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Jean Miao: The Permissionless Protocol for Decentralized Perpetual Swaps on Arbitrum

Jun 24, 2021 ·

By Tom Shaughnessy

The Delphi Podcast Host and GP of Delphi Ventures Tom Shaughnessy sits down with Jean Miao, co-founder of MCDEX, a next-gen, fully permissionless protocol for decentralized perpetual swaps (perps). The two discuss the entire protocol from V2 to V3, the case for decentralized perps overtaking centralized perps and much more.

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 Music Attribution:

Interview Transcript

Tom (00:02):

Hey everyone, welcome back to the podcast. I’m Tom Shaughnessy. I help run Delphi Ventures and the podcast. And today I have on Jean, who’s one of the co-founders of MCDEX. Full disclosure, we are happy investors in MCDEX really excited for what they’re about to bring. Jean, how’s it going?

Jean (00:18):

I’m doing great. Thanks, Tom for having me.

Tom (00:22):

It’s a wild day in the market. We’re recording as bitcoin’s about to go below 30K. It’s kind of distracting to record the pod.

Jean (00:28):


Tom (00:31):

Yeah, it’s pretty early by you, or is it late? I forgot the timezone.

Jean (00:36):

I in UTC+8, so it’s like 9:00 PM here.

Tom (00:43):

Nice, well thanks for hopping on. Jean, why don’t you tell us a little bit about yourself before we jump into MCDEX?

Jean (00:49):

Yeah, sure. Yeah, I was with MCDEX for about I think about two and half year ago. And before that, I was actually… I’ve been with several startups, and most of them are within the internet industry. For example, the e-commerce and some AI involved. And besides that I personally, I have trading the crypto for a couple years before that, I do the spot, I do the futures, something like that. So it was more like myself interested to dig more in the blockchain. That’s where at the time I came across the founder, Liu Jie. And he just had the, I have to say the basic idea of MCDEX at that time. And I thought it’s pretty cool, so. I then just join the team, I start my journey with the MCDEX baby since then.

Tom (01:56):

That’s awesome. And I mean, why did you land on MCDEX again, like out of all the… I mean, there’s so many crypto projects out there such a huge design space. What specifically about MCDEX really got you going, or just the idea of it?

Jean (02:08):

Yeah, because I think when we started MCDEX at that time, the derivative space is not as crowded as right now yet. So the idea is that… Yes, that actually we want to build the decentralized BitMex at that time. And actually, you may know that before the MCDEX we actually have another business, which is basically a mining platform for the GPU mining. And so that is kind of our first step to get to the basic knowledge of the blockchain. And then we our team is actually have some, we have needs to have a bet with another company.

Jean (02:55):

At that time, what we do is to communicate it through the email, and then when the futures expired, and then we just settle it. And at that time, we realized that we really need a smart contract. And that is exactly what the DeFi do. So at that time, we gradually dig more into the DeFi, and since we have kind of familiar with the derivative. And we think this space has a huge potential, because when we take a look at decentralized exchanged. Derivatives is like several times higher in terms of trading volume than a spot market. So yeah, that’s when we decided to make the decentralized Vmax idea become a real thing.

Tom (03:40):

That’s awesome. And so MCDEX is starting perpetuals do you think everyone knows how large the traditional perpetuals market is, right. Well, I mean not traditional. I guess more centralized perp market. Because the traditional perp market in crypto, all the sects are doing like over I think 100 billion in volume per day. Do you think people are aware of just how large that product market fit already is?

Jean (04:04):

Yeah, so for… I think for now, people have some basic idea of how large it is. But if we take on a centralized changes right now. Only the Vmax, or [inaudible 00:04:19]. Where we’re saying about like several billions of dollars per day in terms of trading volume, and comparing to the DeFi right now. All I think is only several 100 million. So which there is like a huge potential, comparing to decentralized changes right now. So I think most… Not too many people has realized the power of it yet. Because last year, I get like the DeFi summer are all generated by the… I think the spot market lead by Uniswap. So, we have stated last year and this year, the year of 2021 might be the year of derivatives in the DeFi space. So we believe that with the revenues of the infrastructure.

Tom (05:11):

I totally agree. I mean, my next question I was going to ask you, why decentralized protocols shine compared to their centralized counterparts are doing so much volume. But that also kind of plays into just giving a brief overview on MCDEX. So I’ll let you take it where you want. But if you can give a brief overview before we go into specifics to that would be awesome.

