Why dYdX is Back in the Spotlight | Antonio Juliano

Transcript

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 all right and welcome back to another episode of zero X research we have a great episode for you today we were joined for an interview by Antonio the CEO and founder of dydx the decentralized perpetuals contract exchange and with everything going down in the crypto markets with the collapse of FDX this really kind of initiated a conversation around uh you know the shortcomings of C5 and how Defy is Building Systems that resolve these

exact problems but before we get into that great uh interview today we are joined by two other members of the blockworks research team Matt and Westy just to discuss the latest happenings of the market it's been another crazy week it feels like it's Relentless but we'll get right into a an episode of cool Hot Seat cool Throne just to kind of break down what's been happening and that's Sam why don't you go ahead and kick us off who you got in the hot seat this week yeah for sure hot seats pretty easy this week for me I've got consensus they develop metamask and over the weekend or maybe it was uh towards the end of last week over Thanksgiving they quietly updated their privacy Paul policy and stated that IP and wallet addresses would be collected if you use their default RPC in metamask on ethereum so

they're kind of you know taking users information infringing on privacy which is kind of in part the point of crypto so they're definitely my hot seat this week yeah man you know what really scares me about that is even if they're not doing anything that you don't want them to with your data it's scary that there could be a leak or a hack you look at the leak and or hack whatever happened with Ledger the crypto wallet maybe two three years ago whatever in recent history and there ended up being a large amount of Wallet information addresses emails leaked and you know that's really sensitive information especially when you could be uh you could have a five dollar wrench attack at your door so it really scares me that metamask is collecting that data and I definitely will be switching my RPC from inferior is it enough to just switch

your RPC within metamask or do you would you recommend switching wallets completely I believe and I could be wrong on this but I believe that you have to added different ethereum network due to the constraints of the way metamask was created and then add a new RPC manually but that's the most recent thing I heard on it and that's what I did so I think that's probably the best move or like you said maybe just going to a an external wallet all together like I don't know xd5 wallet or something else yeah as a as a Thor chain user that kind of exposed me to xd5 I definitely like I don't know it just feels like we don't have uh the the wallet that is like our our final uh go to market right it just it feels like we're there's so many missing like

elements in each wall like you know Phantom on Solana uh was a great wall for like nft users and you know xd5's got like the cross chain applications uh and then metadask is kind of like that OG that uh UI ux that everyone came comfortable with but it doesn't feel like we really have that final wallet that is the one that is like ready for Mass adoption yet so uh looking for more Builders to kind of push in that direction and I'm definitely open to changing wallets here Westie he got in your hot tea yeah given that it was Thanksgiving this past week my Hotsy is definitely anyone in crypto that was uh asked about FTX this Thanksgiving I know I was pretty lucky no one in my family asked me about it I think they probably

discussed earlier and was like I think we should give him a pass this year um but I can imagine there are a lot of tough conversations around crypto like will it survive what even is it um I'm sure you probably got a lot of tough questions and probably wasn't as exciting as last Thanksgiving where things were pretty pretty bullish at the time and so yeah anyone in crypto at a Thanksgiving dinner was definitely my hot seat this week yeah strong agree there I know my girlfriend's dad asked me what was going on with FTX and that was not a fun thing to answer and I got the inevitable question of is your job safe so we shall see I had a whole a whole list of controversial topics lined up like bringing up politics bringing up gun

rights bringing up all this different stuff that would cause issues to get the topic away from crypto but I was lucky like USD and no one even brought it up so I didn't need to deploy the strategies I love it come to never go anywhere unprepared Matt that's the way to do it I actually got blindsided by my girlfriend's grandmother so Props to her maybe she did some research trying to trying to start some conversation with me I don't know but I loved it I was like okay wait a way to still be caring what's going on in the world but to stick with Westy's theme here uh my hot seat is definitely turkeys and the lead turkey is no doubt Peter McCormick because he famously said I trust blockfi more than smart contracts and block five seems to be on the brink of insolvency

