Paradex and the Crypto Derivatives Landscape

May 14, 2024


Our fearless leader, Anand Gomes, co-founder of Paradigm and Paradex, sat down with Larry Sukernik, co-founder of Reverie for an action packed episode covering the dominance of perp dexes, the role of convexity, volatility and margin, building on Starknet and competing in a really difficult and dynamic market.

The conversation dives into the derivatives market exploring user categories, the popularity of perpetuals, market volatility, liquidations, and the role of convexity. Anand’s transition to building a decentralized exchange, and their decision-making process for launching on StarkEx. They also explore different bootstrapping mechanisms like user points, institutional liquidity, and long-tail markets.

Lots of gems in here for anyone looking to learn more about building a derivatives exchange!

Chapter 1: Commodities to crypto: Anand’s origin story

(00:00–05:00) Paradigm’s origin story and role in birthing the institutional market for crypto options

(05:00–06:30) FTX’s collapse, crypto markets grapple with counterparty risk

(06:30–08:07) Blockchains as trust machines, decision not to build another CEFI exchange, the birth of Paradex

Chapter 2: Why do institutional liquidity networks exist?

(08:07–10:06) What is an Institutional liquidity network? Who are the major Tradfi liquidity network (Tradeweb and MarketAxess)

(10:06–12:40) The critical role of block trading for large and complex orders

(12:40–13:05) How Paradigm killed the voice-brokers in the crypto options markets

Chapter 3: The evolution of Crypto Derivatives markets

(13:05–15:32) The rise and success of Perpetual swaps: Liquidity fragmentation and operational challenges in dated futures trading

(15:32–24:35) Have perps killed options in crypto? Can high leverage + high volatility replicate convexity? Will the reach for yield make options more attractive?

(24:35–27:00) Is volatility a good thing? Anand’s perspective as a marketplace builder

(27:00–29:30) The role of liquidations in crypto trading. How Paradex prevents “scam-wicks” and unfair liquidations via a super-resilient mark-price mechanism

(29:30–31:00) Building for the customer. The deliberate, relentlessly focused path to building the endgame for exchanges

Chapter 4: Why build Paradex?

(31:00–32:20) Why build a decentralized perps exchange? Market size constraints in Options.

(32:20–34:00) Custodial solutions are under attack. Post-FTX accelerated migration of users from Cefi to Defi

Chapter 5: Why Starknet?

(34:00–35:10) L2 infrastructure that is purpose built for high-throughput, gas and capital efficient derivative transactions

(35:10–36:45) Modular vs Monolithic. Security + performance considerations on picking Ethereum over Solana

(36:45–38:00) Validity proofs (over Optimistic proofs) as a better long term scaling solution for Ethereum

(38:00–38:37) Access to the Starknet leadership team and the co-inventor of zkSTARKs (Eli Ben-Sasson) and its role in our decision to build on Starknet

(38:37–42:00) Paradex = the KILLER App! Bootstrapping our own distribution. Factoring in pre-existing community when picking an L2

(42:00–42:27) Shoutout to Starkware - the most impressive and technically competent team that we have ever worked with!

Chapter 6: Competing in a really difficult  market

(42:27–44:45) Operating in a highly competitive marketplace - how do you balancing building for the long term while capturing user attention in the short term in a market where competitors take shortcuts (e.g. FTX)

(44:45–45:30) Are points the new meta?

(45:30–47:20) Paradex Pro League and gamifying the trading experience

(47:20–50:20) Points as a hooking mechanism. Addressing points fatigue by building long-term PMF 

Chapter 7: User Segmentation, GTM Sequencing, Points Program Design

(50:20–52:40) Who is your core user? Thoughtful user segmentation based on sophistication, motivations, capital at risk, and effort.

(52:40–54:20) The role of asymmetric information endemic to the art of bootstrapping liquidity

(54:20–57:00) Degens come for the shitcoins and stay for the blue chips. Long tail assets drive user behavior

(57:00–58:00) Pre-launch markets and innovation in Defi (as a differentiator to Cefi)

(58:00–59:05) Prioritizing engagement by offering a vast selection of tradable products

We hope this episode was an eye-opener for you guys looking to learn more about the derivatives market.

For the latest updates on Paradex, make sure to follow us on Twitter, Telegram, and Discord.

Heading 1

Heading 2

Heading 3

Heading 4

Heading 5
Heading 6

Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat. Duis aute irure dolor in reprehenderit in voluptate velit esse cillum dolore eu fugiat nulla pariatur.

Block quote

Ordered list

  1. Item 1
  2. Item 2
  3. Item 3

Unordered list

Text link

Bold text