How Aevo is Crafting a Full-Stack EVM L2 Derivatives Exchange | Julian Koh

Transcript

what we think is the difficulty of building a layer two is getting the users and getting people to bridge into a new Layer Two is like the hardest thing you could do like I mean I'm sure you guys know it like if you tell me that I need to bridge into some like shitty layer to you like I'm just not going to do it um but I think we have built this app that people enjoy and people don't think about it as bridging into a layer two where they don't know what they're could do with it they think oh I'm just depositing into AO but under the hood they have already bridged their their money into this exchange and and the chain as so what's up everyone welcome back to another episode of zerx research March

is just around the corner and I want to make sure to give you a quick reminder to not top tick your prices of your D London tickets if you use codes 0x10 at checkout you can lock in a 10% discount on your ticket don't miss out on your chance to get ahead of the curve I'll see you in London hello everyone welcome back to another episode of ZX research we have a great episode today lined up with Julian Co the founder and CEO of AO formerly known as ribbon which is an app specific L2 built using the op stack that focuses on derivatives such as options and per today is January 24th and this episode will be going out shortly as a reminder be sure to use code0x research10 at app. blockworks research.com for 10% off your annual

subscription so thank you so much for coming on Julian yeah thanks for having me I mean I listen to the Pod here and there so uh yeah it's good yeah for starters would you mind giving us a quick history of rivon the rationale behind the ran to AO and the motivation behind moving to an OP stack L2 yeah sure maybe I'll start with the first part of like uh how we started ribbon and why we moved on to AO um so yeah I've been working crypto for the last few years uh I was previously like a software engineer coinbase base and yeah my co-founder and I we were sort of Super Active in D5 we like running all these Bots keeper Bots and all these different like dexas and so on and I

think we we sort of wanted to build something def5 and at that point in time I think one of the narratives which we thought was really interesting was uh all the yield in defi at that point in time were coming from basically uh [ __ ] coins and like back then it was like really ridiculous right it' be like yams and like sushi and just like food related things so it just felt kind of ridiculous and I think we there was no like there was no sort of sophistication to the types of strategies people are doing um and at the same time we saw uh in Asia there's like a rise of these crypto Brokers uh selling these like structed products um and which was

pretty interesting I mean I didn't come from like an options trading background but I understood the appeal of these products um unfortunately I think these products were really targeted towards you know BTC miners uh a lot of them had like a minimum 100 BTC like subscription to use them you needed to sort of kyc do do the whole shebang to sort of invest in these products so yeah we thought like okay can we sort of bring those types of products into the defi space uh to fill that void in uh the yield opportunity which was not sort of um driven by tokens but driven by sort of something else which was maybe like some

sort of option related yield some sort of risk that you're selling uh that was like the core idea and it got pretty successful I think in 2021 uh we launched the first product in April which was some flavor of what these like crypto Brokers were doing but more in like a defin native format um at within like the next six to 12 months like it went from zero to like 400 mil of tvl uh it became like a category in defy a bunch of people copied us um and yeah I think it became like a somewhat interesting category for people to look at um but you know when the bare Market hit I think people immediately pull

their funds out from the most risky uh yield sources so um basically anything related to uh some sort of option readers stuff was pretty scary anything which had sort of like a directional bias was pretty scary people sort of retreated from that to just like what's the safest possible yield on chain or like I'm just going to withdraw my money out of crypto altogether so there's like a huge like uh deflation in basically like D5 tvl across the board um but our category was also like affected quite a bit so yeah I think we knew that was coming we saw um yeah we we kind of knew that was going to happen and we started thinking about like okay what is our

next second big act I don't think we can just sit around and wait for the new bull market or wait for people to get risk on again um and the natural extension to what we're working on is sort of building an options exchange I think the reason for that was because you know we built these products that sold a ton of options every single week um and we just sold them sort of to market makers on the other side but I mean these market makers buy from M and like traded on derit so you know indirectly derit was getting all this trading volume from the flow that we were generating um so we thought you know why are we sort of helping this other exchange like get all this trading

volume like what if we sort of vertically integrated the whole business and we had this big source of option flow and we also had this exchange where these flows could could settle on could trade on um they also have the core idea and I think yeah we we just realized that one of the hardest things about building a crypto exchange or ES specifically like a crypto options exchange is bootstrapping like the the demand and the supply um I think you can pay market makers to bootstrap the supply but if there's no demand it's like very difficult to to get off the ground but I think we we had we knew we had like one very big customer which is like our own vaults so we thought okay

we could build this exchange today and we know for sure like we have x million of tvl who's going to just like keep selling options on our exchange no matter what so so we knew we had secured at least like one very big customer and and we thought you know let's like use that to bootstrap and exchange uh we know for sure we have some amount of take Natural take a flow from these products uh can we build more products to to bring in more flows uh and and eventually sort of build an exchange from there um so yeah we launch launched this product it's called AO in the last it's been sort of8 to nine months now um we started out with just options and we've been building a lot of other stuff

