Bankless - AMA#2 - Antonio Juliano, Founder of dYdX

Episode Date: August 28, 2020

Bankless AMA - Antonio Juliano, Founder of dYdX Antonio Juliano, the Founder of dYdX, arrives at the Bankless Nation for an AMA! dYdX is a non-custodial trading platform on Ethereum, featuring a lot of cutting edge trading features meant to mimic the legacy system, but in the DeFi world! ----- GO BANKLESS WITH THESE SPONSOR TOOLS: ⚔️ GODS UNCHAINED - TRADING CARD GAME - you own the cards - start a free account, play and trade! 🧙‍♀️ POLYMARKET - BET ON CRYPTO - bet your beliefs! - use it to bet on DeFi outcomes!  🌈 AAVE - LEND & BORROW YOUR CRYPTO W/O A BANK - earn some interest! 💸 AMPLFORTH - MONETARY EXPERIMENT FOR BASE MONEY - learn about this experiment! ----- We do AMAs every 2nd and 4th Thursday of the month.  Become a Bankless member to get access to the Zoom Webinar and ask questions to future AMA guests like Antonio directly! Here's the video recording.  Antonio is the founder of dYdX, a popular trading, margin, and and derivatives market on Ethereum. The Bankless Nation asks him questions about: Spot trading Margin trading Perpetual swaps Borrowing & Lending The complete dYdX stack Regulatory Compliance, KYC Starkware and L2's dYdX token?? And more.... ----- Don't stop at the show! Subscribe to the Bankless newsletter program http://bankless.substack.com/ Visit the official Bankless website for resources http://banklesshq.com/ Follow Bankless on Twitter https://twitter.com/BanklessHQ Follow Ryan on Twitter https://twitter.com/ryansadams Follow David on Twitter https://twitter.com/TrustlessState Follow DeFi Dad on Twitter https://twitter.com/DeFi_Dad ----- 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 is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time we may add links in this channel to products we use. We may receive commission if you make a purchase through one of these links. We'll always disclose when this is the case.

Welcome to bankless, where we explore the frontier of internet money and internet finance. This is how to get started, how to get better, and how to front run the opportunity. This is Ryan Sean Adams. I'm here with David Hoffman, and we're here to help you become more bankless. David, how are you doing? What are we doing for the episode today? Dude, it just came out of a fantastic AMA with Antonio of DYDX, who walked us through the DYDX platform and explained where it's going. Antonio is a really sharp guy and this was a fantastic AMA. Before we talk a little bit more about that AMA, we're gonna talk for a few moments about our sponsors.

Our first sponsor, which I'm a huge fan of, is God's Unchained. And for all of you guys that have played Yu-Gi-Yo, Pokemon, Magic the Gathering, Heartstone, this is that same game, but now it's on Ethereum and now you own your cards as digital tokens on Ethereum. The really cool thing about Magic the Gathering was that you owned your cards,

your physical cards like physical cash, but there was limitations with how you played the game. In Harstone, there were fantastic new innovations with the game because of its digital nature, but you never owned the cards because Blizzard just has them. They're blizzards. And what God's Unchained is, is the best of both worlds. You own your cards as digital NFTs. You have provable scarcity, provable rarity, and it's a fantastic game that I play every other weekend or so. Check them out at godsunchained.com. I also want to tell you about longtime sponsor AVE. So AVE is a lending and borrowing protocol on Ethereum.

It replaces banks for those sorts of features. So it's an example of protocols replacing banks that we talk about so much. So what can you do with AVE? You can lend to it. That basically means you start receiving interest for the Ethereum tokens you lend to it. A dive, for instance, or a link or other ERC20 tokens that you. you may have, you receive interest for those. You can also borrow against it as well, and they offer fixed rate loans when you borrow against

it. AVE has just had some phenomenal growth this year. In fact, they are the number one protocol right now, as we're talking about this, on the DFI Pulse leaderboard. That means you are trusting them with the most in terms of total locked value. They're also releasing some fantastic governance features with their lend token. You've got to keep up with that, the Avanomics, as they call it. And you can check the Avanomics governance.

You can check out what they're doing. You can check out their new things around unsecured loans, all the innovation that they're developing. And actually try them out at AVE.com, Aavevee.com. Ryan, what did you think about this AMA with Antonio? This is a great AMA. You know, it actually, for me, I know a decent amount of, about D-Y-D-X and some of the financial permutives he was talking about, but it was just so good to get a recap of the way Antonio thinks about it from a builder's perspective. And also, like, just the way he

sort of laid out the various layers in the D-5 financial stack, where he started at kind of the bottom of the money layer, and he sort of built his way up. I mean, that's how we think about it. That's how we sort of describe the mental model on bankless. And he started that foundation. We spent a good amount of time doing that and it was not wasted time at all because it's yeah it's set a foundation for the rest of the questions later on so i feel like i came out of that with a really strong understanding recap understanding of what margin is in the decentralized protocol like dydx and what perpetuals actually are so if you're a little fuzzy like maybe you've used you know trading and stuff like that you've taken out a loan or you borrowed um in crypto or just in general traditional finance but you've

never done anything with margin or you've never done anything with perpetuals. You've heard these words, we don't understand them. Listen to this episode because this is probably the best explanation that I've heard. I think you'll walk away with this, like understanding what these words mean and when they make sense and when they don't, what some of the risks are. Yeah. So every week in the bankless newsletter, we put out tactics, right? And this was basically like a audio tactic. And Antonio did a really good job of explaining how he thinks of Ethereum as a financial stack, which is totally true. And all the finance is a stack. And then he has his own native stack inside of D-Y-D-X. And so if you are a person who's like me where you came into the world of finance through crypto, like I was a psych major.

Like I learned about money and finance through the photography. Right. And then D-Y-D-X is actually a great platform for learning about some of these really important primitives, both on the 101 level. and then all the way up to like the 401 level. Because like at the very simplest, you can use DYDX to trade USDC and ETH, like if that's what you're into. That's like the 101. But then you can go margin long or margin short, which is like 201. And those things stacked together can offer perpetuals, which is like the 301, 401 type stuff. And so there's a really awesome learning curve with DYDX.

And Antonio did a great job in this AMA walking us through it. The other thing I thought was really, really cool was just how. incredibly bankless this whole thing is, right? And like you said in the AMA, like, bye, buy, buy bitmex. Like that is what DYDX is. And like if we had more time, I would have brought up the subject of the protocol sync. And DYDX is dense in the protocol sink.

So it's not the dentist. It's not in uniswap, but it's far denser than anything we know of in the legacy system. And so I'm really optimistic about the way DYDX like falls down the protocol sink and becomes like this bankless platform. for all of these legacy financial tools that legacy financial people are familiar with. So

those legacy financial people will be able to come to Ethereum and say like, all right, well, where are the perpetual swaps? And they'll be able to, the answer is, oh, they're on DYDX. Like we have those. Like we've got it. Like, and it now is trustless and better than all of your alternatives. So, you know, bankless for the win. I'm so glad you brought that up because I was amazed at just the progress that they're making. Right. So this is, of course, structured as a, and ask me anything in AMA. So what we do is we broadcast this live on YouTube. And David helps field questions.

And we get questions from bankless community members in the Discord. We ask them. One of the great questions that was asked toward the end, which we spent a good amount of time on toward the end, was about layer two. So what is DYDX doing for scalability? So basically, from Antonia's perspective, it's like we're not limited.

in terms of demand, what we're limited on in terms of is basically block space, like gas fees and scalability. And he kind of smiled when I say, what do you, what do you pay in, man? Are you paying like, you know, 10K a month or like, you know, that kind of range? And he was like, nope. It's got to be way more than that. North of that, sir. North of that, sir.

