The Wolf Of All Streets - Dan Gunsberg Disrupts The Derivatives Markets And Expects Billions Of Dollars To Flow Into Crypto

Episode Date: August 21, 2022

When’s the last time you watched a podcast recorded on a driving range? As a 20+ year veteran of the derivatives market, Dan Gunsberg knows that business is done on the golf course. Well, now he’s at the driving range talking crypto. Dan is the CEO and Co-Founder of Hxro Trade, a platform built on Solana for trading crypto options, that hopes to be the home for clearing, risk, settlement, and exchange for the entire DeFi market. JOIN THE FREE WOLF DEN NEWSLETTER 📩 https://www.getrevue.co/profile/TheWolfDen THANK YOU TO OUR SPONSOR ►► Have you ever had your exchange go completely offline during days of high volatility? Of course you have. We've all been through it. Those days are no longer with Bullish. Bullish is a new breed of digital asset exchange that empowers users to trade with deep and predictable liquidity across highly variable market conditions. They also have incredible automated market-making and industry-leading security. I can't get enough of this platform and it's fully regulated. Sign up here: https://bullish.com/melker Bullish is licensed by the Gibraltar Financial Services Commission. Virtual assets and related products are high risk. Consult your investment advisor and trade responsibly. Bullish is available in select locations only and not to U.S persons. Visit bullish.com/legal for important information and risk warnings. EPISODE LINKS Dan’s Twitter: https://twitter.com/hxrobtc Hxro: https://hxro.trade/ Production & Marketing Team: https://penname.co/ FOLLOW SCOTT MELKER • Twitter: https://twitter.com/scottmelker • Facebook: https://www.facebook.com/wolfofallstreets • Web: https://www.thewolfofallstreets.io • Spotify: https://spoti.fi/30N5FDe • Apple Podcasts: https://apple.co/3FASB2c SHOW NOTES 00:15 A Note from Our Sponsor - Bullish: https://bullish.com/melker 00:22 Golf with Dan Gunsberg Intro 04:24 Links DAO 06:08 Crypto Is 24-7-365 07:23 Building Hxro in a Bear Market 09:55 What is Hxro? 12:03 A Note from Our Sponsor - Bullish: https://bullish.com/melker 12:51 The Future of Derivatives and DeFi 14:28 Regulation Roadmap 17:30 Institutional Investment 20:14 Monopolies Are Breaking Down 21:53 3-5 Year Outlook for Crypto

this episode is sponsored by my good friends at bullish stay tuned for more information on this amazing company later in the episode. When's the last time that you did a podcast at Topgolf? That'd be never. I'm not a TikToker. The first time I ever did a podcast with you, I think I made a golf joke right at the beginning. And I said, like, is golf a sport or is it just a hobby?

Or something like that. And I took it to you. I still think hobby. I play golf, but I still think it's a hobby. So I played growing up. He got on the tour with dropping one in and putting it. Are they going to do it now? No pressure.

This guy's a real golfer. He's a scratch golfer almost. He played almost on the tour. He was gonna be the next Jack Nicklaus. Yeah, right. True story. Tiger Woods right here. Oh, it's good. You're right. Block it.

Get there. Block it. Get up! Oh, weak. When I moved out of the city up to to the suburbs, once I had a family, I was like, I'm going to try to get good at this again. Yeah. And I somehow clumped lightning in a bottle.

So I moved up in 2014, and that summer, I qualified for the Illinois State Amateur. Like, I actually had to, like, stuff a wedge on the 18th hole of this qualifier to, like, two feet and made the putt and got me in for the State Am. And it was the worst thing that ever happened. Because I actually thought, oh my god, it would be good.

Yeah, I got caught. I'm going to be, like, playing on the senior tour. I'm going to play on the senior tour. For the rest of my life. I'm 90. It didn't go well senior tour. I'm going to play on the senior tour for the rest of my life until I'm 90. Right, right. It didn't go well. 2014, before I even got into crypto.