Jean (05:31):

Yeah, great. So just as I just mentioned that to put it simple, we are basically building a decentralized BitMex. But MCDEX is a fully permissionless protocol for decentralized perpetual swaps. And we have been in this space for a while. And right now with our upcoming V3, which will be launched on Arbitrum. That we will have fully permission is protocols that allow anyone to create any perpetual market. And meanwhile, we have improved the capital efficiency of our V3 AMM, that realize their potential swaps. Which, is about seven times higher capital efficiency than our V2.

Jean (06:15):

And we are hoping that we could have the same user experiences as a centralized changes, which is exactly the users feedback that we’ve got from our test net. Yeah, so that is basically what MCDEX is basically doing.

Tom (06:38):

That’s a really helpful, Jean. And I feel like me, and you talk a lot, so we’re diving right into it. But for those who might not be up to speed, can you explain what a perpetual is in crypto?

Jean (06:49):

Oh, right yeah. So perpetual swap is actually the most popular way to trade cryptocurrencies for now. And the reason that it is popular is because it’s quite simple for normies to understand. Because, the price of perpetual swaps is usually [inaudible 00:07:10] packed to the spot market. But the difference is that you can use leverage. So it’s basically a tool that you can get the price exposure of the assets without holding it. So for example, you want to bet the price up or down of [inaudible 00:07:29]. And you don’t need to take us… You don’t need to hold Arbitrum to do so. If you can do so by holding USDC or something to do that. And meanwhile, you can use a modern system to have leverage to improve your capital efficiency for doing so.

Jean (07:46):

Yeah, so I guess that is why like, it’s something that is quite popular to trade cryptocurrencies. And when we are building something more like Uniswaps or the perpetual swaps something like that, yeah.

Tom (08:03):

Got it, that’s really helpful. And I mean, one thing that I guess is central to perp protocols is having the spot price of the perps or just I mean, not exactly the spot price. But having the price of the perps match the spot price of the underlying asset. Why does MCDEX do that in a novel way? Because a lot of the decentralized perpetual protocols, and we have investments in a couple… And there are a bunch, they do this in very different ways. How does MCDEX handle those?

Jean (08:30):

So this is a quite good question. Because generally, in centralized exchanges that stocked pack is down or is adjusted by the funding rate. Which, means that if there is more long than short in the market, then the long will pay the short. So, to incentivize the long positions to close. So this is usually what the central exchanges are doing right now. And let’s get back to the DeFi space. So, our ideas of dealing with the price that is stocked packed to the spot market is similar to the funding rate in the centralized exchanges.

Jean (09:16):

So as I mentioned that we have an AMM model that the users you originally only to put one token in a pool. For example USDC and when a traders trade against with a pool, for example the traders are long then the pool will hold some short positions. And so to put it simple that the AMM is acting as a counterparty of the traders, so. And here comes a funding payment that because that there is this logic is basically the same that if there are more long in the market, then the long will pay the shorts, then is kind of increased the holding costs to hold a long position that will push forward some long positions to close. And so in our AMM model, that’s because AMM is holding the net position of the whole market. So, if the whole market is more long than the AMM will hold the short position.

Jean (10:27):

So in this way, that the longer the AMM LPs are always receiving the funding payments. So this is how the funding payments design in our AMM model. Meanwhile, because as I mentioned that when the LPS has some positions then that there are some market making risks for the LPs. So we are also in our AMM algorithm, they’re also ways to adjust the funding payment so that we can protect the LPs risks to make sure that they’re getting some decent yield when they are providing liquidity to our AMMs. Yeah, so to put it simple the general logic is similar to centralized changes. But we have kind of a novel approach here by having our V3 AMM.

Tom (11:29):

That’s awesome, Jean. And we could definitely use this as a crash course kind of on perps too, because you’re showing a lot of awesome color. And I guess one follow up question, let’s say that the price of a perp, let’s just say a Bitcoin is 10% over spot price, or 20% over spot price. Now, the long’s are paying the shorts to disincentivize them to go long to bring the price back to the spot price. But how wild does that funding rate get? How variable is that? Does it just go… Just kind of skyrocket as you get further and further away from the spot price? Or how volatile is that funding rate?

