The dYdX Boom | Antonio Juliano (10/6)

Save 10% on dYdX trading fees! https://trade.dydx.exchange/r/bankless ------ In September 2021, dYdX did more trade volume than Coinbase for the first time. The growth in the scaled trading protocol has been astounding, and this has been no coincidence. dYdX has pioneered Layer 2 solutions along with Starkware's ZK Rollup, and the result has been an explosion of perpetual swaps and deep liquidity pools on dYdX's native rollup. Antonio Juliano returns to Bankless to discuss the parabolic growth of dYdX, the plans for its governance & utility token, and the future of decentralized derivatives. State of the Nation is livestreamed on Tuesdays at 11am PT / 2pm ET. ------ SUBSCRIBE TO NEWSLETTER: https://newsletter.banklesshq.com/ ️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/ CLAIM YOUR BADGE: https://newsletter.banklesshq.com/p/-guide-2-using-the-bankless-badge ------ ZERION | Your Gateway to the Metaverse! https://bankless.cc/Zerion ------ BANKLESS SPONSOR TOOLS: GEMINI | FIAT & CRYPTO EXCHANGE https://bankless.cc/go-gemini​ https://bankless.cc/go-gemini%E2%80%8B LIDO | DECENTRALIZED STAKING https://bankless.cc/Matcha AAVE | LEND & BORROW ASSETS https://bankless.cc/aave UNISWAP | DECENTRALIZED FUNDING https://bankless.cc/UniGrants/dharma ------ Topics Covered: 0:00 Intro 8:30 Antonio Juliano of dYdX 11:06 dYdX vs. Coinbase 15:50 Who's Trading? 19:09 Behind the Success 24:31 Layer 2 & TVL 32:40 Order Book 38:45 The Largest Exchange 42:03 Competing with FTX 47:30 Decentralization 52:58 The DeFi Spectrum 57:20 Pioneering Scale & Layer 2 1:04:48 Ethereum Layer 1 1:07:48 Regulatory 1:12:41 Successful dYdX 1:16:10 Closing & Disclaimers ------ Resources: Antonio on Twitter: https://twitter.com/AntonioMJuliano?s=20 dYdX: https://dydx.exchange/ How to Trade: https://newsletter.banklesshq.com/p/how-to-trade-on-the-dydx-rollup How to Earn: https://newsletter.banklesshq.com/p/a-guide-to-earning-on-dydx ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://newsletter.banklesshq.com/p/bankless-disclosures

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:07Ryan Sean Adams?

  Hey Bankless Nation, welcome to another State of the Nation. Super excited about the topic today and the guest we have. David, why don't you give a quick preview? Who are we talking about? What's this about?

• 0:18David Hoffman?

  Antonio Juliano from DYDX, who will be on the show for the third time because DYDX continues to just deliver absolute groundbreaking just metrics and landmarks when it comes to decentralized trading now on Layer 2. And so that is really the story of this week is that DYDX has been doing more volume than Coinbase and Coinbase is the leading centralized exchange.

• 0:45Ryan Sean Adams?

  Can you say that again? David, you say that again.

• 0:48David Hoffman?

  DYDX, a order book based exchange that lives on an Ethereum Layer 2 is doing more volume than the world's leading centralized exchange and also all other DEXs on Ethereum combined, right? And so this is an amazing success story out of a project that has been grinding for years, so well deserved to the DYDX team. And I feel like after, once you have like more volume than Coinbase or more volume than a leading centralized exchange, like we have a bunch of lessons to learn about how that story unfolded. And so that is what we are going to tell today.

• 1:23Ryan Sean Adams?

  How they do it? Exactly. That's the question. This meteoric rise, how did they do it? What I love about this story too is no sacrifices in decentralization were made, like no harm to decentralized protocols in the making of DYDX, which is absolutely fantastic because there's so many like other alternatives out there that sacrifice on decentralization and say, hey, decentralization is not what users want, not what users care about, but DYDX has prioritized it the entire time. And now this, the success, it feels like an overnight success, but it's really been like a five-year overnight success. And I think a huge catalyst was the launch of Layer 2.

• 2:08Ryan Sean Adams?

  But I'm going to, we're going to let Antonio tell us more of this story. So we'll get to that in a minute. One thing I'd like to remind Bankless listeners, if you are a Bankless listener and you want some, let's see, let me see if I can share this. You seen my screen here, David?

• 2:23David Hoffman?

  Yeah, I see your Spotify.

• 2:25Ryan Sean Adams?

  Okay, exit that real quick. All right. What I was gonna show you is this. This is a bankless referral. If you are a DYDX user and you don't know about this, or you want to become a DYDX user, we have a referral code for you to save 10% in the show notes. You can check that out as well. Just another gift from the bankless team. Go check that out. But before we get to the main conversation, David, let's talk a little bit about what's new in the bankless community right now. Mariano Conti on Layer Zero, this new podcast where we explore the people behind crypto. David, that episode came out this morning. I haven't listened to it yet. I listened to all of them. I haven't listened to this one yet. Give us a preview of what's in that conversation.

• 3:08David Hoffman?

  Yeah, the really the fun part about the conversation, and we talked about so many things, but Mariano, he hadn't really like worked very, very hard, very much before Ethereum, and something about Ethereum turned him into an absolute grinder, one of the leading smart contract devs in all of Ethereum. So the story behind Mariano, specifically on that told in Layer Zero, is like, why did Ethereum make Mariano a hard worker when he wasn't that?

• 3:36Ryan Sean Adams?

  Wait, wait, wait. So you mean, he wasn't working very hard? You mean, he was like, kind of lazy? Is that how you put it?

• 3:44Ryan Sean Adams?

  Because he is definitely not lazy now.

• 3:45David Hoffman?

  He's definitely not lazy now. And so like, yeah, that's the story is like, the story we told is the transition between being not a hard worker to one of the hardest workers in DeFi.

• 3:54Ryan Sean Adams?

  Wow. Yeah, I'm looking forward to listening to that. We also came out with a podcast on Monday with Devin Finser, who is the founder of OpenSea. That's an incredible, I think, unicorn of the year, maybe. Although DYDX might be a contender for that. I don't know. But, you know, OpenSea has had just an incredible year. No signs of slowing down, like 3 billion in transaction volume for the last two months. And catch that episode if you want to understand why and how they're actually doing it. David, we've also got to give a shout out to Zirion, who's doing some magic in the NFT landscape. I use Zirion for all sorts of things, viewing

• 4:34Ryan Sean Adams?

  my crypto portfolio, viewing my DeFi portfolio. But now, they actually have a way to showcase NFTs. I'm looking at your.

• 4:44David Hoffman?

  Oh, my God. God damn, I need to get rid of these Fidemp's rocks.

• 4:48Ryan Sean Adams?

  Yeah, just keep them in here, you know, just pass them to your kids at some point in time, hand them down. And you know what's super cool? I haven't, I haven't fully done this yet, but I want to, I want to borrow my wife's Apple Watch. I don't have one, but check this out. You can use Xerion to actually add your NFT to be the faceplate of your Apple Watch. And it takes like 20 seconds to do that.

• 5:14David Hoffman?

  We want better ways to flex our NFTs to the world. And I guess pretty on your Apple Watches is an underappreciated and then and now available tool to all NFT flexers out there.

• 5:24Ryan Sean Adams?

  Absolutely. So flex your NFT with style. Use Xerion. Go check that out. There's a link in the show notes to that where you can find all sorts of more information. David, I've got to ask you the question I ask before every state of the nation as well, which is, what is the state of the nation today, sir?

• 5:43David Hoffman?

  This one's kind of a cop out, but the state of the nation is decentralized because more trading volume is going on D Y D X, which is a decentralized exchange than going on on Coinbase or any other centralized exchange. And so this is a huge victory for the world of being bankless and being self sovereign. And that is all thanks to the power of order book based, an order book based exchange on the layer two. So today, the bankless nation is a little bit more decentralized.

• 6:11Ryan Sean Adams?

  You know what? I'm gonna, I'm gonna plus one that because you know, I was doing right before this episode, I was reading up on Paulina. If you've read anything that Paulina has written, he's a poster on ETH Finance also has Medium, but it made me so bullish on like layer twos and where that's going. But just like a wealth of information and resource. I think people are underrating layer two right now, Ethereum layer two specifically. And we're in this season where they're overrating alternative layer ones that compromise on decentralization. So yeah.

• 6:44Ryan Sean Adams?

  State of the Nation is decentralized. We're going to get into that in just a moment with Antonio, talk about the DYDX story. But before we do, we want to thank the sponsors that made this episode possible.

• 6:55David Hoffman?

