like you've got to keep innovating you got to keep growing so you know but digital Collectibles give Starbucks and other brands an opportunity to do is say great I can take I can actually manufacture so to speak on the blockchain a a digital asset that also conveys a an aura of Storytelling and collectibility but has some kind of utility it had you know it's got fun it's got It's got engagement built into it it's got

metadata and it's got and it can be an access past of amazing rewards now the case of Odyssey we went pretty far with this and created a whole game layer on top of the rewards program that infused digital Collectibles points rewards like we didn't we didn't just you know dip our toe in if you will um and so I think that's the long-winded way of answering why why a brand can why a brand should be thinking about innovating on a loyalty program because my guess is today a loyalty program at most brands is going to be considered somewhat linear and stale and secondly like how you can use digital Collectibles to sort of you know add on to your loyalty program without having to throw out the foundational work you've already done

it's really I mean it's really interesting like you know it's funny man because I I think I'm so biased from the 2016-2017 crowd class of like crypto and blockchain that so that was the time when like you know you it's like Walmart is moving their supply chain onto the blockchain with IBM it was like very Enterprise blockchain 2017 and I think I have I have this bias that like when I see these big Brands come into crypto I'm like this is that this is today's version of those Brands coming into blockchain but it but it's interesting hearing you explain this because there really is this deep thesis behind it yeah it's not it's a great point I I wasn't into crypto back then I wish I was I mean I I'm fascinated by blockchain and I've tried to study at

best I can and you're I remember reading about that sort of blockchain not Bitcoin sort of era and um yeah I'm not saying that that's not an interesting idea but that's actually just a skeuomorphic way of thinking about like a ledger or a database or excuse like I to me the fundamental so I'll I'll do my best to show you what a kind of a blockchain geek I can try and be so I love that Satoshi hishi or they I love that they invented a way to create a digital asset that's self-sovereign and possessable and ownable like that's a major like that was a huge breakthrough because like we use digital media right now in our life every day and we do digital Commerce every day but it's

not a normal thing for an average person to think about a digital asset and so what happens with a lot of digital assets is they become cryptocurrencies and they become speculative and there's a whole like we can talk for hours about what happens with what people typically think of of crypto but if you just get back to the basics of like what Bitcoin did is it created this concept of a ownable possessable you know trustless immutable digital asset that you can own that's incredible that's it just stop there and be like and if it can be branded and it can be a form of identity so therefore it can it can double as an access pass you now get the best of all worlds you get this like thing that you

can own that might be covetable and have intrinsic value because it's collectible because it's got artificial scarcity it's got maybe some brand ability and it means it's got some Rarity traits so you may have a personal reason that you want to collect that one thing because you like it or it's interesting to you or it's rare but it can but it can have utility on top of that that acts like digital media like that combination is just like really amazing and so that's to me for Enterprises it's understanding that and the reason most consumers aren't talking about it and thinking about it is because to be honest wallets are really hard to use right now and so we have to sort of bridge into self-sovereignty to where like an average human being on

this planet when you start talking about a browser extension a wallet cryptocurrency their eyes glaze over right now but if you can get them to a place where it's like hey you can participate by owning this digital collectible that has utility you know and they can understand you and they can do it like millions and millions and I'd even say hundreds of millions of consumers will be like that's cool like yeah I'd like that like why wouldn't I want that particularly if it's free like I'm not I'm I'm not even getting into any speculative value appreciation stuff like put that all to the side like when you talk about building a physical collectible as a brand like a sneaker or a bobble head or a trading card or a A Unique Piece of

merchandise if you're a brand like whatever like you don't like you don't talk about it as a brand as like oh and it's gonna be worth a bunch of money someday you talk about it as like a covetable thing that the that your consumers will love in this case it's digital so it can have so much more interesting capability but still be covetable and it has to have you have to give the person the ability to sell it if they or buy one on an open market if it's truly ownable and possessable so to me those are the things that are sort of unlocks for consumers and Enterprises and the like hmm fill in on how you think about utility because when I think about so the so nfts in my mind have always been there

is no utility it's a story about a collectible and there's like and it and it's really the story of Collectibles over time it's like my rookie year Barry Bonds card doesn't have utility except for the utility it brings to me and there's like a hundred ten thousand other people who just love that Barry Bonds rookie card and so and so we all think it's valuable and then that translated into like the early version of nfts which was like punks and like board apes and like noodles and things like that which there really wasn't much utility it was just like it's the story behind it but it sounds like you're thinking about both the storytelling and you're saying look you can have the storytelling but also there's utility on top of it correct you nailed it so to me I've been saying for a year now what I

love what gets me excited about nfts digital Collectibles blockchain based digital Collectibles is that they are a collectible that's digital that also can double as an access pass and access passed to any other utility that the Creator wants to put into it so what so yes it will have some utility hopefully as a collectible like like you just said emotional intrinsic value either personal or because it's rare or whatever but that's like a baseball card like you said but the fact that it can also double as an access pass to have continual utility programmed into it by what the Creator whatever they want and by the way it's not one and done because it's digital it

can continually innovate and there can even be collaborations you could the utility could kind of come to life a year later when another brand or another artist decides to collaborate with the token holder and give it additional utility so it's got infinite ongoing real world utility in terms of like you can use it you can token gate access to merch to experiences to communities to things that are real Beyond just the intrinsic collectibility of the item itself and it's the combination of those two things that I've I'm you know I'm I'm going to dedicate my career to I just think it's interesting do you think every consumer so uh have you been following what's what Nike's doing right they got the RTF KT now they've they've just launched uh their nft platform with

DOT swoosh they're selling yeah sneakers for 50 bucks very familiar yeah genius idea um yeah there's I I'm a big fan of what they're doing do you think that every consumer brand in the in the next decade we'll launch some we'll we'll do some we'll have an nft strategy basically yes I do and the reason I say that is um it's called you know I I don't take it lightly that it's called web3 for a reason like I that would be like asking somebody in 1994. do you think every brand will have a website now in 1994 that was not a that wasn't that was a legit question just like your question just now is completely legit like in 1994 in fact a lot of people would have said no to that question I don't think every

not a website's not for every brand it's only going to be for newspapers or it's not going to be the information platforms like the new yeah exactly put their newspaper on the internet yeah yeah here I am having a video conference call with you amongst 60 tabs on a browser like we are having a web-based recorded podcast conversation over a web browser right now which wouldn't even like occur to us I think of I don't I don't think of I don't think about digital Collectibles and blockchain based things like like nfts as being I get excited about the technology of it about the possibilities of it like I don't think about it as like the thing the nft per se I think it's like oh this is an interesting way to think just like when the iPhone came out

and I was at you know I was at Starbucks right after the iPhone came out and we were amongst the first companies to create a mobile app and it's not that dissimilar to the conversation Jason that you and I are having right now which is like huh this is really interesting everybody's gonna have a high speed touch screen computer that's connected in their pocket and it can have these apps that anybody can create an app for like I wonder what Starbucks could do to have a better relationship with its customers using that technology it wasn't like let's just do an app right it wasn't like you know remember how I don't know if you remember back then everybody was doing an app just to do an app or whatever like it's it's and so I I think of it in the same way which

