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Wootrade / Kronos AMA Recap


On June 22nd, we hosted a live AMA Spotlight with Ran Yi, COO at Kronos Research & Wootrade and Ben Yorke, VP of Marketing at Wootrade.

This is the fourth AMA in our series focused on market making and institutional trading. Kronos Research is a proprietary trading firm conducting HFT across a variety of cryptocurrencies, markets and multi-strategies. They are one of the biggest market makers in Asia in crypto. Wootrade is a liquidity provider for centralized and decentralized exchanges, wallets, institutions, and traders, and it leverages dYdX liquidity as well.

Ran and Ben discuss:

  • Their backgrounds and the story behind Kronos and Wootrade

  • Frameworks for risk management in trading and market making

  • What's ahead for the Wootrade ecosystem

  • Recent macro environment in Asia

  • How trading on dYdX compares to centralized exchanges and AMMs

The video interview is available here.

A revised transcript is available below:

Vijay (dYdX): It's great to be with you today. My name is Vijay Chetty and I'm the head of business development at dYdX and very excited to be joined by Ran Yi, COO at Kronos Research and Wootrade, as well as Ben Yorke, VP of marketing at Wootrade, as well as Yiran Tao, China Growth Lead at dYdX.

This is our fourth AMA in our series focused on market making and trading. Kronos is a proprietary trading firm conducting high-frequency trading across a variety of cryptocurrencies, markets, and multi strategies. They're one of the largest market makers in crypto in Asia. And Wootrade is a liquidity provider for centralized and decentralized exchanges, wallets, institutions, and individual traders and it leverages dYdX liquidity as well. The next hour, we'll be talking about community questions around Kronos, Wootrade, and market-making on dYdX more generally. Please submit any additional questions in the chat and our discord in the AMA channel or on the YouTube live chat.

So Ran and Ben, thanks a lot for joining today. And to kick things off, wanted to talk a little bit about an overview of the story behind Kronos, Wootrade, what you guys do in a lot of the day-to-day. So why don't we kick things off by having you guys each introduce yourself and speaking about the founding story of Kronos and Wootrade. Ran, do you want to kick it off? Or Ben, if you want to go ahead.

Ran (Kronos): I'm Ran. Hi everyone. Thanks for having me dYdX. I'm the COO of Kronos and Woodtrade and we have two companies. The first one was founded about three years ago in 2018 and that's Kronos Research and we're a quantitative crypto trading firm. We specialize in more higher frequency strategies. By volume, we're one of the larger guys around and we trade a variety of making, taking arbitrage type of strategies on mostly centralized exchanges and dYdX is one of the first decentralized exchanges that we are trading on. That's Kronos in a nutshell. There are about 60 people, mostly in Asia. And we created a platform called Wootrade about two years ago and Wootrade is essentially a liquidity pool that aims to connect liquidity from around the world in CeFi and DeFi and across different chains. Yeah, that's Wootrade in a nutshell. So we have a partnership with dYdX. We're working to inject our liquidity onto dYdX and provide thicker order books there. Wootrade has about 40, 50 people now and it's growing fast. Yeah, that's the story.

Vijay (dYdX): Great. Thanks for that Ran. And Ben, so do you want to introduce yourself? And maybe you could speak a bit to sort of what the rationale behind the launch of Wootrade was and what you guys are hoping to achieve and the vision?

Ben (Wootrade): I missed Ran's intro, but Ran usually does a very good job of explaining how Kronos was created and then they saw the need for better liquidity and then that led to Wootrade. And then how DeFi has emerged and we have the same opportunities to do what we were doing in the CeFi space on the DeFi side. That's the main idea and I think we can get into it a little bit more later. I'm really happy to be here.

Vijay (dYdX): Awesome. So Ran, could you talk a little bit about the market-making strategies that Kronos focuses on and when you guys trade, do you generally stay market neutral or how do you think about market-making in general?

Ran (Kronos): Sure. So we have a few types of what we call high-frequency strategies. Market making implies adding liquidity to the order books. So we have a team that specializes in doing that and within this, we have a few types of strategies. So I think the more generic market making strategies are just posting on the order book and trying to get an estimate of fair price across different exchanges. So we will be posting across different exchanges around, what we believe is a fair price and whether it's DeFi or CeFi and a trade that happens, we hedge somewhere else and we try to stay market neutral. I mean, that's kind of very generic market making. But on top of that, we add in other types of strategies, including ones that are meant to... Some exchanges require us to fulfill order book requirements, so a lot of times we have strategies just for that just to post and improve the depth on the order book.

