B (4:28)

Okay, so let's talk about those licenses because I know you have a few and I want to make sure you understand what they allow you to do. I know that you're, I think you're registered or licensed as a broker dealer with the SEC and you also have a license with the cftc. Can you explain what those mean?

A (4:44)

Sure. So prior to getting licensed for this exchange that we're building, we also launched a US regulated multi asset electronic brokerage. So first we got licensed under the CFTC as an independent introducing broker, which allows us to introduce customer flow to futures options on futures and event contracts. And then we later got a broker dealer license under the sec, which allows us to allow our customers to trade stocks, ETFs, options on stocks and ETFs, things like cash treasuries, fixed income products. And so we think of US like a modern day competitor to interactive brokers. We have full API access and user interface trading for US customers and non US customers to get access to licensed and regulated US products. So that's sort of the first half of our business that's very much located in the US and domiciled in the US for the exchange we separately got regulated in Bermuda under the Bermuda Monetary Authority and we got two licenses out of there. The IBA license, which is a traditional sort of investment business activity license, allows us to, under our business plan have an exchange for derivatives on traditional asset classes like FX and stocks. But then in addition we also got the DABA license, the Digital Asset Business License for the purposes of allowing us to take stable coins as collateral for these traditional asset perpetuals and in addition to fiat currencies like US Dollars.

B (6:20)

Okay, one question I also had too as I was trying to make sense of perps for, for more traditional assets is, is how that aligns with CFDs which are used for non US investors to sort of make cash focused bets or place cash, cash focused positions on various asset classes. So can you kind of compare, contrast that for me?

A (6:42)

Yeah, absolutely. The biggest difference between a cfd, a contract for difference and a perpetual is the market structure around them. So when you trade a cfd, they're non standardized contracts and they are swaps that are traded directly with a broker and in which case the broker is taking the other side of the trade against you. And so what typically happens in the CFD market is if you do too well, the CFD broker basically shuts you off. It's almost like a local sports book. It's the reason why, you know, Kalshi is in many ways becoming more successful than local sportsbooks is because Kalshi is hosting a centralized, regulated, transparent, anonymous order book where buyers and sellers are anonymously matched and the exchange itself doesn't have any skin in the game between them. Where you know, we're doing the same thing on the perpetual side where, where it's a standardized contract, we host it, we do not have any internal market making or internalization. It's purely hosting third parties on the order book, trading with each other. And that's the biggest difference between them. Of course there's other differences like the funding rate mechanism. The actual thing that keeps the future in line with the underlying price for perpetuals is this funding rate mechanism by which if there's a discount from the perpetual to the underlying asset, longs will owe the shorts at every funding period, whatever that premium is, or if there's a discount. Shorts will owe the longs that funding rate period. And it's that funding mechanism that establishes an arbitrage between the perpetual and the underlying and keeps it in line.

B (8:15)

Okay, so. Okay, that's helpful. So let's talk a little bit about and your, your company, your product. I mean right now you're just onboarding institutions, hedge funds like Crop, I guess, prop shops, like, like those types of entities. Do you see yourself primarily as like customer facing or you have like front end, back end, you offer a white label service. I mean what is your overall, what's your overall ecosystem going to look like?

A (8:41)

So there's the exchange itself which is you know, really a matching engine and a clearing system that helps, you know, compute real time margin and understand sort of the collateral value of accounts and issue margin calls and do all the sort of the risk management that is related to an exchange and clearinghouse combined. But we also have a front end, we have a web based front end where people can place trades very similar to your standard crypto derivatives exchange. And then we have APIs as well for people to do programmatic trading and portfolio management. And so with our exchange we're taking a hybrid go to market approach where absolutely a customer can onboard directly to us and sign up for an account and trade either via our GUI or our API. But in addition our plan down the road is to work with other intermediaries like brokerages and prime brokers and international fcms to distribute our products through their systems. And that could just be that intermediary provides some kind of capital or kind of omnibus account services for their end customers. Or it could be a white label type arrangement where they are hosting our products on their know, retail app, you know, their individual focused app or their institutional focused app that you know, is people are already used to using for other products that, that brokerage offers.