It's like trading. It's all mental. Golf is brutal. But it's crazy. You can literally go out and be like Tiger Woods one day, and the next day you can't hit the ball in the air. Not you, I'm sure, because you're like a scratch golfer, but for me. So what I realized about it is that it's it's so not about like you

have to practice but once you get the routine down like most of my golf now is in a cart music playing flow state total flow and it just if you get a rhythm going dude i mean i think it's the same as trading it's's just like trading, flow state with trading. There's this, there's totally like the, like as a DJ, like connecting with our feats, like it's just getting in that rhythm, man. It's fucking gold. I interviewed Ricardo Salinas,

the billionaire from Mexico, who's like 60% of his money in Bitcoin. He said all he does is like play golf outside of work and it's all about his flow state listening to music. It's been great. Like the sport's been great for me and and it's gotten able to really cultivate a lot of relationships that have been really important in my life. A lot of, especially coming from traditional finance and trading, every trader I know plays golf.

Friday afternoon, market closes out. And so it was great for business. And, you know, in crypto, just obviously... The same market doesn't close. No, it doesn't, unfortunately. Unfortunately. But, fortunately and unfortunately.

But, interestingly enough, like, when Link's DAO started... I threw this, yeah. Right? And I was like, that's a huge step. And then, during FTX Salt, which we were one of the sponsors of, went out there, it might do this yeah right and like i was like that's a huge step and then during ftx salt which we were one of the sponsors up went out there and i i played in link style it sponsored like an

outing and i got paired up with a guy this great guy from brevin howard and i'm like holy i've come full circle now you're playing golf for a great playing golf for crypto business. I'm playing golf for crypto business. Like, what the fuck is going on here? So good. My guy is so good at golf. Sit down. You're so good at golf. I'm taking out the fucking big hog. Stay there.

What's that? I want to see what this thing can do. Ah! Oh, he sliced it, too. What do you think of Link's DAO? What do you think of the concept of something like that? I think that DAOs, like, could go really either way. Some of them I feel like it's just full on Lord of the Flies,

and our need. Oh, 100%. Yeah. Link's DAO, I think, is a great concept, and I love the community aspect of... I mean, golf is so relationship-driven, unless you're going to be a pro, which is nobody, you know, one in 100 million people do that. So a great way to build a community.

And, you know, I kind of like the idea that they were more about just, like, capturing a large audience first and then letting it evolve naturally. There's so many things I want to see them do that I'm like, how vocal should I be? I have to focus on my own. But conceptually, the idea of a DAO, I mean, obviously, you guys are effectively building a decentralized exchange of sorts, right? Yeah, I'm a pro-primitive. Or exchange, yes.

But the idea of a DAO with golf and the idea of the DAO owning golf courses, which is effectively owning real estate, interesting concept. And obviously with the DAO, you always have this off chance that it's going to somehow end up getting controlled by absolute villains, which is a risk that you take, and you kind of have to understand the game theory of it to make it work out. I don't know. We'll see.

I think it's a great concept, and it's a fun concept. It's actually one of the few things in crypto that, like, it's not everybody in there, like, you know, how cheap can I buy it, and number go up. Right. People actually care about the concept, and they're in it for the community. That's why a lot of the NFT projects actually work. So like we were joking, obviously that traders get off on Friday and play golf. We said 24, 7, 365. You can't really do that in crypto. Then you take it to the next step and you're running a business in crypto that

never closes. Ever. How do you do that? It's it's well I'll tell you this. Like, I went, I mean, last year, as it relates to golf, I played, I think I played 12 rounds. And I played one tournament that I walked off after the sixth hole because I was dealing with some crypto-related stuff. And it just, you know, you've got to just learn to balance it. We both have families. The balance of a family, let alone something like golf that could ultimately take you six hours of your time, it's delicate, and it's something that you have to really learn how to do. But if it's important enough to you, that little period is just a great time to reset and kind of rethink just stepping away for a few hours. It's as valuable as being totally engaged.