as well particularly I think the per stuff has really really grown a lot in the last quarter so yeah I think our vision now has gone from just an options exchange to you know being one of like the biggest txus out there um yeah I'll sort of pause there for now yeah no that's great to hear it's been really exciting sort of watching the entire evolution of AO and especially the origin story you know nowadays you see a lot more def5 protocols pursuing that uh sort of vertical integration especially if they have like a sticky user base what that's on their protocol or the user face and I think ail's like really leading the growth there so ail's

doing really well today as a op stack roll up you guys are seeing a l load of transaction activity and obviously that comes with a lot of cost on posting da to ethereum but you guys have been teasing this for a while you made a big announcement last night that you're going to be moving to Celestia as a DA layer for obvious reasons such as protocol sequencer profitability being able to scale of the protocol Etc and youve been subsidizing all L2 gas fees for users this whole time which is not normally something you see for a a rollup especially when you're paying such high da cost so I guess a few questions here the first one is why Celestia out of all of The Da layers available and the second one is is there

any plan to eventually start charging users transaction fees to sort of subsidize yourself a little yeah so uh yeah we announced this last night I think it's been in the works for a while uh we initially felt like the cost was okay until November December when basically ethereum price started going up ethereum gas started going up and our attraction started going up so it's like a triple whammy and all our costs started like multiplying um so I think yeah at the peak we were spending close to somewhere between 50 to 100 e a month just on on da and yeah that's pretty crazy right like I mean that's a few Mill a year that we are basically

Burning uh it doesn't help users in any way I think like users don't feel like this helps user experience uh it doesn't help the business or the protocol at all so it is like a really big big expense um so yeah we started looking at all the da sort of solutions out there and I think we just felt like the one which was furthest along with like a working main net was Celestia um I would say it was more of like a practical Choice compared to some sort of like uh pros and cons between five different things it was really like what is available today for sure uh that we know other we don't want to be like the guinea pig on

some brand new DA layer so we we know a few other people have been using it especially the latest one Manta Network which was like a pretty big one as well so we know that those it would be like stress tested in some way um and yeah I mean SL team is been awesome they uh basically helped us work on integration um in in conjunction with conduit which is like our rollup provider so yeah I think on our side it was actually a pretty small lift um most of the decisions were sort of like it was pretty I I would say it's a pretty obvious solution um because it was like the the furthest along in the

market and the most mature um so yeah if we had to make this choice in six months maybe it would be a bit different uh with like 4844 and like ion da and a few other big ones but like if we made this choice right now it's pretty clear um and we were bleeding money to paying this da on mayet so we had to make this DEC should now gotcha and are there any plans to eventually like charge users like a small amount of transaction fees and I can imagine like your Celestia dating posting cost your Celestia data posting costs are like very minimal they probably like hundreds or at most thousands today so are the plant to charge or like it's just such a small cost that you don't even need to think

about that it's such a small cost that we don't think we need to charge and we I think the mental overhead for users to think about like do I want to do like one trade like one big trade or two small trades if two small trades cost a bit more in like some sort of gas fee is really annoying uh so I think we just wanted to make sure users always felt like it was basically free whether they sent 10,000 orders or one big order um yeah so I think we are going to continue to subsidize it uh this would basically Drive our cost down by a significant margin so um whatever we're earning in

trading fees right now like massively uh compensates for uh the out current cost after we move to to Celestia so yeah I think the equation now is like pretty clear we can keep doing this for a long time all right that's great to hear brick I know you had some questions you want to ask on the options front I'll pass it over to you yeah for sure for sure um so one thing I've been thinking about is um if you look at Trad five options are a huge part of that total market like even larger than spot but then when you come to crypto the same like Market structure isn't uh prevalent do you feel that that's going to flip to like in crypto

so the market Market structure is similar to tradify and on top of that is that are you kind of more focused on options right now than perss or do you see them as equal um focus areas because of the maybe Market potential there is in options yeah I think um you know some other like smart Traders also Echo this sentiment like I think CL has posted a bit about this as well um but you know if there was like a cycle where crypto options gets big it could be this one I think some of the major Tailwinds that we have seen is first like um the option volume as a as a function of like total

derivatives in crypto has been growing steadily over time so it hasn't like skyrocketed I think now it's still in like the single digit percent but it has been climbing um the second big one is you know we we feel like or at least I feel like this there's been like a signific ific an institutionalization of the space so a clear like moment that that became real is you know when like the CM oi became bigger than like binance oi I think that's like a clear um sign that institutions is sort of entering the space um and you know right now like the option Market is dominated by institutions uh we think we we actually see a lot of market like crypto options

market makers trading on the CME as well so not just like a derivate monopoly anymore I think so yeah I think there's some like natural reasons why options could take off um I do think it's still yet to be seen whether retail would want to trade this stuff I think um you know a lot of people have also just mentioned this but like pers are amazing product uh the liquidity is really good and you can basically make a per market for anything pretty easily whereas like the option Market requires a lot of complexity around the math behind it so you know people can make perss on like a mem coins really easily but I don't

think anyone would be able to create like a option market for like a a meme coin as as trivially so yeah I think it's still unclear that the stuff that retailer wants to trade would be um unavailable like if they would need to use options to access that but um I think for sure on the in institutional front the options volume will grow as a as a fun as as just like a percent of what they want to trade um yeah I I do think there is like a market opportunity at least uh for someone to build like this sort of retail Focus like Robin Hood of crypto you know I think if

