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- [00:00]
Kane Warrick
Today, Ethereum still has the most assets, the most stable coins. It's got more margin assets on it than any other chain. And so by removing the need to bridge off Ethereum and allowing people to just deposit margin into a contract that is running on the L1, we think that it'll be far easier to attract liquidity and far easier to attract traders.
- [00:26]
Binance Sponsor
Hi everyone.
- [00:27]
Laura Shin
Welcome to Unchained, your no hype resource for all things crypto. I'm Laura, I'm your host, Laura Shin.
- [00:32]
Binance Sponsor
Binance is the world's number one crypto exchange, trusted by over 290 million users. With industry leading liquidity, security and a wide range of digital asset products, Binance is the place to buy, sell, trade and earn crypto. Download Binance today to get started.
- [00:50]
Laura Shin
Today's guest is Kane Warrick, founder of Infinix and Synthetix. Welcome, Kane.
- [00:55]
Kane Warrick
Hey, Laura, Good to be back.
- [00:57]
Laura Shin
So you are joining the Perp Dex party. You're about to launch Perps Dex on Ethereum. As if we don't have enough of them already. Not that I'm saying we have too many. I'm just kidding. So explain why you've decided to launch a Perptex on Ethereum.
- [01:12]
Kane Warrick
The goal of Synthetix from maybe 2019 was to build derivatives and perps at the time that Synthetix originally launched were dominated by Bitmex. All of the exchanges started supporting perps over the course of that cycle. And we launched alongside dydx, one of the first perp Dexs. And the challenge of building a Perp Dex was huge, I would say. Right. And one of the things that we had to do was to move to an L2. So we moved to optimism to be able to support the Perp Dex. But now we're coming back to Ethereum and there's a long story there. So, you know, we've been building Perp Dexs for six years, this is our fourth version. And I think that we have finally put all the pieces together to build something that's going to be very competitive.
- [02:12]
Laura Shin
So talk about when you say that, there's a long story there. Explain like kind of the trajectory and like why you decided to come back now.
- [02:19]
Kane Warrick
So in 2019, I, I saw the first demo, the Unipig demo, which was uniswap and optimism. And that was around the time when congestion was first becoming an issue on L1. And so we looked at that and said, okay, this is only going to get worse. The L1 cannot keep up with the demand that is there for block space and so optimistic roll ups were the solution that I think the Ethereum community rallied around. I did at the time have some concerns about fragmentation. And so I pushed really hard for the Ethereum community to kind of rally around a single L2, which was optimism at the time. Unfortunately, it didn't go that way and we ended up with like 100 L2s or, you know, at this point it's probably a thousand. But in, in that period of time when we moved to the L2 to allow us to scale because we needed that, we learned a lot, that L1 also got a lot better. You know, Ethereum L1 is not the same chain it was in 2019. It is a much better chain. It has much more block space, it's more performant. You know, there, there are a lot of advantages to the L1 today. And we also learned a lot about how to kind of build hybrid infrastructure off chain and on chain. And so I think that, you know, it's the perfect time to, to come back to Ethereum. Ethereum needs a canonical perp Dex in the same way that every centralized exchange needs perps. Even Coinbase is launching perps. I think every chain needs a perp Dex and Ethereum today doesn't actually have a perp dex on L1.
- [04:04]
Laura Shin
Okay. And, you know, so you had your comments targeted to synthetics, but would you say they also apply to like DYDX or GMX and like other, previous, you know, perp Dex incarnations on Ethereum?
- [04:18]
Kane Warrick
Yeah. So, you know, DYDX moved to Cosmos. You know, they, they moved around a few different times. It was starkware first. So, you know, DYDX was on starkware and then starknet and then they moved to Cosmos. And I think the lesson from almost every perp Dex is that it is very challenging to attract liquidity if you're on an L2 or a sidechain or something like that. Probably the only perp Dex that it's actually pulled this off is hyper liquid and they're an L1. And so the combination of an L1 and a perp Dex is clearly the right combination of kind of features. So the big question that we asked ourselves last year was, could we build a perp dex on Ethereum mainnet? Could we give Ethereum L1a perp dex, like a canonical perp Dex? And we eventually kind of answered the question, said, yes, we think we can. And so we're about to roll it out and see how it goes.
- [05:19]
Laura Shin
So please explain how you plan to do this on a chain that has 12 second block times. Because that's like obviously the first question.
- [05:27]
Kane Warrick
Yeah, the first question is like, how, how could you do this? Right? And the solution, interestingly, partially comes from what we learned from roll ups. This idea of running a lot of transactions much faster, much faster finality on an L2, but settling to the L1. And so what we're effectively building, and this is going to take time and will probably be rolled out in stages, is like an optimistic order book if you want to think about it like that. So the order book itself, the order matching engine runs off chain, but all of the orders are batched and settled onto Ethereum. And the important aspect of that means that there is no need to bridge your assets off Ethereum. And today Ethereum still has the most assets, the most stable coins. You know, it's got, it's got more margin assets on it than any other chain. And so by removing the need to bridge off Ethereum and allowing people to just deposit margin into a contract that is running on the L1, we think that it'll be far easier to attract liquidity and far easier to attract traders.
