The DDEX team recently unveiled its new margin trading facility to the general public. The new margin trading solution has been going through a rigorous beta test over the last few days of volatile cryptocurrency trading.
Tian Li, DDEX Cofounder
Last week, CoinCentral’s Munair Simpson had the occasion to sit down with Tian Li, DDEX cofounder, at his office in Seattle. The interview was focused on the design choices made by Tian and other members of the DDEX team.
Tian spent 45 minutes to reveal the amount of thought put into designing the new platform. The new platform is significant. DDEX dug in deep to innovate in areas where they could uniquely add value.
In conjunction with recent advancements in decentralized finance, or DeFi, the DDEX team was able to innovate in the following ways:
- Improving liquidity with a USDT bridge and bootstrapping systemic risk-aware lending pool.
- Making liquidation less terrifying with stop/loss orders and Dutch auctions.
- Integrating an insurance scheme.
There are other advancements. However, there just wasn’t sufficient time to uncover them all. The interview below will have to suffice for now.
Would you like to introduce yourself, your background, and how you got into cryptocurrency?
Sure, I’m the founder of DDEX along with Bowen and David, my two co-founders. I’m an engineer. I worked at Microsoft and in the Valley for five years. Then I did two startups in Asia in mobile/Internet and was also an EIR for a few venture capital funds.
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That was my history prior to coming to crypto. I got really interested in Solidity programming while I was an EIR at a fund. I was very bored doing research, so I taught myself how to write basic smart contracts. This was April of 2017. That’s why I first got into it. Just as a programmer, downloading MetaMask, and writing these very simple game contracts. Then, near the end of 2017, I decided that smart contract programming is definitely a new type of technology.
There are some different things that you can build. As an entrepreneur, that’s really what I look for. That’s when I approached Bowen and David to do this project together. That’s how we jumped in, almost two years ago now.
You’ve known them to from before, correct?
I’d known David for years. David was the best engineer at both of my previous startups. So he was the first person I asked. Bowen was working as an investment analyst in Zhenfund, which is a general VC fund. They invest in a lot of things. Bowen was looking at the crypto space. This was really early. I think May of 2017. This was before the ICO hype. I remember Bowen was one of the few people I met that was interested in assets and projects.
The first project we looked at together was 0X. This was before their ICO. Which was interesting, because we eventually ended up doing something in the decentralized exchange space.
The first time we really sat down together we were like, oh, what do you think about this project? He’s like, I know this project’s that. What do you think about this project? We went through a bunch of projects, and then eventually, yeah, you know definitely a great, complementary team.
Would you like to describe the product and tell us how it will be launched?
Just to summarize what we did… At the end of 2017, we started with a decentralized exchange called DDEX. At the time, it was very simple. The idea was, can you swap tokens trustlessly? Until the end of 2018, we just worked on a decentralized exchange that was not too painful to use, and a set of smart contracts that are robust, simple and secure.
That took us pretty much a whole year to really understand the space. In 2019, we felt the market was quiet. We thought that this was the best time to make bigger investments. Technically, when there’s not much going on operationally, I think you can really afford to invest six months into a project.
In 2019, under the radar, we looked at, what’s going on with the DeFi space. We realized that step one was trading. Step two, with the rise of Compound and these lending platforms, was lending. We thought that was the second most interesting thing. Financially, if you take trading and lending, and you mix them together, you get margin trading. So we were just fascinated by the possibility to compose.
Our second project, which you can call a feature addition on the original DDEX, underneath this is brand new territory. It’s a “margin” decentralized exchange. The idea was that we would compose a decentralized betting pool. Borrow some money and trade with the borrowed money. Allow the user to do so. In doing so, you can create leverage long and short positions. It is a sort of a derivative on the top of a spot exchange. So that’s our new project.
We didn’t give it a new name. It’s still called DDEX. When we launch and you open DDEX, you will have margin trading. Margin trading is pretty much an upgrade over spot trading. We will still have all the spot trading functionality, but now, in addition, you can do margin trades.
We actually tried to make it so that, from the product perspective, the users will still be familiar. We still use all the old trading paradigms of order form, order book, and stuff, but now you are basically able to increase your purchasing power.