is you know the art of the possibility with this kind of magic it goes back to like Satoshi in the blockchain like and Bitcoin like they're they're you know the creation of an ownable possessable digital asset uh they can have you know and of course with vitalik and ethereum did with you know the expanding it out into smart contracts and and and um the ethereum virtual machine idea and dapps and like that's that to me it gets me excited those kind of things and like using those as building blocks to have a better relationship with your customer do I think every brand is going to take advantage of this in the next 10 years in the next five years absolutely I do yeah can you share any details around brands that are thinking about this

um I mean I can't share any details around brands that are thinking about this that aren't in the public eye already but you know I definitely think that when I when I if you were to ask me right now who's doing the most interesting stuff um uh I'm biased so Starbucks Nike dot swoosh combined with what they're doing with artifact and just the way that they're the way that they're approaching the space is just really smart so I'm really proud of what Starbucks is doing excited about Nike's doing I mean let's be honest like Top Shot in NFL all day and what the NBA and NFL and Dapper are doing is pretty cool like they you know they started this whole thing it got kind of mixed up with how a lot of people graduated from that into kind of the speculative nature of pfp projects

on open C but you know tip my hat to Dapper and tops in the NBA and NFL for what they're doing there like utility storytelling collectibility rewards you know challenges and set completions that's really interesting um you know I think I read something about NHL is coming out with something that they're doing with sweet uh I think that um uh the um uh you know and I'll go old school in the nft world for a second and that's going back like a year or two which is um uh I really think what the hundreds does and Bobby hundreds and the atom bomb squad yeah it's like like he's just

he and they at the hundreds and what they're doing yeah yeah it's just like you know I mean nobody knows more literally nobody knows more about thinking about like collectibility and community and fashion and flexing and again he's just done an amazing job of like thinking about Adam bomb squads and now they've got the bottoms and then they have like token gated utility to exclusive access to early drops or certain merchandise or collabs like like all day long tip my hat to Bobby what do you have any thesis on what happens to like the OG I know you have to jump in a minute or two here but yeah like what what happens to like the OG nfts where there is no utility and there's no utility and there won't ever be utility like the punks of the world

do my thesis and this is obviously you know my personal best guess of course is that punks and apes and um you know art blocks and yeah well yeah I mean maybe Doodles as well like I there to me I would like and it's hard to know because certain things like punks if they just leave punks alone Yuga and I'm guessing art blocks is kind of in this category maybe X copies in this category and some others like like then they become like just amazing like warholy and collectible art and they've got problems would not be in that same group I mean it depends no but Doodles is interesting Doodles and board apes

are kind of a crossover in the sense that they're like they're gonna I think they're gonna be given provenance and collectibility for the fact that they were like amongst the earliest most collected and coveted I'll call it art they they're more like the Michael Jordan rookie card now it'd be like the Michael Jordan rookie card and then all of a sudden but there's a company behind it that could potentially add value collaborations and do things so like if they might have like a Doodles and a board eight between metaverse collaboration I think they might have the best of both worlds they might be able to like like would you rather have a Honus Wagner that does literally nothing or would you rather have a Michael Jordan but like you it's less rare but you can then go meet Michael

Jordan once a year and have dinner or something there's utility correct or it becomes an access pass to get like the next Jordan thing that Nike comes out with or whatever like there's there's I don't know the answer honestly Jason I don't think anybody can know does that enhance the the ultimate provenance and collectibility of just the token or does that hurt it my guess is it it's a little bit of both and it depends on how they execute and if they become I mean if you study the I've been studying Jordan uh sneakers and I'm not an expert but like they you know if you look at the history from the Jordan one up to the Jordan 22 or wherever it ended or ends I don't even know but like it actually you have to like follow his

career and there were times where like like what he was doing on the court affected the collectibility of the shoe and so it's it's interesting right so like to some extent we'll just have to wait and see uh but I I you know to me like you know punks and apes and some other stuff like I I can't imagine they're not coveted and collectible in you know as because you know there's only a few million people on the planet that have ever bought or sold in nft so um we're to say we're early to use that sort of like cliche is uh an understatement yeah anyways man I didn't get a hard to stop here great

conversation appreciate you coming on sharing some details congrats on uh The Big Race today congrats on everything you've done to Starbucks um yeah man it was awesome and yeah we'll put links into the show notes and forum3.com and all that kind of good stuff so yeah thanks thanks for having me on uh sorry I had to go be only so quick and I'm happy to come back anytime if you want awesome man really enjoyed it take care man and we have a great uh interview upcoming for you all with the founder and CEO of dydx Antonio Antonio how are you doing today I'm doing well thanks so much for having me appreciate it yeah I really appreciate you uh you know spending some time and hopping on here with us and really the the kind of the meat of what we wanted to hit on

today is d5's role in regaining the trust of the industry uh given the FTX collapse that we've we've seen over the past couple couple weeks now and and really how dexes are built around transparency and kind of like and what uh you know how these models are really built to avoid these exact situations that we're seeing it play out in FTX so I'd love to give you the floor to give yourself a brief little intro and then if you could lead that into kind of just giving us a recap of of what happened with FTX in your eyes yeah absolutely sir first maybe a quick background on dydx before we dive into FTX so dydx is one of the leading decentralized exchanges we trade about a billion dollars a day every day on dydx and we're unique compared to most

decentralized exchanges in that we're focused on more Advanced Financial products like Financial derivatives so we've been around for a little over five years now we're kind of one of the OG's in the D5 space um but yeah we've been experiencing some really big growth recently um and are just kind of excited about the future of the Dex industry overall so kind of zooming in on what happened with FTX I think none of this is super proprietary information but just giving you my view on what happens at a thousand foot view so I think it mostly started with some negative backlash against SBF and FTX against some of the policy stuff that was going on so I

won't go into too much detail in kind of the overview of what happened on the policy site but suffice it to say he was advocating for some policy that could potentially have had pretty negative effects for D5 and dydx and a bunch of others had kind of flagged this as something that could be really problematic and I think the industry jumped on this in a pretty big way and just I think it's been really interesting to see how much support there's been for D5 both in kind of the overall brand and Narrative of crypto and it's really good to see that people continue to be really excited about what D5 means for the industry long term and see that as something that's really

valuable to protect but back to FTX and in SBF so he was advocating for this bill to be past the dccpa which had this kind of provision in it that effectively traded D5 exchanges the same way more or less as centralized exchanges and we and a lot of other people in industry think that doesn't make a whole lot of sense because it's fundamentally new technology and even if a lot of the platforms wanted to comply there probably wouldn't have been a path for them to do that under the way the legislation was currently written so you got a ton of backlash against this and I think this was kind of the beginning of the end in terms of exposing some of the flaws in the brand narrative around SPF

