The dYdX Boom | Antonio Juliano (10/6)

hey bankless nation welcome to another state of the nation super excited about the topic today and the guest we have david why don't you give a quick preview who are we talking about what's this about antonio giuliano from dydx who will be on the show for the third time because dydx continues to just deliver absolute groundbreaking uh just metrics and landmarks when it comes to decentralized trading now on layer two and so that is really the the story of

this week is that dydx has been doing more volume than coinbase and coinbase is the leading centralized exchange and not only say that again yeah you say that again dydx a order book based exchange that lives on an ethereum layer 2 is doing more volume than the world's leading centralized exchange and also all other d dexes on ethereum combined right and so this is an amazing success story out of a project that has been grinding for years so well deserved to the dydx team and i feel

like after one once you have like more volume than coinbase or more volume than the leading centralized exchange like we have a bunch of lessons to learn about how that story unfolded and so that is what we have to tell it today sorry yeah exactly that's the question this meteoric rise how did they do it what i love about this story too is uh no sacrifices and decentralization were made like no no no harm to decentralized protocols in the making of dydx which is absolutely

fantastic because there's so many like other alternatives out there that um sacrifice on decentralization and say hey decentralization is not what users want not what users care about but dydx is uh prioritized it the entire time right and now this uh this success it feels like an overnight success but it's really been like a five-year overnight success um i think a huge catalyst was uh the launch of layer two but i'm going to we're gonna let antonio tell us more of

this story so we'll get to that in a minute one thing i'd like to remind bankless listeners if you are a uh bankless listener and you want some let's see let me see if i can share this so you see my screen here david yeah i see your spotify okay exit that real quick all right what i was going to show you is this this is a bankless referral if you are a dydx user and you don't know about this or you want to become a dydx user we have a referral code for you to save 10 in the show notes you can check that out as well

just another gift from the bank list team uh go check that out but before we get to the main conversation david let's talk a little bit about what's new in the bankless community right now uh mariano conti on layer zero this new podcast where we explore the people behind crypto david that episode came out this morning i haven't listened to it yet i listened to all of them i haven't listened to this one yet give us a preview of what's in that conversation yeah the the really the fun part about the conversation we and we talked about so many things but uh mariano

ha he hadn't really like worked very very hard very much before ethereum and something about ethereum turned him into an absolute grinder one of the leading smart contract devs in all of ethereum so uh the story behind mariano specifically on that told in layer zero is like why did ethereum make mariano a hard worker uh when he wasn't that wait wait wait so you mean he he wasn't working very hard you mean he was like kind of lazy is that how he

he's definitely not lazy he's definitely not lazy now and so like yeah that's the story is like the story we told is the transition between uh being not a hard worker to one of the hardest workers in d5 wow yeah i'm looking forward to listening to that we also came out with a podcast on monday with um devin fincher who is the uh founder of openc that's an incredible i i think uh unicorn of the year maybe although dydx is a contender for that i don't know but uh you know open seas had just an incredible year no signs of slowing down

like three billion in uh transaction volume for the last two months and uh catch that episode if you want to understand why and how they are actually doing it david we've also got to give a shout out to zerion who is doing some magic in the nft landscape i use xerion for all sorts of things viewing my crypto portfolio uh viewing my d4 d5 portfolio but now they actually have a way to showcase nfts i'm looking at your oh my god everybody goddamn i need to get rid

of accidents you can't just keep them in here you know just pass them to your kids at some point in time hand them down and you know it's super cool i haven't um i haven't fully done this yet but i want to i want to borrow my wife's apple watch i don't have one but check this out you can use xerion to actually add your nft to be the faceplate of your apple watch that takes like 20 seconds to do that we want better ways to flex our nfts to

the world and i guess putting it on your apple watch is is an underappreciated and then and now available tool to all uh nfc flexors out there absolutely so flex your nft with style use xerion go check that out there's a link in the show notes uh to that where you can find all sorts of more information david i've got to ask you the question i ask before every state of the nation as well which is what is the state of nation today sir this one's kind of a cop-out but the state of the nation is decentralized

because more trading volume is going on dydx was a date which is a decentralized exchange then going on on coinbase or any other centralized exchange and so this is a huge victory for the world of being bankless and being self-sovereign uh and that is all thanks to the power of order book base and order brook base exchange on the layer 2. uh so today the bankless nation is a little bit more decentralized you know what i'm going to i'm going to plus one that because you know i was doing right before this episode i was reading up on uh