B (10:02)

Okay, great. So let's talk a little bit about what happened Black Friday because like anytime I hear about perps, just naturally that's where my head's going to go, at least for the next couple of weeks or months. What were your impressions of it? I mean clearly there were some, I don't know if market structure breakdown is the right word, but there were some hurt feelings, there were some significant losses and a lot of people heard the term ADL for the very first time. So why don't you kind of just walk us through kind of like what your experience was that day as I think a bit more of an outsider, but someone who is very well versed. In these terms and building something that is going to compete with the likes of hyperliquid. But looking at asset classes that are substantially larger in size than even bitcoin.

A (10:50)

Sure. So one thing I love about the digital asset space is that in many ways projects in crypto have completely leapfrogged market structure and traditional finance. But on the other hand, sometimes I see crypto market structure relearning the lessons from traditional finance that were sort of hard earned over decades. And one of those is sort of traditional risk management. And what happens during, you know, violence, price movements or dislocations or absence of liquidity in the market. So to me, what I saw was there was a temporary lack of liquidity on a major exchange. A number of other exchanges were using that major exchange's price to compute margin requirements and determine whether accounts were becoming underwater and therefore needed to be liquidated.

B (11:40)

I'm sorry, just to be clear, you're talking about Binance and those few different pools there in assets?

A (11:45)

Absolutely. And in traditional markets there are many safeties to prevent these kinds of, you know, flash crashes that existed on, on Black Friday, for example, price bans, you know, saying that, you know, the price can't move more than a couple percent, let's say, from a moving average or a previous close without taking a pause, giving market makers and liquidity providers a chance to reestablish liquidity, to take a breath, to, to make sure that that price is not actually permanent. But if it's an ephemeral price, it kind of bounces back and that you don't automatically liquidate customers based on just one wick down. That was the first thing I saw that went wrong. The second thing for me was that in traditional finance, in traditional central clearing counterparties like the CME or LCH in London or Ice Clear, there is a concept of tear ups where you have to tear up positions in order to kind of make whole. But it is never used. It is an absolute last resort. It is not a primary risk management tool. To me, what it looked like was there were liquidations, they couldn't liquidate fast enough, and then they went immediately to tear ups to be able to fill this hole. And that really breaches the trust and confidence of the people who are trading on the exchange. Because if you have your wins clawed back from you, or even worse, if certain participants are given preferential treatment and their wins are not clawed back, but your wins are clawed back, it's really hard to kind of reestablish the trust in the exchange going forward. And so in a traditional clearinghouse there are many layers of this waterfall. There's price bands, there's you know, margin calls, there is some liquidations, there's, there's a backstop insurance fund or a default fund that the clearinghouse itself provides. There's another layer where members of the exchange can post collateral and in exchange for some kind of a yield or rewards, they're the second backstop. Insurance itself can play a third backstop and then ADL or tear ups is at the very bottom of this waterfall and should almost never be used. And that's again something that we are hoping to bring through our exchange being, you know, centrally, you know, organized and regulated and licensed to make sure that we have the appropriate risk management procedures in place should there ever be sort of an extreme volatility halt Mantle leads.

C (14:09)

The establishment of Blockchain for Banking as the next frontier you are is the access layer that transforms Mantle Network into a purpose built vertical platform. The Blockchain for Banking that enables financial services on chain UR unifies and vertically aligns Mantle's focus on payments, trading and assets. MI4emmeth Protocol functions FBTC supported by developer grants, ecosystem incentives and the industry leading distribution platform through the UR App Rewardstation and BYBIT launch pool. All economic activity within UR will be captured by Mantle Network to further drive value to token holders and establish its significance in Blockchain for banking. Follow MantleOfficial to learn more. Quick pause. If you're deep in crypto but tradfi and macro is a different language, or you're in tradfi and crypto feels like chaos. We get it. That's why we created Bits and bips, a podcast that bridges those two worlds. No jargon, no gatekeeping, just smart clear breakdowns of how these systems actually connect. So you stop feeling lost when one side stops, start speaking their language. If this sounds like something you need, check out Bits and bips. You'll find the link right in the description. Just scroll down.

