Charles d'Haussy: dYdX V4 - Decentralised Perpetual Exchange on a Cosmos Appchain. Ep. 521

Transcript

welcome to epicenter the show which talks about the Technologies projects and people driving decentralization and the blockchain revolution I'm sebest and I'm here today with my co-host M Roy today we're speaking with Charles do he's the CEO of the dydx foundation they just launched the V4 app chain and we'll be speaking in Charles about dydx the decision uh process that went into evolving dydx into its own app chain we'll talk about the launch how things are going uh we'll also talk about perpetual's markets space me and so much more before we get started quick disclaimer this is a sponsored episode and some of us at epicenter hold dydx tokens so Charles thanks for joining us

how are you doing thanks for us Seb me I'm really pleased to be here I'm a very early fan of the show for many many years so I want to start with a big thank you for your hard work for for the community years after years bare Market bull market you've been uh educating the community giving the stage to to many so I'm very grateful I've learned a lot along the years and I'm sure most of the audience has as well so congratulation for thew work and and thanks again so Charles you're one of these guys who left France uh early in your career to move to to Asia uh what have you been doing uh for the last 20 years

oh uh yeah I've been uh studying in France and Canada and I eventually did an internship in India uh and I felt the energy in Asia was just really uh uh addictive so I wanted to get my first job in in Asia and long story short I ended up in China then in Hong Kong I started a business in Hong Kong uh sold this business a few years later to one of my customer uh decided to kind of pivot and make time to um upscale myself in finance which was a topic uh I I really liked beside my my everyday work um I was invited later on by the H Kong government to join them as the head of fintech working on growing the ecosystem

of of fintech in Hong Kong Hong Kong is one of the leading financial center and it has went through its kind of reinvent itself into a fintech hub and and I was leading this together with central banks and Regulators over there so great great experience at building and shaping ecosystem and one of the vertical I was focusing on was was blockchain so one of my my early love so I've been helping a lot of leading companies at the time to set a foot in in Asia and start their expansion in Asia from from among them was consensus which eventually I join um I was head of Asia for consensus for for a few years helping metamask helping

central banks to build early cbdcs defi project nft project s all over Asia from Japan to uh to Hong Kong Singapore and Australia and fast forward I joined the dydx foundation now where I am the CEO and where I work with a team of 20 plus people which are spread all over the world very close to where most of the users and Builders around the ydx are how did you come into this role as CEO of the dydx foundation and what was that transition like I I spent a lot of time at consensus right so consensus is a great company where there is

essentially supplying and providing infrastructure for the space should it be infon the RPC nodes or metamask for for wallets and many other services so I spend a lot of time on ethereum I spend a lot of time building infrastructure uh for various various project and and uh and institutions and I wanted to kind of go up and spend more time at the application Level and the was very interesting project D5 is a very confirmed use case uh within D5 perpetuals are also having a tremendous tractions and essentially exist in the in in Defi and because of crypto um exploring the cosmo stack was also

interesting I I started my journey on on in crypto in uh with Bitcoin obviously like many in uh in 2011 spend a lot of time in on ethereum but the cosmos St is definitely a super strong candidate for Global infrastructure in the in the coming decades so spending time on on defi on Cosmos also getting more interactions with those there was a lot of kind of new topics I wanted to to go deep diving in and um and kind of U leading the dydx foundation team is is there is never a d day a lot of a lot of activities obviously the migration from version three of dydx to now the dydx chain and version four is extremely extremely

intense but highly rewarding so we having all a lot of fun so so uh dydx announced uh last year that it would essentially move to its own app chain and this really sent waves through the cosmos industry I think it was some of the biggest news and and certainly very positive news uh in the market conditions that we've been in for the last year or so and uh it's something I've thought about a lot in terms of you know how chains evolve from Smart contracts to moving to l2s to to to graduating essentially uh to becoming fully Sovereign uh from the uh consensus

layer all the way to the application Level and so I'm curious what was that graduation path like and you know before we actually before that maybe you know what was the decision making process of moving to a cosmos chain uh what were the criteria that were you looking for were the other platforms of protocols um that uh were were contenders here and and then yeah what was that that graduation path or that that upgrade path um look like absolutely maybe to cover this question the best is to start with the history of the ydx the ydx was funded by Antonio Juliano back in 2018 Antonio is a is a former conbase engineer so he got

very early exposure to the space in general to the technology and decided to fund uh dydx so he's the original founder behind the technology of of dydx um dydx started on ethereum Main net um later was one of the very early mover to layer tws with starx uh and is up to up to today one of the largest contributor to the number of transactions and level of activity on on layer TOS in general um but I guess the product team over there at dydx trading has been always very independent and focused on product and user experience rather than trying to accommodate some technology which was evolving so when you when you get your

application to sit on someone else blockchain uh you can get essentially you can move faster uh and you can benefit from Innovation from others and and services from others but you it also brings you some kind of challenges that andp of sitting on general purpose blockchain means that you would be sitting on one infrastructure which is number one not use and also designed to accommodate many different type of use cases and dydx has already been laser focus on one use case which is essentially D5 for perpetuals being a leading decentralized exchange for perpetuous contract so progressing with a progressing with the product and getting more and more traction as the team at at dydx started to to look at

how they could essentially keep evolving and and deploying more Innovations and more features for for for the product in general and also kind of mitigating the as the dependency they add from from other teams building this layer tools and we all know it's very hard work and and everyone has been doing a fantastic work but when your application is gr at very fast pace sometimes you just you just need to find whatever will uh will be required to to feed your to feed your wolf uh so um there was a few tradeoff as the number of number of transactions on layer two were still still not there compared to the to the the growth of the ydx uh a few components were not able to be decentralized so on version three of

