In The Crypto Narratives Podcast which took place on August 7, 2024, Huf hosted Lafa from SYMMIO to discuss SYMMIO’s innovations in decentralized derivatives trading, the challenges of bringing derivatives on-chain, the importance of personal connections in the crypto space, the future of intent-based architecture in crypto trading, and more! Read our notes below to learn more.
Background
Huf (Host) – Founder of Pear Protocol
Lafa (Guest) – Core Contributor at SYMMIO
SYMMIO – a new trading primitive, enabling leverage trading of any asset on-chain
SYMM’s Peer-to-Peer Innovation and the Evolution of Crypto Trading
- Huf explains that SYMM is pioneering peer-to-peer OTC bilateral contracts. He elaborates that SYMM’s goal is to bring various assets onchain for permissionless, peer-to-peer trading. Huf expresses his enjoyment of the conversation, mentioning that they discuss the proliferation of meme coins, the challenges of building great solver technology, and the potential of SYMM’s projects.
- Lafa agrees with Huf’s sentiment about the importance of personal connections in the crypto space. He points out that many people in the industry overlook this aspect due to the prevalence of anonymity, but meeting in person adds significant value to professional relationships.
- Huf suggests structuring their conversation as a casual discussion about intent-based architecture, the future trajectory of the crypto industry, and Lafa’s vision for SYMM, rather than a formal Q&A session.
- Lafa provides a detailed account of his journey in the crypto space, starting from his reputation as the “nerd” in his social circles. He explains how this led to him being approached about Bitcoin in 2013, initially while trying to shed his “nerd” image. Lafa describes his immediate fascination with Bitcoin and how he spent years enthusiastically sharing his knowledge with others, often being labeled as the “crazy Bitcoin guy” in the process.
- Lafa talks about a significant shift in his perspective that occurred in 2016. He mentions meeting other long-time crypto enthusiasts who introduced him to concepts beyond Bitcoin, including altcoins and mining. This experience broadened his view of the crypto space, leading him to realize the vast potential for innovation beyond Bitcoin.
- Lafa explains his belief about the nature of order books in crypto trading. He argues that order books should be as centralized as possible for maximum efficiency, acknowledging the inherent challenges of combining centralized order books with decentralized blockchain architecture. This realization informed his approach to developing SYMM’s trading system.
- Lafa delves into the core concept behind SYMM, emphasizing the idea of a request-based system. He explains this approach is necessary due to the inherent limitations of smart contracts and the advantages of off-chain systems in terms of computational power and access to information. Lafa argues that this fundamental disparity between on-chain and off-chain capabilities is a key factor in the crypto trading ecosystem.
- Lafa discusses the existence and inevitability of MEV (Miner Extractable Value) in crypto trading. He contends that MEV is not a problem that can be solved through improved blockchain design, but rather a natural consequence of the fundamental differences between on-chain and off-chain information processing capabilities. Lafa uses this point to further justify SYMM’s approach to trading system design.
Derivatives, Crypto, and Finance: Lafa’s Insights on Reforming Financial Systems
- Huf asks Lafa why solving the problem of derivatives is the one he’s put all his efforts into, given his early involvement in crypto.
- Lafa explains that his experience working in a pension fund at 19 gave him insight into Wall Street and traditional finance. He argues that while Satoshi’s vision was to beat the banks after the 2008 crisis, most financial crises are actually rooted in derivatives, not money itself.
- Lafa describes his belief that a permissionless system for derivatives, where all players are incentivized to ensure fair play, could solve many issues in finance. He sees crypto as a microcosm of finance, where historical events from traditional finance are being replayed at an accelerated pace.
- Lafa discusses the ICO bubble, comparing it to the Dot-com boom, where thousands of projects raised millions without producing useful products. He then points out the concentration of derivatives trading volume in centralized exchanges like Binance.
- Lafa highlights a key difference between spot trading and derivatives trading in crypto, explaining that while crypto tokens are highly fungible, derivatives are not. He uses the example of Bitcoin perpetual futures on Binance to illustrate this point.
- Huf asks Lafa to elaborate on what he means by derivatives not being fungible.
- Lafa explains that Bitcoin perpetual futures traded on Binance are tied to the exchange’s continued operation and liquidity. He points out that this lack of fungibility makes it difficult to bootstrap new derivatives platforms, as liquidity tends to concentrate where it’s already highest.
- Lafa discusses FTX’s innovation in listing various perpetual futures contracts quickly, including for new projects and even presidential election betting. He notes that while FTX’s practices were ultimately fraudulent, the demand for such products was real.
- Lafa recounts his early experience with Binance, explaining how their “coin of the week” voting system attracted users and communities to the platform. He then contrasts this with SYMM’s approach, emphasizing that SYMM prevents hidden losses by requiring immediate, real-time settlement.
- He asks Lafa about the origin and pronunciation of SYMM.
- Lafa explains that SYMM is pronounced as “SYMMIO” and comes from the word “symmetrical.” He describes how the name reflects the symmetrical nature of trading, where long and short positions are paired, and the concept of symmetrical inputs and outputs in trades.
Challenges and Innovations in Creating an Intent-Based Perpetual Futures Engine
- Huf asks Lafa about the obstacles to creating an intent-based perpetual futures engine, noting that people are familiar with Cowswap for spot trading but wonder why this hasn’t been done for perpetuals.
- Lafa explains that solving spot trading with intent-based systems is relatively straightforward, comparing it to the evolution from centralized aggregators like 1inch to decentralized ones like Cowswap. He emphasizes that the step from centralized to decentralized aggregation in spot trading is small.