  Bankless is proud to be supported by Uniswap. Uniswap is a new paradigm in asset exchange infrastructure. Instead of a cumbersome order book system where trades are matched with other humans, Uniswap is an autonomous piece of software on Ethereum, which is what Ryan and I call a money robot. No human counterparties or centralized intermediaries, just autonomous code on Ethereum. Input the token you want to sell and receive the token you want to buy. Something brand new in the Uniswap ecosystem is the Uniswap Grants Program is now accepting applications for grants. We have been saying this for a while and we'll say it again. DAOs have money and they are in need of labor. If you think that you have something to contribute to the Uniswap DAO, apply for a grant to Uniswap.

• 7:39David Hoffman?

  Just look at the size of the Uniswap Treasury. It's almost $3 billion. This mountain of capital is looking for labor. Do you have something of value to contribute to the Uniswap DAO? No matter how big or small your idea is, you can apply for a UniGrant at unigrants.org and help steer Uniswap in the direction that you think it should go. That's exactly what we did to get Uniswap to be a sponsor for Bankless and you can do the same for your project. Thank you, Uniswap, for sponsoring Bankless. The era of proof of stake is upon us. Proof of stake systems like Ethereum, Terra and Solana allow the industry to move away from the hot, loud and wasteful proof of work systems and return back to a cottage industry of individual stakers and individual validators.

• 8:22David Hoffman?

  And that is what we need to make this industry stay decentralized. Individuals must play their part in crypto network validation. And that is what Lido is here to do. Lido makes staking accessible to everyone at the click of a button. By delegating your stake to Lido's network of nodes, you can access the yield offered by proof of stake systems and claim your share of the network transaction rewards. Do you have 32 ETH and want to stake it to Ethereum, but running a node sounds intimidating? Or maybe you have less than 32 ETH and you need to pool your ETH with others so you can access staking yields? Lido offers a solution for both. Simply go to lido.fi, choose which assets you want to stake, and deposit them to the Lido validating network. Lido is working to make sure proof of stake stays

• 9:05David Hoffman?

  as decentralized as possible, and is committed to decentralizing its own validating network to eventually become a completely permissionless protocol. So if you want to stake your ETH, Terra, or Sol and get liquidity on your stake, go to lido.fi to get started.

• 9:21Ryan Sean Adams?

  Alright guys, we are back with Antonio Juliano. He is the co-founder of DYDX. He was previously an engineer at Coinbase, but five years ago, Antonio quit Coinbase to build DYDX. Now DYDX has passed Coinbase in 24-hour volume. That's a crazy story. We've had Antonio on the show before, twice, but we keep bringing him back because he keeps delivering these crazy results. And DYDX is probably, I don't know, the story of the month of September. So Antonio, great to have you back. How are you doing, sir?

• 9:56Speaker 02

  Doing really well. Thanks so much for having me and excited to be on.

• 9:59Ryan Sean Adams?

  Yeah, well, look, you tweeted this out. This is like a milestone-type tweet. Tweeted this out the 26th. You said, "Five years ago, I left Coinbase and eventually founded DYDX. Today, for the first time, DYDX is doing more volume in trading volume than Coinbase." Absolutely crazy. Can you, like, first of all, how does that feel? And give us a sense of, like, you know, did you ever think you would be here?

• 10:27Speaker 02

  Yeah, I mean, I definitely did think there was a good chance we would be here at some point. You know, it's certainly not a given when you're building just a really innovative, exciting new project in a really new space. But this is kind of what we've been talking about for the whole time, you know, us and everyone who I think is excited about DeFi, just the potential, like, the reasons to use it long-term, the potential growth opportunity with token launches, which has obviously played into this in a really big way. Didn't quite think it would happen this soon, but as you guys were alluding to in the intro, it's certainly been a long grind on DYDX, but I think we have set ourselves up really well for success, and that's always exciting.

• 11:05David Hoffman?

  It's really nice to be able to compare trading volume between Coinbase and D Y D X just because like it's apples to apples, but also Coinbase and D Y D X as platforms are different platforms. So maybe can you help me and the listeners kind of just compare and contrast the differences behind Coinbase and and D Y D X, most notably in my mind, like the availability of assets, I think is a lot lower on D Y D X, which makes those volume numbers even more impressive. And then also, can you maybe clue us into like the number of users that are trading on D Y D X? And if you do know the numbers on Coinbase, how those compare?

• 11:42Speaker 02

  Yeah, great question. So I think there are a number of key differences between D Y D X and a platform like Coinbase. Obviously, the biggest difference is that D Y D X is decentralized, non-custodial, transparent, all the good stuff you guys really preach, and I'm sure the listeners can appreciate. And then the other really big difference between D Y D X and a platform like Coinbase is D Y D X is focused on financial derivative products and specifically perpetual contracts, whereas Coinbase, for the most part, is focused on spot trading. Spot trading is sort of just a fancy word for regular old buying and selling of assets. Tep touched on this before on the show, but just a quick recap of kind of what financial derivatives are and why we're really excited about them. Derivatives are synthetic

• 12:26Speaker 02

  products, which can be created on top of any asset. Synthetic basically means when you're trading a derivative, you're not actually trading the assets, you know, that are under the hood. So if you're trading like a Bitcoin perpetual, there's no actual Bitcoin being traded or kind of being held on D Y D X or any other platform you may be trading perpetuals on. But there are these kind of financial incentives, financial mechanisms, which effectively make these derivative products trade at the price of the underlying asset. And that's really what we've created on D Y D X. And the reason people are so excited about derivative products and the reason they've been taking off in a huge way in cryptocurrency even before

• 13:08Speaker 02

  D Y D X has been that you can trade them with leverage and kind of what the concept of leverage means. Is that you can come to an exchange with say a hundred dollars and say you went to Coinbase with a hundred dollars. You could buy a hundred dollars worth of Bitcoin and that's great, you know, we all want to buy Bitcoin. But if you come to D Y D X or you know, a different platform that offers leveraged trading. And you are, you know, willing to lever up, you could buy say five hundred dollars worth of Bitcoin. Or a thousand dollars worth of Bitcoin with your one hundred dollars through kind of the power of leverage. Um, it's not without risks. There are risks with trading on any leverage platform. But you know, for the most part, that's what's been driving a ton of volume to these derivatives exchanges over time.

• 13:51Speaker 02

  Um, the biggest exchanges in the space by trading volume, uh, in the past year or two have been Binance and F T X. And their trading volume has really been dominated by, you know, trading of these derivative products. And that's really why we're focused on derivatives at D Y D X, you know, zooming all the way out. Our highest level goal at D Y D X is to become one of the biggest exchanges in crypto, period. Centralized or decentralized, but kind of on a three to five year time horizon. And that's what's really informed our focus on derivative products. Um, because basically by definition, if you want to be the biggest exchange in crypto, you must support the biggest trading markets and those are already, and you know, will continue to, to be derivative products.

• 14:33Speaker 02

  Um, obviously we're making a really big bet on decentralized exchanges. I'm sure we'll touch a lot on why we're, you know, all really excited about decentralized exchanges. But I'd say those are probably the biggest differences between D Y D X and Coinbase. Um, certainly there are other differences. As you mentioned, Coinbase supports, uh, more markets than D Y D X does. However, we've actually been improving on that quite a lot recently. I think we're up to like twenty seven or so markets now. I haven't checked how many Coinbase has, but yeah, I think it's like fifty to a hundred. Um, but I think last time we spoke on the show, D Y D X had on the order of like five markets. Um, and I think we talked on, on the show back then about, you know, all this stuff that we were working on. Uh, from a tech perspective to enable us to launch a lot of new markets.

• 15:17Speaker 02

  That's driven a lot of growth and sort of that thesis has come true. So, you know, still not quite to the, the level of a Coinbase or, you know, especially like a Binance or F T. On the number of markets, but I what I would say there is most of the trading volume in crypto happens on the top assets. So you know Bitcoin and Ether just drive most of the trading volume in the space. Just those two. So as much as we're able to capture that on D Y D X, I think we have been successful there. So yeah, a lot there. I'll stop there for now, but I'd say those are kind of the biggest differences between the two.

• 15:49David Hoffman?

  I think another difference I'd like to highlight is that D Y D X doesn't have a native fiat on ramp. And Coinbase does, and that's definitely why Coinbase is optimized for spot trading rather than rather than these perpetuals, which makes it even more astounding that D Y D X has beaten Coinbase with trading volume because Coinbase has hooks into everyone's bank accounts, whereas D Y D X is it's kind of like the hard way where you actually can only take money from L1 Ethereum and have that be deposited. And that has also changed the probably the user profile, both in the nature of what the products are on D Y D X and also how you get there is probably also changed the nature of like what users are actually

• 16:33David Hoffman?

  using D Y D X. So maybe just to finish off adding color to the nature of D Y D X. Could you also talk about like the general user profile? Who is trading on D Y D X? Are the amounts that they're trading on D Y D X more than you would find on a centralized exchange like Coinbase? What's just the nature of the user profile on D Y D X?