the ydx this is public information the order book which is one of the the core the core the core modules of of decentralized exchange is actually offchain it's running on AWS servers there is not enough capacity and throughput within any layer of two today to host to host an order book so I think this product evolving but still having some kind of avenues for Progress the team at dydx has been um essentially exploring the different Technologies available at the time I think the process started 18 months ago or so and they looked at many different Stacks as the different layer two technologies ZK Solana probably poad do I guess the team

has been really looking looking all around and where where it was all starting it was kind of reverse engineering U uh exercise thinking what do you need for an order book type of exchange and uh something people don't necessarily know is that within an order book type of exchange uh there is a lot of market makers and and users which are essentially um placing orders celing orders sometimes this order match and they will get settled so there is a very high velocity on the on the order book overall so so how can you get uh the experience all this uh systematic Traders need uh on technology and what kind of Technology can essentially adapt

and uh and provide provide this and the choice of architecture for this new dxchain which was launched a few weeks ago now was to essentially poost the order book not on chain because you will get the constant latency of the blockchain which is not providing a good enough experience for Traders so the order book is not on chain but technically the order boot is the order book is still decentralized and the way the decentralization is happening is actually by hosting the order book in the memory of the validators so dydx chain has been launched uh the dydx chain is used for settlement of orders but on at the other book layer the order book is technically not on chain but

within the memory of the validators so this can really provide a very high frequency and high velocity order book similar to what what Traders experience in in centralized type of crypto exchanges and um and and and also providing a full control of the stack for the the engineers involved in the ydx not having to depend on the progress of a road map of a layer two or or ZK being able to really integrate the full technology and keeping the pace of of innovation the product deserve and and the market pools yeah this is really interesting that dydx is a project that is starting with the product experience first and then the blockchain follows from the

product experience rather than the other way around where where is like you're part of some blockchain community and you build build your product experience there it's the opposite way around and and the the power of a a cosmos chain is exactly that right like you can basically tell the validators do whatever is needed for the optimal product experience so uh that's actually interesting so this Cosmos chain it is not going to be evm compatible or what are its evm compatibility properties like and is it an issue that it is not not com it lacks some forms of

compatibility that's a great question for for the dydx use case which is trading perpetuals uh perpetuals contracts uh essentially we don't have the same requirements of composability as some other type of use cases in in defi so if you are a lending protocol or if you are for example an amm you will need to have all kind of assets around you and a very large ecosystem when you focus on on derivative like dydx is you essentially every trade at dydx starts with usdc and from this usdc collateral you will be able to express your opinion in on a synthetic product which will represent um a bullish view or a bearish view on any kind of crypto asset Bitcoin

ethereum and so on so we don't have the same requirements of U of composability as as some others to come back to the uh evm compatibility question um in this early days of the dyd exchain all the business logic is actually on the on the Chain itself as a goal is was really to design a Formula One of uh of of trading for perpetuals and all the layers we could essentially simplify or abstract and get the business Logics integrated into the chain itself was essentially helping to get the performance closer to uh to be optimal for for the users there might be a time where evm compatibility will come but at the moment the the

chain is starting with really this um this focus on performance and this focus on a sole use case which is a use case of of of dydx ENT entally the the exchain is not uh like many other layer ones which will invite a lot of Builders building on the Chain many people will be building around the chain and the core application but the goal is really to keep uh the I would say the the leadership we have on the market as a protocol in in derivative market for for people who don't know derivative crypto derivative Market is 10x larger than spot crypto trading so every time there is one Bitcoin one is being traded in

the spot Market about 10 times larger amount is being traded on on derivatives so that's a very very large use case mostly used by market makers institutions or prosumers um and being focused on this since 2018 has essentially helped dydx to grow as today the the world largest decentralized exchange for crypto derivatives which represent about a billion dollar of trading every day um about $80 million of fees collected on the version three of of dydx and market shares which are going every month versus the centralized Krypto Krypto exchanges and if we want to project ourselves a little bit in the future if

you think of the the Journey of Unis swap which started two three years ago obviously Unis swap started from zero and today represent between 5 to 7% of the spot trading Market uh there is there is the potential for dydx to really expand from this 1.5% market shares today in in crypto derivative and growing knowing that I think um um the market in general start to realize the limitations of of centralized exchanges and and start to look at expanded the different venues for expressing their opinion on the market so when I was looking at dydx um couple of years ago one of the big Revelations I realized was when you

think of a Unis swap for for the Unis swap to successfully do an exchange or an exchange like experience for a user the it needs to have control over the asset that the user is interested so it's like mkr and E somebody has to provide an mkr somebody has to provide an an e so those things have to be there but with dydx and actually the entire perpetuals Market what seems like a crazy property is that you can have the entire Market exist with only usdc or a stable coin as a base you don't actually need the assets

themselves uh in the exchange and so and so basically like the market can like stand on its own without even a lot of bridges to uh any place else as long as there's a stable coin the Market can exist even if the Bri even if the bridges to other ecosystems may be weak that that that seems like really interesting and so how does that work like how is that possible and how does the Perpetual work underneath that makes it possible so perpetually the a certain type of Futures Contract uh so the Futures Contract is essentially a kind of an adjacent Market

to the spot Market where people will be able to uh Express their opinion should they be bull or or bears on one type of asset historically the the Futures Market exist in the equity world for quite some some time now and they usually kind of expire uh within the end of the month so within three months we can buy Futures sometimes up to six months or more and then the market will be able to take a bet on uh and defining a price of of an asset uh in the future so a future contract um The Innovation which came in 2018 via bitmax uh the centralized hypto exchange out of H uh was essentially to create a new type of Futures Contract which were