B (15:25)

So let's talk about specifically what that means for you. I mean for one, you're going to support a whole spectrum of assets. Where do prices come from? I would imagine they come from all different places because that's just the nature of different types of assets. But how do you pick those various oracles? And then obviously given what happened a couple weeks ago, I mean that just understated the importance of making sure that your price feeds are accurate. And I guess incorruptible might not be the wrong word, but even like inadvertently manipulated, Absolutely So I think there's maybe.

A (16:03)

Two things to mention that are important here. Both the oracle used for our perpetuals and then also how we determine leverage in the system, which I think is sort of the third thing that I saw go wrong on Black Friday. So to answer the first question, it is absolutely critical when you design a derivative product if you want it to closely track an underlying asset and you want it to be not susceptible to manipulation to strike that derivative product to a well understood recognized third party benchmark. So for example, for our currency perpetuals we are using the official WMR 4pm UK fixing rates for spot ISO currencies. And these prices are used for lots and lots of other derivatives like futures, ETFs, OTC swaps around the world already. It's a very well trusted benchmark that's been in place for a very long time. And we're leveraging this industry standard benchmark so that it can track as close as possible other kinds of derivatives on the same underlying currencies. When it comes to our design of stock perpetuals or precious metals metals perpetuals, we're taking a very similar approach of getting explicit permission for and getting the licenses for these third party benchmarks that are sort of trusted and not calculated by us to use to come up with the funding rates for these perpetuals. And then finally, when it comes to kind of computing initial margin requirements and maximum leverage, we are taking a product by product approach where the amount of leverage we allow per product is based on of our model that takes into account the last 10, 20 years of price history to ensure that, you know, we are covered in sort of like a worst case loss over the last 20 years. Compare that to a lot of, you know, existing, let's say decentralized exchanges that say thousand x leverage on everything kind of regardless of how volatile the assets are. Whereas they really should be taking a product by product approach.

B (18:02)

Yeah, I mean I, for the life of me, I can't figure out why anyone would need 100x leverage on, on something. I mean, I mean there are elements of finance that are pure speculation and I guess that's fine.

A (18:12)

But even that if the exchange offers a max leverage of X, then someone will take the max leverage of X. Like asking people to be more responsible and take Y for Y is less than X I think is not realistic. Sometimes I think exchanges are trying to make liquidations a business model as opposed to something that they want to avoid at all costs.

B (18:34)

Yeah, it's the same idea of, I mean, if someone's willing to lend me money to buy this house, I must be able to afford it. It's a similar type of thinking there. Okay, so I'd like to just kind of, I don't know if quantifies the right word, but I'd like to just get a little more tangible with some of these leverage examples because I think it's important. Like let's talk about gold for instance, if that's one that you have on top of your, your mind because of how much has been happening in the gold market over the last frankly year or so. I mean, how much leverage can someone take out if they want to put a position on gold? And can you maybe just walk us a little bit through the step by step of how they might have to post additional margin or sort of like help stabilize their position in the event of a big reversal like we saw over the last week?