Jean (12:05):

Okay, I see. Yeah, so I guess different exchanges will have a different approach here. If I remember correctly, that for example there a bit they have set a maximum funding rate there to about, I think 0.5 percentage or something. Yeah, so that is usually what our exchange will tackle this problem that we will set a maximum, some will set a maximum like vigor of the max on your range. So, that when the market have some situations that is kind of still adjusting the market. And so for ours for now, we have set a maximum up on the payment here.

Jean (13:07):

But it’s kind of, I can adjust it based on the [inaudible 00:13:11] if something that we have observed is not doing well. And then we may have like, we observed some potential that we can adjust it later on.

Tom (13:24):

Awesome, that makes a lot of sense. And one of the cool things about your V3 paper, which I remember reading it. I know it was kind of dating myself here. But when you guys release that, one of the cool things was that you wanted to assemble more funds near the index price. And in hindsight, it kind of feels similar to the concentrated liquidity model Uniswap a bit. I know there’s a lot of differences here. But can you kind of go into just the design goals of your AMM, especially with regard to the V3 version? Because there’s a lot of changes here versus V2 and want to make sure everybody knows the differences.

Jean (14:00):

Yeah, for sure. Yeah, as you mentioned actually our V3 redesign is quite similar to Uniswap V3. I think we could start with V2 then, which is the constant product pricing power that people are quite familiar with. So, as we know either constant product pricing power they are like laying evenly. The funds are laying evenly in the whole curve. But in a V3 design both in Uniswap and MCDEX aw have kind of aggregate more. Liquidated around the index, so that… So to put it simple is that more funds can be utilized when people trading. Because in our V2, we also have the Uniswap V2 content product pricing formula. Which, is we realized that more than 90% of the funds in our void just lying there and doing nothing. That’s exactly why we should improve the capital efficiency, they have basically two benefits here. First one is that we could easily to provide a much lower slippage with same funds in our AMM pool.

Jean (15:15):

The second thing is that the LP can receive much better revenue because they are share the transaction fee here. So capital efficiency, that’s why it’s both important for the traders and the LPs. So in our V3, the general goal is to improve the capital efficiency. And actually, we have another goal here, which I have touched upon briefly at the beginning, is that we want it to be fully permissionless, which I believe is kind of a pretty novel approach here for the decentralized perpetuals. And yeah, so that would be basically the two goals that when we are designing the V3 [inaudible 00:15:57].

Tom (15:58):

That’s awesome, Jean. And I mean, one of the things you have to run into is just I guess bootstrapping liquidity. So for traders that use MCDEX, you need a lot of liquidities that they can trade with low slippage. How do you kind of think through bootstrapping liquidity, whether that be with the token, or whether it be through different incentives? Because, that’s definitely central to the model here.

Jean (16:18):

Yeah, exactly. Liquidity is kind of the most important thing before we have the real traders. So, that’s exactly why we have just finished the fund raising. [inaudible 00:16:31]. And so most of the… I think 95% of the fundraising that we have will goes to the pool. And a very little part, I think the rest of five percentage of it will go to the insurance fund of the pool. So first of all, we have do some fundraising to bootstrap the liquidity. And secondly, we will definitely have a liquidity mining program when we officially launch the [inaudible 00:17:00] to the public. And meanwhile, actually, we have been talking with several institutions, who has the liquidity mining funds.

Jean (17:11):

So yeah, so also some of them are also investors. So yeah, so that is some several ways we are tackling the problem right now. And meanwhile, based on our test nets for the past about three months, we believe that with the proper amount, for example about $20 million in the pool, will be used are already for the traders to have kind of low slippage. So I’m pretty confident that, that figure is not that hard to achieve during the hour when we initially launch the V3.

Tom (17:54):

That’s awesome. And I guess the follow up question there is, who are you trying to attract, right? Like if you’re trying to attract retail, it’s kind of different from attracting institutions, because each have different volumes, different use cases, and might be more or less receptive to the token incentives, like an institutional trader might just want the best price or might just want the lowest funding rate or etc. It might not exactly be inclined by the token incentives. Do you think that there’s a difference here in attracting a different class of trader or investor or do you think that it’s kind of all the same?