We also have strategies that are very signal-driven. I think that's where generally we are best at. So we have a bunch of what we call Alphas, which represent predictions of our strategies over some horizon in the future. In high-frequency space, it's a very short period of time. It could be something like 30 seconds to a few minutes, and we would add liquidity, post orders or take liquidity based on these signals, so then we're making or taking on exchanges. So then that's adding liquidity or generating volumes. So then both sides would benefit and exchange. So I think in general, that's kind of the active market making and the latter part is more signal driven.

We also have arbitrage type of strategies that look at price differences across different exchanges and spot futures, look at funding rates and tries to arbitrage out any price discrepancies between the different venues and between the different products. So that's another piece of high frequency. You can call that market-making because often it will be adding liquidity. Sometimes it's moving and it's often... the orders are placed very close to top of the book. I mean, these are the general types of strategies that we have.

Vijay (dYdX): That makes a lot of sense. And great to kind of hear a bit more around that. I'm sure, especially on the funding rate side you guys are seeing a lot of interesting dislocations and differentials there to trade. So wanted to follow up on the concept you mentioned around a fair price. And how do you guys generally think about what a fair price is in markets more generally? Obviously in crypto markets, there can be vastly differing prices on different venues and things like that. Is that something you guys have a high-level framework around that you could speak to?

Ran (Kronos): I would say it's just looking at where the liquidity is, right? So liquidity is scattered among mostly the top exchanges and some liquidity providers, and more recently in DeFi. So price discovery happens or the focus... I mean, if you imagine there are some trades that we call “lead-lag” type of trades where price discovery happens in one place and then it spreads across different venues. So typically now it's at a venue with large amounts of volume say Binance, right? And then it spreads across... lastly it goes to DeFi, to the AMM pools. I think that's kind of how that process happens. So then if you think about fair price, it would happen at a centralized exchange or a mixture of centralized exchanges. And the trend has been that price has shifted from Asia in the past few years where price discovery happens to more and more the United States, and I think more and more to DeFi.

So I think in the future, perhaps a fair price can be discovered on dYdX. So I think that's generally how we think about it. So it's a function of just general volumes and where liquidity and where all the people are.

Vijay (dYdX): That's great. Could you talk a little bit about the split of focus that you guys have? Speaking a bit about the split of focus around different products, how do you guys think about the split between spot and derivatives in your book, kind of a higher level and derivatives meaning kind of perpetual futures?

Ben (Wootrade): I can say that regarding options, it's not something that Kronos is doing quite actively right now. I mean, they're definitely exploring it. They're running a lot of tests on it, but a lot is on the spot and then on the future side.

Ran (Kronos): So we trade anything that's liquid... So if you look at just volumes across crypto in general, I think derivatives are 2-3X the total volume traded for spot. So I mean, in general, that's how our volume breakdowns would be. So 2e trade a lot of futures on centralized and now more decentralized exchanges and a lot of spot. Unfortunately options, one, there's relatively thin books in exchanges, or there's not that many exchanges out there, especially ones with liquidity and a lot of the action happens on like an OTC platform, like say Paradigm. So we don't, we don't trade a lot of options, but we do have a team that's actively trading options, but we don't have huge volumes for that. But for spot and futures we're typically I think top 10, if not higher on any of the centralized exchanges in terms of volume.

So essentially, I mean, as a trader, you go where the action is. So anything that's very liquid, there's a lot of participation, a lot of activity, a lot of volume. Kronos wants to be there to trade.

Vijay (dYdX): That makes a lot of sense. So the next question that we had here is really around kind of the operations and sort of a day in the life of Kronos at large. Like how does that look?

Ran (Kronos): Well, from the trading teams perspective I think... So everyone gets in at well. The trading team's headed up by Mark, one of the co-founders. And so he has a background from Citadel, from Knight Capital and has spent his whole career in high-frequency trading. Now we do have different heads of trading for different strategies, like one for arbitrage, one for systematic trend following, for discretionary, for each strategy and they're kind of different, but then everyone kind of... The first thing they do when they wake up is to check PnLs. So then whether we won or we lost money. So it's especially important on days that are very highly volatile. In those times, sometimes they will wake up in the middle of the night. So after checking PnLs, I think it's going through the motions of verifying that all the trade processes are working and seeing if there are any issues that popped up. There's actually not a ton of, for quant trading, there's not a ton of watching the markets and trying to think about market moves, that's going to happen in the future because that's what the machines are for, what the algorithms are for. So it's not like everyone's on shifts 24/7 watching the markets. It's more about seeing what happened and the PnLs that arose from that versus what we anticipated via what we call simulations. So the expected PnLs versus the estimated PnLs and then if there are discrepancies there. If there are discrepancies, then it might be an issue.