not expiring at the end of the month anymore but uh kind of updating themselves on the price of of the underlying asset in on an hourly basis so this type of of contracts are called Perpetual contract uh because they they kind of bring the perpetuity and the the kind of constant liveliness of this futur contract so it's it gives to Traders an opportunity to quickly enter into one market without having to move the underlying asset so you can start with usdc and starting to say from my usdc I want to express my opinion on the market on on bitcoin on if there is hundreds of different Perpetual Market available and being able to enter this market and exit them very quickly

without I would say the underlying Logistics as the world of of Futures and and there derivative is as I was mentioning earlier a very large Market way larger than the underlying asset should you think of equity derivative or Commodities derivative and crypto derivative as well so it's a very um elegant and efficient way for essentially Traders and the market to define a price and and accelerate and and and and make more optimal the price discovery of any assets so in in my mental model so if I go to dydx and I go long e when I make the trade happen let's assume actually you are the counterparty

on the other side with whom it's pass so you have gone short e I've gone long e now mine is a Perpetual position and yours too so I should be able to hold it for years if needed whereas our durations may not match so you on the other side might want to get out of position off of the position you know maybe 30 seconds later or 30 minutes later so how how is that Gap covered how can I have something permanent while you being my counterparty and you are not actually permanently there yeah what is it that we exchange the way so there is there is

a complex mechanism uh which people can document themselves about at dydx Academy for example ESS working around the funding rate and the oper interest overall or where actually Traders will be compensating or being compensated for a variations between their contract as it is today and the underlying demands for for this contract so all of this works with a funding rate around the derivative contracts which essentially every hour will kind of check as a level of buyers and sellers and if you've been too optimistic or not enough there will be a rebalancing made every hour so what kinds of assets uh C can people trade on dydx today and um and what what

is the road map for for you know supporting more assets absolutely so thex offers Perpetual market today there is about in the version three of the YX sitting on the top of of ethereum Layer Two from starx about 30 different trading pairs uh so people can trade Bitcoin and kind of a long tail of of assets as every market ethereum and Bitcoin represents roughly speaking 80% of the volume um and what is very interesting with the uh with the now born dyd exchain is the upcoming upgrade of the dydx protocol itself where um the number of sing pairs will extend uh to up to 100 and people

will be in the near future being able to launch permissionless market so the type of inovation we've seen on the crypto Market with Unis swap where people were able to start some trading Pairs and essentially starting a market in the permissionless way H the same is is happening in the near future at dydx where people will be able to launch uh Perpetual markets uh on their own this following um risk a risk framework as well as a liquidity framework which is being designed and voted by the dydx Dow but that's a great innovation which I think the market has been expecting for a long time making sure that you can get essentially Market launched at highight

velocity but also in a safe and and uh and uh and highly liquid way for for new perpetuous contracts so let's uh like this idea of permissionless markets is is pretty interesting um let's dive into that a little bit like what is it mean to be able to create a permissionless market so what it means is first and foremost probably more trading pairs so the users will Define that it's a little bit s of the magic of crypto when you Define software you define a recip and then you let it uh you let the market expresss with with this kind of new innovation so what where I'm excited about is about the unknown about this

kind of innovation so many people are thinking okay there will be no more Min coins there will be more shitcoins Market that's one thing and and if people want of some more of this will be able to launch those Market where it's more interesting in my opinion is permissionless markets really open a new Avenue for uh truly New Market and defy only Market to exist I think if we really want to see the defy Market to expand and to keep I would say getting mind shares and and uh and kind of overtaking the Legacy systems which have limitations we need to make sure that we essentially set the the defi market for permissionless innov ation as well and um where where we've seen some kind of

peaks of growth in in the crypto Market in general is when this kind of innovation and this kind of New Market came came about without being able to be replicated by centralized type of infrastructure so think of Unis swap in the for the defi summer think of nfts think of different type of Innovations which have been uh which came to life and gave this kind of pump of growth and hers of new users coming into our space and with a permissionless market at at dydx I think we have potentially a very strong set of uh of of components to really call for this new innovation def will keep expanding if we keep inventing new products which can only exist in

defi if we only replicate or opt optimize whatever exists in the traditional systems we kind of Define uh the growth uh and cap the growth we can uh we can get access to so permissionless Market means that users will be able to define a risk um a risk framework around this asset the risk framework will be considering for example the liquidity the age of the asset the type of the asset as well as a market a market making kind of framework as well making sure that when a market is launched uh in a permissionless way it does not become toxic that's also very important being remaining open to Innovation but making sure Innovation is not burning fingers of user too much so

as I said we probably can we we probably see a a long tale of new crypto asset coming up but also we can think of new indexes are starting to be to be traded in derivative Market as much as they are in the traditional Market as well thinking of new type of asset if you want to express for example your opinion on uh on on the price of Rise cor Koka or some other Commodities today some of these Market are very much uh I will say closed to a a little fuse for example in in the Chicago Chicago Exchange where you can trade Commodities and if you want to express your opinion on this markets uh you count today and I think that's the power of defi is giving

really the kind of Internet distribution to markets which used to be very very kind of constrained in terms of geographies and where permissionless Market can possibly uh impress us and surprise us is by defining this kind of new product which will be exclusive ly available in Define in Define markets and and and kind of creating this new demand and and bringing additional value additional volumes additional users new type of users as well on the market so as I mentioned earlier Commodities is probably something which which uh which is interesting to explore some people mentioned the insurance Market which we also expecting to kind of build some ede uh with permissionless uh permissionless

derivative market and and and the permissionless uh setup at dydx might be something they will they will be exploring um if you want to look at building some new type of indexes for all type of real world asset or crypto assets and and defining them in in a in a derivative way this will be also a very fatile s for every Financial Engineers to expresss and leverage the capabilities of defi so I mean the the one product I'm really looking for forward for is we have the Indian Stock Exchange is called you like Bombay Stock Exchange and there's a index of of that Stock