Jean (18:28):

Honestly I think they’re not the same? Because, I’ve been thinking about these questions since day one. How to attract the real traders for the MCDAX. So for now, we usually kind of put them into two parts of retail and institutions. I think retail for now. Based on our V2 experiences, right now are most of them are DeFi traders, which means that they are kind of quite familiar with how DeFi works for now. And they also trade perpetuals they trade derivatives. So right now, I think in the market the volume are mostly driven by those. Mostly of them are retail traders.

Jean (19:15):

But I think in the long term, that’s all of our goal is to get the trailer who are right now trading on a centralized exchanges. But for them, actually I think there are several motivations for them to move from the CEX to the DEX. I think one of the key is that the user experiences should be the same with decentralized exchanges, because we cannot expect the users to accept the downgrade of a user experiences. I think that’s definitely not going to happen. So that is something the kind of the premise that we could take the CEX trades, and besides I think we should kind of provide them some incentives for retails that they kind of can have initial motivation to move. Because, moving a user from A to B is quite difficult because motivation should be strong enough. For example, the DeFi summer last year, I think that could be a great opportunity to move them to get a new users.

Jean (20:34):

And also the other part is more are the institutions that they may have some needs for the arbitrage for a hedge or something. We also have been talking with some of them already. And they are more kind of care about, like some of the API’s. Whether, they can like easily integrate with API. And whether they have very low cost when they are integrating with our platform. So it’s totally different needs here. And so I think in terms of MCDEX, we kind of have strategies for different terms. And for the short term, of course we’ll get with already here. And for the mid, and longer term that we are already… We are focusing on to get the two segments of the traders in a different ways, because as I mentioned that I do think that they’re carrying totally different things here.

Tom (21:36):

That’s really helpful, Jean. Yeah, I always think about it, perhaps being more of an institutional game, because I just never hear my retail focus friends like, “Hey, let me go buy some perps, or use a platform.” But I totally agree with you that it’s coming in. And it’s for both segments. And I guess just moving on, there’s a lot of competitors in your space, right? I mean, there’s probably 10, you have dYdX, you have perpetual, all doing some solid volume. But there’s a lot of specific differences between you and your competitors. How do you think about competition? What makes MCDEX stand out in a very differentiated way versus your competitors?

Jean (22:14):

Yeah, I actually we are kind of super excited for the strong competitors here. Because, that means we’re on the right track here, yeah. So because when we were doing this like two years ago, we are kind of have no competitors yet. Because, I think strong competitors are great, kind of the motivation for us to improve and to do better. And so right now, yes I think because of the uniqueness of the DeFi, I do think each perpetual swap on the market right now have their own approach here. For example, dYdX obviously more focusing on order book model right now. And like us, and some other perpetuals protocols are more focusing on the AMM model here.

Jean (23:12):

And there’s one thing that I want to emphasize, it is that what differentiates MCDEX right now is the… Again, the fully permissionless feature that I’ve touched upon. That we are kind of, empower the whole community to generate some markets to boost the whole perform equal to boost ecosystem. We get this idea actually from our V2 experiences, because at that time our V2 is kind of order book. And AMM is kind of a hybrid model back then, honestly at that time we don’t have such a clear understanding of both model yet. So that’s why we have a hybrid model at that time.

Jean (24:03):

And after we run for about like two months, we have a deeply understand how the order book model is different from the AMM model. Because, for example whenever we want to add one more market in with the order book model, we will need to involve the market makers. And we will need to provide some funds to the market makers. So, that they could do the market making. That requires a lot of fund and lots of operation side from the perp from us. So, that is why we think we should do it more lightweight that we could ship orders to the community to do that.

Jean (24:48):

For example, we have been talking with several projects that they have the need to have the perpetual market of their own token. So what they could do is, they could do some incentivize if their token holders can provide the liquidity to the pool. And maybe we can do some double mining here. So there are some other interesting way to generate the liquidity. To generate the trading volume. So I believe this is the uniqueness of the buyer that we should definitely take advantage of it. So this is a totally different way of trading perpetual the decentralized way. So we MCDEX, we will focus on this. We will use this advantage to the extreme, so that the whole ecosystem could boost future.

Tom (25:46):

That’s helpful. And I mean, you touched upon I guess the permissionless creation of different markets. How easy is that in practice? Can any token project go on and spin up a perp market for their own token? Or how does that work? Because, a lot of your competitors don’t have permissionless market creation?