So then we break things down into researchers and traders. Traders focus on how to optimize our existing set of predictions or logic in generating PnLs and map that to different exchanges. So then every exchange, the infrastructure is kind of different and the microstructure is different. And that's kind of what we think about.

And so a lot of the time for the researchers have to discover new ways that can generate Alpha by looking at the data, by looking at all types of historical patterns and figuring out new signals. For the traders, it's just to optimize what we have on the different exchanges. And everyone works together. So a lot of work is done on the research side and programming side for the traders, because everything's algorithmic. What kind of discretionary decisions that come into play sometimes are what kind of routines the market is in, because... So for this month, the market is very different than say in April because volatility has dampened except for yesterday prices are very choppy. The market is choppy. It's not trending. There's a lot less participation due to the Chinese government regulations and such. So it's a very different environment. So then the models have to be tweaked to fit that kind of environment. There are assumptions that get built into every model because these things are not, so they're not perfect.

The assumptions get built in every model and that constantly needs to be tweaked. So I think that's... I mean, that's generally what a day will be like. And we have various risk management processes in place, so that if there's any instance of an event that happens with an exchange or with a trade the system starts pinging people and calling people. So sometimes during, say volatile markets or system failures, oftentimes exchange APIs or exchanges are down, the traders would be waking up in the middle of the night via calls by the system.

Vijay (dYdX): It definitely seems like you guys have a pretty robust system and kind of a framework there, and if there's ever any exceptions, the traders get pinged late at night. The last question we wanted to cover in this section is how do you guys generally stay on top of all the DeFi activity and determine which projects to get involved with? Are there kind of certain signals that you guys rely on for that?

Ben (Wootrade): And just following up on what Ran said, I don't know if that's a typical day with traders getting woken up in the middle of the night, but maybe in our industry, it happens more frequently than we'd like to. I think for the most part things are pretty organized. So yeah, it's not as much chaos as you might think.

In terms of how we stay on top of DeFi activity, I think we're a little bit different than maybe some of the other firms in this space who are more focused on things like yield farming and just kind of moving the funds around in a very active manner. Because we tend to, like what Ran said, we go where the action is, so we kind of know where we're going to be trading on, and then it's just a matter of adjusting the strategy for that. So active liquidity provision, like we're doing on dYdX or even on something like Uniswap v3, where you can be very active in it. These are things we go to. In terms of stats, I mean, volumes would be the key one. So you don't need very advanced stats to see how many users, accounts, daily trading volume. Like that's just something you can pull from something like CoinGecko or CoinMarketCap.

And then, personally, I also look at things like sentiment, for things that are more like on-chain analysis. But that's more of like personal preference, kind of seeing how individual tokens are doing, but that's different from trading. Obviously, the trading team will collect a lot of the data from the CeFi side, so they have a lot of data there. And then they just apply that to DeFi. So we're quite unique in that we kind of trade on both for that.

Vijay (dYdX): That's great. So why don't we switch gears a bit and deep dive on the Wootrade side of the business. I'll turn it over to Yiran to lead that section.

Yiran (dYdX): So I have some questions around the product and the community for you. So the first thing we are curious about is who is your target user base between Wootrade versus Kronos?

Ben (Wootrade): Target user base for Wootrade versus Kronos. So I guess Kronos, the user base would be exchanges and trading platforms. And then Wootrade we would break it up, I think, into like three main key ones, which would be individual traders, which could be either professional or retail. Then it would be institutional, which could be like an exchange client. It could be someone like dYdX or it could be like a trading team. And then the third one would be just like DeFi protocols, which is something like we're getting into with like Uniswap v3 or 0x or on BSC, some sort of aggregator like 1inch can be essentially like a broker by directing flow to us.

So these are three very different user bases and if you want to break that up within regionally as well like, I mean... This part can be quite complex, but yeah, I think all of those are people we're interested in because the number one priority is just capturing flow, a very diverse flow would be the key there from all different sources and then connecting it, aggregating it and that allows us to provide the best pricing and deepest liquidity.

Yiran (dYdX): So how does Kronos interact with Wootrade and also other decentralized exchanges like dYdX? I think you also mentioned some other DeFi protocols, right. Can you expand a little bit more about this?

Ben (Wootrade): There are two main ways you can kind of interact with Wootrade's network. You can either trade directly on it using it as a primary trading platform, or you can use it as a place to hedge. And so hedging is a way, like Vijay mentioned earlier about being market neutral, you don't want to have too much exposure to one asset, especially on market conditions like this week where you don't... So managing risk is very important. So when we're trading on dYdX for example, Kronos can be the active trader in dYdX and then hedge any sort of position risk on Wootrade. The benefit being that Wootrade, the low fees or zero fees and very deep liquidity, it makes it very useful as a place to hedge. It makes it very efficient for hedging. And we see other exchange trading teams using Wootrade for the same thing. So that's kind of the indirect usage of the network, using it as a place to hedge. I guess with something like 0x, which is like an aggregator, right? It's more of a swaps aggregator. It would be direct. So if any, like user would go into 0x and put it, we want the swap, there'd be like a request for quotes, an RFQ, that would hit us and then we provide a price. If the price is the best price, it goes directly into Wootrade there. So those are, I guess, the two ways that we interact.