paulina if you've read anything that paulina has written he's a poster on eat finance also has medium but it made me so bullish on like layer twos and where that's going just so like a wealth of information and resource i think people are underrating layer two right now ethereum layer two specifically and we're in the season where they're overrating alternative layer ones that compromise on decentralization so yeah state of the nation is decentralized we're going to get into that in just a

moment with antonio talk about the dydx story but before we do we want to thank the sponsors that made this episode possible bankless is proud to be supported by uniswap uniswap is a new paradigm in asset exchange infrastructure instead of a cumbersome order book system where trades are matched with other humans uniswap is an autonomous piece of software on ethereum which is what ryan and i call a money robot no human counterparties or centralized intermediaries just autonomous code on ethereum input the token you want to

sell and receive the token you want to buy something brand new in the unit swap ecosystem is the uniswap grants program is now accepting applications for grants we have been saying this for a while and will say it again dows have money and they are in need of labor if you think that you have something to contribute to the uniswap dow apply for a grant to uniswap just look at the size of the uniswap treasury it's almost three billion dollars this mountain of capital is looking for labor do you have something of value to contribute to the

uniswap dow no matter how big or small your idea is you can apply for a uni grant at unigrants.org and help steer uniswap in the direction that you think it should go that's exactly what we did to get uniswop to be a sponsor for bankless and you can do the same for your project thank you uniswap for sponsoring bankless the era of proof of stake is upon us proof-of-stake systems like ethereum terra and solana allow the industry to move away from the hot loud and wasteful proof-of-work systems and return back to a cottage industry of

individual stakers and individual validators and that is what we need to make this industry stay decentralized individuals must play their part in crypto network validation and that is what lido is here to do lido makes staking accessible to everyone at the click of a button by delegating your stake to lydo's network of nodes you can access the yield offered by proof of sake systems and claim your share of the network transaction rewards do you have 32 eth and want to stake it to ethereum but running a node sounds intimidating or maybe you have less than 32 eth and

you need to pool your eth with others so you can access baking yields lido offers a solution for both simply go to lido.fi choose which assets you want to stake and deposit them to the lido validating network lido is working to make sure proof of stake stays as decentralized as possible and is committed to decentralizing its own validating network to eventually become a completely permissionless protocol so if you want to stake your eth terra or soul and get liquidity on your stake go to lydo.fi to get started

all right guys we are back with antonio giuliano he is the co-founder of dydx he's previously an engineer at coinbase but five years ago antonio antonio quit coinbase to build dydx now dydx has passed coinbase in 24 hour volume that's a crazy story we've had antonio in the show before twice but we keep bringing him back because he keeps delivering these crazy results and dydx is probably i don't know the story of the month of september so uh antonio

great to have you back how are you doing sir doing really well thanks so much for having me and excited to be on yeah well look you tweeted this out this is like a milestone type tweet um tweet this out the 26. you said five years ago i left coinbase and eventually founded dydx today for the first time dydx is doing more volume in trading volume than coinbase absolutely crazy can you get like hot first of all how does that feel and and give us a sense of like um you know did you ever think you would be

here yeah i mean i definitely did think there was a good chance we would be here at some point you know it's certainly not a given when you're building just a really innovative exciting new project in a really new space but this is kind of what we've been talking about for the whole time you know us and everyone who i think is excited about d5 just the potential like the reasons to use it long term um the potential growth opportunity with token launches which is obviously played into this in a really big way didn't quite think would happen this soon but

as you guys were alluding to in the intro it's certainly been a long grind on uidx but i think we have set ourselves up really well for success and that's always exciting it's really nice to be able to compare trading volume between coinbase and dydx just because like it's apples to apples but also coinbase and dydxes platforms are different platforms uh so maybe can you help the me and the listeners kind of just compare and contrast the differences behind coinbase and and dydx most notably in my mind like the

availability of assets i think is a lot lower on dydx which makes those volume numbers even more impressive and then also can you maybe clue us into like the number of users that are trading on dydx and if you do know the numbers on coinbase how those compare yeah great questions so i think there are a number of key differences between dydx and a platform like coinbase obviously the biggest difference is that dydx is decentralized non-custodial transparent all the good stuff you guys really preach and i'm sure the listeners can appreciate

um and then the other really big difference between dydx and a platform like coinbase is dydx is focused on financial derivative products and specifically perpetual contracts whereas coinbase for the most part is focused on spot trading spot trading is sort of just a fancy word for regular old buying and selling of assets um have touched on this before on the show but just a quick recap of kind of what financial derivatives are and why we're really excited about them um derivatives are synthetic products um