Jean (26:04):

Yeah, for now not yet. So I think if, for example I want to be a creator of the perpetual market. I basically need to consider two things. The first thing is just to create it in our website, which includes several steps. The first is to choose the correct tool. And choose the market that you want to create. And the second is to choose a proper oracle that think might work. We have been in collaboration with basically all of the oracle teams in the space including chaining, bank teller, API three, etc.

Jean (26:49):

So one more thing I want to emphasize is that we also think Uniswap could be a decentralized, a perfect decentralized oracle, if they are… Because, we know they will also be on Arbitrum, so which is quite exciting yeah. So the third steps here is to set several fee models. For example, how much the operator charge how much goes to the LPs, etc. And the third part is about the risk parameters that involves to kind of bad and seeing the balancing the risks of our keys and the slippage of the traders. So yeah, so I have to admit that the creator of the competitive market is need some decent knowledge about perpetual swap at least. And the second thing that the creator needs to consider is how to get initial liquidity. Of course, we will incentivize some interesting pools, for example we’ve already launched a [inaudible 00:27:57] program, which is to incentivize some real world market, for example the stocks, the commodities, etc. So yeah, so these are basically two things that the creator need to consider when he come to create a market.

Tom (28:16):

Here, you can start it all like, just with the sheer amount of markets you may have, if you allow permissionless deployment of markets. Or I guess, put another way are you concerned that people might go into markets that might be like scammy? Or are you concerned that you might have duplicate markets with different fee amounts? I guess I’m just wondering how you curate the markets and the best way for your users?

Jean (28:41):

Yeah, that is something that we have been thinking for a while to tackle those problem. First of all, I think there will definitely be some, scammies and some duplicate market as you mentioned. Because yeah, we are permission just like Uniswap, there are many scammers on the Uniswap. So, first of all, I think It will happen. And what we secondly, what we are thinking right now is to how to help the users to choose the one then they might have less risks. So we have like, if we check the UI there are… we’ll kind of verify some operators. So, that if for example if the project in token production they created their own token. So we will kind of have a kind of a backpack or signal there to make the users easier to recognize them.

Jean (29:42):

So to put it simple, we kind of have a verification system initially to help the users to understand this better, because this is the first in the market. No one else had do this before. So I believe there are some market education we need to take care of. But I think gradually, when we do market education, when more users get familiar with this kind of permissions model, then we could cancel the verification system or something, that could also happen. [inaudible 00:30:20], yeah.

Tom (30:23):

That’s cool. That’s that’s great color. And one other… I didn’t need to cut you off. One other question just popped up is, I mean what benefits does permissionless market creation give to the long tail of assets? So all the smaller market cap coins out there? What are the benefits of having perp markets for those smaller cap tokens?

Jean (30:42):

Oh, I honestly believe that is the opportunity for decentralized changes to get… To take decentralized changes. Because if we look back on the Uniswap, but actually Uniswap doesn’t have decent trading volume until the token called AMPL, which is quite popular back in last year. And I clearly remember one day that the AMPLs trading volume is occupied 5% of… Sorry, 50 percentage of the total trading volume of Uniswap that day, that is because back in that time the AMPL, this tokens spot market is not on any centralized exchanges yet. So that’s why Uniswap trading volume is pretty large, because at that time [inaudible 00:31:35] is quite churning that day. So, if we use the same logic here that we look at the perpetual swap exchanges.

Jean (31:45):

That’s, of course for now for the mainstream market, I believe BTC and Arbitrum. For the mainstream market, the incentivize changes may have like pretty good liquidity there. But for the long term markets, we might have an opportunity here that we use a permissionless way that anyone can create a perp market freely and pretty fast. Then that will give us some kind of opportunity here, that we do have some long term market that decentralized exchanges doesn’t have yet. So, that could be a pretty good motivation to get the users who are right now trading on centralized changes. So yeah, so that is how I think of this.

Tom (32:36):

The selection of assets, the greater selection of assets. And I guess, the [inaudible 00:32:40] market for other coins to have perp markets is definitely a competitive advantage. I guess that the last question on that topic is just like, do you think that it’s a reality that we’ll have major volume for long tail assets? Because, I feel like a lot of the volume today on decentralized exchanges is basically just Bitcoin, Arbitrum kind of larger assets.