And so, but, you know, the cool thing, the thing I didn't realize coming into this conversation is how close D-YDX feels like it is. And this is from a builder, so it's not from a, like, a hypester. This is somebody who's actually like been building and hacking on crypto for the past three years, you know, sinking their teeth into all of the shortcomings of DFI. And he's like, yeah, in four months,

we think we're going to have an entire V2 that's going to be close to parity with the user experience of a centralized exchange is going to be scalable in a layer two. that was crazy to me. I did not expect that kind of turnaround time or timeline. Did you? No, no, not that fast.

But also, I guess, like, Antonio is one of the few people that has, like, the best access to information about that. So, like, at the end of the day, I guess I really shouldn't be surprised. No, everyone, everyone who is a builder understood that, like, gas or block space, like, open and accessible block space was, like, a temporary luxury. of like the bear market and it wasn't going to be like that. And Antonio knew that as well. Yeah, the nice thing about it is this is, and we talked about this on a previous state

of the nation, this is kind of an example of the market starting to solve things, right? So when DYDX gets their bill, and by the way, they subsidize all the gas fees in case I didn't mention it. So they pay for it. It was just awesome. A huge customer service. Yeah. So they pay for it and they do it for their users so they can attract more users to the platform.

So that's an expense, a line item, a cash burn item. So they are highly incented to get rid of that burn item to minimize it. It's like it's like paying like Amazon Web Service fees for a Web 2 company. And those fees are like crazy. You know, you incentivize to chip away at that and diminish the expense as much as possible. So the market is kind of solving slowly the problem of high gas fees by making builders innovate on layer 2. So super exciting. A very small part of the interview that I understand.

enjoyed was when somebody on the YouTube asked the question, when token? And NYDX hasn't communicated any interest in making a token, but Antonio's answer was fun. And his answer was maybe token, maybe. Yeah, exactly. Yeah, he gets into that as well. All right, David, fantastic interview. We'll get right to it, but first we should talk about our sponsors. I want to tell you a bit about Polymarket. So Polymarket is a prediction market that's built and based on Ethereum. It has a very simple and understandable user experience. What is a prediction market? Well, it allows you to make bets on particular outcomes. You have the ability to bet on all sorts of things. You can bet on defy outcomes. You can bet on Ethereum.

Will Ethereum ship its second version, ETH2.0, this year, or will it take 2021? You can bet on those sorts of things. You can bet on total locked value on defy as well. And the user experience isn't clunky. It's smooth, similar to what you'd be used to experiencing in a regular prediction market in the centralized world. You can check it out. Try out a bet at poly.coma. That's polyp-o-l-y dot market. And if you tweet about it and you tag polydot market, their Twitter handle, and tell them what you're doing, and tell them that bankless sent you, they will cover your gas feeds

and give you early access to unreleased polymarket features to try them out, tag them, tweet them, email them at hello at poly.market. Tell them bankless sent you and they'll get you some special stuff. Our next sponsor is Ampleforth, king of modern rebasing.

Ampleforth is this very interesting monetary experiment going on in Ethereum. Ampleforth is very similar to Bitcoin and that it is non-dilutive base layer money and M-0 money, but where Bitcoin has a completely inflexible supply, and therefore its demand is reflected in its price, Amplforth is the inverse, where it has an inflexible price,

but completely flexible supply. So if Amplforth goes up or down in value, instead of the price going up and down, you will see more or less Amplforth tokens in your Ethereum wallet. Really interesting, primitive. There's a lot of energy going, around with rebasing right now. And Ampleforth was the original token that came out with that. So that is pretty interesting. They have a liquidity incentive program, a yield farming program,

if you will, in their geyser. So you can submit Ampleforth tokens and Ether to the Uniswap liquidity pool. And then you will get extra Amplforth tokens as a dividend, as a distribution mechanism of the Ampleforth token as well as a liquidity incentive program. So you can check them out at Ampleforth.org. All right. Let's get to the interview with Antonio. Fucking hilarious. Bankless Nation, welcome to our second live video, AMA.

I am joined by D-Y-D-X's Antonio Giuliano, who is the founder of D-Y-D-X. Just hold on one minute. I'm going to mute myself on YouTube. I hear it. I hear an echo, but I'm good now. Antonio, how are you doing? Welcome to the bankless nation. Are you ready to be put on the hot seat? You ready for some AMA questions, sir? Doing well. Yeah, I'm ready. Excited to answer everybody's questions. Awesome. All right. So I think this is actually the first time that we've had you in front of the bankless nation in like podcast form or anything, but we've run a number of articles about DYDX, specifically some of the perpetual features and things that we

want to dig into today. I'm sure the community will want to dig into as well. So I'd love to start with an introduction. Before we do so, though, a few housekeeping items. So first, if you are tuning in live on Periscope, head on over to the YouTube channel. That way, we can see some of your questions as they come in and get those questions answered. This is an AMA, so it's interactive. So if you have questions for Antonio during the conversation, please go ahead and post those on YouTube. Also, for the bankless nation members who are in Discord, you can post questions in Discord as well. You can also join us in Zoom. We will try to prioritize your questions first. And this is probably going to go about an hour. So it is 2 p.m. Eastern for me, we'll probably go until 3 p.m. Eastern.

So we'll try to like throw in kind of a, you know, half time and a, you know, 15 minutes left signals for you so you can get all your questions in. So that's it. as far as housekeeping. Antonio, let's continue with an introduction. So how the heck did you find yourself in crypto, sir? Yeah, absolutely. So how did I find myself in crypto? I've been in crypto for a little over five years now, actually,

pretty much my entire professional career I've been in crypto. The way I got into crypto was different than I'd say the way most other people got into crypto. So I started my career at Coinbase. I was a software engineer there, and that was basically my first. job right out of the college. And I got to Coinbase very differently than how pretty much everybody else got to Coinbase. Like most people were like super into Bitcoin, which was like basically all there was at the time. And that kind of naturally led them to working at Coinbase. But I didn't know

anything about cryptocurrency. And then Coinbase was just kind of one of the like 20 companies I applied to my senior year of college. But I was really impressed with them. I'm really impressed with like their interview process. They kind of do this like unique thing in their interview process, which do IDX also does, which is called a work trial. So like basically during my senior year of college, they like flew me out to San Francisco and I basically just like heced out on classes for a week. And then I like worked full time at Coinbase for my work trial and was just really excited about everybody's enthusiasm for Bitcoin and like the space. And I had no idea what it was. But like clearly these people were like very smart and like very passionate about it. So kind of just

decided to take a leap of faith and go work with these people on this crazy thing. So this was kind of like random chance of the universe, right? That like you just got interested. Okay. Yeah. And what did your family think when you told them, hey, I'm going to like, of all of the companies I could join, I'm going to do the Bitcoin thing. What did your family think about that decision?

They certainly had a lot of questions. I probably explained Bitcoin as probably a lot of you all have as well. It's my family like a million times. But yeah, they were definitely pretty supportive of it. I mean, I think at that coinbase, at that time, like, Coinbase was, like, kind of a legit company. Like, they'd raised, like, a good amount of money at that point. So it was like, okay, clearly there's, like, something going on here. We don't quite understand what's going on. But this, like, seems like a reasonable company. So, yeah, go do your thing. And I guess they,

they were definitely supportive of it. That was quite the start. Okay. So you're at Coinbase, your first job sort of out of college. You're getting a feel for it. Your first exposure to crypto. It sounds like you fell down the rabbit hole there. in some way and then went even deeper. So then what happened when you're at Coinbase? Yeah, absolutely. So I joined Coinbase and just Coinbase at the time had a lot of just like the absolutely best people, like a lot of them in crypto at the space where like all at Coinbase like during that time. And this was like back in 2015 or so. So it was a really great place to be. And it was basically just like, you know, I think we still do this at DYDX, but especially then at Coinbase. Like we just

talked about like Bitcoin like literally all the time and it's like hyped up on like the price. stuff like that and things that were going on in the space. And it really just felt like this little, like, I don't know, like club almost where it's like we were all super excited about this thing that nobody else like even knew what it was. So we all just talked about it quite a lot. And it was like you got to like listen to things like Olaf like Carlson Wee, like giving like a presentation over lunch like Fred or some like, you know, giving a presentation on Ethereum early on.