which can be created on top of any asset synthetic basically means when you're trading a derivative you're not actually trading the assets um you know that you know are under the hood so if you're trading like a bitcoin perpetual there's no actual bitcoin being traded or kind of being held on dydx or any other platform you may be trading perpetuals on but there are these kind of financial incentives financial mechanisms which effectively make these uh derivative products trade at the price of the underlying asset and that's really what

we've created on dydx and the reason people are so excited about derivative products and the reason they've been taking off in a huge way in cryptocurrency even before dydx has been that you can trade them with leverage and kind of what the concept of leverage means is that you can come to an exchange with say a hundred dollars and say you went to coinbase with a hundred dollars you could buy a hundred dollars worth of bitcoin and that's great you know we all want to buy bitcoin but if you come to dydx or you know a different platform that offers

leveraged trading and you are you know willing to lever up you could buy say 500 worth of bitcoin or a thousand dollars worth of bitcoin with your 100 through kind of the power of leverage um it's not without risks there are risks with trading on any leverage platform but you know for the most part that's what's been driving a ton of volume to these derivatives exchanges over time um the biggest exchanges in the space by trading volume uh in the past year or two have been finance and ftx and their trading volume has really been dominated

by you know trading of these derivative products and that's really why we're focused on derivatives at uidx you know zooming all the way out our highest level goal at tydx is to become one of the biggest exchanges in crypto period centralized or decentralized but kind of on a three to five year time horizon and that's what's really informed our focus on derivative products because basically by definition if you want to be the biggest exchange in crypto you must support the biggest trading markets and those are already and you know will continue to to be

derivative products um obviously we're making a really big bet on decentralized exchanges i'm sure we'll touch a lot on why we're all really excited about decentralized exchanges but i'd say those are probably the biggest differences between dydx and coinbase um certainly there are other differences as you mentioned coinbase supports more markets than dydx does however we've actually been improving on that quite a lot recently i think we're up to like 27 or so markets now i haven't checked how many coinbase has but yeah i think it's like 50 to 100. um but i think last time

we spoke on the show dydx had on the order of like five markets and i think we talked on on the show back then about you know all this stuff that we were working on uh from a tech perspective to enable us to launch in a lot of new markets that's driven a lot of growth and sort of that thesis has come true so you know still not quite to the the level of a coinbase or especially like a binance or ftx on the number of markets but what i would say there is most of the trading volume in crypto happens on the top assets um so you know bitcoin and ether just drive

most of the trading volume and the space adjust those two so as much as we're able to capture that on dydx i think we have been successful there so yeah a lot there i'll stop there for now but i'd say those are kind of the biggest differences between the two i think another difference i'd like to highlight is that dydx doesn't have a native fiat on-ramp and coinbase does and that's definitely why coinbase is optimized for spot trading rather than rather than these uh perpetuals which makes it even more astounding that

dydx has beaten coinbase with trading volume because coinbase has hooks into everyone's bank accounts whereas dydx is it's kind of like the hard way where you actually can only take money from l1 ethereum and have that be deposited and that has also changed the probably the user profile both in the nature of what the products are on dydx and also how you get there it's probably also changed the nature of like what users are actually using dydx so maybe just to finish off adding color to the nature of

dydx could you also talk about like the general user profile who is trading on dydx uh are the amounts that they're trading on dydx more than you would find on a centralized exchange like coinbase what's just the nature of the user profile on dydx yeah absolutely so again because we're focused on these financial derivative products these types of products are just fundamentally more complex than products you'd find on a normal spot exchange like coinbase and therefore the types of users that are trading on dydx um are much more

advanced than call it like the average coinbase user dydx really isn't targeting somebody who has bought you know their first hundred dollars worth of bitcoin in the past week it's really much more targeting people that have you know been in the space for a while understand financial derivative products or at least want to learn about them um and i think that manifests itself in our metrics in a couple different ways i don't really know what coin basis numbers look like i would sort of guess their you know number of active weekly traders is probably in the hundreds of thousands to you know maybe low

single-digit millions on uidx just sort of for comparison on an order of magnitude i believe we have about seven or eight thousand weekly active traders um but as you say they're pushing much much more volume on average than sort of like the average coinbase user is so the the users that we're capturing are much higher value on average um there are a couple different profiles i think uidx is targeting both uh international advanced individual crypto traders you know people that likely have