It's the best thing. It resets you for hours, if not days, if not weeks, if you can get out there really for a few hours and do it. I mean, a lot of people, I think, in your position sort of have joked for years that they can't wait until the next bear market because you build in a bear market. Well, now we've pretty much been in a bear market here for quite a while. Have you experienced that to actually be the case? Yeah, 100%. But remember, if you think about the genesis of Gero, obviously, we're fully leaned into the DeFi primitive now. But when we started and we built that centralized platform, which initially was Hero.io and now Hero Trade, which does all the exotic options, the paramutuals, the

stock price, we started building that in the throes of a nasty bear market. We started building that in Q3 of 2018. And we launched it in January 2019, where Bitcoin went from it was almost 20,000 down to, I think Bitcoin was around 4,000, 3 to 4,000 at that time. Yeah. And it was super salty. The whole ecosystem was super salty. And it was kind of just what the market needed at that moment. And I think as somebody who is one of the contributors and leading a project, that everyone said, you want to zig when others zag. And market's down, market's quiet. You also lose a lot of the kind of vapory noise from the market. And it gives you an opportunity that if you have something substantive,

you have something that it's much easier to capture an audience than in the throes of an up-only heavy bull market. There's endless competition. And you're competing for attention. People have the attention spans of doorknobs pretty much during those periods. And we like this idea of really leaning into your build and then going to market. Not that we're fully timing it,

but like we talked about last time we were together, I think we're at the beginning stages of something that is like a bottoming process and markets kind of found some level of value here and hopefully the timing works that starts to get momentum we capture the attention of a of an ecosystem we've been building quite a bit um in terms of just like the hero ecosystem as a whole and um even our discord now the plus of 7 000 uh

eyeballs on it and um the uh the the project itself and from a development perspective is just about to go to mainnet. And so I think hopefully we're going to get the timing right and we'll capture, you know, after. What are you specifically launching? Sure. So it's a DeFi derivatives derivative built on Solana that handles all of the settlement risk, margining, and clearing of derivatives trades and exchange of derivatives trades. So you kind of have this exchange, which comes via composing with serum

at the top of it. And then underneath it is all the clearing, settlement, risk, margining infrastructure. And when you put those two together, those are all the elements that you need to kind of run a derivatives type of change. So we're not building a front end. We're building the plumbing that goes underneath. So the actual infrastructure, which is why we are- So you'll be white labeling it out effectively to others. So SDKs, APIs, there's liquidity coming in

from market makers who have been, you know, very coveted relationships of ours for a long time, many of whom have invested heavily into the network. And a lot of them, when we did, you know, when we first started this project, actually joined in at the beginning, offered development resources. And it's just been this amazing think tank. And, you know, the ultimate goal here is that we think that the future for derivatives is going to kind of have three lanes. You're going to have, in terms of market infrastructure, going to have kind of the incumbent, what exists today, what you see with the CME and ICE and Eurex and things like that. And you're going to have this centralized direct access model, which is very similar to what,

which is exactly what FTX is going after now. Then you're going to have DeFi. And DeFi is something, I think, for the majority of the traditional world that kind of have to get through the whole FTX part of the market first, which, I mean, their work they're doing is so tremendous from this space. Somebody that has been in the traditional space for so long, I appreciate it, I think, more than anybody as an outsider to it, although they're partners

of ours on some stuff that we do. And Alameda, which is related to FTX, has been a big investor of ours. Everybody knows that there are advantages to trading on both centralized and decentralized exchanges. But why not choose an exchange like Bullish that offers the best of both worlds? Bullish's total trading volume recently exceeded $25 billion in just seven months since they launched. And they have the best liquidity in the game when it comes to Bitcoin USD. Now, Bullish has released the first major upgrade to its liquidity pool technology with the introduction of a concentrated range-bound liquidity pool for the Bitcoin USD trading pair.

This upgrade triples the order book depth within a range of 2%, making it one of the world's deepest Bitcoin USD trading pairs. This industry-leading order depth means you can trade confidently at scale with clearly understood price impact. You should check them out immediately at bullish.com slash Melker. I appreciate the work that they're putting into it because it really is setting a precedent for innovation. And it's also setting a precedent for consumer choice. And right now, if you think about how CME, Isaac, it's almost like a duopoly in a way.

And they've held on to it for a long time. Monopoly. Right, pretty much, right? And so much, I think, of what they're doing is about innovation and innovation connecting to choice. And so there'll be this world where you'll have these kind of three lanes, and we plan to have Hero Network be that third lane, really to be the clearing risk settlement exchange for DeFi, for the DeFi lane. And do I think it's something that's going to spin up and go nuclear, you know, up only tomorrow?

