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Pink Swan Trading: DeGen NFT Data Analytics, Building an Institutional Grade Crypto Options Analytics Platform, and a Business Wrapped in a CryptoPunk

Nov 29, 2021 · 60 min media

By Ashwath Balakrishnan, and Avi Zurlo

Director of Delphi Research Ashwath Balakrishnan and Delphi Ventures Analyst Avi Zurlo, sit down with Pat Doyle and Greg Magadini, Co-founders of Pink Swan Trading, a crypto data studio. They have in-depth discussions around their products DeGenData, a de-generative NFT data lab, and Genesis Volatility, an institutional grade crypto options analytics platform, and much more!

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00:02 • Ashwath
Hey guys. Welcome to the Delphi Podcast. I’m Ashwath Balakrishnan, the Director of Research at Delphi Digital, and I’m here with Avi Zurlo, who’s an analyst at Delphi Ventures. We’re here with Greg Magadini and Pat Doyle, who are the co-founders of Pink Swan Trading, a data studio that focuses on crypto markets. Greg and Pat, maybe we start off with the both of you giving us an introduction about yourselves, your past lives before crypto, and how you fell down the rabbit hole. 


00:33 • Greg & Pat:
Yeah, that sounds great. Thanks for having us. It’s great to be here. 


00:38 • Pat
Greg – maybe you want to kick it off? I think you’ve got probably a longer track record. 


00:42 • Greg
Sure. Yeah. I’m happy to go back to the beginning days. So, I first got into options in 2008-2009, and the first person I got into options with is actually a crypto veteran in the space as well, which is, Will Warren the co-founder of 0x. Back in the day, we were looking at the Investopedia billboards of these guys who made the most money. Some people were having billion dollar returns. I was looking at what are all their positions, and it was all options. So that’s when I discovered options. I fell down the options rabbit hole, understanding what they are, what is a put, what is a call, what is buying premium versus selling premium – those basics. Ever since then, I’ve really dug deep into options and have been absolutely obsessed with options. 2012 is when I first got into crypto by doing a research paper as a research university paper. 


01:45 • Greg
Basically, what I learned and what we did then was: we looked into Bitcoin, went on the dark web, we checked it all out. My conclusion was like, “Oh, this is pretty nefarious. I don’t want to invest in this.” This was $7 Bitcoin at the time. I thought it was one of those, “The government’s going to shut it down any second” type of deals. In 2013, I was a prop trader in Chicago, and I was still following Bitcoin. I saw Bitcoin break above $200 for the second time. $200 was the previous high and it was making new all-time highs breaking $200. That’s when I bought Bitcoin for the first time. I was like, “Okay, from a technical perspective, the fact that this thing has not gone away and is making new highs – this is a good buy.” That’s when I first got invested in crypto, and in late 2015, when Ethereum first started trading, I sold all my Bitcoin for Ethereum after learning the value proposition of Ethereum, and that’s when I met Pat as well.


02:50 • Pat
Yeah. When I met Greg, he was my intro into the crypto world. Prior to getting into crypto, I was working in healthcare. I was a data scientist at a device manufacturing company. The amount of technical work that you’re doing in the healthcare space is pretty slow moving. It’s pretty slow to make decisions. When I met Greg, he was telling me about Ethereum. I was like, “Wow, this is crazy! An open, permissionless, financial market and all the data’s publicly available. This is like, insane.” I went super deep down the rabbit hole as soon as I met Greg. I went straight down like, Ethereum solidity, web3 dev stack, started building dApps, doing more research, studying on-chain data. And, since Greg and I had met, we’d kind of been sharing research, building tools together in this space since early 2016. 


03:41 • Pat
We’ve kind of always been doing research and sharing tools and doing stuff together. Fast forward – while we’re deep in working together in the crypto space, just outside of our normal day jobs, we started seeing opportunities in the crypto market to kind of marry our two skills – Greg from the prop trading side and me more so from the technical standpoint and product perspective. We put our heads together and then, fast forward to January of 2020 is when we spun up Pink Swan Trading with our primary product focusing on the option side of the world. That’s what kicked off Genesis Volatility as our options product. So that’s our crypto story. 


04:25 • Avi
That’s awesome guys. You guys are true OGs in this space by now. I got to ask: are you ETH Maxis? Are you Bitcoin Maxis? I know we’re all open-minded here, but you guys have been in the space for a while now. 


04:45 • Greg
From my perspective, I think, I’m definitely an ETH Maxi. At the time when I sold my Bitcoin for ETH, to me it was mind-boggling that not everyone else was doing the same thing. Like, “How can Bitcoin still have the largest market cap? Youth is so much better.” And, I think that as a trader, I really undervalued network effects and first mover advantage, which is what makes me continue to be an ETH Maxi now even with the likes of Solana and all these other chains claiming to be ETH killers. I do think the network effects around Ethereum (even though gas fees are high, etc.) are hard to replace. I think it’s easier for ETH to find scaling solutions – whether from layer two or side chains or actually ETH 2.0 – and to implement those fixes than it is to bootstrap or move over the whole dev power behind ETH to another chain. 