What is the URL that they can visit?
Sure. We’re just low key right now. So you could use the main net. Our contracts are audited. You can find the new product at margin.ddex.io.
Yeah, check it out. You will be one of the first users because we haven’t really published this URL. We do have 50 to 100 early-stage users. Using it and giving us feedback. We are iterating. We are planning a public launch in October.
What distinguishes yours from other platforms out there?
First off, if you look at these lending platforms, one question that really interested us is: Why are people borrowing? These loans are over collateralized loans. In essence, you have to pretty much give them $150 of collateral to take out $100. This is not how you typically think about a loan.
So the first question that anyone asked is, why are people borrowing? Everyone understands why people are lending, because right now your tokens are just sitting there. Earning zero percent. If you can even earn 1% that is just strictly better.
We always thinking about motivations. Why do people do this? Particularly from a product perspective. Lenders are easy to understand. But borrowers are not. Why are you paying 15% interest the whole time?
Then we really looked into the data. The analysis, and there’s really only one answer, is that you borrow to create leveraged positions.
To be clear, to performant margin trade, you don’t need a specialized product. I could say margin is more like a way of doing things. I could borrow a Bitcoin from you and then sell it. I’m shorting it. Now I have USD. Someday I have to pay you back.
If Bitcoin goes down, I can buy it back cheaper to repay you. I can barter trade by just borrowing it from a friend. Of course, the whole point of margin trading is to increase the efficiency and decrease the trust dependency at which you can do these things.
I think one innovator in the space, a sort of pioneer of margin exchange, was dYdX. From the very beginning, since we were creating the DDEX, they’ve been thinking about how to do this right.
We started probably around the same time, late 2017, early 2018. Then we see them go through a few iterations.
I think that the main difference… We want to bring something unique to the table. We weren’t a first DEX. Back then [in development] we were looking at decentralized exchanges. We were like, oh… Here are the three things where we can improve on. We did the same thing with margin trading.
We were looking at margin exchanges in its various forms and I think there are three things that can be drastically improved. One is that we want to be less dependent on Dai liquidity. Dai is amazing. It is like the oasis that bootstrapped all of DeFi.
Absolutely, that’s the perfect name for it.
When it comes to liquidity, the more the better. So we were thinking, in addition to Dai, we bring additional stable coins. This will increase the liquidity of these markets.
I think one really big, untapped source is centralized USDT, USDC, TUSD. We’re talking about actual fiat-back stable coins.
Very huge… There are a lot of people using them… Very high liquidity when you look at Coin Market Cap.
Yeah, but there’s a technical challenge. I think the reason everyone started on Dai is that Dai is completely on-chain. These completely on-chain DEXes are in theory able to provide a source of, what we call contract-fulfillable liquidity. USDT is not contract-fulfillable liquidity.
There needs to be an adapter. Something that takes USDT and converts it into a form of liquidity that decentralized protocols can use. We basically have to build an adapter. That takes something from the non-totally decentralized world, pass it through this filter, and make it decentralized. It’s not just about liquidity. So that’s the challenge.
I think we’re the first one to do it. It’s not like a trade secret. We’re hoping that when other people see us do this, they will enter the game and do this as well. This is one way to really bridge.
Philosophically, the way we look at it is that something like Dai is really trying to bootstrap liquidity from within the DeFi ecosystem. It is creating liquidity out of nothing. Whereas bringing something like USDT or USDC, you bring from outside of the DeFi ecosystem. We call it bootstrapping liquidity inside and out.
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There’s a really good effort on the inside front. We want to try to contribute from the outside. So that’s like the first part.
The second part of what we do differently is that we actually don’t compose. What we mean is that to build a margin exchange you need two things. You need a spot trading exchange (a DEX) and you need a lending pool.
There are multiple permutations of how to bring these together. You can actually just take an existing exchange like Kyber, and an existing lending pool like Compound, and then you could just build a very thin layer on top. That is a margin exchange without building either of these two components.
One project that this was called Opyn. It was a very interesting experiment. Unfortunately, they shut down.
They shut down… October 15th is the last day.