you're lucky uh the gains that you can get from options are like could be truly massive and that's the kind of thing that gets a lot of eyeballs and gets people interested uh people want to get that 10x within one day which is like very unlikely in like the perk World um so I do think that there is an opportunity for that um I think we just need to figure out what the sort of user experience is going to look like a few other things like liquidity we we do have actually some ideas of how to break into the retail Market um but uh we're still sort of thinking about it right now um your second question on like whether we are focused on options versus perss I

think yeah like we started out doing options I think it's still like our bre and butter we feel like we have the best uh options offering in um the whole Space um we feel like we have the best liquidity uh the biggest open interest uh the longest track record of sort of risk management um we we we seated the Insurance Fund with like a a mill also to sort of like uh make sure if there any issues with risk things don't blow up um so yeah we do think it's sort of like the safest and best product for options trading in defi um but you know like right now I I don't think the option Market is going parabolic so we

are not expending all our energy into trying to sort of squeeze water from this Stone um if the market sort of suddenly explodes we want to be there like we want to clearly capitalize on it but um right now we're still monitoring it I think our volumes have been growing very slightly on going exponential but um yeah I think in the meantime I think we do see a huge opportunity in the purpose SP as well which you know the market is here right now and it's something that we can spend dollars into uh we can sort of like invest into and we know it's growing really quickly so a lot of my personal energy right now is growing our P's offering um but the market may come back on the on the

option side and I I might spend my focus there again um but yeah at least as of Q4 like my number one Focus has just been like growing the PR's offering okay that's interesting because the way I've seen it is especially yeah on the options side if you guys could capture let's say five or even 10% of der bits volume that would be like a huge huge driver do you think that could be possible in the next one to two years or is the volume too sticky on that platform I definitely think it's possible but my personal belief is uh the protocol would make a lot more money if we sort of win the per site compared to winning a small portion of the option

site um just like the sheer amount of volumes are like so much bigger on the pr side right now um like even if we got our option volume to 10x where it is right now I think our perps would still drive a lot of volume uh and sort of fee dollars so yeah I mean I actually heard this stat from someone who worked at another like big centralized exchange but it was like one of the big three that their options offering was like less than like 2% of their total revenue so um yeah even for a major centralized exchange like that may actually that sort of the economics of it so yeah I think that's

why we are focused on the perti right now gotcha um talking about sort of liquidity right there's a comment saying that liquidity begets liquidity and currently ao's one of the most liquid onchain trading platforms for options and perhaps also for pre-launch futures which I think we would like to touch on later and I guess one could argue that that's one of your strongest competitive Advantage right you don't want to go trade on a exchange that doesn't have liquidity every trade you make like moves the market by like 5% or for often like moves the IB by IV by like whatever percentage I guess the question here is how defendable do you feel this mode is um and I guess like how do you see your

competitive advantage against like other options exchanges whether that's like defi trfi or like Ci yeah I mean for sure liquidity begets liquidity but what we think is actually the most important piece is like the take a flow um like market makers don't care about which venue they're trading on for the most part as long as the venue doesn't steal their funds or the venue is not like going insolvent uh what they care about is like yeah am I going to which venue am I going to get the most flow and hopefully like the softest flow um so yeah I think our focus is just like get as many users as possible on our exchange uh either whether that comes

from pers or pre-launch or or anything else and try and sort of push them to different types of products that we offer um teach them it may be like a longer process but teaching them about like okay now the Market's ranging between 38k and 42k like you're just going to get chopped up if you trade perss but you know you can do some interesting strategies around options um we do think that's actually how we sort of build our mode over time by just having these like sticky takers like natur like real humans trading uh I I think that's like the most Sticky Thing possible um on sort of the market maker and liquidity side like um if you actually have a lot of real humans

coming and trading these market makers are naturally just going to show up and they're going to compete to win this flow so I think for all exchanges on day one you need to subsidize and get one side of the supply demand uh going um but I think over time like if the demand doesn't exist like the supply has no reason to exist as well um so yeah I think our focus is really just been like let's just get as many Traders as possible on the platform uh and try to convert them to the different products on AO um I think that would be our con competitive advantage over time compared to like I don't know some funky like fee me fee rebate mechanism that makes like

liquid like makers a bit more efficient like we don't think that's actually very useful we can copy that if we need to but the the part that's hard to copy is just like the distribution and and getting users you don't think uh points program is a I'm kidding um yeah I actually wanted to we have like a I have a draft tweet uh that I've never sent out where it's just like f points uh but we we've never like tweeted it out yeah I think it's becoming a bit overdone these days you can see like CT is getting a bit exhausted of points I guess one last quick question on the options fun how has RFQ adoption been you know I used to work at a hedge fund we used to like