05:43 • Pat
I think I’m on the ETH Maxi side as well. My position is more so rooted in being a builder in this space. When I was back in 2016, I was the same thing. I didn’t hold any Bitcoin. I thought, “You can’t do anything with it.” I was fixated on the idea that, “You need to be able to do stuff with that.” I mean, I guess holding it as digital gold has that narrative, but in terms of building things around that ecosystem, I thought, “ETH has such a growing developer community. The dApps are getting better. The UI is getting better. The number of people onboarding in the space is bigger.” So, I was kind of always more so on the ETH Maxi side of the world as well, but still open-minded. I’m open to competitors. I’m not shutting it down, but I think there’s a special place in my heart for Ethereum. 


06:32 • Avi
Yeah, definitely. I think same here. Now one of the really cool things that’s manifested from the ETH community are NFTs, right? NFTs were very much grounded on Ethereum. We’re now seeing them pop up on all other ecosystems and new collections every day. I want to touch on NFTs, especially because of your product, Degen Data. And, before we dive into what is Degen Data and all the cool things that are going around that in the near-term, I wanted to just know – what do you think was so revolutionary about a project, like say Crypto Punks, that brought it to its current state now? What about that revolution do you think is so impressive? 


07:28 • Pat
Good. question. I think one of the things that I didn’t realize early on was what the social community aspect of NFTs involves. I remember a friend of ours, Andrew Steinwold, that Greg and I had met up with right around the time we were both starting our business. He was telling us, “NFTs are the future. NFTs are the future!” I was like, “Alright, I’ll do some research”. He told me to research Cryptovoxels or Crypto Punks. This was around January of 2020. So, I’ve researched Cryptovoxels, because to me it made more sense to own a digital plot of land where you can build stuff and do stuff in it than it did to own a profile picture. Fast forward to March of this year, when we started diving deeper into the NFT space, the project Hashmasks was the one that kicked us into gear, and we started thinking there was some utilities, some mechanics of earning interest via some token. 


08:28 • Pat
Once I got into that, I started really going back to the OG projects like Crypto Punks and things like that. You start to see the provenance of owning a digital asset is the biggest innovation in this space. That’s where it started clicking. After the provenance, you start seeing the social components, the community involvement. From a crypto perspective, I think as Crypto Punks began to rally, it became like a really big skin-in-the-game type of investment. Like, if you’re long Ethereum, prove it by buying an extremely expensive JPEG, which at the time were maybe $10,000 to $20,000. I think those are the two combinations that I see where they’re starting to unlock a lot of value in the mind of people of as to what digital assets are, digital scarcity, what ownership means on-chain, and things like that. 


09:26 • Pat
The Crypto Punk community was the big one to unlock that. Although there were other projects before, that was like the first with some of the key innovations in my mind. 


09:40 • Avi
Totally. I think one of those landmark events that we saw just a few months ago was Visa coming in and buying the Crypto Punk, showing that they’re aligned with the crypto community. And, the purchase was arguably the best marketing campaign in history because they didn’t end up losing any money on operating costs. Instead, they actually bought an asset that basically tripled in value over the next year – it was really quite cool. Now, what are you guys doing in the NFT space now? You have Degen Data. What is Degen Data and what are people using it for? 


10:17 • Pat
Degen Data is an NFT analytics site. One of the things that we started noticing as people started buying and selling and trading and NFTs was that there’s a lack of resources, and there’s so much data on-chain to support and research projects for metrics like health of community growth, how floors are moving over time, how features of certain NFTs are trading, etc. Our thought was, “The value of an NFT is really captured in the metadata, and most of the metadata for these projects don’t live on-chain.” For example, if you go to Zillow, you can compare two houses, and yes, they’re both houses, but there’s so many features of a house that make it valuable. Our mindset was, “If you’re going to trade these things, if you’re going to research them, you have to understand the nuances of the metadata that drives the value.”


11:05 • Pat
That was our original thesis: “Let’s take all this historical trade data, let’s map it to its appropriate metadata, and give people those tools so they can start researching things like how the price of a crypto punk with a mole moves over time compared to those with certain attributes.” That was how we approached it from the beginning. As it grew and matured, we could start to understand more of, “Who are the collectors in the community? How many whales are holding X, Y, and Z NFTs?” So, it became a combination of trade analytics and community invvolvement, like, “How many holders are touching a project? Who are some of the most performant flippers in a specific project?” Because you can parse all this stuff out on-chain, it becomes really fascinating to understand who’s the best at trading this stuff, which projects are getting the most traction, which features are really interesting. 