Exchange the BC sensex I'm like I'm really bullish on the India story uh I want to buy that index I can't I'm living in switzeland I can't send money to India because once you send money to India your money is trapped right like it's very hard to get it back outside and if you buy an index fund for the BC sensus in Switzerland the the cost structure of those funds is extremely high like they are these funds are 50 times more expensive than your typical S&P 500 fund so I actually at being an Indian wanting to bed on the India story have not and I'm just waiting for the day I can go

long on some kind of BC sensex on on bitcoin or on sorry on dydx so uh like that's kind of one of the things that that excite me the most uh I I don't know whether this Market will take off or not you should create it you should you should build this permissionless Market on you yeah exactly right like there's no index I can buy today so I actually need a Perpetual a long Perpetual contact contract on the BC sens we will we will see how things get uh get get to shape and how people decide to go I think the governance will be also important around these product making sure not all kind of products get

to get to happen we still evolve into a world with uh some uh some regulations and some compliance issue which we don't want to do shortcuts on but there is definitely a ground for uh for a lot of Innovations and and helping better distribution to of financial opportunities Century do you think it's possible for for for def5 we been talking about dydx and and Unis Swap and and I think you know in the context of what happened last year with FTX a lot of people were thinking uh certainly I was thinking about you know how can we get defi to arrive to a point where it can compete uh and be indistinguishable from the experienced

of centralized exchanges and I know this is the dydx kind of mission and this is what the product aims to be but I mean what what are the biggest challenges in terms of making that happen and and do you think that uh it is possible for for defi to get to a point where it's indistinguishable from um from fully centralized exchanges and and really compete you know sort of on par uh with the type of performance with the type of ux with the type of like onboarding experience that we get with uh centralized changes I think we defi needs to keep having his own identity and his own mission if we if we arej just after replicating and uh and kind of matching

the experience of centralized exchanges or experience in in traditional Finance I'm very confident we will get there but will this be sufficient to bring a lot of new users to the space I don't think it will um do we have in our hands um the technology and the capabilities to create new products which will be really unique to defy and brings people into our space the same way Ico has been bringing a lot of people in our space back in the days the same way nfts has been bringing artists and collections uh in our space and now people in the video games industry are building um digital asset out of nfts within the video game Space because it's very unique and only

only blockchain or or crypto infrastructure can provide that so I think it's very important to keep innovating and focusing on this kind of innovation dydx focusing on per is is one illustration of that the other things to keep thinking about is also how you keep building public blockchain and infrastructure which can get different points of Entry I I'm a strong believer that not everyone will start his crypto Journey with a metamask wallet some people will come to crypto via their existing uh financial service providers so if you think of your Banker today uh uh is probably uh for the most part that is core business is deposit so you you drop your salary every month and they make a little bit of money out of

out of your deposit and then banks for the most part are all doing the same what they do is they package services from others so I think the distribution also of of defi will will will evolve some people will keep going directly maybe to the uh to the uh to the services they use should it be Unis swap dydx or some others and some others will be over essentially been offered access to defi uh via VIA some hrid gateways uh so I strongly believe that the new wave of fintech will essentially sitting on Def infrastructure so Defy is the back end and the front end will be some kind of um a fintech uh fch user interface where they will provide customer support

they will provide simplify ux and and and uh just simplify the on board on board and offboard of of users and and phones overall in the space so really the the way I feel defi will keep progressing in the in the years to come is bya really s defi type of innovation as well as being a little bit more open to a variety of of entry doors into Defi and and having this kind of hybrid and gateways to defi which should be the the traditional uh traditional players which will be coming with with the with their her of customers and I think we we seen that already happening slowly but surely uh some years ago conbase was offering

the ear program which was essentially allowing a conbase users to get access to compound uh and simplifying the the experience for them and I think it was very very meaningful in terms of products experience if you think of what robing hood is doing uh we were thinking that the world of equity trading was kind of stuck at the at the Char Schwab or whatever Bank experience and yet they came and they provided like better experience for stock trading and they also started to onboard their users on on crypto and this is really a big impact in terms of of of consumptions of of D so I think the traditional finance and and decentralized finance will overlap and I think also the the

distribution of defi will will evolve very quickly the same way the internet was initially distributed by a handful of internet service providers and nowadays uh we get access to the internet via our phone via our Pidge bya our laptops there is multiple ways for machines and ourselves to to access the internet so the so Charles like the thing that I find quite crazy about the Perpetual story and the the uh permissionless listing of markets at thex is that the the the idea of the perpetuals contract was actually invented by The Economist Robert Schiller in