I read their post mortem. The reason that their business shutdown was because they were too thin. That is because they’re just composing out of existing components. The unique value offering they have, which is most likely usability, is maybe not enough to justify existence.
Which does really make sense. When you compose, there are a lot of imperfections on the product level. It’s a leaky abstraction. The users sense the complexity because, underneath you’re still interacting with multiple protocols.
DYDX, the first version, I think they take one step earlier. Like… We’re not going to use an external. We’re going to build our own landing pool. Then we’ll compose it with an external DEX. For example, Eth2Dai. By building one thing externally and then using one thing internally, they can drastically improve the usability.
We just were looking at the trend and we felt like a natural progression was to just to do both pieces internally.
Yeah, I think it’s been a good decision.
It’s a trade off, right? As an engineer, you never want to reinvent the wheel, right?
How do you bootstrap that liquidity for your lending pool?
Yes, definitely. The third feature is that, because we’re doing this integrated solution, we’re able to really restructure certain things. One thing we focus on is that, although there are two things you can do on such an exchange, which is lending and trading, we really don’t put them in parallel. We still believe, which I’ll explain, and which answers your next question, we think we have to start with margin trading first because there is no shortage of lenders. We have $20 billion worth of Ether sitting there earning essentially zero percent.
I think if there is a safe, risk free rate, the supply side of it will come. At the end of day someone’s paying interest and someone’s earning interest. Everyone wants to earn interest. You don’t have to do very much to get it.
Who actually pays interest? It’s the traders, right? If you can make the traders happy, then they are willing to pay interest and this interest will attract lenders.
It is a chicken egg problem. We bootstrap on this side.
We designed our contract in a way that will bias towards what we believe the borrowers want. I can give you a few examples. For the borrowers, what they want is really stability.
There’s some innovation in this space. For generalized lending platform, like Compound, I think they’re doing some very interesting things. For us, we actually reduce a few of the advanced features to increase robustness.
One example of this is that, on these innovative lending platforms, they made a choice to allow the collateral to be lent out as well. So what I am saying is, imagine I want to borrow some Dai. I will put up some Ether as collateral.
It’s like mortgaging your house. Or going to a pawn shop and saying take this valuable watch I have. Then I am going to make some cash, right?
Now the interesting part is, I don’t think any centralized or CeFi projects do this. They [Compound] allow the collateral to be also lent out. So this Ether, which is somebody’s collateral, also enters of lending pool. That can also be lent out. Which is, sometimes even when you’re borrowing, you could be earning interest on your collateral. It’s a really cool feature.
We’re not judging. Or saying this is bad. But when we look at it from a very practical perspective, from the perspective of a margin trader, we think this is unnecessary.
We think is unnecessary. One you’ll notice that the interest rates are very unbalanced. You’re earning 10% on Dai, but you’re earning 0.1% on Ether. The demand to borrow Ether is just not there.
This trivial amount of interest is close enough to zero that it does not drastically increase the utility of the lending pool. But what’s the downside? It sounds like there’s no downside. The collateral is there as collateral. Which means if something goes wrong, it supports liquidation. This collateral gets sold, right?
So the question is, what happens if there was a really huge price drop? You’re trying to liquidate Ether, but the Ether is actually not there. It’s lent out. So you have to do cascading liquidation, right?
You have to liquidate again. Someone has borrowed that Ether, and they’ve put up some other collateral. Now you have to liquidate that collateral too. Just so that you can liquidate the Ether to get Dai, right?
No one knows how it’s going to play out, and it could be this catastrophic event.
It could just be that we are overthinking things, but who knows?
I mean, we actually, we have less pure asset utilization. In some ways, you could say we have an inferior lending pool. But just in case something really bad’s happening, we are a little bit more confident in our liquidation process.
So these are the trade offs that are very hidden. We don’t really tout this as a product competitive advantage. But, it makes us sleep a little bit better at night. We thoroughly went over our liquidation process.
In line with that, for the counterparty, it’s this notion of insurance, right? When you are lending out on one of these platforms, what you are really worried about is not being able to get your money back. It is the liquidation process that protects users assets. That’s because there’s a trustless system.