and FTX and I actually think that was really important and probably the second part wouldn't have happened without this first part but that was kind of the first part and that was about a week or two before the ultimate collapse of FTX and fast forward another week and this I think it was the block article or somebody else had effectively leaked the balance sheet of Alameda trading Alameda I'm sure everybody knows at this point is kind of the sister hedge fund of FTX and this kind of raised a lot of questions about well is Alameda Sullivan so this seems like they're holding a bunch of these and not super liquid assets as collateral and making a lot of loans based off of them and people were

making at the time seemingly a lot of conspiracy theories about how this could potentially relate to FTX a lot of those conspiracy theories ended up being true right we didn't know that at the time um but people were questioning oh is FTX solvent how much exposure could they potentially have to this and fast forward a few more days and then the really big thing that started happening is people started losing confidence in FTX and that resulted in this run the bank situation where tons of people started withdrawing their funds from FTX I forget what SBF said the total amount requested to be withdrawn from FTX was but it was a lot probably on the order

of like 50 of the entire assets on the exchange and there should have been no problem for them to handle right if they had just had all of the funds sitting there in cold storage or something secure like that but that wasn't what was going on clearly and I think fast forward one or two more days and we didn't hear anything from SBF or FTX for a day and everybody was like hey what's going on um and keep in mind all of this was pretty much just playing out on crypto Twitter and in a few crypto native Publications as well but still at this point most people thought that fgtx was totally solvent there were still some rumors but the things I was seeing most

people say were like hey this is pretty sketchy but yeah 99.9 chance FTX is solvents right but still this is a little bit sketchy and then I think the bombshell tweet the next morning was SBF tweeting that they were getting acquired by binance and I saw this so I woke up and I think it was morning on the East Coast at the time and I was like holy hell like what the heck how could this possibly have happened I thought it was a joke first to be honest kind of a bad joke but then I saw cz's tweet effectively confirming it from the other side that at least at that point in time they were planning to acquire FTX and then that was just one of the most

shocking days I can remember in my entire eight or so year career working in crypto and I think if we zoom out and give a little bit of context to this moment too I think it was really significant because of the amounts of trust and brand value that FTX and SPF had built up at that point I think they had made it a huge point to be one of the leading narratives in crypto like they were putting themselves out there in Washington like I mentioned before in a really big way through running a bunch of AD campaigns obviously SPF himself was doing a really good job building his personal brand in crypto and it was a really concerted effort to kind of become the main narrative in crypto and

I think that's really interesting how much people how much just kind of brand values stock people put in FTX almost even beyond the amount of volume and adoption that they had I don't mean to to kind of belittle the amount of traction they had they were one of the biggest exchanges in crypto but you know they were trading relatively similar volume to like an okx or a Hobie or something like that and they had way more Grand value almost to the level potentially even more than the level of a binance who had 5x more you know Enterprise Value volume whatever you want to call it um so I think and I'll stop there in the story we can keep going if it's of interest but uh I think this was certainly one of the most shocking days

I can remember in crypto and I think has a ton of Downstream effects both for defy and the rest of the industry what do you think the long-term ramifications of all this is for centralized exchanges do you think maybe they'll try and incorporate like self-custodial accounts or do you think they're just way behind the curb and all the activity is going to migrate to defy what are your thoughts there try to integrate self-custodial Accounts at some point I think that's pretty far down the line um probably five to ten years down the line if I had to guess and potentially even never um I do see some positive movement from centralized exchanges in terms of transparency specifically around things like exchanges stepping up and doing

proof of reserves it's like tangent but I think some of the proof of reserves as they currently stand are a step in the right direction sure but they are a bit problematic as well in that they really don't tell the whole story right even if Finance says they have you know I don't remember exactly what the amount is but say 10 billion dollars of crypto or whatever the case may be you know how do you know that that sums up to all of the balances on the exchange and even if you know what the some of the balances on the exchange are you don't know what the liabilities of the exchange were so even if fgx had done this you wouldn't have been able to see their liabilities to how Alameda or whoever else they had so

I really wouldn't have solved kind of the root problem here with that being said I think the move towards transparency and the industry demanding that is a positive step um I think longer term and this is kind of what I talked about to the dydx team right after this happened obviously this gives me a ton more conviction in what we're building in dydx and D5 more broadly that's always been the goal is to try to build a financial system that is transparent that is secure and where this kind of stuff just fundamentally can't happen right and I think it's unfortunately a lot of times takes times like this for people to realize that that's the case I think just humans are really bad at predicting tail risks and even kind of understanding tail risks

right but things like exchange blow-ups things like security hacks uh just our you know 10x worse than the kind of positive value you might get out of using a slightly better incrementally better product um so I think it's really important that the crypto industry does move more towards D5 over time that being said I still think that is a little ways away I like to think we're at the Forefront of pushing forward what's possible on the product side with defy at dydx but even for us I I think it's probably five to ten years from now until D5 starts really competing with C5 Head to Head from like a metrics perspective I just think that this technological change

takes longer than people think and I actually think that's kind of the root cause behind a lot of the price action behind a lot of the hype action that we see in the space overall right like I think the narratives in crypto almost from the very beginning have been right basically like you can be your own bank that like absolutely was a real narrative that has played out with Bitcoin with D5 it's like you can be your own exchange we can create this financial system that's based on code and we're getting there if there's some really useful products like dydx uniswap compound Ave and others that exist right now yes they don't have the metrics that centralized products have yet and I think that kind of makes this Dynamic play out where you know there's a new

narrative that's fundamentally fundamentally enabled by a new technology but then the technology kind of sucked then like people get excited about it right but then the technology kind of sucks so people are like oh this is like you know dump all the prices you know defy D5 sucks like I'm out um and then a little bit more time goes on in like the next generation of products are built in people are again like oh wow like this could be the future but then people get too excited about it and then it you know booms and Boston booms and busts but directionally it's up and to the right and I think we've seen that with crypto since the early days and now we're kind of seeing that play out with D5 as well but zooming back in what is this what is the FTX debacle mean for defy in the short

and medium and long terms I think long term it's really positive and like I mentioned does really speak to the need for what we're building building I think in the short to medium term it could potentially well it definitely will be negative for crypto overall just there's going to be overall a lot fewer people trading crypto as people lose faith in the industry there could potentially be some negative regulatory backlash on both centralized and even potentially decentralized exchanges and I think it's generally just going to make it harder for everybody um in the near to medium term call it the next one to three years or so but it makes me a lot more optimistic for the long term and that's really what we've always tried to build for at dydx yeah

that actually segments segues me well into the next question which is you know with centralized exchanges they're pretty sticky because like kycing getting a bank account set up like it's a big process but then in D5 you know you have open source code and you know there's increased competition because people can just Fork it and then you've also got really low friction to move from one protocol to another and you know people vampiring attacking liquidity how do you view actually creating a sticky product in defy and and how do you retain kind of a moat yeah it's a good question I actually think it's pretty similar to the way you do it in centralized exchanges as well you do it through brand predominantly and that's not to say it's some like Big Marketing sham or something like that I