if not bankruptcy and you know we're recording this on November 28th at about 4 P.M uh and as of yet there's no official bankruptcy declaration but it feels like we're inching closer and closer uh so for the fact for Peter to say you know I trust a centralized entity more than smart contracts is and you know just uh open source code that's pretty mind-boggling to me and maybe it says something about Bitcoin maximalists I'm not sure maybe I'm mistaken but I actually thought I did see something this morning about them filing for bankruptcy if I'm not wrong and I totally could be it maybe I saw something that was like along the lines of they had a billion dollars in liabilities and only 200 million dollars in assets to cover them

and I think that was Bitcoin Telegraph on Twitter I think I actually saw that um so I'm not exactly sure if they officially filed or not yet but regardless it does not look good for for Block fi and I feel like we kind of all saw that coming over the last three to four weeks so hopefully they're able to figure it out doesn't look good but hopefully users get some of their funds back is uh the main takeaway there I feel like yeah it just sucks because block fly wasn't like an FTX and that I mean it was in their terms of service that they will essentially take your assets and try and get yield on them it wasn't like an FTX where they were committing any fraud they just deployed their assets into some loans that were riskier than others as well as another

big on the gbtc trade as well and so they just had deployed the funds and not the the highest value way possible and they kind of got screwed by the the rest of the market um which sucks for them because like I said they weren't any they weren't a fraudulent actor they weren't lying uh they were just caught up in what was a lot of froth in the market and needing to provide a lot of yield because they were competing with a lot of the high apui yield farms and defy um and so yeah just like they're definitely not on the same level as a lot of the the ftx's or the voyagers yeah strong agree there but on the bright side I saw something that said

they already liquidated all their crypto Holdings to like try and raise cash like a month ago so at least it'll have no Market impact at least hopefully but nowadays don't believe what you read on Twitter I suppose uh Matt he got in the hot seat my hot seat is wrapped eth futters over the long weekend since Thanksgiving until about today there was a lot of rhetoric on crypto Twitter about you know wrapped teeth there were some troll posts that it was like hack that they didn't have the money to back you know the amount of eth and for those that don't know rap deep is just a 40-some odd line smart contract that you can wrap Ethan it gives you back wrap teeth at any time you can go reverse that transaction put in rap deep and get eat back and the reason it's actually

necessary and vital to the ecosystems ethereum's not an erc20 token and when you're doing thing things ERC to ERC erc20 to erc20 it's a lot more gas efficient and cheaper to be using two erc20s than to use ethereum which is not and in the erc20 that is so it makes you know the ecosystem cheaper for things like swapping on uniswap and other things of that nature and just seeing all that flood was uh pretty pretty disgusting because it's you know one of the more well-audited smart contracts it's short it's probably been looked at by pretty much everyone in the space there's no Central custodian so you know taking uh thinking about it in a negative light or saying that there's a a large possibility that it's hacked or that

they don't have the funds to back it is kind of uh clownery in my opinion yeah strong agree there I like even like I was thinking about it and I kind of like chuckled at it but I think like even 95 of people on crypto Twitter which is probably like two percent of people actually in crypto like there's only like five percent of people who would understand that joke so I was like this isn't gonna end super well then I woke up this morning and I see articles on I think it was either Bloomberg or Business Insider saying like oh rap teeth is in trouble and it's just like gosh why do we do this to ourselves but kind of funny nonetheless yeah to try to attempt to give that uh Bloomberg article article some credit uh within the body of the the article it mentioned

that it was a joke but of course like one of the two bullets at the top of the the right below the headline uh was the the you know the the risks around wrapped ether or whatever however they chose to word it so uh yeah it is wild how like the jokes between you know three or four people will turn into uh headline news articles I just think it's so funny how like you said like these Trad Phi uh Publications or just watching crypto Twitter in the same way we are and these like um sort of community journalists like following them and getting the insights from them and then reporting it back to their audience I think that's pretty cool in its own right like it does sound like they got it right that it was a joke which is good good to hear because

otherwise maybe they stop trusting a lot of the sources they were getting on crypto Twitter which really is the best source of info but yeah it's cool that they're they're sort of looking in on us on crypto Twitter let's head over to cool throw and Westy who you got yeah my cool throne and stuff to have a cool Throne right now but it really is the the builders in D5 like a lot of these D5 protocols like are completely unfazed by a lot of the FDX drama like discords are Super Active telegrams are Super Active the builders are staying with the road maps like they've complete conviction in the space and I can see it and it's really awesome to see after what have been some of the biggest blow-ups in crypto's history like people are still chugging away on what they're