At the end of the day, if the liquidation was successfully, users are guaranteed to get their money back. This notion of insurance, to be specific, there are two types of risks for a lending pool. You have the liquidation risk, and you have smart contract / bug risk.
The second one is hard to insure against, but the first one is completely measurable. That’s because the liquidation process itself is just some logic in the smart contract. We can just add logic and say, if the liquidation fails, because there was not enough incentive for someone to participate in liquidation, then there’s insurance. Which essentially act as one more trader. Except it will do the liquidation at a slight loss.
So we actually have a full implementation of a trustless liquidation insurance. Which we think is a neat addition to this to this game. One that we’re kind of proud of.
We’re hoping that it doesn’t kick in. Since when it kicks in, something went wrong. Still, it is one more guard against catastrophic situations.
Do you want to disclose how you structured your liquidation penalty?
Sure. There is a liquidation category. Which just means that when the collateral approaches a percentage of the loan debt, the collateral gets put up for liquidation. It could be, 110%. It could be 105%. If you set it too high, then it’s just inefficient. The liquidation is kicked off. It’s just too early, like a false alarm. But if you keep it too close to 100%, you risk falling further and not being able to liquidate.
It’s part art, part science. We have it set at 110% right now.
For all assets?
Yes. Right now, we’re mainly just looking into two markets. The Ether to USDT market and the Ether to Dai market. In the contract, every market gets their own parameter.
Every asset should get their own price. Every asset and every market should have different liquidity depths and risk. Right now, the 110% percent rate is the current rate of the ETH – USDT market.
When liquidation kicks off at 110%, it doesn’t mean that the borrower gets penalized 110%. It’s not like a 10% penalty. It’s just that the liquidation starts at 110%.
We actually use the Dutch auction mechanism. There’s two matrices in terms of liquidation design. One is how and when do you kick off the liquidation. Two is how you execute the liquidation.
There are really two ways to execute a liquidation. One, is to give the smart contract full control. It just takes all the collateral and sells it at market on Kyber. That’s one way to do it.
Two, is that you will open gradually increasing auctions. Whoever wants to swap, as long as you’re able to help me pay back the loan, then you get the collateral.
In some ways, because an auction is a price discovery mechanism, the second way is more decentralized. It is actually more fair. You’re more likely to get to market rate.
There is a drawback. The drawback is that the action takes some time. Maybe, it takes 10 minutes. In that 10 minutes, the price could drastically change in a way that increases risk.
There are always these tradeoffs. At the end of the day, without a doubt, Dutch auction was the better way to go. It’s more elegant. I think it scales better into the future. So we use this.
So basically, when I say Dutch auction, at 110% it starts by auctioning a portion of the collateral. Let’s say there was 100 ETH in there as collateral. You don’t sell all the ETH. You offer 80 ETH for any one to pay back the loan. No takers? Then I’ll offer 81 ETH to pay back the loan. So on a block-by-block basis, it increases the percentage of collateral that you will get. The remainder of the collateral goes back to the borrower. In that way, they don’t lose all of their collateral in the case of the liquidation.
That’s very good.
It’s a cool mechanism. Even though we’ve been beta testing for weeks, and because Ether has has risen a lot recently, some short positions got liquidated. One of my short positions got liquidated. I was testing. I’m actually very long on Ether.
Same here. So I’ve been in trouble.
It’s pretty cool to see this whole mechanism work out. There’s no tangible difference between liquidation and a stop loss, right?
At some price, you’ve already lost the money. At some price, you just settle.
What we found in our beta testing was that people have to psychological avoidance. They feel getting liquidated is a very bad thing.
Let’s say your liquidation is at $200 and you get to $195. I’m still okay. It’s not liquidated, but you’ve already lost most of your equity. People just don’t want to get to that final point where their whole position gets liquidated.
A stop loss is really just a partial liquidation. It’s a liquidation of maybe 50% of your margin account.
I want to design a way that people don’t also don’t feel emotionally bad. I think that part of the product design challenge is also interesting.
What are your thoughts about the HOT token and its utility?
When we designed the token, it’s basically a Costco membership or frequent flyer mileage. It’s a decentralized version of BNB.