No, but we've been building over time. We've planned this out to run it as a marathon. And our idea here is that we want it to evolve and grow organically. And we'll see. I'm kind of thinking about where does this go over the next three to five years? Yeah, you have to be thinking that far. Especially, I mean, you see Sam has sort of picked up the torch and is running with it, obviously, for the entire industry, certainly in Washington and in the face of regulation. I mean, he just sat there and took fire from five members of the CFTC like a champ. But, I mean, is literally now, I wouldn't have told you a year ago it was possible that we'd be making a push for 24-7 derivatives and risk in legacy markets.

Crazy, right? But if he can do that, you guys could actually theoretically operate in the United States. That is our long-term goal. We've been very proactively starting to engage regulators in the U.S. from the idea of, look, we're not here now. We want to be here in the future. Let's discuss the path. Yeah, like, tell us what we should do. It's ridiculous. I mean, Hester Percy's had the sort of safe harbor proposal for years. Give us three years. Tell us the roadmap. And if we follow it sufficiently, we're not a security. It's so reasonable.

I think the elements are, well, so there's two things. You have the token side. That's the token side, obviously, but I'm just saying conceptually, the idea that they actually give you a roadmap and... A regular... So in our case, it's the FTC. Yeah, which is better. I think so, in many ways. But we like to see a principles-based approach. And we talk about the risks and the regulatory risks. We think about it in a principles-based approach.

So look at it like, you can't look at it as this static prescription. It's not a binary thing. You have principles that you operate by. You have best practices that you operate by. And can you solve those for a decentralized network? And if you can, then there's a pathway. If you're going to turn your nose up at it and pretend that that regulation doesn't exist,

at some point, you're going to drive 100 miles an hour into a brick wall. It's happening left and right. I have to say, I've never been a fan of we need regulation, blah, blah, blah, but it does feel like right now there's a hack, an exploit, a failure every day. Every day. In some ways, the whole ethos of crypto is like it's this big experimental. Yeah, break stuff and whatever. But the problem is it retails losing money every time something breaks.

Okay. It is for a million. For you? For a million dollars. Yeah, for Scott. For a million billion sacks. Nice to meet you, bud. Nice to For you? For a million dollars. Yeah, for Scott. Cool. For a million billion sacks. Nice to meet you, bud.

Nice to meet you. And Dogecoin. I'd be interested. Oh, that's in there. Fuck it. Oh, short. You're hitting the green, though. Let's see.

Yeah, and then you have something that really finds PMF and it takes off, i.e. like a Luna. And then you have what is like the equivalent of this like mini systemic event. And then retail gets really, and it's not only retail, and we're at this point now where you're at this intersection of pensions and sovereign wealth funds. And these are gatekeepers that are managing billions, hundreds of billions of dollars for people that have worked their whole lives for it. You need to take that into consideration. There's a lot to unpack there.

It's going to be years before it works out. I think FTX, what they're doing, it's what's needed years before it works out. And I still, I think FTX, like what they're doing, it's just, it's what's needed for the industry to really... Hey, somebody had to do it. You talk about pensions and sort of this, the wall of institutional money, I guess it hasn't really come in. I do think that they could buy Bitcoin reasonably

within their like risk management system. Maybe, of course, then you have the discussion of custody and how they actually do it. But I do believe that if they don't want to go down the risk curve, that asset has proved itself enough that it could be a part of 1% or a half a percent of a portfolio. I think it is. I mean, I think the general concept is that the majority,

anybody that's subscribing to, you know, a portfolio that is risk-based, they're going to have some exposure to digital assets. I think I was telling you also the last time we talked that the last time I was at a conference that was running alongside a Milliken, a conference called Medici in LA, and this is the first time in years i i've never seen so many sovereign wealth funds endowments uh pensions all f table all active now i think i'm pretty sure that the majority of the last round of funding of a lot of

the um big crypto bc's like andreessen's recent 4.5 billion real. Andreessen distributed global framework, all these guys that are in everybody's raised big rounds. It's all coming from institutions. And it's their first step towards ultimately what I think will end up being direct access, where they're actually going to start making their own direct access. What's interesting is that we're talking about Bitcoin being the safe asset. Those are Web3 DeFi funds. Yeah.