Ping telegram chats with various deaths about like uh how much they're coding for various option strategies so I'm curious has RFQ seen like a healthy amount of adoption or are most people still trading through like the central limit order book if my understanding is correct vaults are still settled like through RFQ system are is there a an estimate of where when they would be like exchanged or would be settled within the exchange itself so yeah maybe just for some context we actually built like an RFQ feature within AO exchange itself so the vaults do use the RFQ but it's within the exchange we don't use

like a external RFQ provider and settle somewhere else like everything is just on the exchange right now on the Vault side of things um yeah on the RFQ front we don't see like a lot of people naturally using it I think it's been very targeted when a a large whale comes in and either they cannot exit because their size is too big for the book or they want to enter uh they don't want to like keep eating through the aut book they'll usually ping us and uh they'll use the RFQ to basically trade with the other market makers so I would say for now it's still definitely more manual we don't have like a super active like network of people

creating an a automatically responding to R 247 yet but it's mostly used as like a way to trade bilateral with someone else without doing it on the a book um another like interesting use case that we have found is uh yeah some of these options if they are like super out of the money or super in the money like I don't know let's for example actually this happened last night like uh there's this user who you know when BDC was at 48k he bought like a 46k BDC put uh so I mean he he made money on that right uh but now like BTC is at 38k no one's quoting like a 48k put it's like so deep in the money that liquidity

for that option is really low so yeah within our exchange itself like if you click like close position and there's not enough liquidity it'll automatically like send that order through the RFQ so actually we find like that has been the most like useful um feature of the RFQ is just like if there's no natural like if there's no liquidity in the book uh we'll basically help to get liquidity for whatever this guy's trying to get out of uh through the RFQ feature and this doesn't like force the market makers to always show their bids and offers on the book it's just they only need to respond when people ask for it um and usually like these users you know

if they so in profit like they don't mind taking a her cut so it is also like profitable for the market maker to do um but yeah I think that's been the adoption on RFQ side uh we actually do have some ideas around um yeah I think like all we need really is just getting you know something like 10 trading firms SL big options Traders and we just need a small tiny network of guys like trading with each other all the time um so yeah I think like instead of getting 10,000 users it actually makes a lot more sense to get like 10 really active trading firms SL big Traders just like pvping out against each other um using

like our our aut books or our RFQ so we are trying to build that up now um still in the works but I think that would be like the best way for us to immediately get some uh significant like tick up in trading volume and adoption what's up everyone March is approaching fast and I want to give give you another reminder not to miss out on Das London it is coming it's right around the corner and it's in March from the 18th to the 20th we have three full days of content this is your chance to bump shoulders with some of the world's top Executives and have open dialogue with both attendees and speakers we're going to be focusing on a range of topics that I'll let Ren discuss for you first on the list we have Bitcoin Catalyst the Hing and spot ETF next we have a view from the buy

side from investors on things like strategy portfolio allocation and more we also have a topic on RW token Iz ation and stable coins which I think we can all agree are going to pay a large root in crypto future we'll also talk about global regulatory Frameworks like compliance best practices and the evolution of global standards that are shaping the global investment landscape we'll also have someone from the institutional front to talk about infrastructure such as Banking and payments with financial giants like visa and JP Morgan and last on the list the macro case for digital assets so don't miss out on this Monumental event seats are limited so be sure to register today by hitting the link in the description and using the promo code 0x10 to save 10% on tickets see you in London if moving on to the per side then um I

think one of the most interesting products you've launched in a while is are these pre-launch futures um which correct me if I'm wrong but seems that the market has really like kind of found you through those or that product and one thing that I think a lot of people are wondering about is how scalable is the product because right now um like pretty much all of the listings uh for pre-launch are quite low volume compared to like your other products or like your normal PS um so could you explain how the kind of the Dynamics of Freel launch Futures how they work and then how maybe scalable

they are yeah so uh yeah it's a very interesting topic I think we just had this idea a few months ago like uh we sitting in the office and like binance announced that they were doing this like say launch pool and we were just joking around like oh what if we could just like make a market for today before it comes out on binance uh and I mean people in our office we like Traders as well like we all have our own guesses on where we think the price is going to be like just like betting over under with each other um yeah we thought like what if we could actually make this a product on on the exchange itself um so that was how we started thinking about it and how it works really is it's actually really

simple um it's basically like an aut book and it doesn't have um sort of like an index price people are just trading trading something where that there is a Mark Price which starts somewhere and uh it gradually floats up or down based on whether people are buying or people are selling um so it doesn't Jump Around It kind of like we we use this like uh we we use this like a sort of combination of like a vwap and a tww to basically like move the market price around um but yeah I think that lets people speculate on this thing and why it actually will converge to reality

is because when the token actually launches we just convert this instrument into a regular per so we just input okay now we know that the spot price is $1 on binance we we input the spot pric is $1 and the funding rate mechanism just kicks in as per usual and this instrument that people were trading before will end up converging to uh whatever the spot price is so that's kind of how it works I think before the spot price um is sort of listed people are sort of trading trading this weird thing which no one really knows uh whether it's accurate or not I think it only converges to reality when this when the token actually comes out so we we try