• 16:51Speaker 02

  Yeah, absolutely. So again, because we're focused on these financial derivative products, these types of products are just fundamentally more complex than products you'd find on a normal spot exchange like Coinbase. And therefore, the types of users that are trading on D Y D X are much more advanced than call it like the average Coinbase user. D Y D X really isn't targeting somebody who has bought, you know, their first hundred dollars worth of Bitcoin in the past week. It's really much more targeting people that have, you know, been in the space for a while, understand financial derivative products, or at least want to learn about them. And I think that manifests itself in our metrics in a couple of different ways. I don't really know what Coinbase's numbers look like. I would sort of guess there are, you know,

• 17:35Speaker 02

  Number of active weekly traders is probably in the hundreds of thousands to, you know, maybe low single-digit millions. On D Y D X, just sort of for comparison on an order of magnitude, um, I believe we have about seven or eight thousand weekly active traders. Um, but as you say, they're pushing much, much more volume, um, on average than sort of like the average Coinbase user is. Um, so the, the users that we're capturing are much higher value on average. Um, there are a couple of different profiles. I think D Y D X is targeting both, uh, international advanced individual crypto traders. You know, people that likely have traded derivatives and perpetuals on other platforms like Binance or F T X before.

• 18:16Speaker 02

  Um, and then D Y D X is also targeting in a big way, uh, sort of all of the top crypto trading funds in the space. One of the other, uh, really exciting things and probably the thing that I've been most excited about, uh, with all the D Y D X growth recently. Is that almost all of the top crypto trading funds, um, have already integrated with D Y D X, or at least are sort of like talking with us about integrating. And that's really exciting because I think that's where the real trading volume and sort of the real value capture comes from. D Y D X will always be a platform both for individual traders, um, and let's call it like crypto institutional traders. Um, but I think a lot of these, you know, more crypto institutional traders had traditionally been hesitant, um, to enter DeFi.

• 18:59Speaker 02

  Or, you know, there wasn't enough trading volume or activity there to make it make sense for them. And that's really starting to change right now with D Y D X, and I think that's really exciting.

• 19:08Ryan Sean Adams?

  That's awesome. And I think that leads into, uh, the next question we, we have for you, which is like, what do you attribute to the recent success of D Y D X? You guys have absolutely exploded over the last few months in particular. Um, we have a few theories as, as Dave and I were talking about this, um, conversation. And I, I wonder if you'd like to weigh in on these theories, but then please, like you know that, like you know best on why you're actually, uh, growing the way you're growing. But the first is the release of layer two. I mean, we've seen this story elsewhere with, um, Axie Infinity, most recently, not quite a layer two. Sidechain, but layer two, lower gas prices, super important for scalability.

• 19:52Ryan Sean Adams?

  The second is the DYDX token. And of course, we know tokens are like steroids for growth. And so DYDX has injected some of those steroids, maybe with a recent release of the DYDX token. And the third is maybe an increased focus on decentralization. This comes out of, you know, some of the shutdown of centralized exchanges in China. Kind of where is that volume going when it leaves Huobi, for example? Maybe, maybe some traders are reevaluating the importance of decentralization. Maybe some of that liquidity and volume is actually leaking into DeFi. Give us your thought on, on any of those.

• 20:34Ryan Sean Adams?

  And then also tell us the real reason that, that DYDX has had such explosive growth this year.

• 20:40Speaker 02

  Yeah, I mean, I think you're spot on. Those are the top three things I would pick to focus on as well. But maybe adding a bit more color to that. For those who aren't familiar, the DYDX protocol token was released about two months ago by the DYDX Foundation. And that has just obviously driven a ton of growth to the platform. I think I probably even said this last time I was on the show, but my mantra has always been, you know, DYDX has been around for four years now. So why did it take so long for the DYDX token to be released? And my thesis on this had always been that, yes, tokens can be just massive, like order of magnitude growth drivers for a platform.

• 21:22Speaker 02

  But the way you really get big, like the way you like really capture a lot of volume is you start by, first of all, making a great product that is already growing organically, that has real use cases for people to, to be able to use it. And you also build a scalable product. Because just imagine if like, you know, the DYDX token had been released, but DYDX are still operating on Ethereum layer one. That growth would not have happened. You know, one really exciting statistic is we were only on DYDX pushing multiples of all of the transactions. Action volume on Ethereum combined, and I think we probably still are. So you know, it's sort of by definition that growth could not have happened on layer one Ethereum.

• 22:04Speaker 02

  So again, we talked about this on the show before, and I'm sure we'll touch on it again. But as you say, that launch of the layer two product was, I think, a really big step up for us in a couple of different areas that are super important. Scalability, obviously, the product experience is way better. There's instant trading, cross margining, things, features, users care a lot about. And that product was already growing organically before the token launch, and I think that's important. And then, you know, fast forward to two months ago, when the D Y D X Foundation released the D Y D X token. And I think the foundation did a really great job of just creating a lot of these liquidity mining programs.

• 22:44Speaker 02

  Liquidity mining empirically has been super successful for a lot of different protocols in the space. So it's not really rocket science, but the thing that's hard, I think, is what are you incentivizing with your liquidity mining programs? Are you incentivizing the right things? And I think that's the real critical question. And the thing I think, you know, the D Y D X Foundation got right in the launch of the token. There are quite a lot of different liquidity mining programs, have to dive into any of them. There are liquidity mining programs for traders on the exchange. There were liquidity mining programs for, you know, past users of the platform. Liquidity mining programs for market makers, which has driven a massive amounts of liquidity to the exchange.

• 23:26Speaker 02

  There are staking pools, and I think all of these together really play into incentivizing exactly the right behaviors that we want to see and that are valuable on D Y D X. So I've been really excited about that. And then sort of your third point, I think that's valuable as well. I think that's sort of like a lesser point. Not that it's not important, but I think that's just something that continues to happen over time. As more people see the value of decentralization, whether that's for transparency, self custody, you know, censorship resistance. And I think that's what makes us excited about the long term growth prospects on the platform.

• 24:03David Hoffman?

  To what you said about the token, the beauty about tokens is that you can specifically engineer the incentives that you want out of a token. It's just a tool that some centralized exchange like Coinbase and FTX just can't really figure out by the nature of their centralization. And so it sounds like we're all on the same page about where the success is coming from. But Antonio, if I can pin you down to actually put some numbers behind this thing, can you like divvy up percentage wise? What amount of the recent DYDX success can you attribute to the layer two? Was that like 50% of the success, 80% of the success? What about the token? 20, 50%? If you had to divide up the pie of the success, where is the success coming from?

• 24:48Speaker 02

  I mean, it's a great question. It's a little bit hard to say because I think those two are really multiplicative with each other. You know, I don't think they're like additive. And I think that makes it a little bit tough to like put specific percentages on it. You know, let's just take the world where like I said, DYDX is still on layer one with our old layer one product and the token was released on top of that product. I think there would have been a good amount of growth, sure. But you know, by definition, we wouldn't have been able to scale to more transactions per second than all of Ethereum. And likely we wouldn't have seen even close to, you know, I would guess probably our volumes would be in like the tens of millions or maybe hundreds of millions of dollars. And now we're in sort of the low single digit billions of dollars. You know, but also empirically,

• 25:32Speaker 02

  like we had been operating on layer two for a while with more or less the same product before the token. It's getting better all the time, but it's more or less the same before and after the token. And I think before the token, we were seeing daily volumes in roughly the $100 million range. And then as I say, the, you know, now we're seeing volumes in the $2 billion a day or so range. So empirically, it's driven like 20x growth for us in the past month or so.

• 25:59David Hoffman?

  That growth is definitely being showcased very, very well by the TVL chart for DYDX, which here it is. I joked on Twitter a little bit yesterday when I tweeted out this graph that it literally looks like the up chart emoji. It looks like the same shape. And so, and again, I kind of want to return to almost the same question. To what degree is this layer two incentivizing lockup? And what degree is this yield farmer, yield farmers seeking the incentives out of the token? And where have you seen token incentives really shine when it comes to attracting yield? Like, what are the, because there's so many different ways to do, to do like DYDX token yield farming on DYDX, because there's so many

• 26:43David Hoffman?

  different ways to pay out incentives. Which ones have really resonated with the people that are seeking the DYDX token? And is that why we're seeing all this lockup as well?