think the fundamental technology really plays into the brand right and that's what we've we're always talking about on these podcasts right we're sitting here saying yeah this is the future of Finance that's governed by code it's transparent it's secure and that's brand right um it is kind of a concise encapsulation of why you might want to use these products let's maybe take a specific example um and maybe a third-party example that's not dydx but take something like unislop like why does why was uniswap way more successful than Sushi swap now the products are like a little bit Divergent right so maybe there's some differences from a product perspective but right after Sushi swap forked uniswap and if anything probably through

more fuel on the fire with the token the sushi token which came out before the uni token right like why was that not successful and I think it really comes back to Brand even right after the fork uniswap had a good amount more volume and I think that's just because people trusted the uniswap brands it was a website they knew it was like a team and product that they knew um and even fast forward to now if you look at the amount of volume that's going through like a uniswap.org even compared to a DEX aggregator there's more going through uniswap.org which if you think about it as a product Maxi like actually doesn't really make sense because you get objectively better pricing by using a DEX aggregator than you do on uniswap no shade at all to

uniswap I think they're the best spot decentralized exchange but I think it really speaks to the power of brands that they've been able to build as an example and I think it's really the the same case if you look at something like in FTX and that was kind of where I started my story right because I think it's a really important backdrop to literally the fact that they were misappropriating user funds they lost the faith of the community and their brand really started to to suffer and I think if you look at the the companies that have been really successful for centralized exchanges like binance first and foremost they've done a great job of building up a brand you know CZ is always out here tweeting like Safety First Safety First like users first

users first and of course that's what you want to see if you're a Trader in the space I think dydx and decentralized exchanges more broadly can kind of do a 10x better job eventually of creating that brand and it's not going to be with thousand person marketing deposits it's because enough people are going to get it and they're going to understand hey this is a new Financial system that's built on code not on intermediaries and that's like the best brand you can have from a transparency and security perspective so that's how I think you really create a moat in defy and probably in crypto in general um and I think it's actually probably more similar to a centralized exchange from like a go to market perspective Than People realize yeah absolutely and

you know even when the like the early days of the early days like a couple weeks ago when FTX was truly collapsing right we saw this significant Exodus of users moving their funds from centralized exchanges to their self-hosted wallets I know we saw six billion dollars of ethereum and stable coins uh leave exchanges over that period um you know and then the question is well where's this money flowing right uh and if you guys have a great uh metrics dashboard on your on your website and you know looking at that week starting November 6 right 10 billion dollars of weekly volume which this level's not seen since May a 67 increase in week over week active takers and a 250 increase in week over week unique depositors so you really see that you

know when FDX really started falling apart there was this demand for this transparent trustless alternative and it doesn't come down to you know maybe this is the shift that the market needed and like when you talk about short-term versus long-term trade-offs right like maybe this is like a you know some short-term suffering we needed to do for some long-term success and kind of shaking out some of these Bad actors um and I guess you know really what I'd want to see I want to hear from you is you know when you think about what DUI DX needs to be like you're truly offering the same experience as a centralized exchange like what do you what are the things that you think are missing today um you know some of the things that like a key component of a decentralized exchange right is liquidity so how do

you think about getting like reliable and deep liquidity on your protocol yeah that's been a big Focus for us over the past year or two and for the protocol more broadly um one of the things one of the interesting things that dydx as a protocol has done and since uh the launch of the dydx token is kind of Point liquidity mining at liquidity provision on the exchange and for those who aren't aware dydx is not an automated Market maker it's an order book based exchange and that's pretty intentional because we feel it gives us the best ability to create really liquid and deep markets but it's a trade-off right it's not objectively better than automated market makers and the trade-off the protocol is making here is

that you require a more professional liquidity provider it's basically crypto hedge funds to step in and provide a lot of this liquidity and on centralized exchanges they're normally incentivized to do this like the centralized exchange will do things like give them loans potentially give them monthly rebates potentially give them preferential features all to kind of incentivize them to provide better liquidity on their exchange versus competitors and that's kind of the approach we've taken as a protocol towards getting liquidity on dydx as well and with dydx we can actually do something that's super unique and that I mentioned before in that we can point the liquidity mining or part of it directly at this liquidity

provision um and effectively what was done is that there was a formula that was come up with that effectively scored the quality of liquidity these professional liquidity providers were providing to the platform um and then you can use that formula it effectively will give everyone a score like winter mutes gets like a 10 score for liquidity this Epoch or some other Market maker gets like a five and then you can use that to divvy up the liquidity rewards the token rewards that these players are getting so there's literal incentives and it's not exactly the same thing that centralized exchanges are doing but we and others who kind of came up with this

effectively use that as the the background for how we think about this from first principles like how can we incentivize liquidity providers through the protocol so that's kind of the first way and then kind of zooming out and taking your question like what does the protocol need to do over all to be able to compete more directly with centralized exchanges I think there's a lot still to be done on the UI ux side again I like to think dydx is really at the Forefront of this and one of the things that keeps me excited about building in defy and building on blockchain technology is that the speed of execution and the speed of improvement for blockchain technology

has been exponential maybe it hasn't been as fast as some of us want but it still has been exponential like we can process multiples more transactions every year the latency is lower kind of the complexity of applications we can build on top of various blockchains is significantly higher year over year and I think a result of that is that whichever protocols want to be successful long term really need to keep building on the new technologies that continue to be multiples better than the old ones at dydx we've really taken this to heart and our current product which has been live for over a year I think almost a year and a half now if not

longer is a layer two exchange we've been on Layer Two before most people even knew what it was um and in partnership with stockware and that's really given uh at least 10x if not more Improvement to our product experience it's given things like users can trade with no gas fees right and that's a huge improvement over paying ten dollars plus for every trade you might want to make it gives things like much lower latency and we're really looking to continue that into the future we can dive a lot more into this uh in in a sec but the biggest thing that we're working on right now is the next version of the protocol and really the goal for us there is to keep a lot of

the great performance improvements we've been able to get with our layer 2 protocol but add full decentralization as well and that's a really tough task right it's really tough to like people always talk about this trilemma of decentralization and scalability but it's tough to get everything that that you might want to have but really we're trying to push forward and use some of the new technologies that are available to us like specifically we're building the next version of the protocol V4 with our own Cosmos based blockchain and kind of moving off of the ethereum landscape and we can dive a lot more into that but we really feel like it gives us the best opportunity to potentially build the

best possible product long term saying just a little bit more about what D5 needs to do I think from a product perspective I think UI ux is really critical um it's just a lot of basic things right like how are we going to be competitive with binance when on a lot of platforms at least people are still paying upwards of ten dollars in transaction fees per single trade or action right that's ridiculous right that's clearly worse um there are some things that are obviously better about D5 like the trans currency the security even some UI things like it's actually way easier to onboard to most D5 platforms because you just connect your wallet you don't have to go through this lengthy onboarding process of doing kyc like setting up your 2fa for all these different

accounts etc etc and I think defy needs to lean into that and do more of that long term and kind of figure out these potentially 10x better ways that we can actually build better products through ease onboarding through things like composability then centralized exchanges and financial products can and that's really something that we're looking to lean into at dydx but it does take time to build as the technology is still pretty nascent right I mean decentralized exchanges were really just invented like six or seven years ago and fast forward to now we're trying to compete with some of the biggest Financial products in the world and that's a tough task but I think even the fact that we're in the conversation now in a big way gives me a lot of Hope for