and list these pre-launched markets which are not like too far out I think um for example like layer zero like some other exchanges listed like a layer zero like pre-launch but you know we we it's been sort of like teased for so long no one knows when it's coming out like you may be trading this thing that doesn't mean anything for a year before it like ever comes out we don't even know if it'll come out so yeah I think our philosophy is just like let's try and make pre-launch pre-launch stuff for tokens that we know for sure are coming out and hopefully within you know a month or so um and that has gotten the most traction I think we just lucky as well that um there were a lot of

interesting token launches in the last month um and upcoming this year they're going to be a lot of interesting token launches so I think yeah these pre-launch stuff has really got a lot of attention um basically the project or people who are interested in the project look at the price like a reference for like okay how much is my adrop going to be worth um there there this whole subset of users um who are you know like hedging their air drop which is also a very interesting use case uh like we see all these YouTube videos about like how to hedge a Jupiter air drop on AO um basically like all these guys I don't

know maybe they they they siil the the thing and just had a ton of tokens and you know they can like lock in the price now which is like pretty interesting use case with them um and obviously like the the last group is just like speculators you know uh when we launched the Jupiter pre-launch uh product it was I think we started the market at like a billion fdv which was in hindsight way too low so over the course of the next few weeks like it went from 1B to like 8 B so if you were just a Speculator like thinking this is under pric you could really just trade it and and sell it and get out without even thinking about like um waiting for the actual

token to launch so I do think there are a lot of like interesting use cases for different types of Traders um and yeah I think it has gotten a lot of like new users onto the platform even though the volumes are not anywhere close to BDC and eth purs like it actually attracts a lot of people to onboard to Evo for the first time which is actually what we care about so we don't really worry about like how big these products can get as long as they're sort of still getting a lot of new users on board it uh interested in aable um and so on yeah yeah I definitely think it's something that people have shown like clear demand and I think another interesting Dynamic

is that I think the first pre-launched Futures markets like perhaps they weren't that efficient at Price Discovery but over time you saw these markets like where the pre-launch f future Market ended up was a lot closer to where um the actual token launched at I think the best example of that was goo if I'm not wrong like for the GTO pre-launch future market like the price was pretty damn spot on maybe off like 20 cents or so yeah yeah like 10% or 20% off but very close uh yeah so I mean you know there are these like interesting use cases for like price Discovery um you know insiders maybe are trading the

I don't I I don't know um so maybe this is like a market for like insiders eventually to to bring the price where they think it's going to be but yeah I mean we think like uh markets I mean this is sort of like free market that is best uh people who have more information will sort of make it as efficient as possible um yeah so I think it's very similar to like a prediction Market which is like a fun thing to trade as well so there's a bit of like a sport behind it as well because I think a lot of people don't trade like massive size on these things it's more like a fun little thing um yeah but we actually did see one like one very interesting phenomenon that we

saw was like uh a few days before the celestial token went live we just saw like a huge like uptake in open interest it it probably doubled and it was from like just a few wallets so I think uh there's one or two entities who basically uh tried to get as much size as they could on the Celestia prelaunch market so I don't know if they held it but if they held it they probably got in like below $2 which was like an amazing price in hindsight um so yeah maybe someone knew something and and that's sort of how they wanted to get exposure um maybe they expected like a day one pop which never really happened um and yet they just wanted to accumulate as much as they could

interesting time to do some onchain studing to find find it um you mentioned that you really want to focus on per and I think per is probably one of the most competitive verticals within dii today um I guess the question there is how does your per architecture or your per de architecture differ from something say like dydx and how do you continue to how do you plan on continuing to incentivize large Traders or even retail traders to change platforms yeah I think um I would say in terms of ux our our sort of per offering is pretty similar to Dy DX V3 so you know when user all users and

Traders uh basically just interface with like this API uh to submit orders so you get like the millisecond latency that you want um I think that really appeals especially to like the options market makers because you know whenever price moves by if e moves by like half a percent they need to update like all their quotes across like 400 different strikes at once so I do think like having sub like a sub 10 SEC 10 millisecond latency is really important for uh submitting a lot of orders at once um and yeah I think we feel like the model is actually pretty practical and it feels pretty

good from like a user perspective you don't feel the latency uh you feel if we we sort of hide like the um the metamask like you you don't need sign your metamask transaction every single every single trade uh I I think it's as close to a centralized exchange experience as you can get um but yeah no I do agree with you that it is like one of the most um competitive spaces to to play in right now um we do think some of our major advantages are as you said on the options side and on the pre-launch side so we're spending a lot of effort uh trying to actually make those like as good as possible um I think on it's like

really difficult to compete on BDC and E props you know there are like 20 platforms that offer almost exactly the same thing we need to sort of create something that appeals in a different way so we also do have some ideas of how we can combine options and perp andage interesting way so for example there's this whole concept on on bybit called like protected perss I don't know if you have seen that but basically if you enter a per position like you can click a button and like protect yourself by like automatically buying a put or something uh and they make it like really user friendly for you to it so yeah I think there all these like interesting uh product features that we could do which combine

the products in a different way um yeah but I think you know right now uh the market is still I I completely agree with you is super competitive I think our Focus actually has been just like user acquisition particularly outside of the what we think of as like the crypto to the bubble uh we do think we don't want to go after the user who's going to jump from protocol to protocol based on what points they're getting we think that crowd is even though they may have a lot of clout on on crypto Twitter and they may have like quite a good amount of capital we think it's like a very very very mercenary crowd so a lot of