A (19:20)

Yeah, absolutely. I think maybe using two more extreme examples would help. So let's take for example our Euro USD perpetual versus a perpetual on Tesla stock. So for Euro USD we may offer anywhere from 12.5 to 25x leverage, or in other words require as little as either 8% or down to even 4% initial margin to post to be able to open the position. And again, that's based on what we understand as the kind of worst case price move in an extreme circumstance for Euro based on looking at historical price trends and its historical volatility. Compare that to something like Tesla, which is a lot more volatile of an asset than than Euro, although not as volatile as Bitcoin. And for something like that, we may require a max leverage of only maybe eight to nine times or something like, you know, a 12% initial margin. So it really is going to depend on the asset that what kind of margin we allow. And in addition, sort of to answer your second question, we set our initial margin levels and then our maintenance margin levels as their position moves against them and it gets between initial and maintenance margin. We are issuing frequent alerts on the user interface over API and then soon in the future to email and even to over text to phones saying you're getting close to your maintenance levels, you need to top up and then to top up for the margin call they have a choice. Either they can send in traditional fiat currencies through traditional Rails like Fedwire, Ach, Sepa, Swift, whatever is required to get money into the bank, or they can send us stablecoins like USDC over a blockchain to the latter of which is likely going to be a lot faster and easier to sort of track, especially if they have to make an immediate margin call, and especially if they make a margin call on a weekend where, you know, the traditional banking system might not be open. And then finally, if the position gets, you know, too close to zero, then we will begin sort of an orderly wind down of trying to sort of sell, you know, bits of their positions without having, you know, too much market impact in order to kind of get them above water and make sure there's not a margin breach in the exchange.

B (21:42)

And what are those positions get sold.

A (21:44)

Off into currently the order book. Although we're also sort of exploring a similar type of system that a lot of exchanges employ where there might be a sequence of market makers that have signed up to backstop those positions sort of to take on failed portfolios in the event of a liquidation.

B (22:03)

Okay, and do you have an insurance fund or I mean, what is the rainy day fund for architects look like?

A (22:10)

That's right. So we've made initial contribution into our insurance fund. It's our intention to one, contribute a percentage of our revenues into that insurance fund on an ongoing basis. Second, that we might explore in the future, you know, specific kinds of, of fundraising, not necessarily maybe equity fundraising, but potentially debt fundraising to be able to finance a larger insurance fund. And then also that in the future we would consider allowing, you know, large participants to actually be able to contribute to that fund themselves with some kind of a yield based on, let's say, the, you know, the revenues and you know, exchange trading fees that we earn on the exchange.

B (22:46)

Okay, all right, all right, that's, that's helpful. I'm also curious too. You mentioned prediction markets a little bit in the beginning. I'd love to kind of get your thoughts on that. I, I could imagine because I don't believe poly marketer Kalshi, and correct me if I'm wrong, I don't believe they allow leverage. So I see a lot of potential interest from traders to use leverage to bet on sports outcomes, election outcomes, et cetera. What are your thoughts on that?

A (23:15)

So currently the derivatives clearing organizations, the U.S. regulated clearinghouses behind both Polymarket and Kalshi, do not allow for leverage. And one of the biggest reasons for that is that they currently allow customers to onboard directly to their clearinghouse. And in the typical sort of CFTC organized exchange market structure, in order to allow for margin or leverage, you need to be able to allow for fcms for these futures clearing firms to be in the middle of this and to be able to post on behalf of customers and deal with the risk associated with that, I don't know this firsthand, but they might be looking to expand their services to allow for margin and maybe that will one allow them to do margin trades on prediction markets and potentially let them get into other things like futures or maybe even perpetual someday. You know, I think that, you know, our approach is sort of from the opposite end of the customer spectrum. You know, we are not looking to onboard, you know, retail that are betting on, you know, sports and elections. We're looking for, you know, institutions that are looking to speculate and hedge, you know, important, you know, economically critical commodities and financial products and underlying assets necessarily for business. And so we're kind of approaching from the institutional angle first, in which case, you know, we think some of these products aren't necessarily as relevant for our customers.

B (24:34)

I think I saw interest rates though on your, on your website. Is that.

A (24:38)

Absolutely.

B (24:39)

Where does that kind of fit into it? I mean that's clearly much more essential to your business than like who's going to win the World cup next year. But sure.