All it means is that.. What is the value of the DEX? It’s actually the place that’s able to aggregate enough buy and sell demand to form a market. In other words, its only asset is its liquidity. Or, the depth on its books. If all DEXes have the same liquidity, then transaction fees will just go down to zero. That’s because like people will trade on the cheaper one.
If you look at Coinbase, if you look at Binance, the reason that these fees aren’t zero is that they have this competitive advantage. They just have the best liquidity, right?
The value of this network is its liquidity. If you were to have a token to incentivize it, then you will incentivize the people who create liquidity.
For any token, I think there are two questions. One is who gets the token? Who is doing the work? Two is what utility does this token have, right?
Fundamentally, at some point, the only value a decentralized exchange protocol can offer is a discount on its fees. The token is a marker for people who trade and thus provide liquidity to the network. Thus increasing the value of the network. Therefore the network rewards these contributors, with basically a discount.
We looked at all the token mechanisms. The only ones that really make sense are some sort of medallion. It’s not really in itself some reward, but it’s the right to do work in this case. For the people who hold the tokens, HOT is basically a marker for contributing liquidity to the community.
Historically, when you look at 2017 – 2018, people will make these very fancy, elaborate, or complicated token mechanisms. When it was cool.
The next batch of projects had no tokens. It was so uncool. I think now if you look at it from a rational perspective, a token is just a tool. It’s a tool to achieve the goal, which is to bootstrap a network. Bootstrapping any network is the hardest part. But if you are able to start the network, then that network can have long-lasting value.
In some ways, a token could be like a very elegant solution to the bootstrapping problem. I think it’s never really changed. But it is very hard to do in practice.
In terms of inspiration, look at something like the Maker DAO token. It’s not completely unnecessary. It is like a piece in the liquidation mechanism.
At the end of the day, in the Maker ecosystem it earns interest. This interest gets paid with the token. Basically, the total holders are just like the interest earners, which is beautiful.
Compared to the P2P market, where users are earning interest, in the Maker system no one earns interest except for the token holders.
I think that is a valid way to design something to be able to bootstrap the network. Fortunate teams are those that have venture funding or have revenue. They have the ability to wait, over-promising on this grand token. They can slowly iterate.
Not all teams have the opportunity to do that. At the end of the day, everyone has to figure out some revenue model.
When you do the work, it is expensive and exhausting to create smart contracts. In terms of hiring the best engineers and then doing the auditing. Everyone needs to funding from somewhere. There’s always a promise. You take funding from venture investors. For three years, five years, and one day they are going to ask, what is the revenue model of this thing?
That is something that I think dYdX, Compound, they’ll have to figure out. We all have to figure it out. If you figure it out, I think it’s actually not that hard to either create a tokenized system or just use stock equity to pay back the investors.
You guys don’t charge trading fees, is that correct?
We have been charging fees. Since day one, DDEX charged fees. We thought that was a fine thing to do. In some ways it is proving value. I personally believe if it is the only thing you can compete on is just being cheaper, then maybe you’re not that competitive.
I think people mix free with decentralization. I think that they’re two completely separate issues.
It doesn’t mean that you charge fees that therefore you’re a centralized system. Even in a decentralized system, for example in Ethereum, gas is a fee to users of the system. It is also what keeps this whole machine running.
If you can’t charge fees, then how can you possibly have a working token economy. In the long term, our goal is to create some viable, sustainable business model. That is actually really hard to do.
If you’re relying on outside investment and funding, then you’re not truly decentralized. Self-sufficiency is one of the key design goals. That said, there’s the trend that everyone is not charging fees.
One thing that really hurt us is these aggregators who’re comparing dApps and bid-ask spreads. We’ve always had one of the best bid-ask spreads. But… If you add fees into it, the fees effectively increase our spread on the order book. Then we’re no longer ranked number one. It kind of bothered us a little bit. Everyone’s basically undercutting the fees to a point to try to compensate for the lack of liquidity.
So with this new product, we’re just like, let’s just go with free as well. I don’t know what will happen, but it definitely makes us way more competitive. After we dropped fees, now we have the best spread for both margin and spot trading.