building and they're building great stuff and so you love to see that yeah the industry is chucking along no matter what happens yeah and Antonio even Dives deep into What dydx specifically is doing in the um but yeah it is great to see like you know the common phase bear markets for building is is you know it always remains true whenever the the depths of these Cycles hit yeah I guess I would add I mean I don't know how good these stats are like you can go to Artemis or Goku stats and kind of check out like developer activity and it's pretty much fallen off a cliff since the bull market but those are also easy stats to to fluff so that would be my one rebuttal but but yeah I mean nothing makes someone want to work harder on a project they're building if

they see you know the number go down like you'd think they'd be like all right well no one else is gonna fix this and make it better so I guess I have to if I want to save my bags yeah I even saw a thread this week um from someone in the Solana Community where they basically like put out a survey to a bunch of devs that they knew um within that community and it seems like they've hunkered down and are pretty like still pretty confident in Solana and are staying there to build like a majority of the developers um which is really interesting to see I mean given all that's happened to the salon I mean they've been on our hot seat like three weeks in a row that's pretty bad for them but um yeah it's good to see that even they have super strong conviction are going

to keep building and I really hope they do Rise From the Ashes because like we need better Builders because it really the rising tide lifts all boats I can take it over for uh cool Throne next I got ACX dumpers in the cool Throne why because actually let me start with uh across is a L2 bridge between ethereum l2s and they just launched their token via airdrop today it's ACX but I'm giving the cool Throne to the dumpers because ACX pretty much is just a governance token it doesn't really have any utility in the form of paying for transaction fees or getting Mev from validators Back to the Token so I think that that token will get dumped pretty

hard especially when considering that LPS can stake their LP tokens in order to earn ACX rewards so yeah I think that one's a down only chart for a while until governance kind of like incorporates some kind of value accrual mechanism yeah I was definitely someone that as soon as that airdrop was able to claim I redeemed it and sold it on the market and it looks like it's trading at I think five cents for 2 token which is super interesting because they just raised Capital at 20 cents per token which is now trading at what 25 percent of that and so I think this may be a trend going forward in which we see a lot of the private Market valuations especially ones that were super high like this was a 200 million dollar FTV

for a token that has no value accrual like you said and so maybe we start seeing like a lot of these private raises that were super high like on the public markets that they they reach really really low valuations versus that private valuation I also think something we're still working on is like token distribution methods um like I like how you guys all hit on the fact that it's like a pretty useless token uh but one thing to consider is like how the distribution ends up flowing right and we see like these gen 1 style air drops to like early users like we're starting to there's a lot of conversation around the fact that these just aren't effective ways to like uh get users in your protocol uh tarun actually recently rehashed one an old

Dune dashboard uh that like goes to show that the uni airdrop receivers like don't uh overwhelming overwhelmingly use the protocol to trade assets like they're not overwhelmingly involved in the lp process um it was just like an easy way to just distribute tokens and decentralize the protocol but it didn't necessarily gain a ton of users um you know Matt you and I were actually talking about this earlier so I'd love to hear your counterpoints of this because it's a really well said point yeah so like the Dune dashboard and the analyzes of it do make a great Point as to you know the amount of cap the amount of of money that was given to these uni token airdrop people was not made up with in their fees or you know their activity in the network but I think one

thing that it might have done and there's no real way to prove this but I think that it might have created a Big Brand moat for uniswap I think that the average person when they think crypto when they anyone who knows about D5 can even like tell you what decentralized Finance is has probably heard the word uniswap and they may not have heard of matcha one inch and aggregator or any of the other decentralized exchanges I think that largely that's a result of the airdrop they weren't the first amm they're not the last they're not the most Capital efficient they're not the best for swapping stable coins so you know at the end of the day it's like what the why why do people go to uniswap to trade why do some people not even check aggregators for better prices and maybe a big portion of that was the fact

that they got so much Buzz surrounding that token airdrop so many people were happy with them and just like the brand like the name so I do think that they might have gained a huge portion of value from that aspect of the airdrop although there is no way to prove that yeah it definitely feels like there's some intangibles there but for my hot or excuse me for my cool Throne uh I kind of take it what Westy said and give a specific example so some D5 Builders I think are killing it right now is the Thor chain Community they recently launched their Savers vaults program which is effectively like a you know we see a lot about like C5 earned programs like deposit asset and earn in-kind yield in that said asset but this one's done totally decentralized and that's