what's possible to build in the future yeah absolutely and I see Dan chomping at the bit to ask you about some some of the V4 rollout details but uh I want to ask you one question real quick that's kind of boring but uh gotta get your take on it what do you think the regulatory Fallout from the FTX situation is and maybe how it pertains to do idx yeah I mean I think the knee-jerk reaction from most Regulators will be to over regulate the crypto space and absolutely there should be some regulation on the crypto space probably a good amount more than there is right now the major distinction I think I and probably most people who understand what's going on in the crypto space

would make is between centralized Financial products and decentralized financial products right but I think there's a huge amount for us still to do on the education side for policy and that's been something we're really trying to step up our game on at dydx um actually or just bring on a head of policy I'm spending some more of my own time on this and really just trying to approach it not necessarily so much right now at least as hey like we want these specific things to be passed or not passed but more from an education perspective and getting the word out there right just literally saying exactly the same things that we're saying I'm saying on this podcast or right now like hey D5 fix is this If This Were dydx instead of fgx there's no

way Antonio could have you know went all the funds to some hedge fund and blown everyone's money right it's just fundamentally impossible and the fact that that's the case even though D5 is super nascent I think makes it really exciting potentially for for a lot of regulators objectives right and that's really the case that Austin a lot of other really great people um in the D5 education fund blockchain Association to name a few amongst others are really trying to go out and do um but all that being said I think we're playing from behind here and I think there is just a ton of scrutiny in on crypto from the entire world I mean I opened up my phone today and opened up the New York Times and literally the

first thing was like FTX and you know the New York Times talking about how they were misappropriating customer funds and all these things and if you're a policy maker you read the same news right and you look at that and you're like holy we need to regulate crypto um and like I was saying that's not necessarily a bad reaction right A lot of these especially overseas exchanges have been allowed to exist outside of the regulatory framework for a long time but the main thing I would ask and advocate for is that as a lot of this policy is being crafted that's it's at least done with the understanding of what D5 offers I wrote kind of a long tweet thread on this a week or two ago but I was basically going through a lot

of the core policy principles that the cftc puts into like how clearinghouses are regulated and they go through a lot of these principles and you know you think about regulation usually as what are literally are the laws but I think if you go a level deeper it's pretty interesting to try to understand that right and a lot of the principles are things that are really common sense it's like okay The Exchange should make sure that when it does a trade both sides have the funds okay like obviously we should do that but like in C5 you need regulation to to enforce that that's the case um but a lot of these things are potentially 10x better in D5 right it's like okay if you're going to swap or the dydx smart contracts it does it by

default um or a lot of Regulation pertains to transparency like customers should understand where their funds are um and the custodian shouldn't like lend them out or do other sketchy things with them it's like okay this is like pretty simple like we can all agree like this should be the case I think a lot of people in crypto kind of have the misassumption that it's like us versus The Regulators or whatever and I think unfortunately that has been the case in in some ways but it's really not the case long term I think and it's really not the case if both sides are able to kind of understand from first principles what the other side is trying to do but I think even if that's the case it does

take a huge amount of leg work and if huge amount of effort to convince people that that's the case and really educate them on what's possible and really what we and other really good people are trying to build in D5 yeah there's definitely some irony there that you know if you're a centralized or if you're you know a regulator and you're thinking about how we resolve or remedy the situation you're like oh well we need how do we solve this and the reality is you know we have teams in crypto that have been building on uh creating the code to exactly solve these problems so you know I'm glad to hear that you and your team are working on this because my I do fear personally that we might get some overarching blanket regulation that kind of constriction constricts the uh the growth of the industry of course that's

like my my bear case but uh yeah again really glad to hear that we're pushing forward in the right direction there and before we kind of pivot over to some of the V4 dyd exchange stuff I kind of want to get your take on how you view risk management of like listed assets so one of the theories I saw circulating in the Heats of the FTX collapse is how did Alameda actually lose 10 billion dollars right that's just it's not exactly it's not exactly an easy thing to do and one of the theories out there was they actually acted as the Insurance Fund or the the backstop in the liquidation mechanism um and you know so going back to earlier in May when we saw Tara Luna unwind you know the Luna price collapse was extremely rapid and we saw you know even one minute candles that were significant

percent decreases and so there's a theory that like this kind of put the initial Hole uh or hole in the boat of Alameda and so you know currently you guys have a vote live uh on your governance platform to wind down the safety module uh mostly around the proposals kind of talks about how it's mostly around you know more of like an illusion of safety and it's if dydx were to experience some issues uh then you know the Insurance Fund likely would experience losses as well and the tokens would kind of have to be swapped from dydx tokens to usdc so I'd love to just get your take on kind of how you see building out a safety module is that something that's even necessary and really just risk management around which assets get listed and how how the protocol is susceptible to these price

movements yeah absolutely so that's a great question and a really big and kind of deep technical topic here um on the first piece with kind of the financial stability of call it the derivatives contracts on FTX and other platforms so yeah I mean I think that's certainly a theory at this point I wouldn't be surprised if that were the case but I would also guess that the balka funds that Alameda lost were more based on a lot of their Venture Investments and probably lending activities that they were doing just the notional value of a lot of these derivative contracts I'd be surprised if it were high enough that just from Bad liquidations or losing money on liquidations they could have lost that much money but that being said like it absolutely is a risk

um and I think one that just takes a lot of financial modeling to look at what are the appropriate risk parameters to set for a lot of these Financial contracts we do a lot of work behind and others do a lot of work behind the scenes to to set those parameters effectively on dydx and I think the advantage of something like dydx is first of all that is transparent I mean I've said that a million times but I'll keep saying it so at least you can see what all the parameters are on these contracts you can see and verify exactly the balance of the Insurance Fund etc etc and then also that anybody can kind of step in and help to govern a lot of these parameters on the protocol and

one of the interesting and I think exciting things about dydx governance specifically is there's a lot of really good people that are participating in it right now and a lot of people that really know what they're talking about it's like some of the biggest participants in dydx governance have been a lot of the trading firms and also a lot of the really good kind of more research focused uh firms that are looking at a lot of these D5 protocols um and I think just the fact that a lot of people can come together and express opinions Express positive opinions Express potential risks and negative opinions kind of bodes well for the future of risk management on a lot of these D5 platforms and I think we've

seen that be the case for a while now um again like the Insurance Fund on dydx is totally transparent um and I think we lost something like ten thousand dollars out of the insurance funds right after the FTF the volatility after the FTX collapse and to give people a sense of scope the dydx Insurance Fund I think has like 15 million dollars in it right now so it's like a really negligible uh loss based off of that um and it's all transparent at least um what you were talking about with kind of the dydx safety pool as well I think does play into this a little bit that's slightly separate from setting appropriate and kind of safe risk parameters across the contracts themselves