- [06:46]
Laura Shin
Okay, so I understand that bit about, you know, just like having this, you know, whole bunch of different assets. But what I still don't really understand so you guys, is it that you have like a centralized company, company that's settling on Ethereum or because you're not saying if you look at a lighter or whatever, their whole thing is like, oh, okay, we batch these ZK proofs, we put them on Ethereum, but yours just seems more like is it a centralized company? But yeah, I don't fully understand how it works.
- [07:17]
Kane Warrick
Yeah, so the off chain order matching system is a centralized service that's running. Right. And so there, there is like this, this trade off of you can't run it fully on chain, so it can't be fully permissionless. But the margin and liquidation engines and all of the core infrastructure run onchain. So it's.
- [07:43]
Laura Shin
So is it just like an L2 with a centralized sequencer? Is that what that is?
- [07:47]
Kane Warrick
It's not quite there yet, but that is eventually where we will, we will kind of take it to turn the order book almost into its own sequencer, its own L2. And then it will settle on Ethereum, but for now like most L2s, the order matching engine will be centralized.
- [08:08]
Laura Shin
Okay. And then like what kind of speeds is it? Like if you were to. So, you know, because we have some other, you know, perp sexes that we can compare it to, like how would you compare it in terms of speed because you know the, the marketing materials I was sent was saying like high speed and all that. But yeah, just how would you compare it to like a Hyper Liquid or a lighter or Ajax or really any number of the. All of the aster.
- [08:35]
Kane Warrick
Yeah, I mean the goal, the goal of the matching engine is to be as fast as possible, obviously. Right. And you know the, I think the key, the key design constraint that we're making is to keep the margin on chain which is going to be slower. So there will be a period of time where a trade has settled off chain but not yet been kind of pushed on chain. And so there's definitely some trade offs here. But in terms of how fast can you make the matching engine? By keeping the matching engine off chain you can make it as fast as you can make a matching engine using current technology. So there's a bunch of improvements that we can make at the moment. Our goal is to make the right set of trade offs so that we can match orders as quickly as possible. So we're trying to keep things sub 50 milliseconds in terms of order matching and then settle onto the L1 as quickly as possible. But as you pointed out, there'll be a 10 second delay between settling an order and it actually hitting the chain. So there's going to be some dialing in of different parameters to get this right. But we're really confident that the key insight is that the order matching is what people care about. They want their orders matched as quickly as possible. Once an order is matched, if there's sufficient margin for a user to then be able to keep the trade open and monitor the trade, they don't really care about that part of the trading engine as much. The margin side, it's really about making sure their order gets filled as quickly as possible.
- [10:35]
Laura Shin
Okay. And then one other piece I just want to make sure I understand is so everything still remains on chain. So will we will end up getting the same transparency that we get now? Like you know, the way that we can all see what happened on Black Friday and Hyper Liquid is that, is that what's. What this setup is going to be?
- [10:53]
Kane Warrick
So yes and no. So the one difference is standing orders will not be exposed. So you won't be able to see what, you know what standing order, standing limit orders people have, except if it's in the book. Right. So you'll only be able to see orders that are, that are coming through the book. So you won't necessarily be able to match up in the way that you can with Hyperlical, because it is fully on chain, every single person's order with liquidation prices, et cetera. So that for what it's worth, we think is a feature and not a bug. You know, there's, there's obviously arguments on both sides about like fully transparent or you know, having some opacity to the order book and liquidations, et cetera. We will see what traders think. As a trader myself, you know, I, I personally have a preference which is for people to not be able to hunt my stops. But you know, we'll, we'll see in aggregate. You know, an exchange is a complex, dynamic system, right. And so, you know, it's hard to necessarily say from first principles how people react to different sets of trade offs. One of the things that we're doing though, at pre launch, which will help us to kind of dial in some of these trade offs, is running a very large trading competition, some of the top traders in the space, so we can get feedback for 30 days on what the current design constraints are and the, and the parameterization we've made and choices we've made. And so I fully expect we'll get some feedback from those traders that will require us to make some changes and modify things to ensure we get the best experience.
- [12:39]
Laura Shin
Okay. Yeah, this is so interesting. I mean, my immediate reaction is that the privacy aspect will be appealing to people. But then, so in the competition is it like the results are just. You guys are posting them like with your.
- [12:52]
Kane Warrick
Exactly your.
- [12:53]
Laura Shin
Okay, yeah, yeah.
- [12:55]
Kane Warrick
So, so, you know, the idea is it's supposed to be entertainment, right. I'll be participating in the training competition as well. So when I get liquidated, you know, I fully expect that there will be tweets from, you know, synthetics main saying that I've been liquidated. So, so, you know, it will be, it'll be kind of a spectator sport during the competition in a way that the, you know, the main exchange won't necessarily be. Obviously people have the choice to publish their trades and we'll have shareables and you know, all that sort of stuff. We'll probably even have a leaderboard. But it'll be up to each trader to decide whether or not they, you know, link their identity with, with their trades, et cetera.