• 26:53Speaker 02

  Yeah, I think that's a lot of it. So let me maybe at a high level, just go through like all of the different liquidity mining programs that were launched alongside the token, because there are a couple of them, and they are complex. So feel free to stop me and ask questions at any point. So it's kind of the first and most basic, but also probably most important liquidity mining program is what we call trading rewards. This is effectively just incentivizing users. There's like a fixed amount of DYDX tokens that are allocated to this program per month. And then everyone gets a trader score on DYDX every month. And your trader score is based off of the amount of fees that you've paid on the platform, multiplied by your average open interest on the platform over

• 27:37Speaker 02

  that month. And average interest, all that means is like, you know, the amount of positions, you know, if you hold like $1,000 worth of Bitcoin on DYDX for a month, then your average open interest is $1,000. So you take these two things and you multiply them together. And, you know, out of that, you get the score. And the reason you multiply them together is that, you know, you need both of these things. You need to be both actively trading and paying fees, and you need to, you know, just, you know, hold positions on the exchange. So you could make a trade on DYDX. exited immediately, but then your average interest wouldn't be too high. And the other reason that it was set up this way is because these numbers are hard to fake.

• 28:17Speaker 02

  Right? You know, you literally have to pay fees on the exchange and you literally have to lock up capital to, you know, hold open interest. Um, on the platform. So it's really incentivizing and driving for the most part, really organic uh, volume uh, and incentivizing. Like the way users were already trading on the platform and on the exchange. And I think that's, that's pretty ideal. Um, so that's kind of the first and most important platform liquidity mining program. Um, another really important one that has driven just huge success to the, the platform so far. Has been, uh, there's a separate liquidity mining program just directed at market makers on the platform. Just a really quick overview, like who are market makers? What do they do?

• 29:00Speaker 02

  Um, and you touched on this before, D Y D X is an order based, order book based decentralized exchange. What an order book is, is it's basically just a sorted list of all the prices people want to buy and sell at. Um, so when you're trading on D Y D X or any other order book based exchange, you're trading against other traders on the platform. And for the most part, you're trading against market makers, um, these professional trading firms, uh, which, you know, their whole job is to provide liquidity. To people who want to trade on exchanges. And to kind of put some numbers around this and, uh, you know, explain why this is so important. Liquidity is quite literally the most important thing to an exchange and the most important thing to traders.

• 29:41Speaker 02

  On an exchange, um, because it's literally the price that you get when you're trading on the exchange. You know, if the exchange A is offering to sell you Bitcoin for a thousand and one dollars, an exchange B is offering to sell you Bitcoin for a thousand dollars. Of course, you're just going to go and trade on the exchange that's, you know, willing to sell it to you for a thousand dollars. Just more liquidity gets better prices for traders and that's what traders care about, obviously. So anyways, liquidity is super important for an exchange. Uh, to put some rough numbers around this, um. Roughly D Y D X had around one to two million dollars worth of depth. What depth basically means is like, how much can you buy within? A certain amounts of slippage or you know within a certain percent of the mid market price.

• 30:24Speaker 02

  Um. We had about $2 million before the token launch of depth on on the ETH markets. And to put it into context, Binance, which is the world's most liquid exchange, has about $25 million uh within 1% of depth on their Bitcoin perpetual, which is the most liquid product in the world or in crypto at least. Um. Fast forward to now, DYDX has created this liquidity mining program, which quite literally incentivizes market makers based on their performance. And one of the other sort of more complex, but one of the things that I I'm most proud of that that the foundation did. Um. Is the the foundation came up with this score for market makers on the platform as well, which looks at all of their orders that they've placed on the platform for the entire month.

• 31:08Speaker 02

  Um. And comes up with one numeric score. And this is important because by coming up with this one numeric score, you can divvy up these market maker rewards um in sort of a perfectly incentivized way. The score is complex, but it's based off of a com- you know, combination of the uptime that they're willing to provide. So you know, this market maker is quoting 99% of the time. That's better than if the market maker were quoting 90% of the time. It's based on the spread that they can provide. Spread means sort of like the the amounts that you have to to pay them to trade uh against their orders. Based on the amount of depth that they can provide. You know, zooming out, effectively, there's a liquidity mining program that is targeted at market makers.

• 31:51Speaker 02

  Fast forward to now, and one of the the craziest things that I think has happened, to be honest, in the past month is DYDX is literally the most liquid exchange in crypto by a lot right now. Um. You know, that $2 million of depth that that I talked about before. Um. Fast forward to now, and that's $40 million of depth. Um. Within 1% on our Bitcoin perpetuals and Binance has 25 million. Um. So yeah, it's it's literally we're the most liquid exchange in crypto and perpetuals are the most liquid products um in crypto. And I think that's been driving a lot of activity to the exchange as well. Um. Other liquidity programs like staking pools um that I can, you know, touch on and go into. But but that was kind of a lot, so I'll stop there for now.

• 32:35Speaker 02

  But you know, I think those are probably the biggest things that have been driving a lot of growth.

• 32:39Ryan Sean Adams?

  Yeah, you know, I'm super like, maybe it's sort of a learning lesson coming out of this and hearing you talk is that D Y D X is very intentional about its token strategy and its token incentivization strategy. Like, this is one of the most complex, but also, I guess, you know, high leverage token schedule liquidity programs that I've seen. And you guys were very intentional about waiting to release the token until you were sort of ready for that growth. And then the specific areas that you wanted to apply the token to

• 33:21Ryan Sean Adams?

  that would benefit the protocol most. It's very precise. I see a lot of token strategies that are just kind of shotgun. Here, you get a token, you get a token. And what are we rewarding? What are we incenting? Oh, I don't know, users. But like, D Y D X has taken a very precise, like, I guess, token strategy. And you're injecting it in the steroids, I guess, in the right parts of the body to increase that muscle mass. I want to ask you this question, too. It's like, I feel like with D Y D X's success this year in the whole decentralized exchange category, we're seeing a return of the order book. Okay. So I remember the story of like,

• 34:04Ryan Sean Adams?

  Webvan, which was a dot com company that wanted to deliver like groceries to your house, right? Early 2001, they went belly up. It was too early. The internet wasn't ready. Consumers weren't ready. Now we see how many different Webvans that have been successful, like 20 years later, right? We got Uber Eats, and we've got, you know, almost every grocery shop retailer delivers to your house now. It's just like, timing is a huge factor in the success here. And I think we've seen something similar with order book exchanges, at least decentralized order book exchanges, right? The very early stages of DeFi, we had, what was that exchange? I don't know why it's escaping me. Ether Delta. My head. Ether Delta. Thank God. Do you remember Ether Delta?

• 34:49Ryan Sean Adams?

  What a mess that user experience was order book exchange all on chain. We saw that. We saw, you know, DY DX's early efforts. Nothing took off until automated market makers and Uniswap really like crushed it on that angle. But now I feel like we're seeing this resurgence in order book exchanges, like decentralized, non custodial order book exchanges. And I'm wondering if you can kind of reflect on that. Do you think order book exchanges have made a comeback? And will now be the most dominant decentralized exchange in crypto? How do you think it plays out between automated market makers, which have been very successful in DeFi? And order book exchanges and where do these two things fit?

• 35:32Speaker 02

  Yeah, great question. And also, again, I think you're spot on with the timing piece. I 100% agree with that. I think the most important thing in startups and tech in general is timing. You know, there are lots of good ideas out there, but it's irrelevant if you have a good idea, if it's not created or pushed at the right time. And I think, you know, AMMs really took off and certainly I'm not the first person to say this, but because of Uniswap. And because Uniswap was able to offer trading of all of these new tokens that weren't available to trade elsewhere. Automated market makers are really good and I admit they're much better than order books at providing liquidity on sort of the long tail of markets.

• 36:15Speaker 02

  But and I've always said this, and I think it's really starting to come true now. Order books, I think very strongly are much better at providing liquidity and much better at providing a good user experience on call it like the top like 100 to 200 markets by volume. And I think you see this play out on centralized exchanges. All the centralized exchanges use an order book based model for a reason, right? And again, like zooming all the way out, just because so many things are that we do at DY DX are impacted by this high level directive. We want to be the biggest exchange in crypto, like period, but like, you know, on a three to five year time horizon. And again, so like let's just think about what we need to do if we want to get there. We need to. Derivatives, obviously, we talked about that.

• 37:01Speaker 02

  But also, as I touched on before, most of the volume in the space goes through these like top 100 or 200 markets. Certainly, there's a long tail of sort of like, you know, random or smaller cryptocurrencies that are valuable to trade. And there should be platforms on which users can trade these assets. But if really the thing we care about at D Y D X is just becoming the biggest exchange. Then we need to support the best possible user experience and the best possible liquidity for these top markets in crypto. And the way we do that is through order books. And I think that has really played out for for us and, you know, the liquidity that we've been able to generate. And, you know, sort of the the crazy stats around like the level of liquidity we have right now. We're the we're the most liquid exchange in crypto.