Yiran (dYdX): Makes sense. So currently, what are some of the most top active pairs on Wootrade that people love to trade?

Ben (Wootrade): Generally speaking, the main assets like Bitcoin, Ethereum are usually top three. Sometimes if there's like an altcoin that has an incredible run, sometimes something like BNB or DOT or something like that could show up. We had DOGE showing up a few times during the spring, which was quite unusual, but it also spoke to the diversity of the flow on our... Well, it could be that. It could also be that a lot of professional traders are also using it buying DOGE. So I think the main ones mostly and because of our strength as an aggregator, it's difficult to aggregate these long-tail assets like the really small obscure ones on Layer 2s. So we stick mostly for the main ones.

Yiran (dYdX): And I guess probably some DeFi tokens, right? Whenever it's hot.

Ben (Wootrade): Oh yeah. Oh yeah. I think on our network right now, we have things like, AAVE, Curve, Synthetix, a lot of the main ones. And that's something we're looking to grow because... Also 1inch is there. These are tokens that can build these mutually beneficial synergies between protocols, a lot like what we're doing with dYdX right now, obviously, you guys don't have a token. But this is something we want to grow, mutually beneficial relationships.

Yiran (dYdX): And one of your advantage that Kronos can aggregate liquidity between centralized and decentralized exchanges. So even with the long tail assets, your users can still have the best liquidity among all the platforms, right?

Ben (Wootrade): Yeah, definitely. It's obviously easier to aggregate from some larger exchanges than others. And yeah, one interesting thing from a trading perspective is when we're doing the aggregation, it's important that we are also hedging our risk, our exposure. Like the trading team, when we are considering which assets we add to the Wootrade network, they always like to see one that has a top futures pair on a main exchange. Because then the futures can be an important way of hedging risk and that... Yeah, that's another factor and I think that might be interesting to your audience so they kind of understand how the different mechanisms work together.

Yiran (dYdX): So the trading volume and liquidity of the token future will be a consideration like whether you will pick this token for Wootrade, right?

Ben (Wootrade): Yeah. We have a guy on our team who put together this entire metric ranking and things like volume, things like the needs of the business development team, things of clients, for example, if dYdX has a token and they say, "We want people to make a market." This is all factored in and then we decide basically what gets ranked... what gets listed based on that. And we're doing about two assets per week at this rate. I think our flow team can handle that. Yeah. And so once we get to the top hundred, we got them all, then we'll kind of reassess the model.

Yiran (dYdX): How many do you have now?

Ben (Wootrade): Oh, good question. I think about... a little bit less than 40 perhaps, but yeah.

Yiran (dYdX): So you aim to have 100 tokens. Right.

Ben (Wootrade): Well, that's tough to say because everyone kind of says the top a hundred now because that's the size of the industry, but if the industry keeps growing then that... We just want tokens that have trading volume and demand. And so, yeah, well, I mean, we want to scale with the industry and we hope we'd see a world with even more diverse assets in the future.

Yiran (dYdX): I see. So in addition to the liquidity and also the token pairs, what are some other good features of Wootrade do traders most appreciate?

Ben (Wootrade): Well, if you're speaking directly, I guess the zero fee model I think is probably what everybody talks about first, because it's quite revolutionary for the space. Yeah. I mean, that opens up a whole new realm for things like hedging and different trading strategies that you might have if you can have zero fees with really deep liquidity. Yeah. So I guess that would be a big one. And we're very early stage. So we're taking in a lot of feedback from traders constantly and also trends from within the industry and we're using that to develop products that people want to use, that help people to make money through trading.

Yiran (dYdX): Can you explain a little more about the zero fee trading model? I'm sure some of the audience is not very familiar with this part.

Ben (Wootrade): I think it's something people are very curious by and everyone's always like, "Well, how do you make money? Are you front-running people?" There's a lot of suspicion. It's actually not that nefarious. I mean, it's basically instead of the exchanges taking a big fee and then using that fee to pay market-makers to trade, which is what happens on bigger exchanges, it's just a simple way of the market maker sharing the profit with the exchange, and then the exchange passes that on to the user. And we're kind of able to do this because of a unique position with controlling like... We also have Kronos the market maker. We also have Wootrade the network, so we spread this kind of revenue around. There are a few ways they do it specifically. I guess one would be like rebates on other platforms because Kronos trades very highly on every platform out there. So they get very favorable terms and when they get very favorable terms it allows them to be more profitable and then spread some of that profit back to Wootrade.