And then I think like the thing that really did it for me in terms of like just really selling me on the space was Ethereum, probably like it was for, again, like a lot of you. But basically at the time, that was like right when Ethereum was kind of coming out, like the Ethereum ICO happened. You know, the main network was launched like during my time at Coinbase. And then Coinbase also started supporting ETH as their like second crypto asset after Bitcoin during my time at Coinbase. And this was like really a big change for all of us like at Coinbase at the time.

because like I've been saying, it was basically like 100% like interest in Bitcoin at the time. And it was just like 100% clear to us that like Bitcoin would be the only interesting cryptocurrency ever. I was like, of course it like has the network effects. Like if there were any other cryptocurrency that we're doing something interesting, well like obviously why wouldn't Bitcoin like just adopt the features and then like start doing itself it itself with its like bigger network effects? So it was just 100% clear to us that Bitcoin was going to be the only interesting thing ever. in cryptocurrency. And of course we were wrong. And, you know, let's see. We can all know what's happened since then. But during just kind of like the launch of Ethereum, you know, that's when I think it took all of us just a long time to like wrap our heads around like what exactly like Ethereum was.

And just kind of this concept that like you can write these programs that execute deterministically, like on a blockchain and they can be anything, right? Like it's totally its own like smart contracting language and everything like that. And I think it took me probably, like six months or so to like really wrap my head around that and just had a really great opportunity to like be at the forefront of like like I said like Olaf and Fred like giving presentations like we had Battalic come in really early on and like talk to us about smart contracts we had like Joey Krug like come in and give us like a walkthrough on like creating like our first smart contract all that kind of stuff and then after I feel like I kind of wrap my head around like Ethereum and that you could

just for the first time create these programs that execute on like this totally permissionless decentralized ledger. It really just struck me that this is just like a paradigm change in computing, like period. And that's like what really like got me excited about like working in the space. Very cool. All right. So programable money use cases, I guess pulled you the rest of the way down the rabbit hole. So Antonio, I want to get to the questions because this is for the bankless nation to ask you questions. And I've got a first question from Jesus Perez. in the bankless community. And he wants to know, to understand the differences between perpetuals and margin trading. So like when to use margin trading and when to use perpetuals specifically.

And you know what I think would be useful to as maybe we can use this question to start with, but is for you later to maybe describe some of the core products that DYDX actually has, because we have a lot of people here that are very familiar with D-5, very familiar with crypto, but they haven't necessarily used some of these sorts of perpetual products and margin products that are pretty standard in other areas of traditional finance. So why don't you start with that question of when to use margin trading and when to use perpetuals? What's the difference? Yeah, absolutely. I can start with that.

And maybe actually I'll just start with just kind of like the products that DYDX offers. and can just describe, like, you know, how they work and then, like, when to use them. So, so, yeah, DYDX basically is obviously a decentralized exchange, but our main wheelhouse and what we're kind of focusing on is more advanced types of financial products. So we have three, well, actually we have five main products on the exchange. So we, like, support quite a lot of stuff. So first is just spot trading. If that sounds fancy to you, it's not.

It's basically just like buying and selling, like you would do like on a uniswap or a zero X or like anything else. You can do that on GYDX too. The other two kind of more basic things that you can do are you can lend funds, very similar to like a compound. You just kind of deposit your funds on DYDX. They passively earn interest over time. They're kind of like lent out to margin traders. You can borrow funds directly to your wallet.

Again, very similar to like what you can do on a compound. So these are kind of like the three things that we support that are like relatively standard like in the DFI space. Like you've probably done them on other decentralized platforms. But like our real kind of like the special sauce of DYDX is. these more advanced financial products. And those two are margin trading and then perpetual trading, as you just mentioned. So kind of getting into like what each of those are in turn. So margin trading, all it is is trading with borrowed funds.

So and you basically will use that to acquire leverage on cryptocurrency. And all leverage is it sounds fancy, but the best way to think about it is you'd basically just multiply your gains or losses by like a certain multiplier. and you can also take short positions on cryptocurrencies. So the DYDX makes this like really easy to do on our margin product. You can go basically like up to 5X long or up to 4X short on Ethereum and then die in USC or what we support there right now. And basically what's going on behind the scenes is when you're kind of trading on the margin

product, you're interacting with like the lending and borrowing pools to just basically like borrow funds behind the scenes and that's how you kind of acquire the leverage. So that's the first product. The second product, So before we get to the perpetuals, Antonio, just a quick recap. So you've got spot trading and then you've got lending and borrowing. And those first three, were they necessary in order to build the fourth that you were talking about, which is the margin trading piece? Yeah, yeah, that's a great point, actually.

And they basically were necessary to kind of build the other points. Maybe if I were to like take a step back and just like say how I like think about like the D5 space and then just kind of like finance and just kind of like finance and. general. So I really think of like defy and then like finance in general as like a stack. So it's basically like at the base layer of the stack you have things like money. So things like crypto assets, which like Bitcoin and Ethereum kind of came out first. And then like the next thing in the stack is like decentralized exchanges or like lending platforms. And you can't have those right without like the bottom thing, which is like decentralized asset to trade. So that's kind of like things like a uniswap, zero X like compound kind of fit in that like second layer of the like.

like D5 financial stack, if you will. And then like on top of that, I really think about like more advanced types of products. So things like margin trading, things like derivatives trading. And that can exist without like buying and selling, can exist without like lending and borrowing, which you know can't exist without the assets themselves. So it's like really like you kind of need the like things like lower in the stack to like to support the higher things. And that's like why we support like all of those things.

It's kind of like you say like we basically need to support like lending and borrowing. and obviously like trading itself to be able to support margin trading. And that's super cool because it's not just DYDX that has to build those like core pieces in order to get to margin trading and derivatives. It's basically the entire DFI system that's building those. It's like it's no accident that one of the first DFI use cases is something like Maker, which was a borrowing and lending platform. So that's super cool.

Now before we leave margin and go to perpetual, I want to make sure we're solid on margin, right? So you used two words there. you used one long. I want a long something, right? And the other short. So does that just basically mean if I'm longing something, I am borrowing some asset against my collateral? And I'm making a concentrated bet to amplify my gains if I'm right. If number goes up, I get more gains, right? But I'm putting myself at risk. Is that what longing is? And then maybe you could describe shorting. Yeah, absolutely. So longing is just like you make money. when the price goes up. Shorting is just like you make more money when the price goes down.

Make more money when the price goes up. This is important different. Exactly. You make more money when the price goes up. And then yeah, shorting is you make money when the price goes down, potentially it's some multiplier. But the reason you might want to do like margin trading or more broadly just like trading on leverage, which actually you can do through the margin product and also through the perpetual product, which we'll get to. But just kind of like the concept of leverage or like why you might want to use it in the first place is, say, you are holding $100 worth of Ethereum. You could, you know, be your hoddler, just kind of like keep it in your wallet.