1992 because prior to that you cfds contracts for a difference existed but they would have uh uh they would have you know defined time limits and he invented the perpetual and then the Perpetual was summarily ignored by traditional Finance for 26 years there was there's no Trad five Perpetual Market that you can do anything meaningful with and then it's the rise of crypto that gave life to the first Perpetual Market which was centralized and then dydx centralized now decentralized Robert Sheller meanwhile himself is a prominent crypto skeptic

the inventor of the per petables and now kind of like with the permissionless markets it's like crypto perpetuous markets are just around the corner of integrating you know like TR what would be traditional assets indexes and stocks and commodities and it's really an interesting story that like how crypto can take an idea from trafi and actually bring it to success hopefully in trafi itself right for shares and uh Commodities and things like that so it's really demonstrates the power of permissionless innovation that our industry industry

has so dydx just launched uh uh main net it's in the alpha stage currently um yeah give us a give us an overview of like the current state of dyx in these early weeks uh what is the activity on the Chain like staking uh tokens being bridged over uh what's the snapshot of d dydx right now and what should users expect you when they go to dydx uh as as the platform has just launched what kind of features are are are are live and what kind of things they do with the platform so the dyd exchain was launched a few weeks Ago by the Genesis

validators together with the dydx operation Dow so right now the the the kind of migration of the ethereum dydx token to the dydx chain token is undergoing uh we have at the time of recording about 3 million tokens which have been already stake and there is millions of tokens coming uh on daily basis to the chain to essentially prepare and and prepare the chain and secure the chain further uh the community will vote in a few days to move away from the alpha period to the beta period where limited uh type of trading activities will be allowed for a limited number of trading pairs as well as limited trading volume and the full launch of the change should be happening

in in the coming weeks uh the big uh add did uh I mean the big proposition for token holders if they decide to migrate from ethereum to dydx chain is to stake their tokens with dydx chain validators uh so uh what the community decided some weeks ago was to essentially distribute 100% of the fees collected by the dydx protocol to the validators and therefore to the stakers and the fees are coming in the form of usdc so that's also something which is quite new in our space uh usually when you see a new chain being launched uh it's um essentially secured by validators and and and these validators are rewarded

but with inflation of new to in the case of dydx dydx is already an application which is a great level of success leader in it space and all the all the the fees collected by the protocol will be rewarded to stakers for The dyd Exchange in the form of usdc so that's a a very strong proposition and I think a nice and interesting Twist of business models for for many people in our space where when you have reached a certain level of growth and certain level of of operations essentially and you decide to totally open source and decentralize um people all the people contributing to the security of the

chain get rewarded and and that's really why we see so much interest right now in in people bridging over to the dyd exchain and sing with with validators there is about 60 validators which can be active today within the chain and there is a set of about 120 validators which are kind of competing to be within the active Set uh of of the chain so what one thing that uh that we noticed was that there's currently a lot of the voting power the validator voting power that's concentrated in a small number of validators I believe the top three validators have something close to 50% and and the top validator has I think o over 30% what's going on here

and like how are you dealing with some of the challenges of Distributing that validator set cuz I I believe that there aren't any um for the moment there there there aren't any plans to have a a delegation program from the foundation so how will you deal with some of this uh some of these growing pains so that's something we pay attention to uh the chain is only a few weeks old it's not totally active yet so this kind of voting power uh rebalancing is something to pay attention to but is not representing a risk at this moment since the chain is not totally AC and the trading has not been act activated yet um there is the the dydx foundation will be sticking uh in the in the coming

weeks so we are defining exactly the the kind of policy around that uh but what is interesting to see is that there is a different type of validators coming up different type of token holders also migrating and the da uh dydx da and the community has also voted an incentive program uh for the coming months where essentially Traders will be incentivized to use as a newly launched dydx chain and dydx protocol and this will be essentially increasing the number of the number of fees distributed to validators one Dynamic we keep an eye on is also the loc localization of of validators when you when you are in the world of

trading as you can probably see in the world of equity trading there is a certain type of optimization large trading house uh will uh will put in place is to be collocated or located the closest to the marketplace and it's interesting to see here in the topology of the dydx chain and the new dydx protocol that the other book is now totally decentralized so we will we will probably see in the coming um in the coming months some interesting Dynamics and I have absolutely no idea where where it's going to go exactly but uh probably at some point the localization of the servers will might be uh kind of trying to be not not too far from one another just for the

optimization of latency and uh and making sure that you can get the best and the most optimal uh information so one more time the the order book on dyd exchain is distributed it's sitting on the on the Run memory of validators and the validators keep whispering and updating each other's uh the the order book when two orders match uh if there is two orders matching at the same the same time or more or less at the same time at the time of consensus the chain will check exactly um the the kind of time stamp and and let Let the Right trade happening but the the chain is Young the chain is growing fast and we have also some very uh professional

validators which is also interesting to see how these industries of validators is getting more and more professional and I'm very confident that thing will balance right the early days are just showing a strong interest and and some early movers but thing will with balance in in in the hey wins the coming weeks yeah this is really interesting because like you know the the ydx is decentralizing as a protocol the governance is decentralizing you know we want to have permissionless markets and I think that sort of like aligns with the ethos of crypto and and certainly uh is something that's quite encouraging but at the same time there's this you know as you mentioned there there is this pressure for validators to be close to where their customers are where

customers are are are initiating trades from and I I I have a feeling that with dydx at least you know large trading firms that are using dydx are going to want to interact with validators that where the servers are close to them and that might lead to some amount of centralization let's say that there are a lot of dydx Traders or institutional users say like in New York we might see a lot of the validators moving to that area or or having sort of like validators being uh collocated in in areas close to where the the the users are you know what what kind of risks do that does that present in I mean both in terms of I think like governance of the chain running the chain things like power grid failure you know because

we're moving we're moving in a decentralized way from the protocol governance side but at the same time you know some of the infrastructure might have some aspects of centralization that we need to deal with how do you deal with that and how do you balance that out sure maybe just a quick uh a quick uh Precision there is no you users from the US are Geo blocked uh from from the early days of of the ydx so the example of of traders in New York does not apply to uh to dydx but just to take the concept uh we we we have the world of Finance which is having different kind of HS you think of London you think of Singapore you think of Hong Kong you think of Tokyo you think of India so