Jean (33:01):

Yeah, for sure. Because, yeah I believe so. But I think that is only like… How to say this. I mean, this is only like, we need a first motivation to move people here first. And then this is basically the first thing that we can do to get those users. Of course, we are still working on the mainstream market, so that they first trade and all come here. The long term market here. And then they realize they have experiences, the user experience here. [inaudible 00:33:38]. Oh, not bad. So then, then they check on the liquidity on Aetherium or Bitcoin here. And then oh, it might be similar or even better than centralized exchanges.

Jean (33:47):

So I think that is how we convert those users from the centralized exchanges here. So yeah, but of course in the long term, or we take in a macro way that of course, I believe just as centralized world that mainstream market like Aetherium and Bitcoin will take most of the trading models.

Tom (34:14):

So I guess you’re a believer that eventually decentralized perp place will overtake the centralized exchanges in volume.

Jean (34:21):

Yeah, that is exactly what we are working relentless for, yeah.

Tom (34:28):

That’s awesome. Yeah, no it’s crazy to think through it. Because I mean, there’s just so much volume on centralized exchanges. You have product market fit on one side, but you also have these gigantic rivals on the other side.

Jean (34:42):

Yeah, we do. So, that is… So sorry, go ahead.

Tom (34:49):

I just… Sorry, go for tit.

Jean (34:49):

I mean, yeah that’s exactly what is driven us. Kind of exciting because on the one hand, we have a huge financial of the market, and on the other hand we are pretty good, and pretty respected rivals or competitors here. So we are kind of driven, self driven and driven by the others too, to do better and better.

Tom (35:14):

I like that. And one of the other catalysts that we have in the market going on, it’s just like the layer two summer or we’re kind of almost halfway through summer getting DeFi. So it’s a little later than I wanted. But we optimism Arbitrum launching, you guys are launching with Arbitrum? How do you view your L2 launch? Is this a major catalyst for not only MCDEX, but DeFi on [inaudible 00:35:38]? Or DeFi on other platforms in general? Or how are you viewing it? Because, it feels to me like a major catalyst. But on the flip side it’s kind of always longer than we want until these things launch.

Jean (35:50):

Yeah, right. So, yes that is only one thing. Now I kind of [inaudible 00:35:54]. First of all, I believe that if on layer can only achieve some kind of… How to put this simple, smart contracts. For example, the Uniswap and the lending and something like that. So I believe that is exactly the, why that last the DeFi summer is driven by the spot market exchange, like Uniswap because on Arbitrum layer one, there’s no opportunity for derivatives like us. So for we are kind of have been expecting this layer two summer for a long time. Because, we believe with the readiness of the infrastructure the layer two solutions, that is a pretty good timING for derivatives project like us to shine over the [inaudible 00:36:46] now.

Jean (36:46):

Because without them, we can do nothing here. Because of the high gas, and also because of the user experiences caused by the congestion on layer one. So we are very confident that with the readiness of the layer two, there will be a huge boom of the trading volume of the derivatives exchanges. Yeah, but the downside of this data set is here right now we are waiting for the readiness of the… It takes some time, actually we have been testing on the Arbitrum for about almost one month here. And we are in a quite close relationship with them that we are kind of providing our feedbacks every day, and they are kind of testing and adjusting it.

Jean (37:34):

So I’m glad that those teams are quiet devoted to this. And I think Arbitrum team has been crazy busy the past one month or two. So I believe that it could be ready in a short time. The good thing we’ll [inaudible 00:37:54], yeah.

Tom (37:55):

Yeah, no that’s helpful. I think we’ve kind of grown past this, people wondering whether L2 is a reality because now we’re starting to have deployments, we have projects launching on them. So it’s less of a risk, I guess, and more kind of just a little bit of a waiting game.

Jean (38:13):


Tom (38:13):

And I guess just thinking back though, I mean you guys had development going on MCDEX V2. And you guys halted that pretty early on and you guys pivoted to V3, which is far less capital intensive and provides a better experience for LPs and traders. At that time. I guess my two questions are, what were your largest learnings from halting V2 and going to V3? And I guess my follow up question is just did you guys ever consider not building on [inaudible 00:38:41]. Maybe building on a fast rail one, so you didn’t have to worry about the L2 kind of question.