um but kind of the original thesis behind having that fund was just to have some backstop liquidity and effectively funds to be able to step in in the event that the protocol loses money and it eats through sorry maybe taking a step back there's like two different Insurance funds on dydx the first Insurance Fund is really financially similar to how the insurance funds work for perpetuals on binance um FTX and other Platforms in that they're paid into as people get liquidated on the platform so it's sort of like slowly grows and then if there are times when there's extreme volatility and you can't liquidate people fast enough then that insurance

funds will like Drop potentially drop in value this is a very rare occurrence and like I was just mentioning hasn't really happened very much at all on dydx so that's the in first Insurance Fund that's not going anywhere second like Insurance Fund is more of a protocol level Insurance Fund um and on dydx the way this worked was pretty simple there was a smart contract where users could stake dydx tokens in exchange for some newly minted apply basically liquidity mining staking rewards on dydx and kind of the problem and you alluded to this that some people had raised on the governance forums is that it's reflexive kind of in a negative way right so Suppose there were you know God forbid a huge security

vulnerability or just like some Financial attack on dydx and the protocol started losing a lot of money probably that would impact the token price so at the time you need it the most the amount of funds like in this Insurance Pool um that is all made up of dydx tokens would go down and then people would see that there was a hack or there was an exploit or whatever and then they would also see that oh hey like what is the Insurance Fund going to do in this situation probably it's going to sell off some of these dydx tokens to try to repay back the protocol so that would drive down the price even more um and then it just kind of creates this vicious cycle where potentially the price of the token goes down a lot and

even worse than that the amount of funds that's our year marked for recapitalizing the protocol in this case could be less so I think like the first step and this is kind of what's being discussed in the governance forums right now is potentially to remove this and potentially replace it with something better long term and that's something we're thinking about in the Pro the community more broadly is thinking about for for V4 but there still exists this kind of first level Insurance Fund um and of course the DUI DX and any token governance for this matter can kind of appropriate funds out of the community funds however they see fit so like even if there were some exploit or something like that the community could

still if they wanted to step in and recapitalize things without the literally just having funds locked in the Insurance Fund yeah that makes a lot of sense and on the same topic of governance like I feel like no one's really figured that one out yet and dydx is kind of pioneering like a new governance structure with the sub-dials do you mind diving into that a little bit and also uh explaining how that might fold into the dydx chain in V4 yeah absolutely so first of all just a disclaimer all of this thinking was more put out by the dydx foundation which I'm not a part of um but that being said I did read the blog post um and have some decent understanding of it so I think the high level idea that was kind of put forth and is still being

discussed by the community is to have more as you say uh sub Dallas to manage more different types of functions throughout the protocol the things the foundation was talking about in this post were things like potentially a growth sub-dial so like how could the protocol do marketing long term oh it probably makes sense to have some group of people that's overseen by the protocol to go out and be able to do that or how could the protocol do customer support long term like clearly that's a really important part of any product but as the protocol really pushes forward towards not only decentralizing the product but decentralizing the organization as well I think this is a way to do it that makes a lot of sense right just kind of

organizing these different functional groups that are pretty separate into kind of plug and play organizations more or less that can be owned and overseen by um the Dow like the the open Master dowel if you will of dydx token holders themselves um so I think there were some ideas like the growth one the customer support one there I think also was a operation sub-dial that they proposed to kind of make it easy to make and you know administrate all the other dials because it's actually quite hard to like spin up all these legal entities like nobody really knows what it means to like be employed by Adele yet so what does that

mean and how can we have just a lot of really Plug and Play infrastructure as a protocol for a lot of these sub Dallas long term so I think it's still something that's being discussed and does have decentralization trade-offs but I think it's a really you interesting and kind of exciting way to pursue this like second but also really important goal of decentralizing not just the protocol but the organization in colleges like group of people behind the protocol itself um so I'm excited to to see more discussion of that going forwards yeah we're still kind of feels like we're trying to discover the Silver Bullet within D5 like what the best governance model really does look like we've seen

some good experimentation with with kind of what this sub-dial model looks like so I'm excited to you know see another protocol discussing really pushing that that forward but it kind of like kicks us off into this the V4 section of this which as Sam alluded to earlier I'm super excited to get into I know you all have been working on dydx Jane for a couple months now and there's a pretty massive undertaking kind of starting your own chain up from scratch so I'd love to just get a general update on on how the last couple months have gone and where you all stand with the build today yeah absolutely so we've probably been working on it for nine months plus at this point um and fast forward to now pretty much the entire team at least the entire engineering and product team is laser focused on V4 which is the same

thing as the dydx chain and as the name suggests and as I mentioned before the thing that we're building here is our own blockchain and the way that we're doing that is developing based on the cosmos SDK which is kind of a plug and play way to spin up your own blockchain I talked some about this in my initial blog post and on a couple different podcasts and stuff more around the time that was announced so I won't go too deep into it right now unless that's of interest but the main reason that we decided to build our own chain is to decentralize really the core part that is centralized on dyd active E3 right now and the core part that is centralized on DUI dxb3 right now is the

matching engine and kind of the order book we effectively run that in in a centralized way through our company right now the protocol in V3 is still totally non-custodial and smart contract based but we do run the order book and Order matching engine for performance reasons you might ask why do we do this and the reason is that it's really hard to decentralize an order book in an order matching engine an amazing reason for that is because matching engines require a really high level of scalability to kind of give you a sense on the dydx V3 matching engine right now we process about a thousand orders per second and matching engines for platforms like binance or like the New York Stock

Exchange process orders of magnitudes more operations per second than we do but we uh we you know wanted to fully decentralize the protocol that's really aligns with the ethos of what we're trying to build and what makes sense for D5 long term so we kind of took a step back and thought about well how can we at least attain an equivalent level of performance to the dyd xb3 matching engine right now with call it on average a thousands orders placed and canceled per second and we took a look around at all the different scalability solutions um you know right now we're built on top of stockware which is a layer two roll up on top of ethereum looked at other layer 2 Roll-Ups we looked at scalable

layer one chains like Solana and a few others obviously we looked at building our own chain and we asked ourselves hey which of these platforms can support a thousand orders placed and canceled per second and not only that but with really low latency and also with ideally little or no gas fees right because market makers really don't want to pay a lot of gas fees just to be able to put quotes on the book um and the answer we got back was none of them not even close so we went back to the drawing board and we were like okay well that's cool like we want to build this order book based decentralized exchange and we can't do it on any blockchain so what are we going to do and the answer we can came up with I think is pretty novel and

we're pretty excited about and really is uniquely enabled by Cosmos that's the story but the answer we came up with is to build an off-chain but decentralized order book and matching engine and the way we're doing that is we're coding it directly into the open source software of the validator sort of as like a sidecar that they run and this is really uniquely enabled by Cosmos right because you as the developer is effectively can write into the open source software what the validators are going to be doing right and some of the things the validators are doing is normal mode consensus stuff and some of the things could be whatever else you want so it could be like coming to consensus on