- [13:37]
Laura Shin
Okay, yeah. And for people who haven't heard about this, you have, you've gotten some big names to agree to do this. Anom, Gansey, Degen, Spartan, who's coming back from wherever they were, who knows, North Korea.
- [13:51]
Kane Warrick
They were in North Korea. That's where. Okay, got the movie.
- [13:54]
Laura Shin
Oh, great. Evgeny. There are others. So. So yeah, so that, that, that personally sounds fun to me. All right, so one other thing that I'm wondering about is, you know, here we've just talked about kind of like some of the hurdles to running this kind of thing on Ethereum. So, like, why is it so important to you to choose Ethereum despite things like the slow block times and all that?
- [14:20]
Kane Warrick
Yeah, I think that's a very important question. So, as one of the people, and I've been saying this for a little while, as one of the people who push really hard for Ethereum to make what I would say were the pragmatic choices for scaling back in 2019, 2020, 2021, I think the unintended consequences of that have been both good and bad. You know, the fragmentation of L2s, particularly when it comes to uncertainty of, like, which asset a potential investor should buy. Right. The proliferation of L2 tokens changed the dynamic, I think, for investors where it wasn't as obvious that they should just buy eth. And in fact, you know, there were a lot of people in, in various communities who said, you know, almost don't buy ETH, buy my token, my L2 token, because we're the future sort of thing. And I think that that created a lot of uncertainty and was one of the major unintended consequences and had a significant impact on eth, the asset. Right. The positive unintended consequences were that we ended up with a lot more block space than I think anyone expected we would have and the ability to, to, you know, post transactions from L2S to the L1 extremely cheaply. Now there's also some trade offs there. You know, base is extremely profitable as one example. Right. And there's people, including myself, who say, you know, Ethereum should probably charge more for block space than it does. But at the moment, I think it's worth Ethereum kind of subsidizing the block space of L2s, because that's where a lot of the activity is happening. But if you can bring all of that activity back to the L1 and build an app that is fully on L1 in terms of the assets themselves are on the L1, not bridge off to an L2, I think that right now, today is the optimal response to other L1s, whether it's hyper Liquid or Solana or SWE or Aptos. From an Ethereum perspective, putting my Ethereum hat on, bringing all of the defi that drifted off into different L2s, you know, whether it's AAVE or Uniswap or whatever, bringing all of that back to Mainnet and running it efficiently on Mainnet, I think is the optimal thing for reassuring everyone that Ethereum L1 is still the best place to build Defi, which I personally still believe it is.
- [17:01]
Laura Shin
Huh. This is so interesting. And it's especially interesting to have this conversation now because obviously you made that decision to move back to Ethereum, you know, however many months ago, and then we just had Black Friday and I kind of like, I kind of thought that it might have changed the calculus for you, but maybe I'm wrong. I did see your, your tweet thread, which we'll get to in a moment, but the reason why I'm asking this is because I don't know if you saw. So the price of ETH dislocated the most on Ethereum Mainnet itself, like it fell further on Ethereum L1. It stayed down there for longer than on base on Arbitrum, even on centralized exchanges like Binance or Coinbase. So I don't know, like, did, like, would that affect, you know, something like, you know, your, your new perp Dex, or like, how would that factor in?
- [17:52]
Kane Warrick
Yeah, so I think the main impact that you would have would be margin. The margin engine being on L1, being a contract that runs on Ethereum main net would create potential issues for people either depositing or withdrawing margin, moving margin, et cetera. If gas prices spike and it is very expensive to deposit margin, we have some ideas and solutions for that that we think could be viable. Which is, I mean, the simplest one is allow people to have another place where they can deposit margin. So, you know, either an L2 or something like that where the matching engine will look at both of those places. So, you know, during times of high congestion, if someone. There is an obvious solution, which everyone hates, which is if it is critical to you, you can pay, you know, to, to get a transaction to land right on Ethereum. It just might be very expensive. Obviously that's not ideal for someone who has $500 of margin. But our, our view is, I think that at least initially, the goal is to attract large traders with, you know, large margin positions. And if you talk to traders, whether they're institutional traders or, or, you know, large personal traders trading their own book, the thing that I think is the most concerning for almost every trader is counterparty risk. The risk of putting your assets on a centralized exchange or through a bridge or something like that. And I think all things being Equal, most people are more confident leaving their assets on an L1 like Solana or Ethereum than bridging them somewhere else. And so, you know, we, we have to dial in exactly who that, that set of trade offs is for. And my expectation is that at least initially it's going to be for traders who have larger positions, larger margin, and we're going to work really hard to attract the liquidity to support those kinds of traders. But we do need to be able to handle congestion when it happens, because it will inevitably happen. And so, you know, one of the, one of the kind of areas of research we're working on is how to have some escape hatch for people to either move margin off in times of congestion or add more margin that doesn't require depositing straight onto L1.
- [20:20]
Laura Shin
Yeah. Because essentially with the fact that Ether dropped, you know, more on, you know, mainnet than elsewhere, it basically kind of recreates that same scenario that happened on Binance where those three assets, the prices dropped and so like basically more people would be liquidated. So that's why. Yeah, yeah.