Finance is a global industry today um some of these markets are kind of close to Outsiders uh but the world of defi is actually open so I think we will see some probably clusters uh but eventually the world of trading and we see that in the in the crypto Market uh crypto Market are operating 247 and we see part of the world Asia is one of them Europe is another one where we have like big clusters of activities so will will uh validators kind of clusterize in a in a way possibly that's something we will see in the future but at this moment in time the the set of validators of of of the DI exchain is is well spread that's

something interesting to see how the how the the kind of topology of the of the network will evolve over time we see this kind of concentration also for I will say Legacy Network such as Bitcoin or ethereum where you will see big abs of validators Being for the most part in Europe in some part of Asia uh so we don't we should not deviate too much from this but it's interesting to see how the layer of of the the trading firms will kind of shape this this type of clusters we might see in in the coming years on the dydx Chain I know there is dydx GRS program which is working on a lot of dashboards for the new chain so users and everyone will be able to really keep the pulse on the on

the protocol understanding how things are evolving where the trades are happening uh so that's uh that's very interesting to see also a new infrastructure uh literally at the opposite of the centralized crypto exchanges being totally transparent where data will be able to be consumed and and to drive decisions or to drive uh kind of governance decisions or trading decisions depending who you are as a user I think this might be a good time to talk a little bit about the the different entities uh that that that govern dydx so we talked about the Dow already there's the foundation what are the roles of all of these entities and as it relates to dydx absolutely so the original company

behind dydx is dydx trading Inc I created uh by Antonio Juliano he's a CEO over there the foundation was created two years ago uh we I am the CE of the foundation we are registered in zoo in Switzerland and the foundation is really focusing on decentralized governance en embling the Dows uh doing a lot of goto Market activities in general to activate and connect with the different users and Builders of of the dydx protocol and we have also two Dows so the dydx Grands Dow uh has been built by the community it's funded by the community most of the wealth in in the ydx ecosystem is in the end of the community the foundation is

is not the Lord as as you can see in some other uh blockchain ecosystem uh we we don't have the majority of the tokens at all as the vast majority of the tokens are owned by the community Treasury so besid the the the grants now there is also since early January this year the dydx operation though which one more time was created by the community following a series of votes as well as funded by the community so they receive about6 million us do of funding and their role as the Y is really to run some core infrastructure for the dyd exchange such as the indexer for example they running a front end and and making

sure that the the operation of the chain are are fully functional technically the chain is run by validators uh but the operation Dow is is making sure that all all validators get the right level of service and the right distribution of updated software where whenever they whenever they want so that's that I would say that would say that's the four entities which are visible outside of of the dyx ecosystem but overall there is probably 20 to 50 different companies building and co-building around the ydx so if you look at the number of personnels uh involved with the ydx today if you bring together people doing research uh people doing uh different dashboards the

validators team you probably have 500 to 600 people working on the ydx Today the ydx is a protocol of builders for Traders and there is a lot of Builders we need should they be software developers uh validators dashboard uh indexers food node providers people doing research on Ms and some other strategic topic for the for the protocol so it's a very fastgo ecosystem which is very interesting also is um I would say the different type of Engineers you will get to meet within the ecosystem obviously you've got blockchain Engineers which are uh specialized in building and and operating blockchain systems but a lot of financial Engineers

also which will have a very good understanding of API very good understanding of pace of consensus and and how an order book should be run and and optimized people which are focused exclusively on M for example doing research or building code dedicated to that so there is really a large panels of talents uh which is super energizing so uh so Charles I'm actually curious um given that the order book is being run with with validators uh on itself and it's a decentralized order book and it's as far as I know a new construction for the industry how will the me landscape Shape Up in dydx

because of this new construction or is there something like me at all in so there is obviously me uh potentials within within the chain that's a question which has been a focus for many since the early days uh so uh thex protocol has been working with a skip uh protocol uh to uh put in place some first I will say mitigations and first uh data collections uh infrastructure in place with a new chain uh cor Swan also has been doing some research via the gr program of the dyx grand da on how M could be impacting the protocol overall the reality is

everything has been put in place for the early days of uh of the chain to exist and to mitigate as much as it can me but me is an ongoing topic uh I think the just the for seed of the market the Traders uh the everyone involved with the chain will will keep optimizing we keep exploring this this topic but before you get enough data uh and and data collection infrastructure put in place you can't really uh go go further too much so there will probably be M on the dyd exchain as there is on on ethereum for example uh but all all talents are really in place to make sure that this will be identified and and mitigated as well um the dydx community

has been really vocal about uh being tough with with MV practitioners uh so should the validator pleas behave eventually there is a lot of conversations right now on how they can be slashed and and possibly kicked off of the of the chain very quickly uh so that um all the the marketplace in general stays as healthy as as possible tell us about how you're integrating with Skip and you know what's the technology that I mean they're providing like this uh this block SDK uh that allows chains to construct their blocks in ways that really serve the purpose of their use case um what are some of the ways that that skip uh

can benefit dydx and and also you know in terms of how me should be handled I know it's ultimately up to the community but what is your opinion about uh how Meb should be distributed or what types of me you know should be allowed to uh uh to be utilized by by validators and what other types of activity you should should the ydx ultimately uh prohibit so the the skip program is run by the dydx grand Dow team so this is dependent group of of the foundation but essentially skip has been already publishing some kind of dashboard which scan constantly uh the the order books