Jean (38:49):

Yeah. First of all, about kind of lessons learned that we have from V2. Yeah, that is exactly the reason why we have right now the current V3. Because we basically get what we learned and used it in our next product. So as I mentioned that back in V2 kind of have the hybrid model both with order book and AMM. So we have the opportunity to get the real understanding of the difference and the advantage of those models for the order books and for the AMM. And so our key learning is here the real power of AMM is that you can crowd form a liquidity. Because, on order book models the liquidity is not crowd funded. It’s provided by the market makers and as I mentioned and the market makers funds are provided mostly by the teams.

Jean (39:47):

So as you know teams the ability to raise a fund is kind of limited is much less powerful than crowdfund liquidity. So when considering AMM, that we think it’s the key to utilize the function that AMM can crowdfund the liquidity from anyone. So we could provide the [inaudible 00:40:14] to the traders. So this is the first thing that we realized that the liquidity or the way of get liquidity is different. And then also the cost of get liquidity from different models is different because with AMM model running, we have a proper incentive for the liquidity mining program is relatively easy to get enough liquidity. Because, many projects are doing that like they are quite easily to get several… tO get 50 million or six million also, it’s not a great amount of liquidity we get with the proper liquidity mining program.

Jean (40:58):

So, that’s the first thing that we realized. That the cost of providing liquidity on both models is totally different. So, that’s exactly why we only use AMM model in the V3. We want to utilize their power. And the second thing is that I actually have explained a little bit just now is about the operation, that if with order book the team needs to do everything. Whenever added one more market, we need to think about how to do the market making, or how to get involved market makers. It’s exactly what the centralized changes are doing right now.

Jean (41:39):

But we all know that right now, if we check on the central exchanges, they’re more than 100 perpetual market there. But however on DEX they’re usually 10, or 20 at most. So, the market diversification for DEX is quite poor now. So, that’s exactly why that we think we should do in kind of more [inaudible 00:42:04] that we want to make a market diversification decided or generated by the community. So, the incidence is more like infra here that we empower our other people to do that. So yeah, so this is a second learnings that we have is that we don’t want to do it in a very heavy way that we take care of everything. So, we want to do it in a permissionless way so that we can relatively easily to get involved more people and more institutions in the ecosystem.

Jean (42:39):

And so this basically are the two key learnings from the V2 another one is that… The third one… Yeah, the third one I actually have been talking a lot is about the capital efficiency. Because with our V2 we realize that with almost $100 million in our pool back in V2, and we still cannot compete with… We still have a very bad slippage for the traders such as now. So we cannot do that. Because, we need to 10 times our liquidity to achieve relatively better slippage for the traders, that is not the right way to do that. The right way to utilize to make full use of the liquidity in our pool instead of just make them lying there and doing nothing. Yeah, so these are basically the three learnings that we get from the V2. Sorry, I forgot the second question.

Tom (43:44):

No, this it’s a helpful dive and a candid one on why you guys switched from V2 to V3. And I mean, I guess the decision is never… I always like to ask teams, when they make such a foundational change to their protocol. It’s never easy. I mean, even doing it at a company is not easy. Was this something that was kind of decided upon, given the difficulties with V2? Or was it something more contentious, or was this kind of just the next evolution of growth for you guys?

Jean (44:13):

I think is more the lessons and learning that we get from the V2, and we analysis how it is happened. And we try to figure out any way to solve those problems. Because as I mentioned, there are three are problems that we are there from the V2. And in V3, we think that is the best way for now that we could think of to solve all of those problems. So I will say there is at least one good thing about who’s first movers here. Because, we kind of launched quite early, back in last year launch our perpetual swap. Because we can have some real experiences, with running it. And then we can get the quick market feedback and exactly what the users thinking about us. And then we can go on building and shipping building and shipping. So yeah, I guess this is how we thinking [inaudible 00:45:23].

Tom (45:25):

And Jean just switching gears a bit as we close out. I wanted to get a little bit into MTB the token. So can you kind of explain the token econ of MCB and MCDEX how to MCB holders profit off the success of the protocol. And I guess you plan to revamp the token econ, or introduce new roles like staking or insurance for the token? I guess you could just give an overview. That’d be helpful.

Jean (48:37):

Yeah, sure. Yeah, okay. So, I guess one of the novel approaches that we have for token economy is that we are related… We kind of related the issuance of the MCB to the trading volume of our platform. Because when we launch the V3 we will also launch the MCDEX Dow which has about and a lot will collect the certain percentage of the trading volume to it. So whenever there is $1 captured that MCDEX Dow [inaudible 00:49:13]. And there is one more MCB to issued in the future.