- [20:43]
Kane Warrick
I think the challenge, you know, on any trading venue, right, is if you're an island and you get cut off from everywhere else, bad things happen, you know, prices dislocate, you know, it's, it's really dangerous given, you know, in Tradfi this is not as much of an issue like it does happen, but you know, trading venues are so winner take all in tradfi where like there's one place where all the liquidity is and provided that venue is still running, you know, whether it's CME or NASDAQ or whatever, it's kind of fine. Like the assets only trade in that one place and you know, they've got all kinds of, you know, infrastructure to ensure that, you know, trades are kind of happening continuously. Crypto's weird because we have a hundred pockets of liquidity that are spread across different places and if one of those pockets of liquidity stops talking to the other ones, then yeah, bad things happen.
- [21:42]
Laura Shin
Yeah, well, so the other thing, of course that I need to ask is because we are in this situation where there are just so many perp Dexes all of a sudden, you know, how do you, how do you plan for synthetics to compete? Because, because it's not even just that there's a bunch on or not a bunch, but you know, we Already lighter and EdgeX are on Ethereum. I'm sure there are others. But then even beyond like on, on all these other chains. So how do you plan to take some market share.
- [22:09]
Kane Warrick
Yeah, I think there's two things in crypto that you need to be able to do in order to take market share or in order to, to even be viable. You know, you need to have the best product and you need to build the best product for, you know, in the case of a perp Dex, the best product for traders. And I think one of the things that synthetics has a very good history of is being incredibly trader friendly. We've always built our perp Dex to be as efficient for the trader as possible. I think the meta kind of changed probably with GMX where it became almost more important that the token of the project went up than the traders had a good experience. And there's a tension here and I've talked about this a lot. Synthetics, we, we have always understood, and SNX holders have always understood that if you lose the traders then you have nothing. There's no token. Right. Like you have to support traders, you have to make sure traders are confident in, in the platform that you're building. So I think that we have a good history of that. Historically we've been very supportive of traders, we've had very good trader experience and, and you know, we've done a lot of work there that's kind of table stakes. The next thing is you have to have the ability to attract attention. If you can't attract attention, you can't attract liquidity, you can't get that flywheel going. And look, I've been doing this for a long time and I know how to attract attention in crypto with a good product. I feel really confident that we can, you know, and this is also part of the trading competition. Right. We've got some of the most entertaining people in crypto for various reasons, whether they're good traders, bad traders, non traders, just, you know, funny people on the timeline. So I think for the next 30 days we're going to have a lot of attention on this new exchange because it's going to be all over the timeline. And so, you know, those are the kind of the two elements. Being able to attract attention, being able to, you know, get people to pay attention to the thing that you're doing. Build it and they will come has never worked in crypto and it works even less today than it ever has. Which isn't to say that you don't have to build a good product, you have to build the best product. But you can't just build the best product and sit there waiting for people to show up. It doesn't work.
- [24:34]
Laura Shin
Yeah. And I also wanted to ask you to explain more when you talked about how you're prioritizing traders because you had this tweet thread about how the events of Black Friday kind of reinforced why it is that you made certain design decisions. And like, one interesting piece of it was you had sort of the priority list for like, how liquidations would go. So just talk. Yeah. About, like, your thoughts on, on your design and like, in relation to what happened on Black Friday.
- [25:03]
Kane Warrick
Yeah. I think at the end of the day, you know, success is, is dangerous when it comes to building a Perp Dex. And Synthetics has seen this as well. Right. You know, one of our most. Even before the perp decks. Right. One of our most successful things was our spot derivatives. We had all these spot derivatives and there were multiple instances where the, the size of the derivative versus, you know, let's say the, the market cap of the underlying asset got big enough that it became profitable for people to try and manipulate the underlying asset. This is again, before Probe Dex is at. All. Right. This is just spot derivatives. And so I think that we, we have a pretty good sense of how to put the right guardrails in place to ensure that, that, you know, we don't have a situation where the exchange goes insolvent. Like, you know, there's. That's the key thing you want, you want to be able to keep trading. You want to be able to ensure that the exchange doesn't become insolvent. So, so there needs to be layers to that. But the bigger a Perp Dex or any trading venue gets, the more open interest there is, the higher the risk. Right. Because you have to have something that's going to backstop it. And so, you know, our view is that you have to have some relief valve, which is obviously going to be ADL at some point if, if, you know, markets move so quickly that the exchange can't respond and, you know, liquidity gets, gets fragmented or prices dislocate or there's some huge event. So it's not to say that ADL is wrong. Like at some point you need adl, it's just you need to dial in the parameters of when do you use that? And it should really be as a last resort. And I think that particularly in the case of Synthetics and SNX stakers and all of the people who are. You understand what it looks like to build a trading venue. We understand that it is critical that we build with this new exchange the trust of traders. If you lose a trust of traders really hard to get it back. And you know, there's a lot of different things that can cause traders to lose trust in you. Not getting paid. The profits that they believe they deserve is probably the highest. As a trader you're like, no, I did the thing and I didn't get paid for it. So you know, it's really critical that we have, you know, as I said, the right kind of waterfall of like ownership of trades from the individual trader down to some kind of vault like system, you know, which, which we've built. And then eventually you get to ADL and then eventually you get to, you know, backstop of token holders or something like that. If things are really bad, but the breakpoints between them are critical to choose, right? Like you could have an exchange which, you know, just ADL's everyone, the instant prices move by more than like 3% or something, right? But no one would trade there because they would never feel confident that they could actually profit. If, if you know what, what you want as a perpetrator is big moves, you know, you don't, you don't want to, you don't want. As soon as the price moves 1%, it's like, all right guys, sorry, that's it, you know, that's your maximum gain. So.