of the different validators to understand which validators will get the latest uh and most updated order book as well as which validators will start to misbehave I think maybe uh put a trade in place having some kind of information they should not be leveraging so that's already that's always something which where you look at the kind of trade flow of a validator as well as you put this trade flow against the order book and you start to try to to identify if there is some uh some kind of thread practices which which are unfair and and and not healthy so that's really what skip is has been able to put together today the foundation is not involved directly with the building of of the software itself

but more in in the ecosystem overall the way I see M being evolving over time is I think it should be very highly monitored uh MV is not necessarily always bad but it has to be kind of constrained and and understood to make sure it remains something which uh which uh which does not become unhealthy within the marketplace overall and we've seen in some uh in some other protocols uh within Cosmos where M was redistributed either to stakers or maybe to some Community Treasury and that's something which can probably be be explored with the with the community once again the the protocol is fairly young there is a lot of attenti on M and I'm confident that overall the right

decision the right upgrade of software will be made so that uh it's it's not counterproductive within within the protocol so what has it been like working with the cosmos ecosystem you know what what is your impression of you know the state of Cosmos and I think from from from my perspective like dydx uh very much you know utilizes the cosmos stack but it doesn't really identify itself as a cosmos chain um you know I sometimes describe it as you know Apple uses the Unix and a lot of the Linux components but it doesn't brand itself as a Linux operating system yeah how do you see that relationship with

idx and Cosmos and uh yeah are H what are your what are your thoughts on like the cosmos ecosystem generally as the cosos ecosystem have been as you said very very much welcoming the ydx so we we got a lot of uh helpful support from many different teams within the cosmos ecosystem and that's something which goes beyond the crypto Twitter where people I kind of argue on different things the reality is when you come as a builder in the cosmos ecosystem you're more than welcome and uh and there is no competition it's basically about growing the the pie of Krypto in general and we happen to be working on the same uh on the same stack so a lot of support from various from

various projects um really welcoming the ydx overall something we not we've been noticing is a different level of I would say of Tools around the cosmos ecosystem versus the ethereum space so if you need a multi if you need different things there is not so much Choice yet within within Cosmos but good good products are coming in uh definitely um I think there is also this specific identity of Cosmos uh Sovereign chains means that not every project is uh dedicated the same way and has the same kind of culture as you will get if you're coming from from Bitcoin or ethereum some Cosmos chain have been um running their own things without

being too much involved with with the community itself it does not mean there is no interest but it means these teams are are leveraging the software in different way uh some people some people say do idx is really a product Focus team and and not kind of blockchain agnostic and I would not disagree with that the same way if you think of your users and you want to keep improving the experience for your users if you if an engineer from WhatsApp or an engineer from uh from Zoom wants to move away from a certain type of database to another one they should do it for for for their users and their business overall but overall the relationship with with Cosmos is great we are

connecting we are also I guess enabling quite a few projects with with dydx coming within the cosmos ecosystem and thinking of snowboard I'm thinking of some other projects which are building uh together with the ydx different infrastructure so overall it's a very positive experience and we we're glad to contribute in uh and being a good citizen of the the cosmos ecosystem are we branding ourself as a cosmos stack no because our users don't really care the same way I have no idea exactly what is the software behind the podcast I'm I'm listening today I just care about the content the team and the people producing this so I think that's the most important and eventually is

bring more people having this kind of uh product Soul Focus rather than trying to get the full stack as a tribe yeah I mean I think that makes a lot of sense I think you know for if if we zoom out right if we zoom out uh crypto and and all of the so like communities that exists within crypto and and sometimes you know the the rivalries between different stacks of the tech it really doesn't matter in the end in the end like we're all trying to build a a more decentralized more permissionless more trust minimized version of the web and certainly of the financial system and I think that that that approach makes more sense right

like I mean we want to build products that work who cares what technology is underlying uh those products as long long as users are able to use them uh the user experience is good and they reap the benefits of that technology being open and permissionless and trusts minimize which I think brings me to my next question which is this talk that you gave at uh at cosmoverse um which was about this concept of astropolis so for those who didn't see the talk I'll put the link in the show notes but yeah what is this idea about can you sort of break this down and like your vision for the future abolutely Ely the the goal of this exercise was really to kind of project myself the foundation the teams

uh into what could be the ydx in 10 years so it's it's really some kind of fiction uh exercise projecting ourselves in a in uh in 2033 and thinking okay how is the world around us and how this technology stacks and and and Tech tribes are are evolving so in essence it's it's more about looking at how the community have been evolving and how the users are are evolving around around kto and defi in general obviously we will see more and more machines as they are already today but not always visible to us more and more machines using defi should they be AI allies or AI agents and starting to manage their own smart contracts manage

their own Payment Systems going and and kind of put assets to work on on defi systems so that's something I think which which is coming and we we kind of come slow and and and and burst into our face very quickly thinking that showing that it's it brings value and uh and also looking at how our our community of Builders uh will be will be competing maybe among among each others I don't think we will compete on technology so much anymore but we will more compete on on EOS and the way we Implement things I think this this is really given that all the technology we are building is open source the things which will make us trust this project or this brand or this community

will be really the the ethics and and the reasons and the values we are we are putting into into our works and and projects so yeah I really invite everyone to can of look at um uh at these talks and hopefully find some Inspirations when I look at thex uh more more closely within within the context of a projection in in 10 years um I see the D exchain oying the same way Bitcoin or ethereum have rified or are oying and and more and more applications thousands of derivative Market happening and more and more index and and probably um more and more other apps with with AI and and and the crypto Market in general being