I’ll come back to your question about Dai. Dai is our secondary market. We have been focusing on the USDT market more. For the USDT market it is not even close! We have substantially better spread than any other Ether to stable coin market on DeFi systems. Regarding the Dai spread, it is our observation that no one can really do substantially better than anyone else. That’s because Dai is completely onchain liquidity. It is very cheap to marry the liquidity between DeFi projects. In our observation the liquidity, depth, and spread of Dai will probably be similar on the top three to five platforms. That is not something that we can do substantially better than anyone else. It’s also not something that can actually do substantially worse than anyone else. If you knew how liquidity stuff works, everyone probably does achieve parity.
From a competitive strategy perspective, it makes more sense to put our focus on markets that don’t reach parity automatically.
The USDT market is something that we could, if we spend a lot of effort, do much better than everyone else. So that’s our goal.
Dai is a core component of the DeFi ecosystem and we definitely support them. But we can only support them as well as anyone else, not substantially better.
Is it possible to generate revenue from charging a little more to borrow?
We actually looked at centralized exchanges for how the world used to work. If you look at a lot of centralized margin exchanges, they don’t even have a lending pool. They just supply their own lending. They are the lenders. They charge. People talk about 20% APR being a really high Dai fee. The average, that we’ve seen, is that they charge 0.1% per day, which is 36.5% annually. No one cares.
Like you’re telling us, your mentality is, I’m only going to short this for like, a week. You’ll play 0.1% daily. That’s playing 0.7% weekly. But I’ll be making 50%.
Fundamentally, we actually don’t think the interest rate spread is where the biggest money is. To generalize a generalized lending pool like Compound, one day they will go beyond financial use cases for these loans.
They’re talking about payday loans, and there’s obviously other cool stuff like cDAI. That could potentially open a much bigger market.
If you make the assumption, which is that 100% of the borrowing will occur due to margin trading, then any interest rates spread you can earn is going to be an order of magnitude smaller than transaction fees. Do the simple math. You’re talking about a percentage on top. Compound takes 10% of the interest of spread. That’s 10% on top of 10%. 10% of 10% is only so it’s 1% annually, right?
We’re talking about a one week loan. That’s 1/50th of 1%. The smallest trading fee centralized exchange charge is maybe 0.1%. That’s still 10 times bigger than 0.5% of 10% of 10%.
Also, I’m not actually sure that Compound is pocketing the difference. They could just be using this for insurance funds. I think that is one good way to supply insurance. This is what BitMex does. You take a percentage of the interest rate spread to cover liquidation failures. That’s a very nice mechanism. We’re not going to mess with that.
One of the more attractive features about DDEX is that the spot facility has no KYC or AML involved, allowing for more privacy than competitors. Are there any plans to change the way this is done for the margin product?
I’m not sure if the KYC is the way to go. Once you do the KYC, you do lose.
The thing is that a decentralized exchange is never going to be as fast. It’s never going to be as efficient as a centralized exchange.
Fundamentally, if you go through all the effort to implement exchange in a decentralized way, and then you drop KYC on top of it, you lose all the advantages. Then you might as well build a centralized exchange.
That is the first principle argument of why KYC is not the way to go. I do think that it should be compliance friendly. What I mean is that I think people talk about, the early DEXes as a way to avoid being compliant.
What people forget is that DEXes fundamentally have some properties that are very beneficial in terms of compliance.
Why are exchanges regulated? There are two fundamental answers. One, is that you want to avoid money laundering. Two, you want to avoid fraud because custodial exchanges take custody. They can run away with everyone’s money. It’s an exit scam.
With decentralized exchanges, because they’re noncustodial, there is no possibility of an exit scam. That’s a very nice property, one. And two, because all the transactions actually happen onchain, it doesn’t break linkability.
The reason someone will take stolen funds and deposit them into a ShapeShift or a Coinbase is that they can withdraw it and the money will be “washed”. If you perform a transaction on a decentralized exchange, like DDEX or Radar Relay, the likability is not broken. You know exactly where that money came from. You know exactly where it went.
These are two very elegant properties. We should be taking advantage of these properties. To create better products where people cannot do bad things.