what the order is placed and canceled should be but if you do it this way all of the orders that are placed and canceled never actually make it on chain they still are decentralized in the fact that they're being stored by the validators but it's really the same concept as a mempool in ethereum and any other blockchain for that matter where the order book only exists in the mempool and then only the Matched orders actually ever go into the consensus version of the state of the chain and this is really important because on order books roughly one percent or less of orders ever even get matched so just doing this gives us like 100x increase in scalability without sacrificing any

decentralization with getting literally free gas costs right because you don't have to pay gas if things never even get mined on chain and it was just an overall 10x potentially better product experience for us to build so that's kind of the core thing that we have been building for these past couple months we actually just earlier uh you know this morning released some news that we have completed what we're terming Milestone two of the development process in Milestone 2 effectively is an internal working version of of the core trading experience so we have this test net up and running internally right now there are Bots that are placing orders that are canceling orders the validators that

we have running internally for the test net are coming to consensus on the orders that are placed um there's things like liquidations Etc happening um but yeah we're pretty excited about the progress that we have made so far um and happy to dive into a lot more of that and kind of where we're going in the future but you're absolutely right building your own chain is pretty hard mode when it comes to developments there's just quite a lot to do just a lot of things you wouldn't normally expect maybe just to give one specific example of that another thing that we're building in addition to the core validator software is what we're calling an indexer which is sort of an entire another layer that exists from the blockchain itself it's sort of something

similar to a really custom built version of like an Alchemy or an inferior or something like that but the really cool part about this is that the indexer is going to be open source as well so anybody can run an indexer there could be reference indexers that probably is some of the front ends we'll use but it's actually a good bit more decentralized even from like an indexing perspective than pretty much anything else that's out there right now but the indexer will do things like stream all of the data about what trades have happened on the Chain what orders have been placed et cetera Etc and then it'll translate it into a format that's really custom made for dydx and what do I mean by that it'll literally literally create a rest API that's really similar to a

centralized exchange but for all of the data that exists on the blockchain so there could be like a rest API that's like get my orders placed for like you know the past uh year or whatever and it'll return it and it's just a much more efficient much better product experience to go through this versus going directly to the chain itself for all of the read level queries that's actually like a huge undertaking building the indexer is like almost as complicated as building the blockchain itself but something that goes on a little bit more behind the scenes and is something that we're really focused on to drive the best possible product experience but there's quite a lot to build but we're making good progress tldr well as a data junkie myself

hearing the the creation of the indexer really that's that seems to be like a novel novel creation that makes data more accessible and if somebody who's like addicted to building queries on blockchain data that gets my interest going but I do want to dive a little deeper on this uh the order book you're creating right so if if nothing's ever committed to chain uh then would that mean that every uh validator will be holding like a slightly different uh order book or were they all somehow still be similar you're right every validator will have a slightly different version of the order book we feel like that's a really acceptable trade-off because the latency should pretty be pretty low for the propagation of a lot of these orders and then it's also the

incentives are really aligned with the validators too right like the validators want to have more orders because they make money when the trades happen so they like actively are incentivized to store better liquidity um it is a slightly you know fundamentally different like trading experience from trading on just one version of the order book but we've talked to a lot of the firms that are currently trading on dydxb3 right now and some users and still feel like we'll be able to make a really great trading experience even with this effectively uh non you know slightly different versions of the order book Running on different validators yeah I'm curious because whenever I hear you know mempool and then validator set in the same sentence

my mind jumps to Mev so with your order book model is that gonna play a role and if so does the Mev flow to dydx token holders in the revamp tokenomics so this is still something we're thinking about uh in pretty early stages to be transparent and the development process right now not to write it off but I think Mev is a problem on any decentralized exchange and is a really really hard problem to solve but I think again building our own blockchain does give us better tools to be able to attack it than building on a more generalized chain where like the validators really aren't incentivized at all to care about your application you know in particular compared to other

applications and then again you just don't have as much influence over them because you don't have anything to do with the consensus process so I don't want to go too much into it right now because it's really something we're still thinking through but we're exploring a lot of different paths I think one of the things that we're thinking about at least starting with is more transparency as to what the validators are doing um and I think if you again try to make sure the stakers are aligned with the overall success of the protocol and then you combine that with giving a lot of transparency in terms of what's going on on the validators and it's hard to do but if you look at things like validators even before they mine a block

committing to what the ordering of the transactions is sort of in real time or you look at things like what's the average execution price or like the average amount of slippage you might get on validator a versus validator B you can sort of run some analytics where you're like oh validator a is um you know probably doing a good amount of Mev so let's adjust our stake weights against them and kind of make the incentives for the validators at least in the long term not make sense for them to do Mev and try to just make them more aligned with the protocol overall so that's kind of the first layer of attack the second layer of attack again we're really starting to just think through at a high level but Cosmos enables some pretty interesting things in terms of kind of

collaboration between validators there's basically the step in the cosmos and tenderment consensus process where you can get like effectively all the other validators to like comments or like give data or like approve or disapprove what's in a certain block um so just as a high level thought we're kind of exploring are there ways for all the validators to kind of act together in concert to come up with like what is the actual state of the matches that happen versus just like literally whoever the leader is um kind of proposing you know you know whatever they want so those are the kind of ways we're thinking about attacking it long term um but definitely it's still a work in progress and I think is still more in

the research phase for both us and in other chains yeah it's cool to you know when you think about like building a nap specific chain you get this extra design space of the validator set so using them uh to kind of like build out what your chain can do or what your protocol can do and how you design that it's super exciting to see someone like pushing forward and you know pushing what's what can be done and that's in that side of the equation of course leaving a general purpose train you do have some trade-offs of course and so like on a general purpose chain such as ethereum you already have this massive base of users that already has assets that are compatible with your protocol so how do you guys think about uh like the solving the bridging problem and moving assets onto dyd exchange and does the you know

usdc and circle chain coming to the cosmos does that kind of uh do you plan to use that in any way or I'm just curious to get your take on how you think about bringing in the users apps yeah absolutely so first of all it's a lot easier for us versus a spot decentralized exchange because we only need the collateral asset or potentially in the future assets that will support to be to exist on the chain and then we can just synthetically create all the other derivative contracts people want to trade off those assets so right now dydx is single collateral in that we only support usdc as collateral on V3 and at least for the launch of E4 that'll almost definitely be the case as well that only usdc is supported as collateral

um thinking about multi-collateral for the longer term but probably not out of the game um but yeah we absolutely do plan to use barring some catastrophe or something that newly to be creative uh Native usdc chain that's being created in the cosmos ecosystem we actually have been talking quite a lot with circle um and some of the other players like uh Zaki and some of the core Cosmos team to really try to push for this to happen um because we really saw it as a huge security and also decentralization and kind of win for the cosmos ecosystem to have something like this and it's going to make just a much better product experience on dydx so we definitely will use it

um and I think there are two potential things we're thinking about for bridging right now as to how users are going to get assets over to the dydx chain um the first thing is a little bit more long term we're trying to push on Circle and usdc to build this sooner rather than later but effectively what they're thinking of building and they released a public blog post about this not too long ago so I can talk about um is kind of their own Bridge more or less where they all support or at least help facilitate supporting um users exchanging usdc on one chain and then kind of attesting to that fact where like you could like burn your usdc on ethereum basically and then they'll pass you a message which lets you mint