And it creates win-win-win situations across the board. Obviously like the exchanges that Kronos trades on are happy that Kronos is able to trade more, meet the terms of their contract. The users on that exchange are happy that Kronos is trading there and creating more better liquidity. Obviously, if Kronos is happy, Wootrade's happy, and then Wootrade clients are happy. So everybody, it's a very strong cycle there.

Yiran (dYdX): I see. But from a user's perspective, I don't need to pay fees for my trading activities, right?

Ben (Wootrade): Right. If you stake tokens, if you stake WOO tokens, then yeah. And it's not very much for retail. I think it's like a couple of hundred dollars now.

Yiran (dYdX): Okay. So I need to stake some part of the WOO tokens, right?

Ben (Wootrade): Mm-hmm (affirmative). Right, right. Exactly. Exactly. And then for institutions, it's a little bit more the staking amounts to get to zero fees.

Yiran (dYdX): Oh I see. I see like today a lot of our audience is from WOO token fans. So can you maybe explain what other roles the WOO token plays in the Wootrade ecosystem? What is the utility and why do people like the WOO token?

Ben (Wootrade): I mean, there's a lot of stuff that we haven't really announced because we haven't really gone down the full route of what we're building. Particularly in DeFi because in DeFi the industry is very dynamic with new products are coming out and our core strength as a trader is useful everywhere. A liquidity provider is needed everywhere, especially when we start getting into like Layer 2s, everybody needs liquidity. So for the token itself, it's mostly used like when we talked about to stake. So people who want to use the network stake it.

Because we're traders, we're very good at making yield and this is sustainable yield, low-risk yield. We've all sat through the last year and a half of DeFi and we've seen the ridiculous APYs 300%, whatever. I mean, that's not going to last forever and then there's a lot of users who want more sustainable yield. So this is what we're going to be able to provide and then the WOO token is going to be key to that as well.

Yiran (dYdX): So the WOO token may play a role in the revenue sharing of the trading teams profit?

Ben (Wootrade): Yeah, yeah, yeah, exactly. Yeah, it's just a different investment product really that we're building and those are going to be accessible through the WOO token, and then you can capture some of the value. So we're very optimistic that platform growth is going to be a key driver just as more people are staking, locking it up, and then on the other side, everybody wants a yield so that's going to be another key driver.

Yiran (dYdX): It seems that you also participate in some DeFi protocol governance from the Wootrade community.

Ben (Wootrade): I'm personally fascinated by the governance side because this is more than a blockchain issue. It's even like a social issue, how to get people engaged, put the interest of the protocol ahead of the interest of themselves, right? Like these are all things we deal with in society. And the blockchain level, we want to decentralize Wootrade because we want... The whole idea was to empower individuals, let the value capture flow to the token holders. Right. We're studying a lot of our partners. So anyone who has a DAO, we're looking at it. A great example is Bancor which is a swap on Ethereum. I think most of your DeFi users are familiar with Bancor. And they have a very active governance model, but it also has issues, right? So we're looking at all this and it's quite fascinating. But yeah, the WOO token over the long run, it will benefit us too from like a legal regulatory perspective to be a DAO.

And I think also from people who want to trade on a network, they don't want it to be like, "Oh, that's Kronos' network." We want this to be like a decentralized network that everybody feels welcomed in, everybody has a vested interest in and things like that. And yeah, I'd be curious how you guys are doing it on there as well. This is something we can talk about offline.

Yiran (dYdX): Yeah, of course. So my last question for you is that in addition to the things we have talked about, what are the growth strategies and your competitive advantage compared to others more established exchanges?

Ben (Wootrade): We don't see ourselves as competitors, right. The ideal situation is that every exchange that's out there right now, and then even more that are being built, these are successful and more people start entering the industry, they start buying cryptocurrency. These exchanges need liquidity, they connect to Wootrade's network, right? That's a perfect solution. And that's kind of what we're doing with dYdX, right? Like we don't want to build this decentralized futures protocol, and then try to market it, user acquisition and customers. We don't want to deal with this because that's what you guys specialize in, that's what other exchanges specialize in.

So we're very happy to be the infrastructure provider. In terms of what we offered as a trading network or liquidity provider, like our fees, because we're... the team, not me, don't get this wrong. The team is a very sophisticated trading team. I'm a very bad trader myself. But because we are quite sophisticated and from a traditional background, they're able to do things more efficiently, I guess, than other platforms. And that plays a huge role in being capital efficient, profitable. Another one is that we're very neutral and we're very protocol agnostic, so we're very easy to combine with other communities and we're also nice people, so people tend to like us. So I guess all of these things, we have quite a few competitive advantages.