• 37:45Speaker 02

  You wouldn't be able to do that on an automated market maker, or you'd sort of just need like so so much capital to be able to do that. You know, order books are able to support much more advanced order types like stop orders, limit orders, all of these different things that professional traders. Need like, you know, I think for the most part, like Jane Street or something like that. Isn't just going to come and trade on like automated market makers like quite as much as they're likely to trade on order books. So I think just order books can provide this higher level of user experience for professional traders and for more advanced users. But my point is like, that's where I think the real volume in crypto is certainly at least for now, you know.

• 38:29Speaker 02

  T L D R or T B D, whether that will be the case, you know, five to 10 years from now in crypto. Like, I could be wrong, but I think it just makes the most sense for us to start with like the highest value markets that we could capture. And build the best possible product around them. And for me, that's order books.

• 38:44Ryan Sean Adams?

  So Antonio, now you said this twice, we got to dig in. You really think it's possible for D Y D X to become the largest exchange, not just decentralized exchange, but the largest exchange. That that means beating out F T X, beating out Binance, you've already beaten Coinbase a little bit, right? But like, you think that's actually possible. I I get the sense from how you're you're speaking, it's not just aspirational, like you're you're kind of serious about that. Tell me how that happens.

• 39:13Speaker 02

  Yeah, I mean, obviously, we've seen a huge amount of growth in the past month or two, and that's super exciting, but maybe to put things into context, like where are we actually at right now? Yes, we did more volume than Coinbase. You know, for a couple of days, I think we're sort of like trading back and forth with them. Now I'm doing more volume versus less. We're still a good ways off from like a Binance. Binance is roughly doing like seventy-five billion dollars a day in volume, and D Y D X is at two billion, so it's still a long way to go. F T X is at like fifteen billion dollars a day in volume or so. So, yeah, we've got to grow by, you know, another fifty to one hundred X if we want to be one of the biggest exchanges in crypto. But again, I think it really is possible.

• 39:55Speaker 02

  Again, it has to start, in my mind at least, by definition with derivatives trading, because already, and in literally every single mature financial market, there's more volume and more value capture in derivatives trading than there is in spot trading. So that's why we're focused on that. So let's just start with that. I think the real bet that we're making is that decentralized exchanges, and obviously specifically D Y D X, will beat out centralized exchanges on some timeline. You know, it's hard to say exactly what that's going to be, but I always sort of say roughly, it's like, you know, we want to be the biggest exchange in three to five years from now. And I think we're making a couple of bets there. We're betting on the technology continuing to improve. We're betting that we'll be able to continuously improve the product.

• 40:38Speaker 02

  We're betting we'll be able to continuously improve on like the amount of decentralization we can offer our users. We're betting on, you know, sort of what happens, sort of like a regulatory crackdown perspective with centralized exchanges. But I think there are a lot of reasons to at least think that there is a realistic shot. I don't, it's hard for me to give percentages, but you know, somewhere in the like ten, so like, I don't know if I'm being realistic, like thirty-five percent chance that I think D Y D X becomes like the biggest exchange at some point. I honestly believe that. Maybe people think that percent is like too high. But I think there, that most people can believe at this point that there is a shot, right? You know, if we just assume that like the technology works out.

• 41:23Speaker 02

  Um, the product experience can get better and better and better. Already we have the best liquidity. So I think that's like, you know, been disproven already that decentralized exchanges can't have as good liquidity as centralized exchanges. And I think that there's a lot to be excited about at least. And for me, it's like exciting to work on something that has this like, you know, multiple orders of magnitude type growth potential. That's just what's exciting to me sort of in life. And it's like, you know, it's not a given, but like, I think there is a realistic shot that we could be one of the biggest or the biggest like crypto exchanges and sort of therefore like one of the biggest like protocols or companies or whatever in the world at some point. And that's exciting to me.

• 42:02Ryan Sean Adams?

  So let me ask, like, how are you going to do it without Tom Brady? You know what I mean? Like, so, so FTX, of course, for people who aren't familiar, um, they have like celebrity endorsements now. They're, they're paying professional athletes and celebrities a lot of money.

• 42:16David Hoffman?

  Slapping, slapping their logo on top of stadiums. All the MLB umpires have FTX right on their, on their chests.

• 42:23Ryan Sean Adams?

  They're, they're playing the, you know, the centralized exchange game and they're playing it very well. You know, we, we often call them kind of, you know, neo banks, like they're crypto banks, aren't they? And, um, I guess the bet that D Y D X is making is that people will prefer decentralization. And maybe like first users, but also you mentioned something super interesting in there. It's like, maybe regulators will prefer decentralization. So like, can you do this without Tom Brady? Or do you intend to like, go get the athletes and the celebrities? And, you know, play that game too. What's your take?

• 43:01David Hoffman?

  Wait, win D Y D X arena.

• 43:05Speaker 02

  That'll be the day. Um, you know, maybe someday, you know, I won't, I won't throw that opportunity or, you know, that possibility out the window. Um, at some point it'll make sense for us to grow into, call it more like mainstream, like international users. And a good way to do that is with advertising, celebrity endorsements and things like that. Um, but for us, like I said, the obvious growth opportunity right now is people that are already trading crypto. Like Binance has 75 billion. A day FTX has fifteen billion dollars a day DYDX has two. So let's just grow into like finance and FTX as users for at least the next year or two. And that is a ton of growth potential right there. So that's sort of like answer to the question.

• 43:47Speaker 02

  Why not DYDX arena today? Um, you know, maybe at some point in the future, once we are grown a little bit more. Um, and need to get a little bit more into the mainstream conversation, but there's a huge amount of growth opportunity just with the people that are in crypto right now. And that's really what we're focused on. Um, in terms of the regulatory piece, it's tough for me to say, um, or kind of dive too much into like publicly. But I definitely, you know, I've said this before publicly, and I honestly believe that there are a lot of things that I think regulators care about, um, that are positive. Um, about decentralized exchanges, regulators care a lot about transparency, regulators care a lot about solvency of the systems that users are trading on.

• 44:25Speaker 02

  And I think decentralized exchanges do a much, much better job of that than sort of these black box, like international centralized exchanges do. Um, so I think there's a lot to be excited about there. Um, and just generally, I think there is a huge amount of growth opportunity for DYDX. Um, and we're excited about that.

• 44:44Ryan Sean Adams?

  That's, that's really cool to hear, guys. Uh, we have a lot more to cover with Antonio. We're going to talk about why DeFi in general. And Antonio's thesis around that building on layer two as well. Talk a little bit more about regulation and DYDX in five years' time, but before we do, we want to thank the sponsors that made this episode possible.

• 45:05David Hoffman?

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• 45:50David Hoffman?

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• 46:29David Hoffman?

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• 47:11David Hoffman?

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• 47:32Ryan Sean Adams?

  Hey guys, we are back with Antonio Giuliano from DYDX, talking about the DYDX story. And where we left things before the sponsor break, we were talking about how DYDX might compete and might beat and win against the centralized exchanges, the FTXs of the world. But I feel like we haven't really nailed this point home yet. And I know you guys have been on a trajectory like you could have gone the centralized route at any point in time. You could have thrown in the towel and said this decentralization stuff is too hard. Ethereum is not scaling. You'll see you later. We're turning centralized, but you didn't. You stuck to this roadmap and I want to ask the question of why DeFi to you, Antonio?

• 48:13Ryan Sean Adams?

  Why is it important for an exchange like DYDX to be centralized in the first place? Why do you think that's a killer advantage? And yeah, just tell us why.

• 48:25Speaker 02

  Yeah, it's a great question. And first of all, maybe just to say something a little bit like counterculture. The most important thing to me is that DYDX is that we hit this goal we have set for ourselves of DYDX being one of the biggest exchanges in crypto on the five year time horizon. That means being centralized, like we've honestly thought about that in the past. Obviously, we haven't done it, but like, you know, we've thought about, well, okay, maybe like you say, like, oh, if Ethereum doesn't work, like, should we just switch to being like a centralized exchange and sort of do what FTX did? But I honestly believe that like the highest probability way that we can win and that we can be one of the biggest exchanges on that sort of timeline is by being a decentralized exchange. And I think that's really exciting.

• 49:08Speaker 02

  And the reasons why we're excited about that are a couple of things. And probably they're, you know, along the theme of what people are excited about with decentralization in general. First of all, decentralized exchanges, as I touched on before, are transparent. And this is really important to traders and really important to, you know, advanced users to trading funds. I think you saw this play out in traditional finance in a really big way and sort of a bad way with sort of the, you know, Robin Hood GameStop saga of a couple of months ago, where, you know, Robin Hood delisted GameStop and people were super upset about that. And fundamentally, they didn't understand the rules of the exchange that they were trading on.