A (24:48)

So interest rate futures are some of, if not the most liquid futures on the cme.

B (24:54)

Okay.

A (24:55)

And interest rate swaps are by far the most liquid.

B (24:59)

Oh, I see, I see.

A (25:00)

In the world. I mean, you see interest rate swaps are trading between banks in the, in the order of 10 to 20 trillion notional per day. So that, that's sort of the arena in which we're competing here.

B (25:10)

There's an actual contract that you're mimicking just in perpetuals than just speculating on what the Fed's going to do in its December meeting.

A (25:17)

Exactly. One that actually sort of tracks in a kind of market derived way, kind of, let's say the on the run curve for the two year or the five year.

B (25:25)

Okay, got it. A couple more questions and then we'll start to wrap up. I'm interested in how tokenization, like the drive towards tokenization fits in with what you're doing. I mean obviously if you're structuring contracts where people basically just use funding rates to compensate each other for taking various sides of a bet, tokenization is not quite as critical to your business. But you are taking stablecoins as collateral and obviously tokenization, the liquidity of it is going to have an impact in how the markets that you offer are going to trade moving forward. So what are your thoughts there?

A (25:58)

I am most excited about tokenization when it comes to new forms of derivatives, collateral. A perfect example of this is that there are a number of on chain money market type instruments that sort of mimic like a CD but in the form of a token. And what's nice about that when it comes to derivatives is that it mimics something like a USDC or USDT in that you can move it instantly on the blockchain in and out of your collateral account on an exchange, but it mimics a money market fund in that you can continue to earn interest and yield on your collateral while it's locked up being used as margin for a futures trade. And so the more types of these kinds of things that exist, I think the more options people will have to kind of maximize their capital efficiency and their total yield by using them in concert with trading derivatives.

B (26:53)

And that's similar to like, I know, like I think Falcon X and maybe a couple other primes, they accept Biddle as collateral. I know, I think some are accepting USYC or some of those types of things. So that's, that's sort of where you'd like to go next.

A (27:07)

Absolutely. There's, there's Bilateral from blackrock, there's Benji from Franklin Templeton, there's usyc which was hash note that got acquired by Circle, which is, Circle is actually also regulated in Bermuda in addition to being in the US and so there's a lot of potential overlap there. These are the kinds of things we're very excited about over time. We're also excited about stable coins for non US currencies. So for example, you know, we have a Euro USD perpetual that we're launching. It would be great to also be able to one day accept eurc, the Euro stablecoin or the Japanese Yen stablecoin in Japan as collateral because then people can make a kind of perfectly hedged instrument between a fiat currency and a perpetual and collect the yield that is derived from the perpetual product.

B (27:54)

How big of a step would then be to move to Bitcoin or accepting IBIT shares or potentially DAT shares and other things like that moving beyond just like cash and cash like instruments.

A (28:07)

Sure it's difficult for a non US regulated entity like our Bermuda entity to be a custodian for U.S. regulated securities and provide margin on that. But there's a lot of rules that are changing and things that are in flux right now with both the SEC and the CFTC such that there might be possibilities in the future, for example to leverage our US broker dealer for being the custody or working with a custodian, a clearing broker dealer to custody securities and provide kind of margin lending on top of that, such that people can create a perfectly hedged position and if anything's on the table for the future, we're going to start off very simple to start mainly with just with kind of currency and currency like instruments.

B (28:50)

Gotcha. Okay. And one question I want to ask you as well. We're in a world now where a lot of major exchanges, like crypto exchanges, I mean, Coinbase coins itself, the everything exchange. I mean, Robin Hood's offering tokenized shares and they're offering perps. Kraken doing the same thing, tokenized stocks. I mean, it seems like there's sort of this run for everybody to offer everything. And I, I know that that's not quite what you're doing. I mean, you're, you're focused more on, on, on perps and derivatives, et cetera. But it's easy to see like those big exchanges coming next few months and saying, well, we're going to launch perps in the US for crypto. Why don't we start doing this for everything else that we're going to support? How do you, what's your plan to sort of build a critical mass of users in order to, I mean, I guess a couple things. One, have some defensible size. And then also I'm curious too, like how you're going to build, you're going to onboard market makers or what are you going to do to make sure that funding rates are tight enough that there's not these like massive spreads and that you can create orderly markets for what appears to be a very wide menu of choices for your clients.