- [28:24]
Laura Shin
All right, so in a moment we're going to learn more about plans for this Perpdix. But first we'll take a quick word from the sponsors.
- [28:29]
Binance Sponsor
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- [28:54]
Laura Shin
Easy to use dashboard.
- [28:55]
Binance Sponsor
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- [29:10]
Laura Shin
Crypto.
- [29:10]
Binance Sponsor
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- [29:29]
Laura Shin
To ask was earlier when we were talking about how it's starting more centralized, you said something about like, you know, you would want to move it to something more decentralized, but then if that were the case, wouldn't it go on chain and then wouldn't the privacy aspect be lost or.
- [29:47]
Kane Warrick
No, I think you would still be able to run an off chain order book that was not centralized, but that was opaque. There is a design space where you can do that, whether it's zero knowledge proofs or running it inside of some cryptographic computation system or something like that. We don't, we, we don't think that that's worth doing yet. You know, one of the things that synthetics always did well when I was running it, which it kind of lost sight of, unfortunately in the period where I wasn't running it, was that trying to design a perfect system in a vacuum. What I call like building a palace in the sky, right? Like we're going to build the most beautiful thing and it's going to be amazing. We're going to go and lock ourselves in a room for three years and build this incredible thing and then everyone's going to come and love it straight away. That's not how products work. You need iteration. And so what we've tried to do is make the right decisions to get the core framework in place. And then based on the feedback and empirical evidence we get from users and seeing how the exchange is used and see where are the kind of places where we could improve efficiency or make the UX better, we can iterate on that and that will kind of dictate where we put our resources. So the last year has been about putting the right framework in place to run a perp Dex on Ethereum. Once we decided to do that, we're like, let's do the optimal thing to get a framework in place so you could actually run a perp Dex on Ethereum. Once we've got that running and we see how people use it, then we can lean into, okay, what are the concerns? It may be that no one cares about a centralized order matching system. And they're like, this is actually great. We love. Would be crazy to invest nine months of resources trying to solve that problem if that isn't a problem people care about.
- [31:57]
Laura Shin
Okay, okay, interesting. One other thing that you wrote about, I think in one of your blog posts, was that you projected that perpetuals will partly cannibalize the business of lending protocols, since people can get more exposure with less margin. And then at the same time, you know, to me it feels like part of the reason that you're building on Ethereum is partly to, you know, power up Defi and Ethereum. And so in your blog post, you Said quote, without mainnet per. Ethereum has been running a financial system where you can lend, borrow and trade but not efficiently hedge. So I was curious like, you know, when, when you launch this, like how do you think defi on Ethereum will change?
- [32:42]
Kane Warrick
I think that's a very good question. You know, we, we seeded all of the derivatives volume that Ethereum could have captured from, you know, call it 2021 to today, right? Four years of derivatives volume which you know is, is trillions of dollars, right. To other L1s, L2s, et cetera. And you know, there's no question that having perpetual futures creates, you know, opportunities for other areas of defi. And so I think bringing that back to mainnet and you know, allowing for people to, you know, whether it's hedging or whether, you know, it's, it's directional exposure or whatever it is that they're doing, it will be net beneficial for the rest of defi on Ethereum because the fragmentation of. We've got AAVE on Ethereum and that's the place where, you know, everyone borrows and there's this amazing, you know, margin system that you can use and even things like Pendle where, you know, you can split out yield token. There's all of this amazing infrastructure that has been built on Ethereum but then all the derivatives volume is somewhere else and requires bridging and friction and all of these things. So my view is that the more efficient a market is in a single venue, and if you want to call Ethereum L1 a venue, the better it is for everyone on that venue, the more efficient the market is. And so not having perps of any kind on Ethereum, mainnet has definitely been, you know, net negative for Ethereum and I think bringing it back is going to be a net positive.
- [34:26]
Laura Shin
All right, so last couple design choices I want to ask you about, I noticed you talked about how USDT will be a base settlement asset. I think, you know, USDC is more popular in defi. So I was just curious about that choice.