You're absolutely convinced that like the price of Ethereum is like going to the moon. So like, why would you not just like hold your Eath in your wallet? It's like, that's great. Good for you. You'll make some money if you're right and like the price of Ethereum goes up. But kind of the reason you might want to use leverage like on top of that is you can make even more money as you just said. If the price goes up and kind of you're right, it's also important to call out that this is

not free. It's like you're also exposing yourself to kind of increase losses if the price, if you're wrong and like the price goes down. But just kind of like this example of say you have $100 worth of Ethereum, say you used a 5x leverage to kind of take a 5x leverage long position on that Ethereum. It's basically now like your gains, like if you're right, are multiplied by five. So say in this example, if you're $100 worth of Ethereum, the price of E doubles, and now that would have been worth $200 if you had just like held it like in your account. Um, in this kind of new leverage world where like you basically are multiplying your gains. So in like the normal case where you just hold you, you, you make 100%.

So you're like 2x. Um, and then kind of the leverage case, if you like would have doubled your money, uh, and now since you're multiplying by like the 5x leverage, you make 10x gains. Um, so it's basically like you just like multiply the gains you otherwise would have made. and kind of the exchange for that is taking on more risk. And it would have gone in reverse, right? So, like, this isn't a free lunch. Like, if it goes down, you can also 10x your losses, right?

And can you also comment on, like, the collateral requirements and also the risks of liquidation? Absolutely. So the way our contracts work is kind of similar to, like, a maker contract or like a compound contract. they require on the margin side fully over collateralized boroughs. But it's basically like you can use the Ethereum that you come to the platform with like as margin. So let's maybe just walk through like a really simple example of how that would work. So here you are with your $100. Let's say you're like one eath and you're long, your hodler, but you've decided that you want to use leverage.

You basically would come to the DYDX platform with your one eath and you're like, okay, I'm super convinced that if is going to go up, let's take the 5x leverage long position. You basically pop down your one eath as margin deposit. And then you borrow some stable coin under the hood. This is all very simple actually. Kind of the product interface is basically just like you put in like, you know, I want to go like five, each leverage, leverage long at like five X. But like what's going on under the hood is you're actually borrowing some stable coin. So you're borrowing, say, like another four-Eth's worth of like Dye or USDC. And then you use those borrowed funds to buy four more ETH to like put on top of

that one that you put up as margin deposit. So now you have kind of like five ETH sitting here in your account. You're borrowing. You still have to repay your borrow that you borrowed in kind of the stable client once you close your position. But that's kind of inherently where the leverage comes from and what's going on under the hood. And there's also a fee involved as well, right?

And so can you talk about where the fee component fits in? Sure, like the interest rates or? Yes, exactly, right. Yeah. Yeah, so exactly. Very similar to how if you're, you know, taking a loan on like literally any financial platform, people are not just going to let you borrow money for free, probably.

So it's like you basically have to pay them some interest rate. So now let's continue with our example. So now you're sitting here with your 5x leverage long position. Under the hood, what's going on is there's five EF, like in the DYDX smart contracts, locked in your account. And then the DYDX smart contracts basically also remember that you have to, say, pay back the like, let's say, like, 2,000 dye that you kind of borrowed to buy, like, the other four Eth in the first place.

And basically, you have to pay, like, the longer you hold this position, the more interest you'll have to pay, and you'll have to pay a dynamic interest rate. It's, again, very similar to how compound works with kind of its variable interest rate. rates over time and interest rates just kind of very, again, similar to compound based on like the supply and demand for the pool, but there is some like interest that you'll have to pay to basically be able to hold this position. The other cool thing about DYDX though is in addition to paying interest on the amount that you're borrowing, you're borrowing. You're also earning interest on the amount that you have like in collateral on your position. So simultaneously, so since you're borrowing the die in this example, let's say, you're paying interest on the amount. that die with whatever the interest rate is there, but you're also earning interest rate on your

ETH that you have, like, locked up as collateral. So the system works very well in that regard. Normally, like, the interest rates on stable coins are higher than the interest rates you would see on ETH, at least, like, historically. So normally, if you're taking a long position, you'll be paying interest. But actually, it's kind of cool. Like, if you take a short position, a lot of the time, you'll, you'll be earning interest on the platform. And kind of the platform will show you, like, how much interest you're earning or paying. And then maybe the last piece to cover on that is what happens in the event of a margin call? Yeah.

So in the event of a margin call, and this is, again, very similar to basically what happens on like a compound or a makerdow, if you've used any of those platforms before. But in the events of a margin call, so let's say like in our example, like you, again, like you have this five-eath like locked here and then you're borrowing like the 2000 die. and basically what our smart contracts will enforce is that the value of this five eath always has to be greater than like the value of this 2000 die or else like you know you may have like lost the smart contract itself like may have lost money on the trade so let's say you went long sadly you were wrong like the price of eath is like going down instead of up as you

had hoped and it gets down to the point where now your five eath is worth just like a little bit more than like the 2000 die that you had borrowed so it's like kind of kind of is looking like it's getting the point where like you might not be able to like cover like the losses on your position anymore. What will basically happen at this point is there is we kind of a decentralized network of liquidators on DYDX that will look for these kind of under collateralized or close to like under collateralized positions on DYDX. And then they'll liquidate your account, which in all liquidation means is they'll kind of basically pay back your borrow for you. and they'll take some of your collateral in exchange to do that. And effectively what that means from your,

the trader's perspective is you lost money on this trade, and then your trade was closed out before you lost like too much money. And there'll be like a small amount of capital, probably that's in your accounts after you get liquidated. But it's probably like you lost like most or almost all like of your initial deposit. So that's kind of where the risk comes in that we've been talking about with margin trading. it's definitely something you should understand a little bit more and kind of like think critically about the risks before you enter into, but something where it's like you can kind of increase your

risk and also like increase your reward there too. These mechanisms aren't a new to D5. This is the same way it works on a centralized exchange or in traditional finance. And then before we get off the topic of margin trading, so I imagine we were talking about a long position there, but I imagine a short position is just the same sort of mechanism, but the bet is directionally different. you're betting instead that the price of ether will go down. Is that correct? Yeah, that's exactly correct. Okay, cool. All right. So we've got a good base. I think that's important,

you know, even though we're still on kind of question one, but it's really important because I think this will answer a bunch of questions and having that foundation is important. So we've gotten all the way through the first four product offerings, margin. Now we get to the fifth where things, I think it, you know, a little more interesting and maybe another layer of complexity. So the fifth is perpetuals, right? And do perpetuals essentially sit on top of all of the other layers? So you need trading, you need lending and borrowing. You need margin as well, like a mechanism. And now, once you have those things, you can build out perpetuals. Is that kind of how it works? Sort of. I would say in terms of like their level of complexity, they're definitely like the most complex.

financially complex product that we offer. They don't actually use lending and borrowing under the hood. They use basically like a separate mechanism. So it's kind of like, you know, if we think of our stack metaphor again, it's like assets like, you know, buy sell and then it's kind of like lending and borrowing slash margin and then like derivatives are like off to the side a little bit. But they do like, like I said, kind of use like more like financially sophisticated mechanisms to basically offer the product that people want to trade, which I'm happy to go more into. Yeah. So tell us what is a perpetual? Yeah, absolutely. So a perpetual contract is a synthetic contract. And this is something that

has become like really popular in crypto itself. If you, you know, I ever heard of or traded on Bitmex. This is exactly the product that's made like Bitmex really popular, tons of other new kind of centralized exchanges like finance has launched perpetuals. FTCs has launched perpetuals in the past year. So kind of just motivating like, you know, why, why did we offer perpetuals too. They're basically by far the most popular trading product by volume in crypto right now. Like there's more volume on crypto perpetuals in the entire market than there is on the entire buy-sell market for crypto combined. And another word people use for perpetual sometimes is derivatives. Is a perpetual a type of derivative? Yeah, basically. Yeah, it's kind of like derivative is like

the master like class. It's like a super set like perpetual. It's like a type. So that's exactly like why, like, you know, there's a lot of volume on them in terms of like what a perpetual contract is or like how it works under the hood. In the main like selling point of why you might want to use a perpetual contract as compared to another type of derivative is kind of in the name. They're perpetual, which basically means that they don't expire. Most types of derivatives like if you've heard of like a future or like an option or kind of more traditional types of derivatives like that expire. So like if you were to buy like a normal future, it would expire, say at the end of the month. And like you could get price exposure to Eath or whatever you wanted to trade on with that. But it's a little bit less useful because you can't hold it like as long as you might want to.