why I think it's exciting so basically how this works is uh let's see earlier in 2022 door chain launched their synthetic assets which effectively like uh a synthetic asset is backed 50 by that asset and 50 by the protocol's native token roon um and so you are like taking you're not taking price exposure to uh Rune like a synthetic asset is backed one to one and redeemable for the deposit right so if I have one synthetic Bitcoin then it's redeemable for one native Bitcoin on the Bitcoin Network and so it's cool to see that they launched this primitive uh maybe six to eight months ago and now they're actually like you know D5 Legos they're building on this primitive to

launch their Savers vaults um and basically how this works is you meant to synth and now you have the ability to stake that synth in a vault and earn native yield on it and so this is pretty exciting you know with a lot of these C5 earned programs everything was like obfuscated in a black box you didn't know how they were generating this yield but with Thor chain it's very transparent right you're earning trading fees and block rewards a smaller portion of trading fees and black rewards that is earned by LPS so you're effectively taking like an LP position and then only taking the single-sided exposure from that and so you have less risk and therefore less reward and right now there's about 500 total users that are

using the platform uh for the savings vaults and about two million dollars deposited and currently bitcoin's APR is around four percent so a pretty interesting development there I don't know I think it's gonna be like less attractive for some of these proof of stake coins right like if I could stake Adam in like with directly in the network or I can stake eth directly in its own network I'll probably end up earning a higher yield than you would like using a savings Vault uh on Thor chain But ultimately like those would balance out I think and based on the trading fees uh I feel like there'd be like some equilibrium that'll end up bouncing out but super excited to like see a decentralized earned program kind of come through and it's like you know real real yield based on block rewards

and trading fees fully agreed it's super nice to see a decentralized exchange where you can actually swap between native Bitcoin and ethereum or anything like that and to your second point about finding better yields on staking tokens elsewhere thank God for liquid staking derivatives right um you know at the end of the day I think that that solves a lot of the issues on that front when you're able to go stake your asset get a liquid sticking derivative like a staked eth or maybe a light of steak Cosmos which might or Lido staked atom which is supposed to potentially go for governance uh vote soon so I do think that you know that's a problem that we'll see fade away yeah Thor Chain's really cool I really like what they're building I guess the one thing I would caution people listening would be you know they've experienced a couple

different hacks over the course of their history so jumping into a new product that hasn't been battle tested I'd be a little bit wary um but yeah I mean they're working on one of the hardest problems in crypto just like native asset cross chain swaps like that's super difficult and there's a reason most bridges don't try and go that route because of how difficult it actually is so I think on that specific niche in crypto Thor chain really has kind of developed a somewhat of a moat and it's going to be tough to replicate the same success that they've had yeah on average they do roughly 11 of Daily Bridge volume which isn't an over overwhelming amount but multi-chain's the leader there and they're only around like 18 to 20 percent so it's actually a pretty competitive market in the bridge landscape which I thought was pretty

interesting uh and one more effect is uh during the week of the FTX collapse so let's say November 6th through 12th um Thor chains use actually jumped to 16 so pretty significant jump there uh I feel like that speaks a lot about the user's confidence in Thor chain to execute transactions in a time of need as well as the assets that they've selected uh to list because uh you know listing a new asset on the network is not like a very easy thing to solve you have to the validators have to run nodes on these other chains so they've done a great job curating uh like which assets are listed so it's cool to see but let's go ahead and jump or actually Matt give us your you have one of the better cool Thrones you almost did it again damn dude I know I get excited I have a one

little comment about your cool Throne actually about Thor chain which is just maybe it helped that the FTX hacker moved all their funds out through Thor chain I think I don't know if that's true but I think that might be true so uh that might have helped with their volume dominance throughout that whole ordeal if that's correct my cool Throne today is Yano blockworks very own Jason yanowicz he's our commander-in-chief co-commander-in-chief he's one of uh the founders of our company along with Mike and about five months ago five and a half months ago he wrote this crazy viral Thread about the three stages of a bear Market where basically the first stage of tldr everyone should read it though it's really good and it's long but the first the first part is that it's fine stage everything's going down