uh usdc on whatever other chain so it's sort of like a bridge but it's really specifically tailor-made just for usdc um so we'd like to use that long term not exactly sure when that will be ready the other thing we're considering starting with is using another Bridge it's not sure exactly which one yet but potentially something like axlr to allow usdc to be to be bridged from ethereum and potentially other chains and the cool thing about using the bridge is you can use the bridge so you basically Bridge ethereum uscc from like ethereum and then we'll Bridge it over probably to like osmosis or some other channel like that that has a spot decentralized

exchange and then we'll trade it for Native usdc and this will all happen in the course of like a couple minutes so like yes you're using the bridge but you only have a few minutes of exposure to it right um and then you swap it for the native usdc and then that can be transferred to the dydx chain using IVC which is very secure and decentralized um so this all sounds fairly complicated but we're effectively planning to build all of this in behind the scenes into just the dydx clients themselves so from a user perspective it's actually going to be pretty sweet I think will effectively just have a way that users can click one button or even potentially send funds to an address and it'll look

like a centralized exchange it'll be like Okay click to deposit to dydf you know you go to dydx exchange dot exchanger or whatever site whatever domain it's hosted on and then you click deposit and it just gives you an address and you send funds and then like magically like the funds show up in dydx a couple minutes later which is similar to The Experience you have on a centralized exchange but what's going on behind the scenes is all of this kind of magic where it's like you use the bridge and then you mint native usdc and then you transfer it via IBC to the dydx chain but all of this can happen through code rather than user steps that you might have to do um so we're really putting a lot of work again behind the scenes to go into the product experience and I think you know

we really just are trying to build a more professional product right um I think the state of D5 maybe just zooming out a little bit right now is still pretty early and fairly primitive in some ways like it's just clearly a bad product experience to ship your users off to like okay first of all like go off into some other bridging site and then like manage to bridge your funds to our chain and then like second of all I hope you come back like fingers crossed and like actually use the funds on the other side like that's terrible um it's not to say bridges are bad right it's more just like the clients themselves should support being able to to use them behind the scenes and users really shouldn't even have to know what's going on in such a big way so it's really not going to be so much of a

product experience that I think users are used to in D5 like I think the users that are using D5 now do kind of understand this right you know you could have usdc on polygon or if ethereum or whatever else and people sort of understand that but if you're onboarding or trying to explain D5 to your friend you're like oh man like you can have usdc on this chain or that chain and there's like all this different stuff going on I think that's sort of a relic of the times and that that's clearly a pretty bad user experience and I don't think will exist so much long term but that's kind of a bet that we're taking with the on the product side with V4 and really the goal is to try to build something that feels like a centralized Exchange in the ways that centralized

exchanges are good right but still has a lot of the advantages of a decentralized Exchange in the ease of onboarding in the transparency and security et cetera et cetera and it's hard to build like there's a ton of stuff behind the scenes it's like oh now we gotta go integrate with all these different Bridges and we've got to do all the IBC transactions for you and all this other stuff but I think that really is what's required to build a great product experience and thinking about the user Journey from from end to end and that's what we're trying to do yeah absolutely that sounds incredible I'm like extremely excited to check it out whenever you guys launched the V4 chain but I guess my last question because you've already been so generous with your time then Dan will pass it back over to you if you have

anything else but um you've seen a lot of success with gmx's token model and like you know returning some of the platform fees back to token stakers or LPS is that something I believe I saw you tweet at one point that's something you're considering but uh I'm curious to get your thoughts on that and and you know maybe how much how much value would be passed back to token stakers or LPS in that scenario so first of all it's really not something that's up to me so regardless of what I want it's kind of out to the community at this point not even kind of like it's absolutely up to them um I can express my views on what maybe should happen for for dydx and D5 long term but it's really not up to me um that being said I I think there does

exist the requirements for a layer one token call it on the dydx Chain um and just economically that layer one chain needs to be used for staking right to validators and the main way validators are going to be operating and being incentivized is through the trading fees on the platform um so potentially you know those could potentially go to whatever the layer 1 token is um split between the validators and the stakers as well so I think that makes a lot of sense long term but yeah in general I think it's more up to the community as to what happens with the dydx token long term yeah I definitely think that makes a ton of sense and just given that you know when you move off of

a general purpose chain like ethereum where you have more of a governance token you know then you move into this proof of stakes model where your your base asset or your layer one token really does need to kind of help secure the chain and so there's definitely different trade-offs and a different design space when thinking about how to like build out a monetary premium for that asset um do you think it's like almost more complicated uh just like I guess maybe maybe that's not the right word but just like a different thought process that you need to roll through because there already is a dydx token and then like you're kind of like backing into the the L1 chain itself I think it's slightly different and it's really not just the token I think it's a much bigger deal actually that dydx exists as a platform

and like literally an exchange you can trade on on a different platform like on Layer Two on ethereum and not only does it exist but it has quite a good amount of traction so far right like we have around a billion dollars a day being traded and that's some pretty real activity um I think there's positives and negatives to that I think it's you know going back to Brand gives us a much better brand um as a protocol to be able to go out and launch our own chain successfully right um probably like validators are already going to be pretty excited about uh the dydx chain whereas if we were just some random new project launching from zero to one it may be a lot harder for the protocol to go out and find validators

to support it but at the same time it makes it harder as well because just the level of execution from a product perspective the level of security that users demand because absolutely there is a lot of TV on the platform and a lot of notional value that's being traded in the contracts is pretty high and we take that pretty seriously so I think that requires us as the developers to do a lot of internal audits adhere to really high testing standards but luckily we have a lot of experience doing that as a development team I think the biggest thing we have going for us at dydx is that at least I really think that we have the best if not one of the best development teams for anyone in G5 and I

think that just gives us a lot more flexibility in terms of what we want to build long term we built a lot of stuff for it we've built layer one contracts for margin trading for Lending for derivatives trading we are the leading the app on layer 2 right now fast forward to what we're building now building our own Cosmos SDK chain and go and I think just that level of flexibility and the experience building all these things along the way goes a long way in terms of just having really good standards for development and I think that is really something that's really really critical and actually I think people realize it's importance but still underrate it in terms of like how important it is for a D5 platform

because I think that's where all of the security comes from and there is a lot of this stuff we've talked about the indexer we've talked about the the bridging behind the scenes and there are a number of other things like that that really goes on in the background but that are required to make a really great product experience so I think there's positives and negatives to it but overall I think it's mostly a positive awesome well you know Antonio we really thank you for taking some time and coming on and just kind of talking about you know the broader Market condition conditions and you know ultimately what that means for dydx and what's also to come you know you your OG builder in the space along with your team you've been pushing forward this great protocol and so really excited to see as you continue

to push the bounds of what's possible with the cosmos SDK chain so thanks again for your time and I hope you have a wonderful rest of your day thanks so much for having me guys and I really appreciate the great questions