DEXes already have these properties but no-one is really talking about that. Overall, it’s just about how early we are. It’s just the fact that we don’t have any sort of identity system. Even if you implement a KYC system, it’s a very centralized, isolated, KYC system. Only a particular DEX may have some SQL database of a mapping of some addresses to some people’s information.
Maybe that’s not the solution. That thing could get hacked, or get lost. Maybe it’s not big enough. I am also excited about the identity problem that people are trying to solve. Imagine if we had a decoupled third-party identity system. One that has credit history and other stuff that you also would be able to tap into. I think that is the solution. I don’t think the solution is for any one particular DeFi project to roll his own, effectively siloed identity system. That’s what these KYC system look like to me.
How are you going to get the word out?
In my previous mobile internet startup, with our my first product, we went from zero to 16 million users in the first year. We did so much growth hacking. I don’t think DeFi is like that.
There are two things. One, you’re talking about even the most successful projects, you’re talking about the very small user base. If you look at the Makers and you look at the Compounds, we’re talking about in the order of thousands of users not millions.
To reach this very, very niche crowd, I am not saying it’s not hard, but it’s more that you just have to have unique value offerings. Then they’ll probably find you. Think about the type of people who will use a decentralized product. These people are incredibly sophisticated. First of all, they have a MetaMask, Ledger, or a D’CENT wallet. That alone takes some expertise. Then they have to understand the financial operations of creating a margin trade and the implications of that and the risks. People talk about “usability is a barrier”. Yes, someday… But we’re not there today.
We’re talking about the intersection of some who’re both engineering savvy and financial savvy. Right now we’re under the radar. Yet we’re surprised how many people actually found us. How did you find us? We didn’t even publish our URL anywhere. We’re not talking about a lot of people. 100 people found us. That’s a non-trivial portion of the potential user base that we could reach at this point.
I think you got to take a step-by-step. All the first-tier teams in Defi our patient. The people who are trying to make moves and try to utilize tokens or viral marketing, they burn themselves out very fast. If you look at the people who are actually writing and shipping, actually getting traction, like the Compounds and the Makers, they took a long time. They’re all on six-month ship cycles and not a lot of growth hacking and PR.
At this stage, of course, we want to grow faster. We want to have exponential growth. But you can’t force it too hard. There’s still a long way to go before anyone will build a DeFi product that is ready for public consumption.
We are very focused on getting the first hundred users, the first thousand users, the first 10,000 users. But 10,000 users actually is very small. Literally, we could talk to our first thousand users one-by-one. We don’t have to skip. To sum up that position and to answer your questions, we’re willing to do things that don’t scale. We don’t need to scale. Then we’ll figure out the hard questions for the scale later.
What are your thoughts about high gas fees and how that impacts financial inclusion?
In some ways we’re talking about scaling now. There’s layer one scaling, maybe changing the consensus model. Or layer two scaling, maybe batching transactions. You could take something like zero knowledge proof, and maybe you could compress, a thousand transactions into one transaction.
These two things we definitely look closely at. At the end of the day, there’s not any one team that can solve all the problems. We are a layer two DeFi product. From our perspective, we want to validate on Ethereum. The most secure, maybe expensive, but secure network. You’re paying for the security.
You really validate your use case here. Then you try to figure out a path where you can take it. Maybe it’s Ethereum 2.0. Or maybe it’s with the aid of level two solution. Maybe a better blockchain. Our job is to evaluate these things and figure out their legitimacy and to build our protocol in a way that it is migrateable.
Fantastic Tian! Thank you so much for taking the time with us today.
Thank you so much love talking about this stuff. If anyone has questions, reach out.
Final Thoughts
For the time being, the new margin trading platform does nothing for those holding HOT tokens. DDEX is under fire. Competition in the margin DEX space is fierce. The most clear example of this is the upcoming close of the Opyn margin trading service on October 15, 2019.
Hopefully, DDEX’s focus on spread/depth and network security will be of great service to the existing community of sophisticated traders and engineers propelling DeFi forward. This focus should ensure a path forward for DDEX.
Please feel free to reach out to the DDEX team with questions:
Twitter: Tian Li (CEO/Cofounder), Scott Winges (Head of Product)
Telegram: Bowen Wang (COO/Cofounder)
Margin Trading Platform: https://margin.ddex.io
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