but people are still bullish they're still happy they're still excited stage two for sellers people who are reliant on a token start to collapse their companies don't you know make it they have to sell their tokens funds fail things of that nature stage three he says pain turns to boredom I believe which is like you know people are leaving there's nothing cool going on there's no narratives there's no pumps there's no news and that was about five and a half months ago and we've totally and he says at the time of writing that you know we're entering phase to so this is in June of 2022 he says we're entering phase two we're entering Max paint and we saw pretty much the last five months play out exactly like he says in the Tweet thread companies that were too reliant on a token call it

Celsius FTX you know name name a company they went down they they couldn't they couldn't they couldn't hang and they had to dump all their tokens for sellers Max Payne in the markets blood everywhere people leave people you know upset bears are just loud you know there's bearish sentiment everywhere the Bulls aren't even really making a big splash on crypto Twitter anymore it played out exactly like you said and I think it's this is in my opinion but I think that it looks like we're entering phase three exactly like he says too right now where it's just like things are slowing down there's not a lot of news not a lot of narratives to catch not really a lot of opportunity to maybe get like a little five or ten percent gain like you you might have said was easy a year ago and I just want to give them a huge shout

out because that threat is awesome and he seems like he might even have a crystal ball but uh the reality is that crypto cyclical and it's just not his first rodeo well said yeah I think that's a great Point um yeah and if that if that is ends up being the case uh it's now is kind of the time to like buckle up and uh get ready for the boredom and I think one of the points he includes is there is just like find a way to stay interested uh um and so kind of grinding away and maybe studying a new protocol or a new sector of D5 or even like if you were into nfts maybe start exploring D5 or vice versa it's just about staying interested and staying dedicated and of course once once the bear Market Fades away and back into the bull market that's when things

get exciting again so that means there's good times ahead right but changing points here and kind of pivoting over to to one of our flip side dashes I as we do as we know each week we do a Flipside Dash review as they're one of our generous sponsors and we really appreciate the the insights and on-saint on-chain data that they provide of course for free so Matt can you walk us through this dashboard we have up on the screen here sure so this dashboard's looking at Joe pegs which is a semi recently launched nft Marketplace on avalanche on the avax Avalanche chain I believe it launched in June Avalanche didn't really have nfts before that I'm sure that there were projects live but there was no volume no

exchanges no one was really trading them it was kind of not a space that I believe any investors were super interested in along with the launch of Joe pegs in exchange for trading nfts launched by Trader Joe who also runs the biggest decks on on Avalanche they came out with the small Joe nfts smol Joes I think small Joe's are still trading at like a three thousand dollar floor or you know 275 avacs something like that whatever they're at a five figure floor they're still doing well there's a lot of volume and people are actually seem interested in in avalanche nfts while in my opinion there's not a whole lot else going on on Avalanche right now um at least not that I've seen or been not

interested in so you know seeing that there's more collections coming out more volume if you look at the chart up on the screen right now you can see the total Joe Peg sales um you know it's going up there's more there's more Joe pegs selling and you know it's on up and to the right as Dan would say so I think that it's interesting to see that this is still something that people are active in and trading and interested in well it seems that maybe other areas of avalanche are fading fading off or at least for now I do think that and this is like hot take maybe not true but in my opinion and this is just something I've been thinking a little bit about so not Financial advice and not even confident in this but I do think that maybe buying nfts on like one of these l1s is a

better RR a better risk reward profile than you know buying the token itself personally I'm not very bullish l1's going into the next bull market at least the l1's that did well in the last bull market but if I was going to gamble on it I think I would probably be interested in buying these kind of like Blue Chip nfts maybe the first nft something with historic value or something like that so I think it is interesting that we're still seeing a lot of activity on Joe Peg's nft Marketplace absolutely and just one thing I do want to point out here on this chart uh it is a cumulative chart so it is deceivingly up into the right however we do see some pretty big spikes here uh most namely in the middle of October as well as towards later of November but again just want to give a