- [34:40]
Kane Warrick
Well, I mean, this is another funny story, right? A funny OG story. So back in the day, synthetics has its own stablecoin. It's a purely decentralized stablecoin, not crypto collateralized. It's not algorithmic, but it's not RWA collateralized. It's crypto collateralized, not RWA collateralized. So it's purely on chain. That's good and bad and we've been suffering through this. We had a large deep peg earlier in the year which we've now fixed during this transition. But it was one of the big concerns, I think for almost anyone who was interested in synthetics was can this stable coin actually scale, et cetera. And it turns out it was very hard to scale it. Same issues that Maker had where they made a decision to move towards RWAs as the primary collateral. But back in the day we used to use DAI before it became powered by usdc, right? And when USDC was added as collateral, Synthetix said, sorry, we're out. We won't touch DAI anymore. It's too centralized. Because we were crazy ideologues, right? And we're like, it has to be purely decentralized or nothing. Right. And I think that that like, lack of pragmatism definitely hurts synthetics. You know, there was an audience for that back in Defi summer and I think that audience remained very niche. And so injecting a bit more pragmatism has been the right approach. Now when we were making a decision about, you know, what the underlying collateral that denominates the exchange should be and they proposed to me that it would be tether. There was a, you know, Ethereum OG Maxi. Decentralization Maxi. You know, I was like, I don't know about this guys. But they, they were, you know, the, the engineers were able to convince me and that like especially on Ethereum Mainnet, given how much USDT there is, it is the best possible asset you can use. And if you're again optimizing for the trader experience, then you have to choose that. Now that's not to say we won't have other, other collateral assets, other margin assets that you can use. We will have multicolateral, but the actual exchange engine is denominated in usdt.
- [36:58]
Laura Shin
Interesting.
- [36:59]
Kane Warrick
I know. So I used to walk around in a, in a T shirt back in like 2018 that said tether is a crypto abomination. And yet here we are. Right? So, you know, pragmatism wins in the end.
- [37:15]
Laura Shin
Yeah, well, you know, we all, we all get humbled with, you know, like we have a take at one time. We later realized we're way wrong.
- [37:23]
Kane Warrick
So many, many such cases.
- [37:28]
Laura Shin
Me too. I also noticed. So you are listing five premium collateral types. Usdt, S U S D E, cbbtc, wrap teeth and wrap steak teeth. I actually don't know what that means. Premium collateral. So just explain that.
- [37:45]
Kane Warrick
Yeah, I mean, I think, you know, from an Ethereum perspective, it, it's a question of like, what are the assets with the most liquidity on Ethereum Mainnet. Right. What are the assets that we can be very confident can be easily liquidated, can easily be absorbed into a margin engine, have wide adoption across the L1. And if you look at those assets, I think there's a very good case for all of them. But you'll notice CBBTC is a centralized wrapper Coinbase, but also use Coinbase custody. So like, again, as a trader, you know, my view would be if you're going to choose a, a centralized custodian for your Bitcoin, it's hard to go past Coinbase. I think that's probably one of the best choices you could make. And so cbbtc, it just is the obvious choice as a, as a wrapped version of Bitcoin.
- [38:48]
Laura Shin
Okay, but premium collateral means what, like, there's like certain benefits for using those types of collateral?
- [38:54]
Kane Warrick
Or it's, I think we're just saying like those, those are the primary collateral assets that we will support if we, if we add other versions of collateral, they will probably have different parameters in terms of, you know, how much you can borrow against them, how much margin you get, et cetera. So, but I think in the initial instance that it will be rolling out with, you know, stable coins and then we'll add wrapped Bitcoin and then, you know, we'll, we'll slowly expand the collateral options. I don't know if we'll get to the point where, you know, you can margin a position with, I don't know, to pick a random token like uni or something like that, but we're not ruling it out.
- [39:37]
Laura Shin
Okay, so let's switch gears. You also re recently wrote about your super app thesis. Talk about the thesis. I found this super interesting and I think it also ties into your plan for Infinix. So, you know, you can present both together.
- [39:54]
Kane Warrick
Yeah, it is pretty wild to me that I'm running two startups like that Was not on my Bingo card in 2023. My goal was to run zero startups at the start of that year. So. But you know, the, the, I think the emerging Dex narrative, right, perp. Dex narrative has become such a dominant theme in crypto that we, for my own personal kind of satisfaction, I had no choice but to put as much energy as possible into getting synthetics there. I always found it dissatisfying that, you know, synthetics had created so many novel things, you know, over the eight years that it existed. From binary options to, you know, spot derivatives, inverse tokens, there were so many things, you know, we were one of the First Bitcoin derivatives on Ethereum, on Ethereum Mainnet. Right. And, and we just never quite landed a product that could get to really solid product market fit. You know, we're either just didn't quite make the right choices or too decentralized or you know, whatever, whatever the issues were. And so that as someone who's very competitive and likes to win, that was just not satisfying to me. Right. And so when we started to rethink how to, how to rebuild Synthetix, it was like, okay, we need to build a perpetics and we need to go and go after this narrative. And so I've thrown everything into it, but the, the transition that I think we were in the midst of this cycle is the most important transition in the history of crypto. So if you go back, there's, there's the, let's call it the prehistoric era of crypto 2009-2011. In 2011, the first centralized exchanges emerge and it's almost like multicellular life, right? They, they are so much more competitive and so much more, you know, adapted to their environment that they just out compete everything and you know, all of the other organisms are just pushed to the side and you know, these multicellular centralized exchanges dominate. And they dominate until today. It's been a decade and a half of dominance, right? But this cycle, for the first time, even though We've been building DeFi for a long time, Ethereum is about being on chain. All of this work that a lot of people have put in, it has taken time because centralized exchanges are just that good at what they do. They're the most efficient cross chain, multi chain, multi asset platforms ever. They just have a superpower which is be completely centralized. And so what's happening today I think is that finally the transition away from centralized exchanges, I think we will move out of this era of centralized exchange dominance into people being on chain. But there are many, many things that need to come together for that to work, which is you need to be as good as a centralized exchange for all users. Not for enthusiasts, but for all users. And that's what Infinix is trying to do. That was the thesis behind Infinix, is find a way to take on centralized exchanges by improving the user experience and getting it to a point where it's not just at the same level as a centralized exchange, but it significantly exceeds it because you have access to everything that happens on chain. And so I think by the time we get to the next cycle, and if you look at every centralized exchange, they all Have a plan for how to become a hybrid on chain, off chain system. Every single one is working on this because they see it. And so I think that by the time we get to the next cycle, it will be the first cycle where on chain platforms dominate and centralized exchanges start to fade into the background. It may be that the on chain platforms are launched by what were formerly centralized exchanges or by companies that ran centralized exchanges. It might be that they're pure play platforms like Infinix. But I think that we will see the ascendancy of on chain platforms and this super app thesis of give everyone access to every asset on every chain and every platform, every defi opportunity in a single application and make it non custodial and you will win. And we finally are starting to see the first kind of glimmers of that, of this new era.