So those Bitcoin futures that were, you know, so much celebrated and they came out in 2017, right? With the like by the CME, basically. Those expire. Those every 30 days or so, they just expire. You can't kind of renew them. You have to start from scratch again. Is that right? Yeah, that's exactly correct.

And the other reason why perpetuals are really cool and why it like makes like a lot of like new traders kind of use them as their first derivative product is because they it feels like fairly similar to like trading the underlying like asset itself. So let's maybe take like the Bitcoin perpetual on DYDX as an example. Since the contract is synthetic and basically what synthetic means is under the hood, the asset that you're trading does not exist within the platform. So like on the D-YD-X like Bitcoin Perpetual, there's no actual Bitcoin like involved anywhere. We basically created this like financial contract, which effectively just tracks the price of Bitcoin and without actually having Bitcoin involved. And the other really nice thing about perpetual is it like I said feels like you're trading the underlying asset. So the D-YD-X Bitcoin perpetual and really any perpetual contract you might trade within crypto is just set up to track the price of the underlying asset. asset. So if you're trading the D-Y-D-X Bitcoin perpetual with kind of like its underlying

mechanisms are designed such that like the price tracks like the price of another asset, which say it could be Bitcoin. It's actually not like that dissimilar from like a like die or something like that, which like tracks like the price of $1. It's like instead here like we're just like creating this, you know, synthetic asset which tracks the price of like another asset, which is like a Bitcoin or something like that. So the underlying mechanism. systems are different. And the reason you can do that is back to that first layer that you were talking about, right, which is you have the money layer essentially, where we might call that the value layer, the collateral layer, and you're saying that collateral layer, it could be Bitcoin, it could be Ether, or it also could be a stable coin. Like you guys use USDC a bunch, right? Yeah, that's exactly correct. And in different, like, perpetual platforms, we'll use, like, a different collateral. So we have two types of collateral on the system right now. So we have some perpetuals, which are margined in USDC. which just means that there's USDC collateral. Our ETH perpetual right now,

you can actually use ETH as collateral and also trade on the price of EF, which is very cool, like a very ETH-centric product for all your ETH heads out there. But that's kind of like how it works under the hood. And kind of maybe if we're just to like finish out the talking about like how exactly the perpetuals work, the main thing, the main mechanism that perpetuals use to basically like keep their peg

or like trade at the price that you want them to trade at is this mechanism called a funding rate. So all of funding rate is it's basically very similar to a dynamic interest rate that's paid between like those who are long the contract and those who are short the contract. So in what long the contract and short the contract means is because this asset is synthetic, it's effectively zero sum. So like for every one unit of long, there's like one unit of like people going short. So say you go to D-YDX and you buy like one Bitcoin worth of the D-YD-X Bitcoin Perpetual, you're basically trading against somebody else who's kind of taking the short side of that trade.

And getting back to this funding rate or kind of what it is or like why it's like really important and important to understand if you're trading perpetuals is the funding rate is the mechanism by which the perpetual like tracks the price of Bitcoin. So kind of going back to the perpetual, it is its own asset. it can basically trade at, you know, like any other asset, just whatever price people want to trade it at. So the question, if we're like designing this derivatives contract, this perpetual contract, is how do we make it trade at the price of Bitcoin? And basically what how the funding rate comes into that is. So we know what the price of Bitcoin is, say it's like $10,000. And then we know what the price of the DYDX Bitcoin perpetual is trading at. And where the funding rate comes in is if the perpetual is trading to, you know,

low, like relative to the price of Bitcoin. So like basically we want to move the price up, right? Like we want to get it like closer to being the price of Bitcoin. Then basically we want to incentivize more people to go long, right? Like we want to incentivize them to buy to like drive the price up because when people buy, price goes up. So what basically happens is then the funding rate, which is just this interest, which again is paid between those who are long and those who are short, would basically make the people

that are short pay the people that are long some interest rate. to basically incentivize more people to take the long side of the trade, and again, like, drive the price back up to, like, what we want it to be. Conversely, like, if the price of the perpetual is too high, we want to drive the price down, right? Like, we want it to be lower. We want more people to sell. And we want to incentivize more people to go short, which basically means selling. So in that case, the funding rate would make the people that are long pay the people that are short,

some kind of dynamic interest rate over time. And that's basically the whole thing. It's just, like, once you understand, like, funding rate and kind of like how that's used to like effectively like stabilize like the price of the perpetual alongside like what the price of actual bitcoin is uh you really understand like for the most far like how like most of the contract works so when you're kind of trading these perpetual contracts on dy dx just the important thing to note um is that there is kind of some funding rate which is you know from a trader's perspective it feels similar to like paying like some interest

rate or even sometimes earning some interest rate like you would on margin very good all right so we got It's within markets. Now, let's put a bow on this perpetual thing. And so we went to all of that work to construct a perpetual, everything you just described. Why? Why can't we just trade Bitcoin? Why can't we just trade ETH? Why are we doing this? Why is a perpetual better than margin or a different use case, let's say, than the other four? Great question. Yeah. So kind of the main reasons that a trader might want to trade a perpetual over margin, it's not like strictly better. Like there are tradeoffs to both, but kind of the main reason why we've seen a lot of volume like flow into perpetuals, both on DydX and also on other crypto platforms is for a couple reasons. So first reason is you can trade them with much higher leverage. So DydX isn't quite there yet. But if you've seen like the bitmex is like 100 X's of the world. Didn't Binance do like 125x or something? Yeah, Binance did 125x. FtX did like 101X just to like bidmex probably. It's just a race to the bottom.

Soon it's going to be 150x, 120. It's just going to keep on going. Absolutely. So if you've seen like those like classes of like leverage that are like of the 100 X of the world, they're trading perpetual products. And like that's how you get like through the underlying constructions. You can get a lot more leverage. And that's oftentimes like useful to traders.

I wouldn't recommend. just like going and trading with like 100x leverage on bitmax. Well, but like what, like, so what happens? What happens if you're trading at 100x, right? Does that mean like one small price in the wrong direction and you're just completely wiped? Yeah, basically means if the price goes down 0.5% on bitmax and you're 100x long, you get liquidated and you lose all you. So it's like you can't let the price go down.

Who does this? It's a straight gamble. Yeah. It's a straight gamble. It's madness. Yeah. Like most of the like 100x's stuff is a bit crazy. like you definitely shouldn't do that.

But most people don't. Like a couple people do. It's mostly like marketing, if I'm being honest, like just like trying to get like the higher like leverages of the world. But like most people trade with like, you know, 10 to like five to 10 to like maybe up to 20x leverager so, which if you have like really good understanding of like how you think the price is going to move can make sense.