Jean (49:19):

So in this way that we kind of related the profit or revenue, the benefits of the holders to the performance of the trading volume. Which we believe is a totally sustainable way because as exchange, the fundamental business model is to have a certain amount of the trading volume and then we can get the transaction fee. So MCB holders, as the governor of the MCDEX Dow they have the right to decide the access that goes to the bout how to use them, maybe used to them to do the marketing, to do some investments, that will be all through the governance.

Jean (50:03):

Meanwhile, the holders can also govern on if there are certain amounts of MCB could be issue and whether we issue them. And if we issue them, how will we utilize them to incentivize the liquidity or incentivize the traders or staking? Yeah, so generally that for now, MCDEX the MCB holders are the governor of the Dow. Meanwhile, they have the full power to utilize the… To utilize the tokens and the funds in the bot, yeah. So there will be more utilities coming out, for example as we are all familiar that [inaudible 00:50:49] that the token can be used as the transaction fee as a discount or something. And we could do that in the future. And also, maybe the operators.

Jean (51:03):

Right now, we don’t have the thresholds for operators. So maybe later with operators [inaudible 00:51:10] some MCB to become one, something like that. So yeah, so generally the holder… MCB holders can benefit from… Govern Dow about which if the business is good, they will be a lot of [inaudible 00:51:25]. And meanwhile, we will have more dynamic utilities in the future for the tokens. So, that it related to the business model more closely.

Tom (51:39):

That’s awesome. And the staking aspect isn’t live today, right?

Jean (51:44):

Yeah, not yet. We actually, right now are having a community discussion going on about when we launched the V3 whether we should have the staking launch at the same time? And what’s the potential API of that something like this. This is like a community discussion here.

Tom (52:09):

It makes a lot of sense. And Jean, one thing I missed and we definitely have to do another pod to go into all the parameters on MCDEX. This is a great starting point is just that you guys offer limit orders, and that’s really important for traders, can you go into that before we close out?

Jean (52:23):

Yeah, for sure. So right now, the limit orders I have to say it’s more like centralized… It’s a little bit centralized way to deal with that, is that we kind of have a broker. That if for example, if I want you to have a limit order than the smart contract will set the kind of the request to the broker, and the broker will observe the price movement of the project pressures about if that meets the request of the of my needs. And they will like execute the orders. But this is extremely important for traders, because as a trader myself I think at least half of my trades are made by living others. So yeah, I believe this kind of function makes the user experiences a little bit more similar to the centralized changes.

Tom (53:24):

That makes a lot of sense. And Jean, what should people get really excited about? How can they get involved in MCDEX, where should they go? Definitely plug the exchange a bit.

Jean (53:35):

Right, so we have the Twitter, just go to Twitter search MCDEX. And we basically have all everything there. And for the community, we mostly have the Telegram and Discord community both. Yeah, so very welcome everyone to go there. And have a more deep dive and understanding of what we’re doing. And we have some milestones in the near future. So looking forward to it.

Tom (54:06):

Awesome, Jean. It’s been incredible having you on we’re so excited, you guys would have us as investors on the journey and to help you guys out. Really looking forward to making more of a series out of this. We can dive into other areas, but really appreciate your time today. This is awesome.

Jean (54:20):

Thank you, Tom. Thanks.

Show Notes

(2:06) – (First Question) – Jean’s Background and what brought her to MCDEX.

(6:29) – MCDEX Overview.

(7:56) – What is perpetual swap.

(9:21) – How MCDEX works.

(14:36) – Differences between V3 and V2.

(17:10) – Thoughts on bootstrapping liquidity.

(19:04) – MCDEX target / differences in attracting a different class of trader or investor.

(22:57) – MCDEX’s Competition.

(26:48) – How the permissionless market creation works.

(31:21) – What benefits does permissionless market creation give to the long tail of assets.

(35:56) – MCDEX L2 launch.

(38:52) – Lessons learned from halting V2 and going to V3 / why MCDEX switched from V2 to V3.

(45:55) – $MCB, the token.

(49:44) – MCDEX limit orders.

(50:57) – Where to find MCDEX.