• 49:49Speaker 02

  And there was the central authority, which kind of had the capacity to censor trades or, you know, inform like how users could trade. But by being a decentralized exchange and by having the power to quite literally just In code into code that's running on the blockchain, the rules of the platform rather than, you know, using trust or using like complex legal contracts. That's a really powerful thing and allows us to bootstrap trust on the system much more effectively. Because we're not sitting here saying, hey, trust us, we promise not to steal your money or screw you over. Instead, it's just like, look at the contracts, look at the auto reports. And that's a really effective way for us to bootstrap trust.

• 50:30Speaker 02

  It's much more secure as well to trade on a decentralized exchange to store your own coins in your own wallet. I think that's important to a lot of traders. And the other really important thing that I think decentralized exchanges have, and now we've started to have with D Y D X, is the concept of community ownership of the platform. The community can quite literally own the protocol that they're trading on. And this is really, really different and fundamentally different than, you know, pretty much any other business in history. But if you look at something like a Binance where, you know, a CZ owns, you know, I don't know what it is, like whatever, like 20 to 40% of Binance, like Sam owns, I think, like 53% of FTX.

• 51:11Speaker 02

  Whereas on D Y D X, the community can quite literally own the platform that they're trading on. And that's a really powerful thing. Already we've seen just a ton of activity on D Y D X governance on the forums, driving a lot of engagement to the platform. And I think once users feel like they're owners of the platform that they're trading on, they're much more likely to use that platform over just something that's, you know, wholly owned or, you know, mostly owned by an individual or a small set of individuals. I think that's really exciting as well. So those are kind of the main reasons I'm excited about decentralized exchanges. I also think once D Y D X gets to a point where it's just open source software running on the chain,

• 51:52Speaker 02

  that's really powerful where, you know, if you can just pull the D Y D X code and start trading, that's something that's fundamentally different and, you know, doesn't exist on any centralized platforms. And that's really what we're going to be building towards over the next year. But already have, you know, a huge step up in transparency, security and community ownership. And eventually, you know, call it like censorship resistance or full decentralization over what centralized exchanges can offer.

• 52:19Ryan Sean Adams?

  What's interesting to me about what you just said is this seems like a pragmatic approach. You're trying to be the biggest exchange in the world and you actually think decentralization is the way to get there.

• 52:28Speaker 02

  Yeah, exactly. And not to take anything away from like anyone else who's just sort of like, you know, fully hyped on like decentralization for more ideological reasons. I'm a big proponent of it too, obviously, but like where I'm coming from is I want to build the biggest exchange. Like, how do we do that? Decentralization is literally, I think, like how we do that. Um, and there are, you know, multiple different reasons why people could be excited about building protocols and startups. Um, but for us, it really is, as you say, like a pragmatic approach.

• 52:57David Hoffman?

  There are a lot of builders in this space who have similar like lofty ambitions and just aspirational goals. Yet they choose to route around decentralization because they want to get those goals, you know, in the next quarter or in two quarters rather than in one, two years or four years. So it's always very refreshing to see someone take the decentralization as a product first approach, while also thinking in the long term, right, for thinking in long-term game. So it's also, it's always very refreshing to hear that. And on the same time, on the same, in the same conversation, bankless listeners will, if they've been paying attention, they will know that decentralization is a spectrum.

• 53:36David Hoffman?

  Uh, and there is an actual centralized company that is part of the overall D Y D X ecosystem. And I don't know if this is true, but I've heard murmurings about this and I want to verify this with you, Antonio. Is there a differential in power between what the token governs over and the company behind D Y D X? Is there a discrepancy there or is that, is that a rumor? Where, where, are there any differences in what has power over what when it comes to the D Y D X system?

• 54:05Speaker 02

  Yeah, good question. There definitely are differences, uh, right now. Um, at a high level, the, the token and therefore token governance has control over all of the D Y D X smart contracts. So has full admin control over the smart contracts, has control over how they can be upgraded. Uh, for example, like what assets can be added to the exchange, what the like risk parameters are, all these different things.

• 54:28David Hoffman?

  Importantly, not a multi-sig, right? This isn't some off-chain agreement saying, hey, there's these multi-sig owners. They will answer to the token holders. That's not what you're saying. You're saying that the token holders actually have admin control over the smart contracts.

• 54:43Speaker 02

  That's correct, yeah. And we totally burned our like admin keys and everything like that. Um, so only the token holders have control over the protocol now, which I think is really exciting. You know, we're not the first to do that, sure, but I think we've seen that work really well with other projects like Compound, Ave, Uniswap, to name a few. Um, and we're excited to bring that to D Y D X as well. Um, in terms of what the company controls, the company controls the uh order book and sort of order matching that happens in an off-chain way right now. It controls the revenue that's generated through trading fees um on D Y D X. Um, and then the the actual product and sort of user interface as well. Um, though I will say over time, we do plan to decentralize a lot of those pieces um as well outside of the revenue piece.

• 55:29Speaker 02

  Um, you know, we just plan to decentralize the order book and the order matching, plan to decentralize and open source the product. And really get to this point that I touched on before, where eventually D Y D X will just be open source code that's out there running on the chain. Sort of like a Uniswap, um, or like that level of decentralization. That's really what we're building towards, and we're really serious about this on, you know, specifically like a fifteen to sixteen month timeline. And that's something we're actively working on and researching right now.

• 55:57David Hoffman?

  So you said the centralized company is getting the trading fees. Is that uh just a hundred percent binary? Is in the token, the tokens, the the token doesn't get any of the trading fees and all the trading fees go to the centralized uh company?

• 56:08Speaker 02

  That's correct, yeah.

• 56:09David Hoffman?

  And then i- is there a long-term roadmap for for that to have any changes, or is that just gonna be the way that it is?

• 56:16Speaker 02

  That's just the way that it is, yeah.

• 56:18David Hoffman?

  Okay, um, and then uh with regards to the the the um order, the order books, that's something that's operated by the centralized company. Is that more of like a just a technical property, or is that something that like is i- is there a roadmap for decentralizing that as well?

• 56:36Speaker 02

  Yeah, there's a roadmap for decentralizing that as well, and that's sort of what I was touching on that we're actively researching right now. Like, how can we build a fully decentralized version of D Y D X? Um, historically, we've kept the order book and order matching in a more centralized way. Uh, just due to performance and sort of technical considerations, but I honestly think that the with. You know, the the rapid innovation that we've been seeing in other layer ones, and other Ethereum layer twos, and you know, ETH two itself. That it is achievable for us to build a great product on D Y D X that's order book based and fully decentralized on sort of like an eighteen month timeline.

• 57:13David Hoffman?

  Antonio.

• 57:13Ryan Sean Adams?

  Antonio.

• 57:14David Hoffman?

  Go ahead.

• 57:15Ryan Sean Adams?

  Yeah, thanks, David.

• 57:16David Hoffman?

  We're gonna go over the same question anyways.

• 57:19Ryan Sean Adams?

  You guys have been like one of the most successful pioneers on Layer 2, right? There's a lot of protocols and like different projects building on Layer 2, but you guys have like crushed it in terms of volume. And you also kind of pioneered this space too, deciding to like pivot to Layer 2 relatively early. I'm just curious, like, how hard was it? Is it still really difficult to build on Layer 2s? What advice do you have for people? And just give us an update on Layer 2 from a builder's perspective and somebody's actually brought a successful product to market here.

• 58:02Speaker 02

  Yeah, so I guess a bit of context on which Layer 2 we're building on and how long it took us and stuff like that. We're partnered with Starkware, which is the leader in this really exciting new scalability technology called Zero Knowledge Roll-Ups. And we started building with them in, I believe, July or August of last year, and then built for about six months or so and launched our Layer 2 product, I think, like February of this year. So, you know, it was a challenging build to start. And I think that's okay. Like, DYDX, one of the things we also pride ourselves on is that we have, and I strongly believe that's just one of the best engineering teams in this space. However, what I would say about Layer 2s in general, both on Starkware

• 58:46Speaker 02

  and with other exciting competitors like Optimism or Arbitrum, is I think the developer experience is quite rapidly getting a lot better. And it's a lot easier to build on them now. And I think that's one thing that a lot of people in the space are excited about. You know, now DYDX really has a lot of other people that are also building on Layer 2s, whether they're DEXs, whether they're NFT platforms or other things. And I think just the improvements in developer experience has gone a long way towards enabling other projects to build on Layer 2 as well.

• 59:18Ryan Sean Adams?