like our growth and marketing efforts have actually been on very different growth strategies which we think are actually quite effective so stuff that you know like tier 2 Chinese exchanges do so a lot of like the um Marketing in non-english-speaking regions especially we've been very focused on that and I think that really shows in our metrics um because two things like we have the largest user count of any decks like buy a lot um a lot of these users are are small so they're not like high value big Traders but you know they trade a few eth purs or they trade a small amount of um on our platform we have a lot of

those and uh yeah I mean we we have also just seen like the GE Geographic uh segmentation of where our users come from a lot of them like more than half come from non-english speaking regions so on our on our website like the the three languages which I supported are English uh Chinese and and Russian so we do have a lot of like CIS uh users and Chinese users as well so that's been like our growth strategy so far uh that's also why we feel like we don't need to play like the fee compression game I think a lot of these users don't really care if uh they're

paying eight basis points or five basis points is practically the same thing on the size that they're trading um yeah I mean we we think this is just like way more sticky way more robust of a user group uh less less competitive than trying to fight for the same 5,000 defy like crypto Twitter users um so yeah that's been our strategy so far but we surely we'll see at some point we would also need to go after like the crypto T people um but we just started in a very different spot yeah that's super refreshing to see that not everybody is just focused on a crypto Twitter people maybe continuing on the development front um I know you guys have um

previously tried to kind of as you mentioned uh vertically integrate and kind of introduce products that are uh super complimentary to each other um and I've seen AO recently tweet about like some big upcoming developments and uh like trying to expand to a broader defi ecosystem uh maybe any possibility for you to drop some Alpha here or yeah I'll probably share I I I'll be sharing this in the next few weeks um but basically we are going to build an ecosystem as well and not just be like a app specific chain um I think what we think is the

difficulty of building a layer two is getting the users and getting people to bridge into a new Layer Two is like the hardest thing you could do like I mean I'm sure you guys know it like if you tell me that I need to bridge into some like shitty layer to like I'm just not going to do it um but I think we have built this app that people enjoy and people don't think about it as bridging into a layer two where they don't know what they going do with it they think oh I'm just depositing into AO but under the hood they have already bridged their their money into this exchange and and the chain as s so um you know I think like when when Manta did their whole crazy like scheme to get

a lot of tvl and so on they they had something in the order of 100,000 wallets who deposited who bridged over into their chain like we currently almost have that number we are like at 60 something thousand user cumulative users on the exchange um but you know all these people haven't thought about it as like bridging into a layer two they they just think about it as like oh I I used able once um so yeah I think we're working on basically becoming like a full stack layer to and using this like super app that we've built which is the exchange and helping users like offboard from from The Exchange into any of the other apps in ecosystem that's something we're going to be working on

um it is sort of a bit of a longer term plan but for now for sure the focus is like making this exchange as successful as possible because we think you know once you do that it'll be a lot easier to basically build stuff around it um yeah so that's sort of like uh what we've been focused on um I I'll be I'll be sort of sharing more details about like The Edge that we think we have or like what angle we want to play but that's what we'll be doing uh this year and also I think if you looked at like our AE USD announcement a few months ago we basically designed it like we could have built it in like a very simple way but we took like the difficult way of making

it like composable so we used like um some of like the D5 Vault formats erc20 uh ERC formats that are like composable different like defy apps and so on and basically this like exchange stable coin that we have ausd is like usable outside of the exchange as well uh so it was sort of built with that intention in mind we just haven't done it yet we just haven't had any use cases outside of the exchange yet um but yeah I think that would be a big Focus for us this year um and yeah I think like one interesting observation that I have had is like a lot of these layer

twos like they they built the ecosystem but there's no um like they they don't build any of the apps on it uh we think you know that's why they need to extract maybe some sequence rent or something like that's how they monetize but yeah one interesting idea is like you know what if we own both the layer 2 and the app on it and like what if we didn't need to extract rent at the at the the the chain level like maybe the sequencer just makes zero money because we think we make enough on the exchange um and like all apps on the The Exchange all all apps on the Chain can basically get all the consumer surplus back um that's like an idea we're playing with as well

yeah that's that's super cool haven't really heard anybody else talk about this stuff as that yeah so we'll be showing more details but that's like a little bit of a teaser I guess yeah pretty appreciate it um maybe going to the AO and ribbon tokens then so basically in short you guys rebranded from rebon to AO a few months ago and now the AO governance proposal one got approved which basically means that the native token R&B will be um rebranded to AO uh by the end of this month and I was wondering what went into the process of

like like redesigning the token structure and maybe could you give a short overview of how the token is going to be used um once it's rebranded yeah so um I think when we decided to basically go all in on building the AO exchange uh we basically had this choice of whether you know I think everyone sort of expected us to just make a new token because that's what's like rational I guess you get like a I don't know it's like the most extractive thing that people can do uh it's just like abandon old thing make a new thing but I think we felt like uh we didn't want to we had this like Community from before uh we built up