So the first is like higher leverage on our margin product right now. Our maximum leverage is 5x on our first. perpetual products, our maximum leverage is 10x. That's actually going to increase quite a lot once we move to our StarC integration for perpetuals, which we can get into later. So the first reason is leverage. Second reason you might want to do this is the funding rates can be a lot more attractive than kind of paying like the underlying interest rates on margin.

So that like makes it like really, you know, sometimes more attractive for traders to trade perpetuals. And then the third reason, which is really, really important, And especially if you're trading on defy is because perpetuals can support synthetic assets. So that's basically means that like to offer like trading of Bitcoin, we don't need Bitcoin. We don't have to worry about like any of the cross chain stuff. You know, we could spin up like a, you know, whatever market we wanted to like XRP market or like, you know, like coin, all these like types of different things.

And from a technical perspective, it would be very similar. The only thing we need is like a price oracle that's like reporting with the price of the asset that we want to trade. is. So it allows exchanges to spin up like way more easily like spin up trading for new markets and just make mark like these markets like really liquid. And all liquid means is like if you want to make a trade, there's like tons of people on the other side like willing to make the opposite trade. Okay. All right. So it basically allows you to use any store of value, any money at the base layer to create anything you want. Okay. All right. So I think we got to. is Zuss Perez's first question

but that was like a fantastic amount of like foundational knowledge I think that most a lot of people don't understand with like margin perpetuals but that answers that question I do have one last question on perpetuals so there is this thing that you guys recently came out with called an inverse perpetual

okay what's the inverse part of perpetual and you did it's an inverse perpetual of ETH, I believe. What does the inverse piece mean? Yeah, that's a great question. So fundamentally under the hood, exactly the same thing, like still has the funding rate, still has like the same dynamics of like the perpetual contract. The inverse thing, basically what that means is it just like determines what type of collateral you're using. So the inverse part on the ETH perpetual means that you are trading the price of ETH and you're also using ETH as collateral. This is kind of like if you've ever traded on like Bitmex before, you'll know that like Bitmex uses like Bitcoin as collateral. And you can also trade the

price of Bitcoin on Bitmex. It's a very similar idea to that. But this is like the very like ETH native product and like ETH what native way to do this. You can come to DYDX. You can only have ETH, you can lever up and trade on ETH with this product that's running like on the Ethereum blockchain, like control your key is the entire time. So that's kind of why we launched our ETH perpetual as an inverse perpetual is we really see a lot of demand within defy and especially crypto more broadly for people that just hold eath and like want to say either go like leverage long eth or sometimes like leverage shortyth um and this product is like a really great way to be able to do that so it's really a product for the eath holders who are you know super bulls on eth and they don't want to cash out their

for some other some other lesser money right like a fiatte exactly exactly all right coin then. Exactly. Okay. All right, very good. All right. Awesome. Okay, we are almost, we are over halfway done now. But okay, let's let me do some quick hit questions, Antonio, that are coming in. So one question is from the Discord, a bankless Discord, are parts of DYDX still geo-Fence? If so, what led to that decision? Yeah, great question. So yes. So the main thing that is geo-fenced is the perpetual contract and the main thing that led to that decision in terms of like where they're geo fenced customers right now and the main thing that led to that geo fencing it's just certain regulations that are basically on derivative contracts within the u.s and kind of our assessments of like the risk of being

an exchange and kind of offering those products to you know us customers it seems like it's not within kind of like the spectrum of risk that we're willing to take on to be able to do that maybe just really quickly taking a step back in terms of like how we think about the risk like as a decentralized exchange. I'd say like from a regulatory perspective, especially in the U.S., like every regulator has like a different definition basically of what a decentralized exchange is and also like a different definition of how much or little being a decentralized exchange helps from a regulatory perspective and probably the CFTC, which is the body that regulates derivative products in the U.S. It basically, like, TLDR, like, this is not legal advice, but it's like kind of basically, like, doesn't really matter, like, too too much if, like, certain parts are decentralized from the CFTC's perspective.

So, like, that's kind of what led to that decision. Gotcha. And that's the main regulator that you're dealing with is the CFTC rather than not the SEC so much. Correct. Yeah. Got it. So, Antonio, is there a future version of the world where DYDX is has to implement KYC onto its platform?

Yeah, it's a great question. Yeah, not to get too much into the weeds on like the legal stuff with this too, but there's kind of like like the main reason you might implement KYC is, is not with the CFDC actually. There's a different like US regulatory body that kind of controls that, which is called FinC. They've actually put out some really good guidance. And like the past year,

they're one of the most proactive regulators in terms of like putting out guidance, which specifically addressed decentralized exchanges. And that's given us confidence to basically be able to operate without KYC. I'm not going to sit here and say that like, you know, the regulatory regime will never evolve in a way that, like, makes DYDX to KYC. But we really strive to be able to, like, very much in the ethos of, like, cryptocurrency, just offer, like, trading to as many people. And without, like, KYC to just democratize access to our products as much as possible. This took me a while to kind of figure out all of the regulatory agencies that are involved. So, like, the Spark notes.

And it correct me if I'm wrong in time of me, because you would know, right, more than me. But Sparknets are like, if you're dealing with something like a stock or a security, a security, the SEC is the group involved. If you're dealing with something like a future or an option or perpetual or a synthetic, or commodity, it's the CFTC, right? Correct. Sometimes there's overlap. And then if you're dealing with anything that is like anti-money laundering,

Patriot Act type stuff, this is all US, by the way. Sorry international folks, but the US has, they've got a lot of regulatory bodies. Anyway, that last one is, that's Finson, right? Correct. And those are the primary regulators that you would probably come into contact with in what you're doing. Is there anyone else? Yeah, certainly we look at like other regulatory bodies besides that.

Even just in the U.S., there's quite a lot of them, let me tell you. But I would say, yes, you're correct. Those are the main ones that we think about engage with and, you know, work with. Okay, so another question. Oh, go ahead. Let me add some color here. So from the realty side of things, like I'm exposed to this a lot. As a good rule of thumb, if there is an investment contract, it is a security and it's under the purview of the SEC.

And all those things that are going on on DYDX are not investment contracts. They are not solicitations for investment. But they are instead like products and derivatives, which is why they are under FinCEN. Is that match your understanding, Antonio? Yeah, basically. and the derivatives would be the CFTC. But yeah, FinC and like CFTC are the major ones for now. How about this? So this is a question coming in from our Discord. So that notwithstanding, you guys haven't offered perpetuals today. But is there some path for when you might be able to

an ETA for perpetuals in the U.S. I think a lot of our U.S. listeners are curious. Yeah, it's a great question. Probably like there's no ETA right now, if I'm being honest. Yeah, it's definitely something that it doesn't seem like, at least within the next year or so, that like any crypto company would basically be able to like offer these types of like more advanced like derivative contracts to US customers just based on the current state of the regulation. I think it's definitely something where this is more like where we would take the strategy of like working with regulators, like really trying to educate them on like the benefits of like defy and kind of like how like a lot of that stuff can play into like objectives that regulators also have. So it's not like purely antagonistic I would

say in terms of like D5 plus like regulation. Like one of the other things that regulators care a lot about is just like the like health of markets. Just like making sure that like the collateral is where the exchange is that is that kind of like, you know, everybody wouldn't have transparency into what's going on with the exchange, like making sure that the collateral is there like that the operators aren't going to run away with the money. Well like you send DFI defy is like a really good fit for basically like solving some of these

problems from regulators. The other thing like regulators care. in the US about is like who is trading these contracts and whether we agree with it or not, like who has the financial sophistication to basically like be from the government's perspective to be able to like trade them. And I think that that's where like most of the kind of decision to block US customers comes in or like where a lot of the like laws come in