  Are you bullish on ZK rollups? And like, how do you think this all plays out?

• 59:23Speaker 02

  Yeah, I definitely am super bullish on ZK rollups for a couple of reasons. I think they're just fundamentally more scalable by a lot than optimistic rollups are. And they're also, and most people don't appreciate this, just way more production ready than optimistic rollups are. I mean empirically, like DYDX is literally doing $2 billion a day of volume on zero knowledge rollups right now. And I think like, not to thrift shade at anything, but just like looking at the state of the world right now. Like Uniswap on optimism, I think is doing like tens of millions of dollars a day, at least last I saw in volume, maybe more now. But I think that just zero knowledge rollups are really production ready. They have lower withdraw times.

• 1:00:05Speaker 02

  So that's a lot of the reasons why we've been championing them in a big way. And why I'm excited about them in the future as well.

• 1:00:13Ryan Sean Adams?

  It's kind of great, though, like if you have a, you know, if if you're doing something that's app specific and you don't need a lot of composability, I would say from other chains, right? At least ZK rollups without an EVM, you know, in their current form, I guess maybe EVM compatible ZK rollups might totally change the game there. But like, refresh me, I'm looking here on Layer 2 Beat, and I think this is a great assessment. I recently, they added a whole risk section, Antonio, to their like list of Layer 2 projects. And on DYDX, if the sequencer fails, you can still exit to Layer 1, right?

• 1:00:54Ryan Sean Adams?

  And if there's a validator failure, there's also an escape hatch, right? This is kind of what ZK rollups provide in that like you never have to give DYDX full custody of your funds. If the company shuts down or something super bad happens, you always have the ability to exit back to Layer 1. I don't know if there's really a question there, it's just like a realization that like, yeah, maybe I'm more curious in sort of your strategic thoughts here. So this has been almost an alt Layer 1 summer. If you will, in that like a whole bunch of alternative non-ethereal layer ones like Solanas

• 1:01:33Ryan Sean Adams?

  and avalanches have really taken off in terms of market cap and token price appreciation. What's your take on that versus a rollup centric view of the world where it's going to be Ethereum and then a whole bunch of different rollups, some EVM, some app-specific rollups. What do you think wins in the end?

• 1:01:56Speaker 02

  Tough to say, and I think that one of the things that's also proven correct over the past year is that there's going to be a lot of different scalability solutions that will all have market share. In my opinion now is that, you know, different chains or different scalability solutions will make sense for different applications. Like, for example, you touched on this before, but we at D Y D X care relatively a little bit less about composability and therefore like zero knowledge rollups made more sense for us, though I'll also say as an asterisk, zero knowledge rollups are improving a lot on composability too, with Starkware's launch of their Starknet, which is sort of like a shared chain for all of the things building on Starkware. But outside of that, you know,

• 1:02:38Speaker 02

  some projects may care more about scalability, you know, raw scalability, some may care more about finality, some may care more about, you know, nation-state censorship resistance, stuff like that. And I think just different chains have different trade-offs, like all technology does, so I don't think there's going to be so much of one winner. So with that backdrop, I still obviously am super bullish and super excited on layer twos rolling back up to Ethereum. Empirically, that's working really well right now. You know, D Y D X is processing hundreds of thousands of trades per day, which I think is a very impressive level of scalability. We are, of course, tracking other things that are

• 1:03:17Speaker 02

  going on in the space like Solana, like Cosmos, Neur, all that kind of stuff. Again, I'm pragmatic. I'm going to do and going to build on whatever chain I think gives D Y D X the best chance of success and I have, you know, no particular allegiance to Ethereum, which, you know, maybe ETH Maxies will blame me for, but also hopefully ETH Maxies actually like me because I am pragmatic and I am saying and thinking and literally, you know, putting my money in business on the fact right now that Ethereum is, I think, the best possible platform. You know, Ethereum plus like a layer two roll up is the best possible platform for D Y D X to be built on right now. And I think there is still a lot more to do on, you know, the tech side with Ethereum with ETH two, um, you know, layer twos and Starkware and

• 1:04:01Speaker 02

  and optimistic roll ups are getting better all the time. So I'm really excited about that, tracking other things that are going on in this space, but still, uh, you know, big proponents of Ethereum and layer two for now.

• 1:04:11David Hoffman?

  Definitely the latter is what we like, where you are trying to do whatever's best for D Y D X for your baby, for your company, and you've chosen to align with all the bankless values that Ryan and I, um, preach about on, on this program. So it's very, very validating from, from our side of things.

• 1:04:30Ryan Sean Adams?

  David, did you just admit that you're an ETH taxi, you know,

• 1:04:33David Hoffman?

  I mean,

• 1:04:33Ryan Sean Adams?

  implicitly?

• 1:04:35David Hoffman?

  I, I, I am the recipient of that label. And so at some point I'll just stop our, stop arguing with it. Um, but I do not bestow it upon myself. And there's a differentiator there. Um, Antonio, out of the D Y D X account yesterday tweeted out, um, on November 1st, spot and margin trading on the D Y D X layer one will enter close only mode. I think this is implying that D Y D X on main chain Ethereum is coming to an end. What is the long-term relationship with Ethereum layer one and D Y D X?

• 1:05:07Speaker 02

  That's correct. Um, effectively, the, the layer one platform is being shut down. Just to kind of give a bit more context and color there. Um, yesterday, I think we had like 200,000 trades on layer two and we had 40 on layer one. So really like almost all of the volume and all of the activity has already transferred over to layer two. Um, and that's sort of the reason why it's being shut down. Um, it just, you know, is, as I've been saying, like an inferior product experience and we don't want the D Y D X brands or, you know, user experience to, to, to suffer and not be up to the standards of all that we have to offer at D Y D X. And that's really what informed the decision to shut it down and Also, one of the important things in startups and in protocols in general is focus.

• 1:05:52Speaker 02

  And I, you know, not to throw too much shade, but I think a lot of people in crypto like lose sight of that, to be honest, a lot of times. Um, where like, you know, again, like, let's just start with like the the high level goal of wanting to be the biggest company or exchange or whatever in crypto. Um, well, the way I think we do that is just taking like the biggest thing, biggest marketing crypto derivatives and focusing on that and going really hard after it. You know, not trying to do like too many like other things, you know, eventually probably D Y D X will scale, you know, with our team and our headcount. To the point where we can build great, high quality products for all types of different things, but. Q Y D X's team right now is 20 people with nine engineers. Um, so it just makes sense for us to to focus on. The highest value product and we see that as our perpetuals on layer two product.

• 1:06:37David Hoffman?

  Do you think that this is kind of a canary in the coal mine for apps on layer one? Do you think that this is kind of? Perhaps a learning lesson for for builders that maybe? The L one might not be the best place of their energies and of their labor, and maybe they should focus only on on layer two. Do you have an opinion on that matter?

• 1:06:56Speaker 02

  I definitely do think that it makes a lot more sense to focus on layer two for now. Um, I still do think it's likely harder. Um, to build things on layer two, but like I said, it's getting better all the time. Um, so I don't know if I were like starting a startup in the space right now, just trying to brainstorm about where I might might start. I I may still start based on what I was doing on Ethereum layer one and then try to like port it to layer two once I. Sort of like reached a certain level of scalability. Um, but I think it really is on sort of a case by case basis, both on, you know, the technical quality of the team, um, the amount of scalability that they need, like what? Solution may make the most sense for them.

• 1:07:33Ryan Sean Adams?

  I think this is just an example of like, you know, shutting down the Manhattan office and like moving somewhere to the suburbs, right? Where the quality of life is better and yeah, everything's cheaper. Uh, so yeah, it's kind of cool that you guys have have migrated there. Uh, want to ask a question about kind of regulatory, so. You know, we have a lot of US listeners right now and listeners that are frankly frustrated that they can't actually trade perpetual's products on DYDX, right? They didn't receive the DYDX token airdrop. And I know that's not your fault or DYDX's fault, but can you give us a sense for why that's the case?

• 1:08:15Ryan Sean Adams?

  Like, what are the reasons that US listeners are barred from this? When we had former CFTC Commissioner Brian Quintan on the program, you know, I made the comment to them, like, sometimes it feels like we live in a financial prison if we're living in the US. Like, there's all sorts of these things in crypto that we can't access. And I asked him why. You know, his response was, well, it shouldn't be like that, right? And then he told us to, like, build faster. It's a really cool response. But like, what's your take? Why is it like that? Why can't US consumers and users trade on DYDX? Why didn't we get it an airdrop?