like a bunch of Goodwill from before um all our investors we didn't want to like screw them over our token holders as well so yeah we decided to just instead of doing a new token we we still wanted like all the benefits of a new token like uh uh the attenion um the fresh chart sort of like a new story I think that was like a very important thing for us but we didn't want to basically like screw over the old token holders so we decided you know let's just do like a onetoone re uh token conversion no no inflation no additional tokens get printed if you own 1% of rbn you own 1% of the AO tokens as well we thought that was really fair um but we still had you

know as I mentioned like we could still like create a lot of uh excitement around a new thing a new story a new narrative uh and yeah just make it official by having like a new ticker and so on so yeah that was sort of the story behind it um we in terms of like uh tokenomics I think we have like folded all the revenues into um our plan is to basically fold all the revenues from like the vaults and whatever businesses like we we had a few like smaller business businesses like the ribbon ear ribbon vs and and so on just like f all those revenues plus the trading fees into one stream um put that all back into like the the treasury and

use a portion of that for basically beefing out our Insurance Fund um use a portion of that to pay out like a what we think of as like a company development company expenses and the remaining at least in The Proposal uh was like going back to this like make style program um you know that that may change over the next few months but I think when we made the proposal that was like the value uh like that there was like the best like uh value creation model out there or value acrel model out there uh that was like the meta of the bare Market really so we may need to change it at some point but um yeah

that's been the idea so far cool and yeah how do you basically think about incentivizing then Traders because I think you mentioned earlier that you haven't really tried doing that before and now basically the treasury owns is it 45% of the total Supply and around up to 16% I think is uh kind of save for possible incentives um to be yes like distributed in the future so uh I think one lucky thing for us I guess is we didn't like waste all our tokens on like a crazy liquidity mining program last cycle I

think we knew very quickly that we we we tried doing a bit of liquidity Mining and it wasn't it wasn't like creating an increase in tvl after a certain point so we kind of just like turned the tap off very quickly um so yeah I mean I think the Dow has just been sitting on this like huge chunk of tokens for a long time uh um which is great so it's kind of like a fresh uh like new projects usually allocate something in this ballpark to what the Dow can spend on incentives anyway so yeah I think we still have the luxury of spending it um we can still run like pretty aggressive uh growth programs if you wanted to and like Trader incentives which we are

designing right now um yeah I think we we still need a we still haven't released details about that but uh that's something we are very actively working on now just like figuring out how we can best use this whole chunk of tokens um in the shortterm like getting to become one of the best dexes out there and you know in the longterm like building an ecosystem as well so um yeah I think we're just uh glad that we didn't blow it all on some like dumb liquidity mining program last cycle I think it's good you guys also pretty aggressively cut down on the token emissions through various like Dow governance F so that's like something

that I don't think other protocols were as proactive on jumping back to sort of like the slight Alpha that you leak just now in terms of the ecosystem and what you guys are planning to build there given that you guys are a rollup do you guys ever think about like interoperability with other rollups obviously you guys are built using the op stack and optimism has this concept of the optim super chain is that something you guys are actively thinking about or is it more so like we think we are very comfortable growing our own ecosystem on this like AO RAB and we don't feel like we'll ever need to like access or be like interoperable with all of these other

rollups uh yeah I mean maybe firstly like I think one major difference or one observation that I've had is a lot of the top per dexs in this space have all basically branched out to build their own chain um obviously dydx being like the the canonical one uh yeah I like to think about it as like dydx as abandoned ethereum uh so you know they they used to be built on ethereum but for a bunch of reasons they have decided to uh go on their own chain and you know we've seen that same thing on a bunch of newer chains like hyper liquid uh even like the vertex guys I think they wrote a

threat a while back like oh what what if we could be our own parallel evm layer one or something um but I mean I think we feel like the eth stack is getting better and better over time we feel like it is possible to build good products uh on the eth stack alone uh we think we want to be like the shining example of that that you can build like one of the biggest dexes out there without having to build your own layer one um yeah in terms of like interoperability I think like right now the op super chain I I would think is still more more of an idea than reality it's not exactly clear what it means um

there's no like formal spec of what super chains uh can do with each other um it's still more just like a coalition of different projects built on OB stack uh and some sort of like economic ties between them so we are like open to the idea of doing it as long as we see like that strong benefit to our user base as well um yeah and I think you know there a bunch of interesting like cross rollup Technologies which people are building sort of like shared sequences stuff and maybe like shared liquidity stuff that we are looking into I don't think anyone has really corrected yet but um I don't think we need to choose

between completely owning our own INF infastructure and like ecosystem or plugging into some of these newer stuff I think we can just try both and whatever helps users get a better experience we'll do um so yeah I think we're not really like super like strict Maxes on whether we want to work with other chains or not uh I think it's more of a p uh matter of like what is practical if there are ways for us to tap into Unis swap liquidity I mean we we should do that because I think like getting unisoft liquidity is way more um important in the short run than like building our own