is just due to like the CFTC's objective to like make sure that like, and this is a CFTC's view, not my view, but like make sure that like, you know, less financially sophisticated. people, however the CFDC defines it, like don't have access to the more sophisticated financial contracts. Right now in America, we tend to define it as how much money do you have? What's your net worth? Yep. Yep. Which is a darn shame, but that is the way it is right now. Understand. Okay, so another quick hit question is when DYDX token? Everyone's in yield farming. Like, where's the DYDX token, Antonio? I promise you we are thinking about it. And we're thinking about it very,

seriously on potentially like, you know, a shorter like time horizon, potentially like months from now. It's, we have not made the decision yes to know whether we're going to actually do one. We're just like really critically evaluating like how could a token be useful in DYDX? Like what would it be used for? Like how can we get the more, the community more involved in things like governance and stuff like that? How can we use it to just like bootstrap growth of the community and of DYDX itself? So yeah, we're definitely thinking about it. no firm decisions yet. But yeah, something that we are looking to make like a decision one way or another on in the next few months. And yeah, if we decide to do it, obviously look for us to release

more information at some point. And you guys raise capital, kind of the VC route. But what do you think of these fair launch style of projects that are cropping up these days? Yeah, I think it's really interesting. Yeah, I definitely think like different like funding models like make sense for different types of projects. For us, the VC route made sense. That's not necessarily the best decision for every entrepreneur to take VC money. It really depends, like, what you're trying to build. I'm, yeah, definitely a big fan of, like, a lot of this stuff that's been going on in Defi. Like, I thought, like, EM was, like, a great example. Even though, like, it had some security issues, well, like, of course, it's going to have security issues. But that's basically what I think a lot of

this stuff with, like, the fair launch is trying to solve, like, just, like, allocating like capital that's like really in the community's like best interests to allocate to some of these projects to kind of get them off the ground, get them the capital that they need to bootstrap like the community and kind of let the community take over from there. So I'm definitely a big fan. All right. Here's a question that came in from YouTube. So this is on the subject of alternative infrastructure. So we've got Ethereum, of course, we know and love. There's also these new, whether you call them Heath Killers or competitors or alternate layer twos, whatever you call them. Avalanche, Pocodot, those sorts of things.

Are you considering those infrastructures to host parts of DYDX? And also, maybe you could talk about your Starkware announcement and what that is. Yeah, absolutely. It's a great segue to that. So basically we in the past month or so had done a ton of research in terms of scaling DYDX. Basically what's happened for us, like it's happened for like literally everybody else in this basis. We're just spending like a ton of money on gas, as you might imagine.

And you guys pay for all that. We pay for users gas. When you trade on DYDX, one of the nice things is you don't have to pay your own gas fees. So that's pretty nice once you've deposited. But yeah, trust me, we're feeling those costs. So like, yeah, one of the things we want to solve is it's just obviously we've gone to the point where there is a lot of demand to use DYDX, but now we need to scale it. And DYDX is never going to be like super big if it's not scalable. So we looked at a lot of these like new blockchains looked at a lot of like Ethereum.

native scaling solutions, things like optimism, things like the OVM, things like obviously Starkware. We also evaluated building our own optimistic roll-up chain, which would kind of be a special purpose for D-Y-D-X. And we really, the reason that we kind of ended up on the Starkware integration as kind of the best possible scaling solution for D-Y-D-X at this time was for a couple reasons. So first, like, Starkware, like, their scaling solution is live right now. Like, it's already running in production with, like, a couple, like, other exchanges. So, like, there's an exchange called Diversify, which is already integrated with Starkware just on the spot side. But kind of our work with StarCware is basically just given us a lot of confidence that we can build,

like, this next, like, level of sophistication in, like, these margin and perpetual systems on a scalable solution with Starware. And we're going to have it running in production. not in like years from now, but in months from now, probably like three to four months or so that we're aiming to have like this live, which I think is a pretty ambitious timeline because we literally just started working on this with them like a couple of like a month ago. We basically, where we've gotten to is like we finished all the research side. So we know what we're going to build for the most part and we're actively building it right now. So like all the DydX engineering team is building this.

A lot of the Starkware engineering team, they basically have come up with like a custom scaling solution for us. Starkware, for those who aren't familiar, they're the leader in kind of using zero knowledge proofs and kind of starks to be able to scale blockchains. And like the really high level, like fundamental way that it works is just like, so we have, where do IDX? We have like a bunch of trades you want to execute, right? And normally, so the way it works right now is for every trade that happens on DYDX like any other decks right now, that just maps like one to one with a transaction that gets sent to Ethereum. So we have to pay like a linear amount of gas fees.

Like if we like make 2,000 trades tomorrow, we have to like pay like twice the amount of gas fees as if we've made like 1,000 trades today. I bet you guys are spending the like tens of thousands of dollars per month range at this point. I'm just going to laugh at that. Okay. I'm being very naive with that. Okay.

Hundreds of thousands. Yeah. Oh, it's a lot. But yeah, that's also, it's driving us in the right direction, right? So that's kind of like one of the emphasis, they're like, one of the things that's like driving us for like, like, built, like move towards the scalable solution and kind of moving on to the scalable solution. So like basically what we need to do is we need to be able to support an unlimited number of trades. So like how do we do that?

And the way like the Starkware integration is going to work at a very high level is now instead of sending trades directly to the blockchain when we want to execute them. We'll basically send them to Starkware instead. And then their services will basically like buffer like all the trades that we want to execute. So maybe like a thousand trades or whatever in the last hour. And then what they'll do is they won't send all of these thousand trades to the blockchain. Instead, they'll use their magic, which is kind of zero knowledge proofs, which sounds magical. But it basically like translates these like thousand trades down into this constant size data object. So it doesn't matter if it's a thousand trades, if it's 10,000 trades, if it's one trade.

this like data thing that basically proves that all of these trades happened is the same size like in megabytes or whatever or small than that but like so it's the same size and that's where like all of the scalability comes from and then you take this like little data object which is like the zero knowledge proof you like submit it to the blockchain like periodically and that's like where all the scalability comes from and kind of by our estimates this should get us like at least like a hundred X like reduction in gas costs wow so that's something that's something that's that's that's something that's that's that's we're really excited about. Yeah, there's also a number of other like really important benefits that we're going to be getting from the StarC integration. I can just go through really fast. So the second is being able to support cross margining, which sounds like financially sophisticated, but basically all it means right now is right now for each like perpetual on DydX, they're margins separately. So it's like if you put down your thousand USDC to margin your Bitcoin perpetual, you can't use that thousand USDC to like margin your like link perpetual. you'd have to like margin it like separately. Okay.

But one of the features that other exchanges support, which is actually really important, is what's called cross-margining. So you basically have like one account. So you have your 1,000 USDC, and that's used to margin all of your positions at the same time. So like you could take like a Bitcoin position and like a link position and like it's be collateralized by like this same account. And this is also really important for like market makers to kind of really capitally efficient, just like support liquidity on new markets.

So we're going to support cross-margining with the Starware launch as well. And that's also going to enable us to launch way more markets, like probably on the order of like 20 to like 50 and then that next like 6 to 12 months after launch. By more markets, do you mean more assets? More assets, yeah, like more trading pairs. What kind of assets do you think? Yeah, that's definitely something we're still trying to figure out.

We're doing a lot of experiments. Like we just launched the Link Perpetual on Tuesday, actually. We're like probably exploring like all their things. Link Marines. hopefully any Macquarians watching. Yeah, if like things like, you know, YFIs of the world, like other cross-chain assets, like the big ones like XRP, stuff like that.