A (29:57)

Sure. So to answer the second question first, so we are offering multiple kinds of incentives for day one market makers that are going to establish liquidity and satisfy our market maker obligations, you know, being X percent, Y this amount per side, 80% of the time. And that's. We have multiple market makers that are already signed up for that program. And so that's how we'll establish our day one liquidity. And, you know, having those market makers there, you're absolutely right, is critical to establishing, you know, tight spreads and deep order books that are necessary to have any, you know, reasonable connection between the perpetual and the underlying asset. To answer your first question, you're absolutely right that in, in, in the world of sort of retail brokerage apps, which, yes, Coinbase is an exchange, but when you think about how they monetize, it's the millions of customers that are coming through their retail app and paying, you know, brokerage like fees for trading crypto and other products. Same thing is true for Robinhood, for Kraken, for webull for public. It's really a competition over attention. And even if crypto is the most profitable business line for all of those different applications, they need to have everything else or else people's attention will be drawn to some other app. Which is why you see Robinhood added prediction markets and Coinbase is looking to add stocks. And Coinbase is a multiple time investor and architect and we're very appreciative of the collaboration and partnership with them. To me, I see the future where we could potentially distribute our perpetual products through their front ends. We don't want to do the business of going out and acquiring millions of individual customers. There are plenty of other companies that have done that. We'd rather partner with them the way that let's say Kalshi has and distribute our products that way. And that's where we sort of think the future of our business lies as opposed to trying to compete to be, you know, the Everything retail app.

B (31:51)

Got it. Okay, so last question. I'd love to know one thing that keeps you up at night about your business and then what's one thing that you're really excited about or one development you're looking forward to that could really drive your business forward?

A (32:07)

Yeah, I think, you know, with any exchange you're solving a very difficult two sided cold start problem of getting the makers and the takers. And the question is, you know, why will the makers be there if there isn't, you know, juicy taker flow on day one? Why will the takers be there if there isn't sufficient liquidity on day one? So the biggest thing for us is really trying to establish both sides of that market as fast as possible, which we think we have a really good handle on and we're very excited about. So I think that's the biggest challenge for us as an exchange operator is making that happen. And then. Sorry, your second question.

B (32:41)

Oh, just something like what do you think is going to really unlock your business or just perps in general? What's one thing that you're particularly excited about?

A (32:49)

I'm particularly excited about rolling out the full array of asset classes on our exchange. To me, the really interesting capital efficiencies come in when a single customer can build a portfolio out of perps across multiple asset classes. You know, energy products, metals, stocks, stock indexes, currencies, and build, you know, a long short portfolio that's cross margined, all within the same system. That's really exciting to me. For example, let's say we have a, you know, a currency perpetual in some traders local home currency. And then we have a Tesla or Nvidia Perpetual. The idea that they can create a local currency hedged position by going, let's say, long Tesla, short Korean won. You know, that's, to me, really exciting. And so the biggest unlock for me, I think, is when we have all of these different assets together on the same exchange.

B (33:41)

Got it. Okay. Anything else you'd like to add before we sign off?

A (33:46)

Sorry, my dog barking there. Yeah. So the exchange is called ax, the Architect Exchange, and we just got our approval, and we're launching imminently. And so, yeah, we're excited for any institutional customer that's interested in learning more to visit our site, Architect Exchange, and get in contact with us.

B (34:03)

All right, great. Well, Brad, thanks for joining us. We'll have to have you back again soon.