spot Market it's way easier to just tap into like one of the best spot markets out there um so yeah I think for stuff like that we'll probably just like do some interesting interrupt if we can uh for other stuff maybe which we feel are more native to our app and our ecosystem we can just build in house uh or within our e ecosystem so yeah no no like clear either or here I think MH okay yeah that's helpful context um one last question I wanted to ask jumping around a little bit here is about the liquidation engine right I think the market conditions that AO has operated in has been relatively muted compared to like a fullon b Market where we would

realistically see a lot more Market volatility so two questions kind of in there how do you think about the cross margin framework and its performance in like increased volatility conditions and do you mind just giving a quick overview of like the liquid liquidation engine given that for a lot of people that's like still sort of a black box but that was a like major cause of problems for a lot of like either like defy uh exchanges or even like centralized exchanges yeah so uh I I agree that the biggest risk for derivative dexes is sort of the Insurance Fund SL liquidation engine uh cuz basically handled wrongly we think that can create

a lot of losses especially if it's like exploitable like uh I don't know if you guys have seen some of the dydx stuff in the last like month or so the wifi Market um so we haven't done any crazy new changes to how liquidations are done I think we kind of modeled it based on how some of the other major centralized exchanges do it so it it's sort of this like multi-step process first you know the engine will try and liquidate you in the other books if the book is way too wide or there's not enough liquidity in the book um basically that position gets absorbed by the Insurance Fund and there's a a sort of like third step that you know if the insurance fund cannot

accept these positions I don't know if it hits some sort of limit uh there'll be some sort of Auto deleveraging event uh which we haven't sort of had to use yet because I mean the markets I wouldn't say it it's not been like crazy so far um so yeah I don't think we're doing anything crazy I think some of the main stuff that we've been working on is stuff around risk control compared to actually at the liquidation engine level so just stuff like oi caps on different markets especially the pre-launch stuff which we think is like actually quite risky because there's no natural liquidity for this stuff so we try and kept the markets there uh we kept like the orders sizes and position sizes that

that uh accounts can take um yeah I think we have a bunch of like internal risk monitoring to see if there are like huge spikes in oi and different things uh just trying to quickly see that um is is there any active like manipulation of different markets especially the low liquidity ones um yeah we we we hired a bunch of people from like exchanges and trading firms who have done like Risk related stuff before so so I think yeah it's like really important for all exchanges to have like a RIS team I think uh some crazy stat which I heard I don't know if it's true but like I don't know more like more than like half of derb bit's employees are like Risk

related people um just like looking at Big positions making sure they don't like wipe out everything else is really important so um yeah I think we've also just been trying to grow that uh for now we have set the like position limits pretty conservatively um I think if I'm not wrong like even on eth and BTC you can't do more than like a few mil position size um so you know the trader who wants to do 20 mil would never be able to trade on Evo right now but that's sort of just like a interim measure while we slowly increase the sizes uh as the Insurance Fund gets bigger and bigger we feel more comfortable like letting users

take bigger and bigger positions as well um so yeah there's no like clear answer but I think it's just like an iterative process and we just need to be careful and not be too aggressive I think uh if if it blows up once it's sort of over so you can't really recover from that um so yeah being more on the cautious side I would say um our liquidation engine is actually quite aggressive so uh I would say it's like slightly safer for the exchange um slightly worse for users right now but we think it's probably better this way for now um otherwise it may end up like an FTX scenario um so yeah that's sort of where we are in

terms of like Risk and liquidations um we are working on something that FTX used to have which is uh what they call like a liquidation like back stop provider so it's basically like a set of entities who Post Cap Capital to The Exchange and voluntarily take on liquidations as one of the steps in this like waterfall process so we are working on that as well all right that's great to hear that you guys are putting a lot of thought onto like the RIS kindy of things which I think there's a few exchanges out there which sort of overlooked that it's definitely very scary and it's sort of like a yeah as I said you can't

like fix your way out of it after it it it sort of explodes yeah got to watch out for the highly profitable trading strategies well anyway I think we've managed to cover a lot of ground today and we really appreciate the insight into sort of everything how you guys are thinking about future products the AAL ecosystem the token bebrand is there any final thoughts that you wanted to add or anything that You' like to emphasize for the listeners uh no I think um you guys had great questions so we covered a lot uh yeah I think just stay tuned for more information about how we think about our long-term plans I think

that'll be quite exciting so yeah I think we have a lot to look forward to this year um in the first six months sort of focused on becoming the biggest decks out there uh the second sort of half of the year will be focused on ecosystem all right and for listeners that want to find out more about you or AA where can they find you yeah I would say uh follow Evo XYZ on Twitter or uh yeah just follow Evo XYZ on Twitter uh if you have any like issues just DM the account or go into a Discord we have in the last sort a few weeks we since our user account has just been exploding we have just like scaled our customer

support we've gotten like five different mods on board so it's like uh way way more responsive now than it was like a month ago all right that's great to hear thank you so much for taking the time to come on this podcast and this was honestly a great one learned a lot got a lot of insight and I think the listeners will be really excited about listening to this one too really good timing cool thanks man all right thanks Julian hey everyone thanks for watching today's zerox research episode I wanted to take a second and remind you about an upcoming 2024 digital assets Summit in London this March seats are limited so hit the link in the description and use the promo code 0x10 to save 10% on tickets see you in

[Music] London