Yiran (dYdX): So I think one special thing about you is that you started in Asia, but you are also globally respected and well known. So we are curious to learn more about, what are the advantage and also challenges of building in Asia and what kind of lessons have you learned?

Ben (Wootrade): Well, Asia is a very challenging market just because you have areas like Korea and Japan and China, Taiwan, and these are all different regions that are very different in terms of the companies that are there, the exchanges that are there, the language, obviously. So that's a bit of a challenge from a marketing standpoint and from a market penetration standpoint. But just like when you look at the volume of trading that comes from Asia, it's much higher than what you have in North America and then, I mean, you look at all the players in the space. I mean, they're all in like Singapore, they're all in Hong Kong, like Three Arrows Capital. Binance obviously came out of Asia. FTX, I think, is out here as well. So that's an advantage, I guess being out here.

Yiran (dYdX): So, yeah. What are the challenges building in Asia then?

Ben (Wootrade): Well, I mean, that would be the challenge. And then obviously from a trust issue, like when we're talking to these really big western entities, let's not kid ourselves, a lot of the investment is coming from Europe and North America. We have to be a part of that, right? If we're going to succeed, we have to be a part of that. So then the trust, I guess, because we're not there, you can't have face-to-face meetings. This kind of custodial stuff can be a trust issue. So that would be another challenge, but I think more and more, this is becoming less of an issue.

Yiran (dYdX): Less of an issue. Yeah. I see. How about building teams in Asia, do you see a difference building teams, like in the US versus in Asia?

Ben (Wootrade): This is a very interesting question because we set up our headquarters in Taiwan, which is very close to a lot of North American tech companies. You have like Amazon, Facebook and... A lot of people want to be very close to China without some of the more regulatory risks. So it's a very rich developer scene, but then on the back end, some of the strongest backend developers actually come from mainland China where they're very strong core competencies. And even ask them, they're the ones that obviously have studied abroad and worked abroad. Like they definitely feel like it's more of an institutional thing, but then you look over at the developers in the western side, maybe more indie developers like Cyberpunk type. Where it's less industrial development, I guess, would be an interesting way to put it.

So that's kind of the thing that we're doing, but we're hiring very aggressively in other markets because we want to have that diversity and to be able to be... each different, especially the things like front end and user experience, you have to have diversity to build a solid, strong product, like you guys do. I love your visual design, even your video intros. I use dYdX quite often. I've been using it since the Alpha and the user experience is quite high.

Yiran (dYdX): So the next question would be, what are the challenges of getting more Asia users and pro traders into DeFi? Do you see a trend that people are coming from Asia to DeFi? And if not, what are the things missing and what products should we do better?

Ben (Wootrade): Yeah, this is an interesting question. And we're seeing a lot of the curve in DeFi is going to more Korean DeFi products. We're seeing things like Terra getting a lot of growth. I mean, that's interesting if we have... Because we're supposed to be connected and global, but we still seeing like certain regions flock to protocols in their area. I think that's something we can do better. We can be more global and connect, collaborate better across regions. Especially like in China, it's very tough because of the regulatory situation now. But we would love to get a lot of the speculators. There's a lot of speculative money in China and you know that better than anyone in terms of getting people away from just buying coins and then getting them to using them. This is a difficult thing.

I think from a DeFi perspective, you guys might have an easier role of it, especially because the layer 2, the user experience is quite similar to a layer 1. You just got to get them to deposit on layer 2, and then it's essentially like a centralized exchange. I mean the feel, the feel is. I think that could be easy for you guys to do and that's something that we want to see happen and we want to help in whatever way we can.

Yiran (dYdX): For us, the user experience is definitely a key point, and through product research, that you need to look at your product, so it can fit different user habits. Yeah. So you also mentioned the current sentiment for crypto in Asia, so how are you guys planning for this?

Ben (Wootrade): Well, I think diversification is the right thing to do right now, right? You don't want to be stuck in one region. So we're building a more decentralized team, we're hiring in more regions, we're being more flexible, we're improving like our remote working strategies. This is all something we're doing, but we don't expect it to be like this forever, because we feel like, particularly about China I think a lot of the big Chinese exchanges they're already registered in Singapore, Hong Kong, so they don't even really fall under this category. So a lot of times it's big media hype, China bans Bitcoin. We've seen this so many times, but it doesn't actually have a long-lasting effect because, from a regular standpoint, everything is still the same.

Yiran (dYdX): Makes sense. Cool. I think I'm going to turn back to Vijay to talk more about the risk management, about market-making.

