In a candid and insightful conversation, Charles d’Haussy, a luminary in the blockchain industry, offers his perspectives on the present and future of the cryptocurrency market, the surging realm of decentralized finance (DeFi), and the transformative journey of dYdX, a standout name in the DeFi arena.
The Shifting Tides of Bear Markets
We begin with Charles’ reflections on the evolution of bear markets. He reminisces about the earlier days when they were both lengthy and intensely disruptive. During these periods, the crypto industry was still in its nascent stages, and any market downturn had the potential to drag everyone down with it.
«The earlier bear markets were a problem because the industry was small, and everyone was kind of going down. Nowadays the industry has expanded much, much more. It’s still a pain for everyone, but many people keep building. They have enough funding. Some projects are not getting too ecstatic when there is a bull market. Some projects don’t get too ecstatic when there is a bull market. They manage a treasury, and they can survive and keep building over years, which was not the case in the previous bear markets».
Fast forward to today, and we’re in a different landscape altogether. While bear markets may still pack a punch, they’ve become noticeably shorter in duration. The crypto ecosystem is broader and more resilient. The industry has learned to adapt and evolve, demonstrating a level of maturity that was once unimaginable.
What stands out in today’s crypto landscape, as the CEO highlights, is the link between the crypto market and the wider macroeconomic context. It’s no longer an isolated entity but a financial asset class that moves harmoniously with the global economy. This shift in perception and the recognition of cryptocurrencies as a legitimate financial asset class has invited the participation of a more diverse array of traders. As a result, macroeconomic factors now play a substantial role in shaping its dynamics.
Regulation in Transition
As our conversation unfolds, we delve into the regulatory aspect of cryptocurrencies. Charles forecasts that centralized exchanges will soon be compelled to obtain licenses, predominantly for spot trading.
«I’m not against regulations at all. I think they are important, and they should be contextualized and well thought out», — d’Haussy says. «The ecosystem of dYdX is very careful. We work with a lot of legal advisors and lawyers in general. Different companies involved in dYdX, depending on what they do, if they provide services or software, are also working very, very carefully».
Paradoxically, this shift could potentially expedite the ascent of DeFi, with centralized exchanges serving as bridges to the world of decentralized finance. The term “DeFi mullet” is coined, signifying the marriage of traditional finance (front end) and DeFi (back end) that could reshape the financial landscape in the years to come.
Nonetheless, the CEO notes it’s a pretty long process that can take 5 to 10 years minimum. He thinks the harsh events, like the collapse of FTX, bring much more awareness about the fragility of CeFi infrastructure.
«People realize they won’t be able to trade on CeFi forever, so they need to go and look at different places. They start their learning curve, understand how DeFi derivatives work, and get on board with different protocols. And their first stop is always dYdX. At the moment we represent approximately 1% of the total global derivative trading volume and recently we proudly celebrated achieving $1 trillion in trading volume since inception. I think the dYdX testnet was also a reflection of how many people have an appetite for DeFi and know that there is a serious infrastructure being built».
Charles also notes the current situation is very similar to what we saw in the early days of the Internet. People initially expressed concerns about it, citing issues like drugs, arms, and terrorist activities. There were calls for regulation, but these efforts yielded no significant results. Over time, it became evident that internet operators could establish guidelines, rules, and implementations, but the technology itself remained beyond regulation.
The head of dYdX Foundation believes such conclusions will apply to blockchain technology in general. Blockchain cannot be directly regulated, but the focus should be on regulating the actions of operators within the ecosystem
The Journey Towards the dYdX Chain
The dYdX Chain, as Charles elaborates, is the manifestation of the need for decentralization. Unlike many other DeFi projects, it’s not expanding but migrating to a more robust Cosmos infrastructure. It has set its sights on achieving complete decentralization, and a well-thought-out roadmap and a tech stack carefully guide this journey.
«I think it’s important in our industry to choose who you are and what you do. And dYdX has chosen to be DeFi. Not to be half DeFi or half CeFi. You want to be clear about your identity and working on this. So we will see how things evolve, but we see more dYdX becoming a public good, a public infrastructure».
Currently, dYdX employs an off-chain order book hosted on AWS, which is accessible to the public. This transparency arises from the practical limitations associated with existing blockchains, as no blockchain technology can accommodate the speed and volume of orders processed by dYdX, which routinely handles $1 billion in daily trading volume.
The dYdX Chain introduces substantial architectural changes, abandoning the off-chain order book. Instead, the order book resides in the memory of the validators, eliminating the need for waiting for block confirmation. While this decision stems from the inherent latency of shared blockchains, it aligns with their commitment to maintaining an order book system rather than adopting the automated market maker (AMM) model employed by Uniswap.
dYdX’s Evolution into a Derivatives Powerhouse
The CEO believes that dYdX will quickly become a vital resource for the crypto community, particularly in the realm of perpetual contracts:
«When analyzing the broader landscape of perpetual contracts, a historical perspective reveals a clear trajectory. In the spot market, Uniswap presently captures 5 to 7 percent of the global trading volume, emphasizing the growth and prominence of decentralized infrastructure. dYdX, with its 1 percent share in the crypto derivative market, is poised to follow a similar path. While the exact timeline remains uncertain, the historical trend is undeniable. The anticipation is that dYdX’s market share will eventually rise to 7 percent, reflecting the transformative potential of the next market upswing. As we continue to progress, the future is indeed promising».
D’Haussy envisions the platform as a significant player in the DeFi landscape, offering multiple avenues for users to engage with it. The diverse consumption of dYdX is already apparent in the current version, where individuals employ various means to access its services. Some opt for the convenience of a mobile app, while others prefer the web interface. A substantial portion of trading volume stems from institutional players utilizing API integrations.
This growing flexibility in accessing dYdX represents a shift from a singular interaction point to a multifaceted approach. Just as some users unknowingly engage with Compound, dYdX’s journey parallels this phenomenon. People can access dYdX through the official portal, centralized exchanges, insurance products, or various other channels. The overarching narrative is one of an application transitioning into a protocol, ultimately evolving into a public good for derivative contracts in general.
The DeFi Success Formula
Charles lays down a formula for DeFi’s success in his closing thoughts. It’s not just about tokenizing or digitalizing traditional financial products. True success, he asserts, lies in creating exclusive markets. These markets must offer something unique that gives DeFi a competitive edge and a clear value proposition for its users.
«Mimicking TradFi too much will bring nothing. If DeFi wants to be successful, we need to come at the same level of experience, and the same level of liquidity. And then we need to create products they will not be able to create. And then the competition is gone. As Peter Thiel says, competition is for losers. If you’re really a massive winner, if you’re visionary, you don’t compete. You create your own market. And my point is, DeFi should not compete».
According to d’Haussy, many people, tired of traditional finance, are stepping up to create something new. Some are skilled in coding, while others bring financial knowledge — the trend is growing, thanks to better infrastructure and open markets.
The CEO believes that not all these new ventures will be equally successful, but he’s still excited about the idea.
«When you give people the tools to create, they come up with different and interesting ideas. It’s the beauty of what we are doing. The key here is that dYdX shares these tools with everyone, making innovation accessible to all».
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