Like those are not Bitcoin exposed funds at all. That's the furthest down the risk curve you can magically find. Pretty much. And that's what they're coming into. Pretty much. I'm pretty sure that most of them have Bitcoin exposed. There's no talk about it. They just don't have to.

A publicly traded company has to, but something that's private never has to. Which is why I think this bottoming process starts to make sense. And things get, I mean, you're a very successful trader. You understand, like, things get pushed so hard one way. Like, it's not to say that inflation, like, it's not to say that we're not going to see, like, $10 premium gas. That shouldn't explode the entire market. It shouldn't. And, like, it takes a long time to turn an aircraft area port, right?

Yeah. And so you have to start thinking about just how the market really thinks. It's like, what is the next six months? What are we,

where are we going to be in six months? And oftentimes, that's, even the spot market, that's kind of where they're trying to move, right?

And so, you know, it's interesting. Just to change course, we were talking about kind of the incumbency of CME and things like that. Are you following what's happening? Just because we're at Topgolf on Top, it's making me think about it. PGA Tour. Yeah. So some of the largest, some of the

most well-known players on the PGA Tour are now resigning from it to join the lib tour, which is something that's created, I think, by Greg Norman. Yeah. And that, to me, actually is another signal of, like, these monop- You can't tour as much as I can in my life forever. You're into golf and you get- It's a monopoly. And, like, I think you're going to see this era now, which I think there's some little crypto flavor to this.

It's like the disintermediation of monopolies and a single point of failure. All those things, they're not healthy for ecosystems and just for the world in general. Can't have complete dominance and control because without competition you lose innovation you lose consumer choice which is such a big thing right now you know and so it's really interesting to see that like some of these things that we grew up into us been around for a long time like it's normal to us right yeah but uh it's seeing this change just everywhere, it's pretty fascinating. I think so much of it stems from the work that we've all done over the last year. I certainly make excuses, women's clubs, I need a glove, my watch is on, the wind was blowing, my hair was wrong. Nope.

I don't know who's winning, but it's not me. I capitulate. I can't beat this guy. It's over. Cut it. So you're talking about having sort of a three to five year time frame. Do you think in three to five years, all of this is normalized? It's a part of the system? I'm not going to say we replace the legacy system.

But do you think that it's viable? It's an option for people who want to opt out of those systems. They'll be able to sort of have access to all the products and assets that they have in those systems. Opening access to a much wider user base, audience, creating more selection for people. It's not like you have to be the fucking cheesecake factory. No. Have like a 30 page menu of choices. No.

But you need choices and you need competition. And the idea shouldn't be to box competition out necessarily, as opposed to use each other to innovate. Well, it's too small to compete, I think. And also, we just need all of those sort of leverage products, derivative products, futures products, even to just make the market more efficient. Right now, even very hard to manage risk or to hedge or to do those things if you don't have institutional access. If you're not in the United States, I mean, if you're in the United States,

certainly difficult. And it's just hard to get access to. If you can't and you're using through the markets otherwise, you're not getting fair pricing. You're not getting deep with point and E. And, you know, like with Hero Network, what we did and we had a lot of large trading firms, a lot of bonds that come from the traditional world to like get involved early. And it really was a great signal that they're looking for change.

They want to see alternatives now. And that's the whole idea is just trying to plant seeds now for it to kind of see where it goes. I love seeing guys like you with a long vision who are not panicking or afraid to build and continue. Because I think that your average person, retail, sees the price go down and just gets flushed. Yeah, it's not that it doesn't matter to us

because it can affect people's attitude towards the market as a whole. But I think having, especially in crypto assets, having a little bit of a counter-cyclical thought process to things and zooming out a little bit ends up benefiting you in the long run. So we're going to get there. We're going to get there, man. Thank you so much for listening to this episode. If you haven't already left a rating or a review on Apple Podcasts or Spotify, please do that now. Spotify just added rating. So please go

ahead and click that five star. I'll see you guys next time.