Vijay (dYdX): Yeah. Right. It's an interesting comment that you made Ben around more de-centralized teams, just in general. Even what we're seeing with companies like Coinbase in the States, and just kind of more distributed teams at large. So it's an interesting trend to watch. Cool. So why don't we bring it back a little bit to the trading and the risk management side.

Ran, you had given a great explanation earlier of sort of the operational framework for the trading team and just kind of the split between the trading and the research side, the signals you guys look for, the different kind of paradigms that you adjust to depending on market conditions and how you sort of manage hedge cases, like say the middle of the night kind of crisis situations which happen occasionally and probably in the last month a bit more frequently. Just wanted to talk a little bit more about that last one and just kind of the hedge cases of the market overall. So obviously we've had rapid flash crashes in the last month, but large, quick moves are very common in crypto. So how do you ensure you're able to provide liquidity in all market conditions, and what's your general sort of playbook in a market crash? Like, is there an order of operations that you guys will go through in such situations?

Ran (Kronos): I think there's a few layers of risk involved. So on a strategy level we limit... So we have an independent risk team of three to four people, and they would place limits on the sizing of all positions. So for each strategy, there's a maximum size involved in taking on a position and there will be what we call stop losses that happen when we pause trading and we would just flatten a certain symbol based on dollar loss. So that prevents us from losing a lot on any symbol. I mean, different strategies, we have different types of risk, like for an account, like a portfolio level, a drawdown stop loss. We have max, I mean, it's essentially restraining the symbol size and restraining the loss incurred on a single position, essentially that diversifies kind of the resources. And if there's any sort of thing that happens that appears to be earnest we have all types of checks for that. A lot of it can be exchange-related and exchanges have matured a ton since we started trading in 2018. But before there were all kinds of changes that happen without telling the users, like with an API change and such and then everyone would be really frustrated. So we built all types of things that can prevent even the kind of the craziest scenarios from happening and then we just sort of stop trading or flatten trades when something like that happens. So knock on wood, we haven't hit any sort of risk event in a long time because we've been through many, many such events in the past. We talked about it, so then the system would have all types of errors that pop up, and then it would call the traders and such, and then the risk team monitors everything. Our systems are pretty mature, I would say. And there are things like margin, so we borrow on and off venues and exchanges and we have risk checks for that. We try to work with lenders from... I mean, on the prop side, we need to borrow. We try to work with lenders that have more loose, flexible margin call terms instead of any sort of liquidation. I don't think we've been liquidated in any position in a long time. So we're very wary and we're very wary of leverage limits for single accounts, single positions. So everything is sort of checked and monitored at all times. And we have an independent team that does that. And on the strategy level, each team has its own checks and balances as well. So the whole system works well, and then we just have many, many layers of these things that happen. We have many such layers on operational risks as well, as well as security of funds, so that the whole system in place is... I would say it's rather secure and we're always trying to improve that process.

Vijay (dYdX): Got you. Yeah. It definitely sounds like a pretty robust system. And also kind of that you guys have kind of integrated a lot from the battle scars over the years. It's always, it seems like in trading what doesn't kill, you just makes you stronger.

And on that note, is there anything you can speak to in terms of Kronos' experience with integrating with dYdX's layer 2 perpetuals API? When you guys build your infrastructure, do you seek to build as much kind of in-house as possible, or are there cases where you may make use of third-party tools or aggregators as well?

Ran (Kronos): Yes. All of our infrastructure is built in-house. So we have an infra team that connects to APIs like dYdX and standardizes it for the traders, so that each trader they can just utilize whichever... they can use the same API to trade on any exchange, and then it's just adjusting the parameters and such. So we have that process going on. And the feedback that I received is that well, it's very different connecting to dYdX versus a centralized exchange. You guys are different, but then that's the same for say 0x protocol or somebody else, it's different. And we're kind of new to the DeFi space in general, as in starting this year. So it's different. The one thing that they asked for was more documentation on the APIs, so that every step and everything would be clear. But I think, as you guys have more traders and more HFT types of guys like us, I mean, that's going to be a natural process.

Other than that, I think it's been relatively smooth. It's taken us quite a bit of time, but then the trading has started and it will increase over time I think, quite rapidly. So now I think it's going pretty smooth, very smooth. There haven’t been any complaints. Yeah.

Vijay (dYdX): That's good. Well, let us know any feedback. Yeah, it's very much, I think that the team at dYdX has always tried to create kind of a seamless user experience, whether it's kind of on the front end or the APIs, and so developing robust API infrastructure for programmatic traders to connect into the order books has always been kind of a top priority for us. So that's great feedback.