able to enable for example Dows and and humans behind the Dows with providing better reports helping them to take decisions automating certain level of decisions getting more uh more kind of neutral uh access to to data and and seeing also more and more users of of dydx should they be institutional or or large users starting to invest with their own resources and and deploy personnels uh on the protocol so not only kind of using the software but contributing to the software and and open sourcing uh the software they they they are using and The Innovation they put into into the software that's

something thing we see also here and there uh we see some large companies um deploying resources deploying Engineers for ethereum for Bitcoin for salana uh we we start to see also signals uh that uh users or major users of dydx are are deploying resources deploying mind share to make the software evolved to provide feedback to bring additional uh Tools around the around the protocol itself so that's very interesting to see also how this concept of public good can be much more uh closer to business and eventually kind of uh accelerating the flying wheel and and making sure it's

it's it keeps growing and and help the protocol to to keep dominating its U its its Market such as the perpetuals for dydx yeah it was a really inspiring talk you know it it for me it resonated with because you know it is very sort of Forward Thinking and it is sort of a fiction right like it's kind of like sci-fi future like you know the talk and it remind me a lot of this um this talk by Mike Hearn uh that he gave in like 2014 um I I think at Google or something where he's talking about like the future of crypto and how like crypto will be used to um sort of power this this Army

of like self-driving cars and uh it gave me the same sort of vibe so I I really enjoyed it I I encourage people to to go check it out and you mentioned herbit in your talk um and so I'm curious like how you see herbit tying into all this and yeah I guess it'll be the bit of sci-fi also as it is today there is some bits and pieces which are concrete but it's not exactly ready so that's probably why it's inspiring at least for me I see the ingredients are there the product experience is not exactly here but it's a it's a good it's a good um it's a good inspiration it's probably at least it makes sense to me on how Computing is evolving and how we

will be able to consume networks and being part of networks in a different way so decentralization comes with Krypto but there is the overall decentralization of the internet which needs to make some progress as well and how much progress we've been making so far is questionable more and more big firms are open sourcing but it's still like very much uh very much in a in the end of a Selected Few so um Community is making a bet on decentralizing further the internet resonates with me so I'm paying attention to a bit in to that extent and I have to say I'm very impressed by how much things are happening it's often start like this with some people or a small group of of Builders having an IDE and it looks a

little bit random but yet interesting so you try to pay attention and eventually you see them making progress and and and it surprises you so when I see for example people being able to deploy their own front end of um of Unis swap or or osmosis within their their herbit instances without having too much conflict AV vering and making sure this is the right uh front ends they are running I think that's interesting is it ready for Mass Market I don't think so will it be ready at some point probably well I say I would say the the jury is out on the timeline but there is definitely something happening there and I'm paying attention so on this topic of the

intersection of AI and and crypto then there are kind of like many Business Leaders many strategic thinkers that you know okay somehow these two these two areas are are going to have an intersection there's going to be merger and there'll be AI agents which might be running on top of llms and they are transacting on on on on blockchain so the common element is always okay there's an llm or a model that's huge that's intelligent that there's some software written or that utilizes the model there's a agent that behaves intelligently and then that agent can plug into a crypto blockchain

and it can do some transactions on the blockchain and then you we can go to kind of Valerie the company that's like building this blockchain agent integration and kosis is doing similar things that piece feels clear okay they can be a agents they can transact onto crypto agree what I have never felt clear about is what will these AI agents like maybe an individual agent or maybe even a storm of AI agents as acting with crypto what will they do for the user like what is my what do you think

is your unmet need today that a swarm of crypto AI agents will be solving in in 10 years think the needs are not clear yet because we there is a lot of needs which will come up from there the way I start my thinking about a and blockchain blockchain is creating very high quality data sets that's number one uh which is like uh super easy for for AI to kind of digest and produce uh produce value out of these data set which come clean and very well labeled so that's number one so probably a faster kind of processing of data in general one way I see um AI

is more AI alies not only independent and autonomous kind of Agents but agents which are my own Ally to whatever I'm doing within my day so if I'm participating in governance for example within a Dao today the Dows are still very young and are still making decisions based on sometimes um proper data sets and and and proper flows and sometimes it's only a lot of politics right so what I hope to see and what I I feel will be coming uh in in due time will be a dow governance for this blockchain ecosystem which will be based on much more uh data related report and kind of helping people to take decisions

or helping helping Dow to make uh to kind of avoid the politics or avoid the kind of latency of human coordination so essentially ening humans further into this world of blockchain dows um it will help also to give identity to agents in general making sure they consume the right data they don't get corrupted by uh by wrong flow of informations so there is many use cas is but the way I kind of find myself comfortable thinking of of what could be AI in a in a in in five to 10 years will be just a companion uh which will help me uh as an individual if I am part of a DA in in

crypto or maybe which will help my da or da on part of to essentially provide more uh more accurate and and updated report uh helping to measure whatever kpi we've been putting together and mitigating the the weaknesses humans have from time to time so really seeing AI as as an ally rather than uh autonomous agents or or competitors with us cool well Charles U this has been a really fascinating episode really fascinating conversation and um yeah thanks so much for being here with us at sharing um all the interesting H things happening in

the dydx ecosystem and also uh opening our minds to the future of Defi and what things might look like in the next decades to come certainly really excited to see um dydx moving closer to its uh sort of you know moving out of Alpha and beta and into more like production phase and um really excited to see all of the interesting perpetuals markets that people will be building there when um when parition list markets um become go online so yeah thanks again and uh we'll look forward to see you soon thanks I appreciate the talk thank you cheers