- [44:30]
Laura Shin
Yeah, I mean like we can already see this shift happening. Like obviously we all know in recent days, but it's been going on for months really. If you look at it in a zoomed out perspective, finance has been receiving a lot of criticism and you know, there was that whole listings thing that everybody was talking about the past few days, but obviously before that they're clearly being challenged by hyper liquid and, and you know, reacting in their own way. But then, you know, on the other hand, we have Coinbase, you know, with base and the new base app, and it's like clearly aiming for this new everything app. So yeah, like I agree with you that that writing is on the wall. I'm just curious, like, because Infinix compared to something like, you know, the base app tied to a Coinbase, like how are you thinking about how to compete in this world where like distribution, I think will, will matter a lot and. Yeah, so what are your thoughts on that?
- [45:32]
Kane Warrick
I think if you look at this, the current landscape, the current environment, right. To, to use my, you know, evolutionary analogy, right, the dominant life form is the centralized exchange, but it's not like there's just one. Right? There are many species of centralized exchanges that are either regional, in the case of Coinbase, to some extent being very focused on the US being very dominant there, or they have some particular niche that they occupy in the environment. There isn't a single centralized exchange that dominates, even though Binance is obviously huge. But the 25th or even 50th centralized exchange is a very profitable business. Right. There is a lot of opportunity for more than just a single winner in the crypto space. And this is in our current, still very nascent phase that we're in where we have, let's say it's 10% adoption or something like that, or even 20% adoption or whatever in terms of holding crypto assets. So if we fast forward 10 years, 20 years, you know, I don't think that we will see a single application because I think that's what, you know, crypto applications is what we will eventually become. There won't be one crypto application that would be crazy. In the same way that there's not one messaging app or not, you know, one food delivery app. There's always going to be competition. And so our goal is ensure that we find the right niche where we can thrive and we can build distribution and a loyal user base and we have the right kind of set of trade offs for that class of user who wants to use something that feels like Infinix. And at the moment that's very squarely aimed at people who are already on chain but are frustrated by the day to day frictions that they have in being on chain. They've overcome it and they've done it. And you know, they have eight wallets and they have all of this stuff. I mean, Monad is a great example, right? There's this Monad airdrop that's happening right now and everyone is putting all of their wallets together and in every single group that I'm in, there's this ongoing discussion of like, do I add all 50 of my wallets to the Monad airdrop or do I just put eight of them? Or like what's the optimal strategy? Which is crazy. Like the idea that you have 50 or 100 different accounts and you're trying to aggregate them. We should have platforms and Infinix is going to be that platform that stops you from needing to have this proliferation of addresses and managing gas, different wallets for different chains, et cetera, but be able to participate on chain. And so we think that there is a huge TAM even in the existing crypto kind of early adopter cohort that already sees the benefit of a platform like Infinix. And that's before we've rolled out our extension, a mobile app, you know, the ability to import your legacy wallets into Infinix. There's a bunch of features that are coming up in the next few months that we think will kind of solve this and just make it the most obvious place for you to do your crypto stuff if you're already on chain.
- [48:57]
Laura Shin
Yeah, honestly, the way you're talking it reminds me of like, you know, AOL was kind of like A handholdy way to get online in the early days of the Internet. And it's like you are preparing for when people are ready to like graduate from aol.
- [49:15]
Kane Warrick
Yeah, exactly.
- [49:16]
Laura Shin
On chain.