So wanted to kind of wrap up with a couple of questions on the DeFi landscape at large and see if we had any other final questions from the community. So with Uniswap v3, we saw a return to order book concepts or principles, even in DeFi to some degree. And of course, we're seeing from a governance standpoint, market makers getting progressively more active and public, which is kind of a break from traditional finance in a way where market makers have tended to be behind the scenes. But it seems like in general capital markets, including DeFi, have seen this evolution over the last sort of few years especially. Curious what you guys think of that and what you see as the role of market makers going forward in sort of an evolving DeFi landscape? And what are you guys keeping an eye out for as part of that?

Ran (Kronos): Personally, I see a more important role in market makers going forward than... I think it'll be similar to the CeFi space where... I mean, it's two needs, right? It's one from the trader's perspective to get the best liquidity at the lowest cost. It's the same need in DeFi versus CeFi. Right now, it's kind of expensive in general. But I mean guys like yourselves and I think a few others are trying to reduce the costs and then essentially enable the same sort of trading experience on-chain versus off-chain, which is what I think you're trying to do and are doing really well at. And then on the market maker side, market makers always trying to find counterparties to trade against and compete on the best pricing and liquidity, which someone like Kronos or Jump or any of these guys are trying to do.

So then they'll meet and then I think the whole liquidity would improve them in the space as well as the fees would decrease. I mean, that's one of the things that we did with another exchange where it decreased swap fees down to 5, 10 basis points and it's received a lot of traction, there's a lot of flow from aggregators and such. So I think it's actually easier for a market maker to capture flow on-chain because of all the aggregators searching for the best prices and liquidity out there, like 1inch. It's actually an easier process than CeFi where everything is kind of siloed and DeFi with interoperability it's easier. So I think for the top 100, the majors, I think market makers will play a bigger and bigger role and then protocols would design themselves to fit these needs, like Uniswap v3, like dYdX, Hashwell. And what've done on DODO, it's fitting that role and it's just making protocols easier or it's giving more flexibility for market makers instead of everyone in the same pool, where you can't really add value as a market maker. And it'll improve pricing over time and it'll improve the whole liquidity and trading experience for people. I think that will happen for volatile top 100 types of coins. But for the long tail of assets, AMMs are great. I think that there'll always compete with market makers and AMMs are good for stablecoins. But for the major volatile coins that require predictions, that require very skilled risk management, the people who can provide the best pricing would get a lot of the flow. Because everyone wants to trade for cheaper, so I think market makers will... And then as different chains pop up, like Starkware or Layer 2s Starkware, Polygon and such, there's going to be people that need to bridge the liquidity, which is one of the things that Wootrade is trying to do right now. I mean, essentially an ideal situation I think it will happen if someone executes a trade on Starkware, on Polygon, on ETH. And it'll have kind of the best pricing and there will be the infrastructure in between that will provide liquidity and match up and connect all the liquidity. And that's what we're trying to do. So that's kind of the overall thesis for market makers.

Vijay (dYdX): That's a really interesting observation with just the fact that with DeFi you get a lot of visibility into the on-trend flow and market makers always trying to figure out where the flow is and so that discovery is a little bit easier there. That's interesting. And also in the layer 2 side, I was actually going to ask a bit about that, but it sounds like you guys are keeping an eye out for the opportunities around that. Is there anything that you guys are doing that's live in terms of L2 liquidity yet or is that something that's kind of up your sleeves and coming soon?

Ran (Kronos): L2, we're... Well, we're alive on dYdX now. We're going to be on Arbitrum pretty soon, I think. And in terms of the other sort of sidechains, like BSC, we've been live since March and Polygon we're on currently. And if you consider Solana kind of… EVM compatible. We consider each chain like an exchange. There are all types of participants and there's going to be people who are bridging the liquidity across exchanges, just like our centralized exchange. They're going to be doing this for these chains and there's going to be cross-chain swaps, which are happening, which we're also interested in, and eventually, everything is going to work together. It'll be, again, like if you place a trade on your favorite chain it's going to spread across the whole network and they'll get absorbed. And by doing that, the trader will get the best fees and the best liquidity, I think that'll happen in the long run.

Vijay (dYdX): That makes a lot of sense. So I think we're maybe at the hour here, so yeah, it was great to have you guys on and thanks for taking the time, really enjoyed the conversation. And I think we covered a very interesting range of topics and very cool to find out that you guys have not been liquidated in a long time as well.

About dYdX

dYdX is the developer of a leading decentralized exchange on a mission to build open, secure, and powerful financial products. dYdX runs on audited smart contracts on Ethereum, which eliminates the need to trust a central exchange while trading. We combine the security and transparency of a decentralized exchange, with the speed and usability of a centralized exchange.