- Lafa contrasts this with intent-based derivatives, describing it as an “insanely big evolve step.” He explains that unlike spot trading, where solvers don’t need their own inventory, derivatives require solvers to have significant capital and be willing to hold positions for longer periods.
- Lafa highlights the challenge of collateral isolation in a global intent-based derivative system. He explains that on centralized exchanges like Binance, traders are in cross-margin with each other, allowing for maintenance margins and insurance funds. In a decentralized system, ensuring isolation while maintaining capital efficiency is a crucial research focus for SYMM.
- Lafa describes SYMM’s approach to solving the netting problem, starting with a simple solution where users could be in cross-margin with multiple market makers, but each market maker could only be in cross-margin with one user. He then explains their work on a more advanced solution where market makers can be in cross-margin with all their users, improving capital efficiency.
- Lafa discusses the challenges of bringing order books on-chain, using Binance as an example. He explains that if all orders and balances were visible on-chain, it would create a significant attack vector, as malicious actors could calculate how to manipulate the market to break the liquidation engine.
- Huf agrees, referencing examples like the FTX collapse and Three Arrows Capital, where on-chain data revealed vulnerabilities in liquidation thresholds and collateral exposure. He notes that this problem is even more acute for derivatives due to higher leverage.
- Huf summarizes the challenge SYMM faces: bridging the gap between centralized exchanges like Binance, which handle 90% of derivatives volume with opacity, and bringing this on-chain while addressing issues of speed, execution, and transparency.
SYMM’s Development Journey and Vision for the Future
- Huf asks Lafa to summarize where SYMM is today in its journey towards solving these problems.
- Lafa explains SYMM’s current development status, referencing a graphic on his Twitter that shows version 0.8 allows users to be crossed with multiple hedges, while hedges or solvers are isolated per user. He mentions they are close to the next evolutionary step where market makers can cross with multiple users, making the experience similar to a traditional order book.
- Lafa discusses the potential for SYMM to serve as a global OTC derivative settlement layer, allowing market makers to easily hedge and net their positions. He emphasizes the shift from solver-to-user relationships to solver-to-solver relationships in future development.
- Huf praises SYMM’s approach, noting that they’re focusing on optimizing for market makers rather than just building a front-end UI. He compares SYMM’s vision to traditional finance practices where risk is distributed across multiple parties.
- Huf asks Lafa about the big vision for SYMM three years from now.
- Lafa responds that three years might not be enough for the grand vision but outlines their short-term goal of getting as many market makers as possible on SYMM. He explains how SYMM allows market makers to stream quotes without committing capital or collateral, reducing risk and increasing efficiency.
- Lafa describes a long-term vision of building a global “hivemind” of market makers streaming quotes to each other, creating a system superior to both traditional finance and current off-chain centralized perpetual futures.
- Huf connects SYMM’s vision to the trend of traditional finance institutions like BlackRock looking to tokenize real-world assets. He summarizes SYMM’s potential to enable truly open, transparent, global trading of any asset or derivative.
- Huf asks Lafa about his views on the proliferation of meme coin trading and whether it’s good for the crypto space.
- Lafa expresses a neutral stance on meme coin trading, acknowledging that while he’s not personally interested, he understands its appeal to many people. He cautions against overestimating its long-term importance, comparing it to previous crypto trends like NFTs and ICOs.
- Lafa sees meme coins as generally positive for drawing attention to crypto but emphasizes the need for more people to advocate for caution and realistic expectations. He notes that meme coins can serve as a medium for conveying information about current events.
- Lafa concludes by suggesting that while some genuinely believe in the long-term potential of meme coins, many are opportunists repeating narratives that serve their interests. He predicts that meme coins will likely follow a similar trajectory to other crypto trends, emphasizing that everything in crypto is exciting and evolving.
- Huf comments that cycles are not unique to crypto, referencing Lafa’s background as a physics nerd.
- Lafa agrees, stating that everything is cyclical and “kind of like alive.”
Meme Coins, AI Hype, and DeFi Performance Trends
- Huf expresses concern about the current meme coin scenario, noting that unlike previous cycles where retail traders were the primary creators and buyers, now larger players like liquid token funds are allocating capital to meme coins. He worries this is diluting attention and capital away from more meaningful projects in the crypto space.
- Lafa acknowledges that this trend has been present in previous cycles, such as the ICO craze, but agrees it’s getting worse with each cycle. He notes that attention on real, useful projects is decreasing as a result.
- Lafa expresses his belief that the meme coin phase is temporary, pointing out that recent meme coin launches have seen less explosive growth compared to earlier in the year.
- Huf asks Lafa about his favorite Pear trade at the moment.
- Lafa suggests that AI and memes might underperform while DeFi could perform better in the coming period. He specifically mentions the $ETH-$SOL pair, believing that Solana’s current outperformance is largely due to meme hype and that this trend might reverse.
- Lafa also discusses the AI narrative, suggesting it might be dying down. He mentions potential trades involving Worldcoin or Bittensor, citing Nvidia’s recent stock performance and rumors about OpenAI’s profitability as indicators that the AI hype might be cooling off.
- Huf agrees with Lafa’s assessment of AI, comparing its current state to crypto in 2017. He suggests that AI has reached mass consciousness but now needs to go through a “winter of adoption” and use case revenue generation before the next wave of growth, which might take a few years.
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Show Information
- Medium: Apple Podcast (Audio)
- Show: The Crypto Narratives Podcast
- Show Title: #32: Lafa (SYMM)
- Show Date: August 7, 2024