great shout out to Flipside they have some of the most comprehensive on-chain data again it's for free I can't explain how valuable it is to be able to ask a question uh to yourself and say Hey you know how is this Dex doing so much volume and being able to have a data set that can just Dive Right into that data and and really be able to like use SQL queries to answer your own questions and if that's something you're interested in we do have a little opportunity for you to claim and earn some usdc we have an exclusive zero X research Bounty we'll have a link in the show notes but definitely uh if that's if that's up your alley be sure to check it out yeah I also want to take a second to thank our wonderful sponsor chain analysis they're one of the leading crypto

analytics providers and they're helping provide the tools necessary to legitimize our industry they enable investors to track funds on chain with ease and they also have some great research on their website that's available for completely free and we'll link to that in the show notes they offer really in-depth courses on all things crypto which are definitely worth checking out chain analysis is building the tools our industry needs so be sure to look at them in the show notes they've been stepping up their Twitter Thread game too I don't know if you guys noticed that but I feel like I've never seen a chain analysis thread in the last month or two they've done like three or four really good ones that I was like whoa I love that don't sleep on chain analysis but uh without further Ado we got a great interview with Antonio from

dydx let's get right to it welcome back everyone 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 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 layout 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 so 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 tax 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 if 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 then 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 no 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 on 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 fun 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 FTX 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's 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 um I thought it was a joke is 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 amount 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 they're 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 value installed 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 D5 and the rest of the industry if you can't tell we love data here block reach research and chain analysis the leading blockchain analytics company shares this passion with us we use data to extract Alpha and find the next thing coming in defy but chain houses is doing the gritty work and building trust in blockchains to onboard the next trillion dollars Capital into the industry we need to grow safe consumer access to

cryptocurrency and promote more Financial Freedom with less risk chain analysis has some of the most comprehensive and reliable data in the space and they use this data to power a full Suite of their solutions that can be utilized by industry professionals Best in Class training and certifications are also led by Chain Alice's and some of the brightest Minds in the space if you haven't heard of chain analysis you gotta check them out and we'll link to them in the show notes I'm curious 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 binance 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 it 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 or builts in people are again like oh well like this could be the future but then people get too excited about it and then it you know booms and

bosses and Booms and thus 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 D5 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 bill 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 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 so 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 unit swap 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 D5 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 and 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 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 providers 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 in 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 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 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 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 there are some things that are obviously better about D5 like the transfer 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 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 right now like hey D5 fix is this If This Were dydx instead of FTX 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 for 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 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 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 like 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 gonna 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 custodians shouldn't like lend them out or do other sketchy things with them 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 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 constricts us constricts the 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 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 Heat of the FTX collapse is how did Alameda actually lose 10 billion dollars right that's just it's not it's not 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 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 like 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 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 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 and I think we lost something like ten thousand dollars out of the insurance funds right after the FTX 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 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 Supply 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 you know the price of the token goes down a lot and even worse than that the amount of funds that are earmarked for kind of 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 dydx 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 subdials do you mind diving into that a little bit and also uh explaining how that might fold into the dydx chain and 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 subdels 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 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 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 a dow 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 in 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 it 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 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 dydx V3

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 right now the protocol in B3 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 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 xv3 matching engine right now with call it on average a thousand 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 2 roll-up on top of ethereum looked at other Layer Two 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 came out 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 a developers effectively can write into the open source software what the validators are going to be doing right and some of the things the

validator is doing is normal World consensus stuff and some of the things could be whatever else you want so it could be like coming to consensus on what the orders 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 pool 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 were terming Milestone two of the development process and Milestone 2 effectively is an internal working version 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 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 and 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 etc 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 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 undertake 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 you know makes data more accessible uh 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 then would that mean that every uh validator would 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 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 dydx V3 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 in the development in 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 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 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 um 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 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 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 and other chains yeah it's cool to you know when you think about like building a map 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 dydx chain 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 reading 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 thinking about

multi-collateral for the longer term but probably not out of the gates um but yeah we absolutely do plan to use barring some catastrophe or something the newly to be created native usdc chain that's being created in the cosmos ecosystem we actually have been talking quite a lot with circle 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 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 it 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 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 it is kind of their own Bridge more or less where they all support or at least help facilitate supporting users exchanging usdc on one chain and then kind of a testing 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 usdc on whatever other chain so it's sort of like a bridge but it it's