- [49:18]
Kane Warrick
Exactly. There's, you know, there's people. And the thing is that it used to be so niche, right. People who are on Binance didn't know that yams was going on or Harvest finance or any of the yield farming stuff that was happening in defi summer today. I think everyone who's on Binance knows Hyper Liquid exists. They might not necessarily feel comfortable going and trading on hyperliquid, but they are not unaware of it. And so there is this kind of FOMO building and interest of, well, if I can just figure out how to do this thing, I can try sui or I can try going to Solana and buying some meme coins or whatever and not waiting for a centralized exchange to list the asset before I can get exposure to it. And so making that easy for people, I think is a huge thing. But for what it's worth, we think the existing on chain user base is so large and there is a huge kind of benefit to tapping into that first building that first wave and then we can go, okay, centralized exchange users are looking for an alternative. We can be that credible alternative.
- [50:31]
Laura Shin
Okay, yeah, that totally makes sense.
- [50:34]
Kane Warrick
All right.
- [50:35]
Laura Shin
Kane. Well, it's always a pleasure chatting with you. Is there anything that we didn't talk about that you feel like we. We should?
- [50:42]
Kane Warrick
I think we talked about the Synthetics trading competition. You know, and for what it's worth, like, of all of the things that I've cooked up over the years and there are many, this is the one that I'm maybe the most excited about. It's actually shocking to me that no one has really tried to do something like this before. And we have so many interesting people. I think, you know, just being able to see how someone like Jordy Alexander trades is going to be riveting for like the average person on the timeline. So I, I expect this to blow up and be all over the timeline for the next like 30 days. While everyone is, is following along, we've got some really cool graphics that, that will show like P. L like literally on an hour by hour basis of like who's winning. So it's going to be. We're. We're working to make this like Max Entertainment entertaining as. As entertaining as possible. So yeah, I would really encourage people to, to kind of tap into that and, and you know, be ready when it kicks off next week.
- [51:41]
Laura Shin
How many players do you have?
- [51:43]
Kane Warrick
So there are 50, call them celebrity traders, if you will. And then 50 people who earn slots either by depositing or had high volume on a previous exchange. So there's a combination of pro traders, celebrity traders, Kol's influencers. So, yeah, it's going to be quite funny.
- [52:04]
Laura Shin
And yeah, I mean, honestly, like, it reminds me. Yeah, just like a leaderboard on, like, I think, you know, bitmax. And there's a bunch of these exchanges that have them. So it's similar or.
- [52:15]
Kane Warrick
Yeah, similar. It's going to be literally like a leaderboard for that 30 days. We actually. We didn't ask you. We maybe should have asked you to.
- [52:22]
Laura Shin
But I'm not a trainer.
- [52:25]
Kane Warrick
That's the funny thing. It's actually. You don't necessarily need to be a trader. Right. You know, there's a couple of people who are not traders who are like. Yeah, it's, you know, because we give the margin to the people. So the goal is have the highest P and L at the end of the trading competition, but you don't take any personal risk. We give you the margin and the winner wins $1 million, which, as a trader, you go 1 in 100 shot of $1 million, like ev. You know, 10 grand. Ish. But also, I'm the best trader, so really it's more like 50 grand or 100 grand that I'm going to walk away with. So it was actually quite funny how easy it was to get most of the people involved. They were like, well, I'll definitely win, so. Yeah, of course I'll play.
- [53:09]
Laura Shin
Yeah. I feel like I had one more question about that, but it fell out of my head.
- [53:15]
Kane Warrick
You were thinking about whether you could win the competition, weren't you? You're like, I could maybe do this.
- [53:21]
Laura Shin
No, there's. There's pretty much no way. Unless I don't. I'd have to just get super lucky. Oh, I remember. Sorry. I remember. So I'm so. I don't know if I fully understand, like. So they're not putting in their own money.
- [53:33]
Kane Warrick
You.
- [53:34]
Laura Shin
Oh, got it.
- [53:35]
Kane Warrick
We give the margin. Yeah. So what we're doing is we have a delegated trading system, so we are going to get an address from them and give that address delegation power over a margin account. So they can't withdraw the margin, they can just trade it. So, you know, if they. If they lose it, that's fine. We're also. We've got. We've got an interesting little element where every day there's going to be a vote on Twitter for or on X, I should say, for which of the liquidated traders should get brought back in. And so, so that alone is going to be quite entertaining to see. Like, you know, if, if someone gets liquidated, can they rally the troops and. And, you know, get voted back in?
- [54:21]
Laura Shin
Nice. Honestly, now that I think this reminds me of the whole James win thing, but like in reverse.
- [54:27]
Kane Warrick
Yeah, yeah, we tried to get James win. I. I don't know exactly what happened there, but. But yeah, we thought he would have been pretty entertaining, but we couldn't. Couldn't quite. There are a few people that we couldn't quite get over the line, but I've got 48 hours to try and get them over the line now.
- [54:45]
Laura Shin
Okay. Okay. Well, it sounds super fun and yeah, we'll have to see what happens. I definitely will be watching this on the timeline and thank you again so much for coming on the show.
- [54:56]
Kane Warrick
Amazing. Thanks for having me.
- [54:59]
Binance Sponsor
Unchained is produced by Laura Shin, with help from Matt Pilchard, Juan Aranovich, Margaret Curia and Pam Majumdar.
- [55:06]
Kane Warrick
Thanks for listening, Sam.