traded derivatives and perpetuals on other platforms like finance or ftx before and then dydx is also targeting in a big way uh sort of all of the top crypto trading funds in the space one of the other really exciting things and probably the thing that i've been most excited about with all the uydx growth recently is that almost all of the top crypto trading funds um have already integrated with uidx or at least are sort of like talking with us about integrating and that's really exciting because i think

that's where the real trading volume and sort of the real value capture comes from dydx will always be a platform both for individual traders and let's call it like crypto institutional traders but i think a lot of these you know more crypto institutional traders had traditionally been hesitant um to enter d5 or you know there wasn't enough trading volume or activity there to make it make sense for them and that's really starting to change right now with uidx and i think that's really exciting that's awesome and i think that leads into uh the next question we we have for

you which is like what do you attribute to the recent success of dydx you guys have absolutely exploded over the last few months in particular um we have a few theories as dave and i were talking about this um conversation and i i wonder if you'd like to weigh in on these theories but then plea please like you know that like you know best on why you're actually growing the way you're growing but the first is the release of layer two i mean we've seen this story elsewhere with um actually infinity most recently not quite a layer

to a side chain but layer two lower gas prices um super important for scalability this the second is the dydx token and of course we know tokens are like steroids for growth and so duidx has injected some of those steroids maybe with a recent release of the dydx token and the third is maybe an increased focus on decentralization this comes out of you know some of the the shutdown of centralized exchanges in

china kind of um where is that volume going when it leaves uh huobi for example maybe maybe some traders are re-evaluating the importance of decentralization maybe some of that liquidity and volume is actually leaking into defy give us your thought on on any of those and then also tell us the real reason that that dydx has had such explosive growth this year yeah i mean i think you're spot on those are the top three things i would pick to focus on as well but maybe adding a bit

more color to that for those who aren't familiar with the dydx protocol token was released about two months ago by the dydx foundation and that has just obviously driven a ton of growth to the platform i think i probably even said this last time i was on the show but my mantra has always been you know dydx has been around for four years now so why did it take so long for the uidx token to be released and my thesis on this had always been that yes tokens can be just massive like

order of magnitude growth drivers for a platform but the way you really get big like the way you like really capture a lot of volume is you start by first of all making a great product um that is already growing organically um that has real use cases for people to to be able to use it and you also build a scalable product because just imagine if like you know the dydx token had been released but dydx were still operating on ethereum layer 1. that growth would not have happened you know one really exciting statistic

is we were only on dydx pushing multiples of all of the transaction volume on ethereum combined and i think we probably still are so you know it's sort of by definition that growth could not have happened on layer one ethereum so again we talked about this on the show before and i'm sure we'll touch on it again but as you say that launch of the layer 2 product was i think a really big step up for us in a couple of different areas that are super important scalability obviously the product experience is way better there's instant

trading cross-margining things and features users care a lot about and that product was already growing organically before the token launch and i think that's important and then you know fast forward to two months ago when the dydx foundation released the dydx token and i think the foundation did a really great job of just creating a lot of these liquidity mining programs um liquidity mining empirically has been super successful for a lot of different uh protocols in the space um so it's not really rocket science but

the thing that's hard i think um is what are you incentivizing with your liquidity mining programs are you incentivizing the right things and i think that's the real critical question and the thing i think you know the dydx foundation got right in the launch of the token there are quite a lot of different liquidity mining programs have to dive into any of them there are liquidity mining programs for traders on the exchange there were liquidity mining programs for you know past users of the platform liquidity mining programs for market makers which has driven a massive

amount of liquidity to the exchange there are staking pools and i think all of these together really play into incentivizing exactly the right behaviors that we want to see and that are valuable on dydx um so i've been really excited about that and then sort of your third point i think that's valuable as well i think that's sort of like the lesser points not that it's not important but i think that's just something that continues to happen over time as more people see the value of decentralization whether that's for transparency self-custody you know

censorship resistance and i think that's what makes us excited about the long-term growth prospects on the platform to what you said about the token the the beauty about tokens is that you can specifically engineer the incentives that you want uh out of a token that's just a tool that some some centralized exchange like coinbase and and ftx just can't really can't really figure out by the nature of their centralization and uh so it sounds like we're all on the same page about

where the success is coming from but antonio if i can pin you down to actually put some numbers behind this thing can you like divvy up percentage-wise what what amount of the recent dydx success can you attribute to the layer two was that like fifty percent of the success eighty percent of the success what about the token twenty fifty percent like what if you had to divide up the pie of the success where where is uh the success coming from i mean it's a great question it's a little bit hard to say because i think those two are really multiplicative with each other you know i don't think