really specifically tailor-made just for usdc 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 axillar 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 or usdc from like ethereum and then we'll Bridge it over probably to like osmosis or some other chain 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 and then you swap it for the native usdc and then that can be transferred to the dyd exchange using IBC which is very scary and decentralized 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 we'll 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 so we're really putting a lot of work again and 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 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 defy now do kind of understand this right you know you could have usdc on polygon or ethereum or whatever else and be 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 um 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 Etc et cetera um 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 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 I 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 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 up to the community at this point not even kind of like it's absolutely up to them 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 and just

economically that layer one chain needs to be used for staking right to valid dators and the main way validators are going to be operating and being incentivized is through the trading fees on the platform so potentially you know those could potentially go to whatever the layer 1 token is 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 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 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 um 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 uidx 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 build a lot of stuff right we've built layer one contracts from origin trading for Lending for derivatives trading we are the leading the app on Layer Two right now fast forward to what we're building now all 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 you know 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 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 all right that was a great chat with Antonio he is always super insightful I love listening to him myself on podcast so to have them on and talk to him face to face was was quite a treat in lieu of all the FTX Alameda drama there's no doubt that people are taking self-custody a lot more seriously and when they do that they definitely want to be able to utilize their assets on a decentralized exchange and especially if you want leverage you know dydx is one of the primary venues to go and do that so

there's no doubt that they're leading the charge on that front but Dan what'd you think of the interview yeah it was great to like hear his take on what the FDX situation means for the space in general you know he's been around since the very early days building it on ethereum so he's got a lot of experience within like what we've been through and what's to come so loved his insights there and he hit kind of hit the nail on the head in my opinion on you know how can we trust and centralized exchanges with yeah like we definitely need proof of reserves that's a great first step but it's almost like a mute point without uh like a proof of solvency on the liability side of things as well and that's a little bit harder to solve so I think we almost have like a tech issue

there and probably need some like improvements on uh ZK Tech and just zero knowledge uh technology being deployed uh even on that sense right so like you can hide the the actual Holdings while still knowing that yes indeed you are solvent um I don't know for me like the more interesting side of the conversation just because I'm super excited about like the technology uh the tech stack in the cosmos is like really the move uh from ethereum to Cosmos um and yeah I think my ultimate my largest takeaway from the whole thing would be you know building an app chain gives a couple different benefits and uh one of them is really composability or customization I should say and specifically the customization of the

validator set that's just something you can't do on a general purpose L1 uh and it really seems like they're pushing the envelope there so you can dive in a bit a bit deeper in different different sex uh so we can dive in a dip bit wow so we can dive in a bit deeper there on some different sections uh and kind of go back and forth because I know we uh what's it like a little bearish and bullish take on these yeah I would say I'm bearish like for a couple different reasons I think you know the main argument for people who aren't just super big decentralization Maxis of moving from an app specific Stark X application versus um a Cosmos app specific chain I think people usually argue yeah you're paying rent to ethereum in order to live there

but everyone wants to be their own landlord but at the end of the day I think running your own validator set and actually incentivizing it is a lot more expensive and difficult of a task to actually achieve um so you know you got to pay dydx tokens in order to incentivize uh validators with dydx at stake so that would kind of be one of my rebuttals and I'm curious to get your thoughts on that one Dan yeah I thought that was interesting as well right so they're paying more probably but in return they're getting decentralization through being able to customize the validator set to run this uh validator memory order book I think that's like the trade-off that they're looking for right you know that's you know he said trade-off I can't even count how many

times in that interview right and that's that's like you the way that he's thinking about this is yes I gained something but what am I giving up to get there uh and to me it seems like maybe they're giving up that like sense of community or that user base uh in return for a decentralization and you know he's a very product first guy and to him diesel engine decentral decentralization is very high on the list of needs yeah and then in in terms of like the cosmos ecosystem like you know we had Sam and Yusuf on last week uh talking about how property two failed that's obviously kind of a dent in the cosmos road map and then we also don't see any chains with significant tvl since the terror collapse in the cosmos ecosystem so while composability might be seen seen as like kind of like a pro for their