But yeah, adding them lots more assets. That's the second improvement. The third improvement is like if you've used DYDX, it basically feels like any other decentralized app you've used right now where it's like you make a trade and there's like some spinner on the site that like waits until your transaction gets mined, which is like fine.

Like, okay, we probably all understand that. But like let's be honest with ourselves, like trading on a centralized, exchange where like your balances update like immediately and it like feels really snappy. It's just a way better user experience and we're going to be able to support that as well in the instant trades after the Starkar integration. And then like last improvement, which is also really important, but is like a little more under the hood. It's like we're going to put like the Oracle prices on like zero knowledge world, which will basically allow us to have

way, way more perform at Oracle price updates than what exists on like any other like Oracle solution on Ethereum right now. And that's basically going to to allow us to offer a lot higher leverage at a lot lower risk to the platform. Okay, I'm just going to summarize everything you said because this is super exciting. I didn't realize this. So what this all feels like to me is it's a major V2 upgrade for DYDX. This is not a small tweak. This is like a major V2 upgrade.

And it's basically going to put you in terms of UX experience and range of assets you support on par with what centralized exchanges are doing, except just as decentralized as you are today, meaning no one has to give up their assets. There's no KYC process involved. There's no black box where like a bitmex can kind of, you know, cheat you and trade against you or do some nefarious activity. Maybe, maybe not. Who knows, right? And you're going to be able to do this in like a four month time horizon, right? Is that what you just said? Yeah, that's exactly what I said. It's freaking exciting. I'm excited about it now. And one last question to kind of tie this off. So one big question is around composability.

So Diversify has their Starkware roll up, right? And God's Unchained. I think they're using Starkware as well. I heard that recently. Can you talk to the difference? You're going to use Ethereum as a settlement layer, not like a Pocod or Avalanche. But can you talk to the other rollups from your rollup? Does that make sense?

Yeah, basically no. That's kind of like the one thing that like we trade off. But we already kind of like trade that off on DYDX. because we haven't really gotten into this yet, but we use like a central matching model right now, which basically means that we run like a matching engine and like an order book in a centralized way, but still like all of the trading is non-custodial

and like settled on the blockchain. So it'll be very similar to that in terms of like the composability right now. But yeah, we're not, we haven't been quite just like focused on that as like a compound or like a uniswap of the world. Like really like RMO is just trying to provide like you the traders with the best possible like trading experience like on D-YDX and that's what we've been like laser focused on.

Super exciting. David's chiming in. He's got three questions. Hey David and everyone listening. So we've got five minutes left with Antonio. We want to be we want to keep these two an hour. So could we try to do as lightning round questions as we can these next five minutes to just pack them all in? Go ahead, David. Yeah, two of these questions lumped together really well. So what is the long-term business model of D-YDX? And is there a world where D-Y-D-X gets like acquired by somebody of the likes of like Coinbase or Gemini or some big gargantuan in this base? Or are you guys going to go ahead and pioneer your own roads here? Yeah, it's a great question. So there's kind of like two things that D-YD-X has right now. So it's like

the centralized like matching like centralized company runs that like we take trading fees. We make revenue. And then like the second thing is this like decentralized protocol. And that's kind of where we're thinking about like the token potentially coming in over time. So I think like we'll see just like these like split a little bit more, like over time. Like, yeah, of course, like, the centralized part could be, like, acquired. I'm not going to say that it, like, couldn't. But, like, definitely the decentralized part will continue to be its own, like, autonomous decentralized network. And then another follow-up. So one thing I'm really bullish on is every single entity that has and operates its own L2 is incentivized to have its own on-ramps. And, like, D-Y-D-X, especially,

would benefit from having its own native on-ramp. Have you guys thought about this? You mean Fiat-on-Ramp, too, right? Fiat on ramp, yes. Yeah, definitely. We thought about it. Yeah, I think it's something where if we did it, we would partner with like another like product that does kind of like a Fiat on ramp, but like we wanted just again make the product experience for like trading on D.DX

as simple as possible. And I definitely think like Fiat on ramps like in the product, whether that's like us totally building it or integrating with somebody else. It's something that's important. So a question from Cid. Other projects in DFI are these platforms, right? Composable. Money Legos, that sort of thing.

you de-hedge is building on synthetics. Are there some ways that D-YD-X can act as a platform? It's kind of an underlying primitive money Lego for other things to be built on top of. Yeah, definitely there are. I'd say it's not our main focus right now, but there are a lot of interesting things that have been built on top of D-YDX actually.

And D-YDX also supports, like, flash loans, if you've heard of, like, you know, that, like, marketing lingo before which I'm sure you have, like, a lot of the, like, flash loan applications, kind of go through D-YDX as like margin protocols right now. So that's like a good example of like how things can like be built on D-YDX. So definitely I think it's as well.

Other price oracles. Do you plan to integrate price data feed from other oracles besides what you're using right now? Yeah, we're definitely looking into it. So we have two Oracle providers as a Tuesday. So we're using chain link for the link perp for that Oracle. And then we use the MakerDAL B2 oracles for kind of the all the other stuff. What we're basically building for the Starkware integration is kind of like I was saying before, and the advantage is Shpiel, is that we're kind of building our own like Oracle solution there,

which will kind of work similarly and will integrate with like the MakerDAL B2 network for price oracles. But it'll basically just like feed the prices like into zero knowledge lands like way faster and more accurately than they exist on Ethereum. So it's a bit of like a hybrid solution. This is all going to go through the zero knowledge land that you're talking about the Starkware implementation as well. Very cool. All right. a super secret pseudo-anonymous account just asked the question, is ETH money? Antonio, how do you answer? Definitely. I mean, we're using it as collateral for us. So like, you know, you can trade ETH, trade on the price of ETH, like use it as collateral like you would any other stable coins. So definitely.

There you have it. Thank you for the ETH perpetual, by the way. I think that's great for the ETH Bulls. Okay, last question from me. And then I think we're going to have to wrap it up. We've got two minutes left is how could the bank nation help you guys. So, you know, I've used this term like, I mean, we're on a path to become more and more bankless over time, right? Like, decentralize as much as we can. It's a journey. It's not overnight. But one of the things that we love to support is obviously decentralized exchanges, doing the sorts of things that centralized exchanges could do before. Kind of like, I love to use the term, bye-bye bitmix. You know, like, like D-Y-D-X and other bankless protocols can start to replace some of these things. How can the bankless nation, I guess, help you do that,

get involved? Are there other ways to get involved in your governance token if you do choose to release one? What can we do to help? Yeah, absolutely. I mean, I think definitely the best thing you can do is like getting the word out there just in terms of like, you know, posting about it, like talking to other traders or like people that you may know, which could be like good users of D-Y-D-X, using the product yourself, giving us, like, feedback where you constantly want to iterate and just make the product, like, the best possible that we can make it for you. Yeah, in the future, if we do decide to do, like, governance token, just, like, participating more and, like, governance, stuff like that.

But absolutely, like, we think of D-YDX, like, as a product, like, as an exchange, and we would just want to make it the best for you and everybody else. So it's really helpful as much as you're all able to, like, get the word out there. Ask questions. That's how people learn. And then just keep talking about it. Awesome. I see QAZ put it well.

I feel like a sponge soaking up the knowledge of the ocean. Referring to this conversation we just had with Antonio from DYDX is the founder of DYDX. This has been your AMA, Bankless Nation. Thanks for joining me. One last action item for you. If you want to support DYDX and what it's doing, try it out. Be careful, of course, you know, derivatives, margin training, perpetuals, not for the faint of heart. tests with small amounts of funds

like you've got to know what you're doing with this stuff that gets dangerous and risky quickly but if you want to try it out the best way to do that is a type in bank list