• 1:08:56Speaker 02

  Yeah. So first of all, I feel you. Like, it definitely is frustrating, you know, that DYDX can't be offered, you know, both the DYDX token and the DYDX exchange can't be offered anywhere in the world. But what I would say is that compliance is very important to us at DYDX. Not to go into too, too much detail, but the US and specifically the CFTC has a lot of restrictions about what types of derivative products can or cannot be traded on, you know, on any asset and on what type of platforms and what sort of licenses that you need to be able to offer these products. And again, not to get into too, too many details, but these licenses are ridiculously

• 1:09:41Speaker 02

  hard to acquire. They're sort of like, you know, four to five year processes. And then, you know, even if you acquire these licenses, you can't just offer any type of derivative products that you may want to. So, you know, there is, you know, for us as a business, either no path or the path is too hard to offer these types of products. Types of products to customers in the US. I know that's frustrating. I definitely understand everyone's frustration, but first and foremost, it's important for us to be compliant. Because we are a company that's operating. And then second of all, on sort of the more token piece, like why was the DYDX token not distributed to US customers? I think for two reasons.

• 1:10:22Speaker 02

  First of all, we just wanted the holders of DYDX to be users of DYDX. And again, I just touched on this before, but like, you know, the way it is right now empirically is that DYDX users are not US users. And therefore, like, it makes the most sense for just, you know, the token not to be distributed to US people. Because they can't be users of the product and that sucks. And, you know, we'll champion like better regulation for the space and all that. Long term, as much as we can and definitely agree with, you know, the, you know, Brian's, the CFTC commissioner's remarks. Before and, you know, we'll work on that for the long term, sort of from like a regulatory advocacy perspective.

• 1:11:07Speaker 02

  But given that, it just didn't really make sense for us to distribute the tokens in the US. And then the other thing I'll say, just to finish up is in addition to a lot of issues around derivatives in the US. There's also, as I'm sure everyone's heard a lot about, especially recently. A lot of pressure from securities laws perspectives in the US with the SEC. Around launching a token. And it just made sense for us from like a risk adjusted, you know, business perspective. Given that our users aren't in the US anyways, to just not distribute the tokens to US people and sort of be done with it.

• 1:11:43Ryan Sean Adams?

  You don't have to comment on this next bit, but I just want to say this is a damn shame. And like, I'm just wondering if anybody in Washington is going to wake up and realize that a 20 person team, nine of which are engineers based in the US with US-based talent. Can't actually serve US citizens on a trajectory, maybe to become the largest crypto exchange in the world, but can't serve its own citizens. It's absolutely ludicrous to me. Don't need a comment from you on that, Antonio, but I hope Washington wakes up and actually realizes what's at stake here. We have that in the US, we have the talent to become the leading jurisdiction in crypto and DeFi. We just need regulators' support

• 1:12:28Ryan Sean Adams?

  to help us do that. I don't know who I'm talking to there, David. Why don't you take the next question?

• 1:12:32David Hoffman?

  All of the regulators that listen to the Bankless Podcast is who you're talking to.

• 1:12:36Ryan Sean Adams?

  There are some.

• 1:12:37David Hoffman?

  There are enough. There are enough. Right. Yeah. Antonio, as we come down to the end of this interview, and thank you so much for your time. DYDX in three, five, 10 years, what's the maximally successful version of DYDX? What does that look like? And please include in your answer, perhaps, a mobile app.

• 1:12:58Speaker 02

  Yes, yes. So on the mobile app piece, like, we're actually building that right now. It should probably go live in like three to six months, just as a short aside. I think like nobody has nailed mobile trading experience in crypto yet, even centralized exchanges, you know, people use like FTXs and Binance's app, but they're nowhere near as good as like a Robin Hood. And I think that's what we have the opportunity to create with the DYDX mobile app. So I'm super excited about that. You know, I think Coinbase's app is great, but it's not really for trading. It's like for like buying and holding Bitcoin, which is great. Like, people should do that, too. But we want to nail like the mobile trading experience. So excited about the app to be a big component of that. But have touched on this a lot throughout the show, and I think hopefully I've hammered this

• 1:13:42Speaker 02

  point home by now. But we really just want to be one of the biggest exchanges in crypto. And I think we have a real shot to go out there and do that on, you know, sort of a five-year time horizon. Already seeing just massive growth for decentralized exchanges, you know, first with Uniswap, now with DYDX over the past year. And I think that should really excite people and should really at least open people's eyes to that. There's something real going on here in decentralized exchanges. Right now, even if you don't understand it, just look at the numbers empirically, they're growing a ton. Um, and I think it's worth people, you know, at least taking notice um and you know, giving credence to the idea that there is something really valuable here um for the long term, or at least likely that there is.

• 1:14:24Speaker 02

  We talked about like what the we think these things are transparency, you know, security, uh censorship resistance, community ownership. Um, and I think those are the things that once we get to a point where the products um on on DeFi are on par or superior to what can be offered on centralized exchanges. And I think we're really close to that at D Y D X. Um, you know, I think a lot of these like second order benefits of decentralized exchanges, all the stuff I just touched on will start to shine through. And that will really drive just a huge amount of growth um to DeFi in the long term. And like I said, we're pragmatic. I just want to build the best, you know, the biggest exchange in crypto. That's sort of like my thing. And I think the best way we do that is is with D Y D X um and with decentralization.

• 1:15:09David Hoffman?

  Is there any um conversation to be had about fiat on ramps to D Y D X in the future?

• 1:15:16Speaker 02

  It's a reasonable question. Um, I sort of think that they're actually not that necessary, or at least call it there's like they're they're two different products, like a fiat on ramp doesn't necessarily need to be coupled um with the exchange people actually trade crypto on. And I think we've empirically seen that happen over the past few years with Coinbase and you know, a few others really dominating the fiat on and off ramps in the space. Um, but then just honestly getting blown out of the water on their trading volumes by platforms like F T X and Binance, which sure have like some fiat on ramps, but for the most part, people are just trading crypto to crypto on those exchanges. So I think just empirically, we we found over the past couple of years that there is a massive business model, at least with just crypto to crypto trading, and that's what we're focused on.

• 1:16:00Ryan Sean Adams?

  Yeah, what's funny is once you cross that bridge to crypto, you don't tend to leave, right? You stay in crypto and your value and your assets remain there. Antonio, it's been an absolute pleasure to have you. Maybe give a shout out to this because this seems super interesting. You guys are actually hosting a trading competition. Is that correct? What is that about?

• 1:16:19Speaker 02

  That's correct. Yeah, just hosting a regular old trading competition. A lot of exchanges do them, but you know, can win, as you see here on the screen, up to 250K in D Y D X prizes and then we'll continue to operate these over time and those are paid out in USDC, not in the D Y D X token. But yeah.

• 1:16:38Ryan Sean Adams?

  So how do you win? What are we competing for?

• 1:16:41Speaker 02

  Oh, just make the most money on D Y D X, just competing based off of your P and L for a week and whoever can make the most money on D Y D X and flex on everyone else.

• 1:16:50Ryan Sean Adams?

  There you go, Bankless listeners. That is not me. I'm not a trader, but some of you out there are and you can win this competition, 250K.

• 1:16:58David Hoffman?

  And if you do sign up for this competition, remember to use the Bankless referral code, which is in the YouTube comments as well as the podcast show notes as well.

• 1:17:07Ryan Sean Adams?

  That's right. Might as well save 10% on your trading fees when you do that. Antonio, thank you so much for joining us. Congrats on the success. We look forward to seeing what new things D Y D X builds in the future. It's been a pleasure to have you.

• 1:17:20Speaker 02

  Yeah, thanks so much for having me and great conversation. Appreciate it.

• 1:17:23Ryan Sean Adams?

  Guys, risks and disclaimers. Of course, DeFi is risky. All of crypto is risky. If you're trading ETH or Bitcoin, you know, that's risky as well. You could definitely lose what you put in, but we are headed west. This is the frontier. It's not for everyone, but we're glad you're with us on the Bankless journey. Thanks a lot.

• 1:17:43David Hoffman?

  Hey, we hope you enjoyed the video. If you did, head over to Bankless HQ right now to develop your crypto investing skills and learn how to free yourself from banks and gain your financial independence. We recommend joining our daily newsletter. Letter, Podcasts and Community as a Bankless Premium Subscriber to get the most out of your Bankless Experience. You'll get access to our Market Analysis, our Alpha Leaks and Exclusive Content and even the Bankless Token for Airdrops, Raffles and Unlocks. If you're interested in Crypto, the Bankless Community is where you want to be. Click the link in the description to become a Bankless Premium Subscriber today. Also, don't forget to subscribe to the channel for in-depth interviews with industry leaders, Ask Me Anythings and Weekly Rollups,

• 1:18:26David Hoffman?

  where we summarize the week in Crypto and other fantastic content. Thanks everyone for watching and being on the journey as we build out the Bankless Community.