they're like additive um and i think that makes it a little bit tough to like put specific percentages on it you know let's just take the world where like i said dydx is still on layer one with our old layer one product and the token was released on top of that product i think there would have been a good amount of growth sure but you know by definition we wouldn't have been able to scale to more transactions per second than all of ethereum and likely we wouldn't have seen even close to you know i would i would guess probably our volumes would be in like the tens of millions or maybe hundreds of millions of dollars um and

now we're in sort of the low single digit billions of dollars um you know but but also empirically like we had been operating on layer two for a while with more or less the same product um before the token it's getting better all the time but it's like more or less the same before and after the token um and i think before the token we're seeing daily volumes in roughly the 100 million dollar range and then as i say the you know now we're seeing volumes in the the two billion dollar a day or so range so empirically it's driven like 20x growth for us in the past month or so

the that growth is definitely being showcased very very well by the tvl chart for dydx which uh here it is uh i joked on twitter uh a little bit yesterday when i tweeted out this graph that it literally looks like the up chart emoji it looks like the same shape and so and um again i kind of want to return to almost the same question to what degree is this layer two incentivizing lockup in what degree is this yield farmer yield farmers seeking the incentives out

of the token and where have you seen token incentives really shine when it comes to attracting yield like what are they when they because there's so many different ways to do to do like dydx token yield farming on dydx because there's so many different ways to pay out incentives which ones have really resonated with the people that are seeking the dydx token and is that why we're seeing all of this lock up as well yeah i think that's a lot of it so so let me maybe at a high level just go through like all of the different uh liquidity mining programs that were

launched alongside the token because there are a couple of them and they are complex so feel free to just stop me and ask questions at any point um so it's kind of the first and most basic but also probably most important liquidity mining program is what we call trading rewards um this is effectively just incentivizing users um there's like a fixed amount of dydx tokens that are allocated to this program per month and then everyone gets a trader score on uidx every month and your trader score is based off of

the amount of fees that you paid on the platform multiplied by your average open interest on the platform over that month and average interest all that means is like you know the amount of positions you know if you hold like a thousand dollars worth of bitcoin on dydx for a month then your average open interest is a thousand dollars so you take these two things and you multiply them together and you know out of that you get a score and the reason you multiply them together um is that you know you need both of these things you need to be both actively trading and paying fees and you

need to you know just you know hold positions on the exchange so you could make a trade on dydx and exit it immediately but then your average interest wouldn't be too high and the other reason that it was set up this way is because these numbers are hard to fake right you know you literally have to pay fees on the exchange and you literally have to lock up capital to you know hold open interest um on the platform so it's really incentivizing and driving for the most part really organic uh volume uh in incentivizing

like the way users were already trading on the platform and on the exchange and i think that's that's pretty ideal um so that's kind of the first and most important liquidity mining program um another really important one that has driven just huge success to the platform so far has been uh there's a separate liquidity mining program just directed at market makers on the platform just a really quick overview like who are market makers what did they do and you touched on this before dydx is

an order based order book based decentralized exchange what an order book is is it's basically just a sorted list of all the prices people want to buy and sell at so when you're trading on dydx or any other order book based exchange you're trading against other traders on the platform and for the most part you're trading against market makers these professional trading firms which you know their whole job is to provide liquidity to people who want to trade on exchanges and to kind of put some numbers around this and uh you know explain why this is

so important liquidity is quite literally the most important thing to an exchange and the most important thing to traders on an exchange because it's literally the price that you get when you're trading on the exchange you know if exchange a is offering to sell you bitcoin for a thousand and one dollars exchange b is offering to sell you bitcoin for a thousand dollars of course you're just going to go and trade on the exchange that's you know willing to sell it to you for a thousand dollars just more liquidity gets better prices for traders and that's what traders care about obviously so anyways liquidity is super

important for an exchange uh to put some rough numbers around this roughly dydx had around one to two million dollars worth of depth what depth basically means is like how much can you buy within a certain amount of slippage or you know within a certain percent of the mid market price um we had about two million dollars before the token launch of depth on on the eth markets and to put it into context binance which is the world's most liquid exchange has about 25 million dollars within one percent of depth on their

bitcoin perpetual which is the most liquid product in the world or in crypto at least um fast forward to now dydx has created this liquidity mining program which quite literally incentivizes market makers based on their performance and one the other sort of more complex but one of the things that i'm most proud of that the foundation did um is the the foundation came up with this score for market makers on the platform as well which looks at all of their orders that they've placed on the platform for the entire month