move into the cosmos in relation to being a stark X application I feel like there really isn't that much to gain how would you kind of rebuttal that comment yeah absolutely I feel like they are gonna be the ones bringing value into the cosmos right um I think the question is like okay well how are users going to get there and the bridging Solutions definitely will need to be broken out and I actually hadn't heard of this usdc bridge uh or this like native cross-train communication uh protocol that circle is looking to build um and after the conversation I immediately dove in and started reading about this and this actually seems like the perfect solution for something like dydx to help get assets you know maybe from ethereum or even another L1 onto

dydx but you're right like they're gonna be the ones bringing the the heat first I think but there are there is building going on right even though prop 82 failed and atom 2.0 is like going to be broken up into different pieces there are still 10 consumer chains that are eager to use interchange security and the ecosystem is still going to get built out it's just a question of how long will that take um you know I I do I do Wonder uh that what the the cosmos really offer dydx but again I think um dydx will really be the ones bringing value to the cosmos yeah I feel like maybe Antonio we probably should have dug into this a little bit more um in the interview but he's he's done

it so many times but I think he's just honestly bullish on the idea of sovereign app specific chains over like a world computer ethereum vision um so that that must be you know the logic behind that one but I'm curious too what you think about um the dydx token itself we couldn't get much Alpha out of Antonio on that front because ultimately it's going to be left up to the community but you know the token supply has been up only because they use it to pay out traders to incentivize them and they pay it out based on volume I believe and I think you could also make an argument that that's why their volume has been so significantly high is through these dydx token incentives but yeah the token prices suffered as a result so do you think maybe the move to Cosmos does

provide more Outlets to you know provide value accrual to dydx the move to Cosmos kind of enables them to have a dydx to potentially be this lay layer 1 base asset as opposed to a an application token right and dydx has been around for a while and we've seen a lot of these OG gen 1 protocols find their tokens a little less equipped to kind of be these Revenue distribution methods or these token incentives incentivization tools and while these newer Protocols are kind of like working out ways to do that you know we've seen a lot of vote escrow protocols make an attempt at doing this some far more successful than others we've seen a lot of like real yield

narrative getting pushed through and about how protocol revenues are being passed back to token holders and that's kind of something that you can see would be working with a proof of stake chain right and so it kind of opens up the door to like be able to pass Revenue to the validators who are performing a service for your network it's in a decentralized manner it kind of gets them maybe uh under the under the security of of we're under the hiding away from the security of Regulation [Music] but yeah I think there's just a lot of different ways you can go with this uh and it's good to see that they're like actually thinking about how are they gonna you know use their token to to

bring that or how they're going to use the protocol to bring value back to their token yeah what was it they said a hundred million dollars a day of trading volume even if there's you know 0.1 fees what would that be like a hundred thousand dollars a day to token stakers so I mean that that could go really really well if that's the option they opt for but yeah I think most definitely it definitely gives their token more utility they have more sovereignty over like what they can do and then they can get their Community more involved in governance and truly make a really great self-sustaining decentralized product so that's definitely something I'm looking forward to but uh the one thing that does worry me is the Mev landscape I don't really know how that's going to look do you do

you have any thoughts on the the things that Antonio said on them maybe thought process there yeah I think the takeaway there is it's just a problem that where everybody's working on how to solve right um I do like their approach because in with a application specific blockchain the validators are inherently uh economically incentivized to work in the best interest of the protocol and that's definitely not necessarily true on something like a general purpose uh layer one like ethereum right the validators have their own sets of interests that maybe are totally irrelevant uh to your protocol whereas on an application specific blockchain their their future Revenue that directly

depends on the success of the chain so doing something that would maybe adversely affect the users of the protocol and therefore discouraging them to continue using the protocol would actually hurt the validators so there's a little bit of a different Dynamic but I do think this is really an unsolved problem now seeing how they're kind of like pushing the validator design space forward and like really working on uh how like pushing that forward in the sense that they're working to build new things and not just like copy posting existing projects I I do think that we're going to see a lot of innovation on the Mev landscape from this team as well yeah absolutely it's definitely a project that I'm uh really excited about and I'm going to be watching closely I

think it's kind of the the final like thing that everyone's watching to see if the app specific thesis is the one to go with or if ethereum really will be the global settlement layer for for roll ups so definitely watching it closely and uh we'll see you guys back here next week on Xerox research thanks for tuning in