12:02 • Pat
That was our approach. We focused on a small subset of projects that we think had a higher likelihood of sustainability rather than covering the entire market, because for the most part about 80% of the NFT market trades across 30 or 40 projects. We think about focusing on the high quality projects and building tools to support those analytics. 


12:30 • Avi
That’s really cool. I’m curious, what are some of the most interesting data insights that you’ve extracted through Degen Data? 


12:42 • Pat
One of the early ones happened shortly after Hashmasks. Somebody resurrected an old NFT project called Moon Cats. People were calling this the first NFT archeological dig. While that project was going on, we started looking through the data, and, because this was really early still, nobody knew how to value the metrics around the metadata for these projects. A lot of people were hitting us up. They’re like, “Hey, we need to know the mint order of all these NFTs. It’s not publicly available. There’s no metadata, but it’s all on-chain.” We basically went through and organized every Moon Cat and their mint order, and then went to Open Sea and bought all the ones that were early, all the ones that were from day one. Maybe not all of them, but we had a segment of each. And then, fast forward six months down the road, when the team that was running that project came back and put the metadata on-chain and started sharing it.


13:41 • Pat
The community valued the earliest as the most valuable assets. I think listening to the community for what they want is one big edge, and then being able to parse that out on-chain is where the value add is that we have.


14:00 • Avi
You guys have done something really interesting in my opinion, and that’s that you’ve actually branded Degen Data around a Crypto Punk. We’ve seen this happen for different influencers or people within crypto like Gmoney and Punk6259, but you’ve actually taken a business and used a Crypto Punk as the forward-facing identity. I know you have some big plans in the near-term for Degen Data, and I want to jump into that in just a moment, but before we do, what does that mean? Like, what does the IP around an NFT mean? And what do you think it enables for businesses like yourself or creators to do. 


15:01 • Pat
That’s a good question. You kind of hit the nail on the head. If you look at the reputation that people are appending to an NFT, like Richerd has the 3d glasses, so if you think about 3d glasses, you think Richerd. People are building their personal reputations around an asset. So, the Crypto Punks are like the highest tier of people building online reputations and having skin in the game. You see the same thing going on with Bored Apes and you see new market entrances like that. What we haven’t seen is people taking the approach of building a brand around any of these blue chip NFTs. So, we approach it from the standpoint that we know the crypto community, because we are crypto native people. And, if we’re going to build a product for them, it has to look and feel and act like the crypto audience would. 


15:58 • Pat
We took the approach of: the product is the Crypto Punk. The face of the product is a Crypto Punk. It’s an interesting transition to consider these NFTs are more than just art now: they are reputation, they’re IP that you attach to it, they’re brand value. It’s interesting to see those use cases. People are just scratching the surface as to what a Crypto Punk or other high valued NFTs could mean now and in the future. Most people are focusing on the reputation side. We think it’s going to be really interesting to see businesses build brands or drive value from having these assets. That’s kind of the approach that were taking. 


16:45 • Avi
Yeah, totally. Now you guys have some interesting things in store for Degen Data. Maybe we could just hop right into that, like what’s up. 


16:55 • Pat
So the next couple of months…Pink Swan Trading runs two data products right now: Genesis Volatility, which is our first product, and Degen Data, which is our second product. We’ve got some pretty big developments happening on the Genesis Volatility side. We’re actually going to be selling Degen Data via the Crypto Punk via Larva Labs. We’re actually going to sell a punk as a business with all the product and IP attached to it. I think this is the first use case of NFTs outside of social reputation, while also showing the transferability of what these things are and what the access to a global market can provide. We think that this is going to be a trend in the future where NFTs represent brand, they represent IP, they represent assets outside of the NFT itself. 


17:50 • Pat
We think that by selling a company – a punk with a company attached or punk with a product attached – this is a really big movement for the space. We also think it should be a punk. We think the OG project should lead the space forward in terms of what these things mean, what they represent, what their value is that they derive. That’s one of the things that we’re gearing up – getting all our ducks in a row to begin selling Degen Data. We’ll be sharing more details once we have them. But we’re really excited by that. We think it’ll be a really positive movement for this space.


18:32 • Avi
Totally. I’m stoked for what you guys have in store. 


18:40 • Greg
Just real quick to tag on to the tail end of that. Some of the things that we’ve created around Degen Data: we created a smart contract paywall, which allows users to basically pay with Ethereum. We haven’t turned that on. We hope that the buyer can turn that on and basically monetize the platform if they choose. Something else that we think is pretty interesting is that we’re going to be selling it for 420.69 ETH when we list it. You get both the punk and the business. We think that the event itself is going to bring attention to the business and it also makes it the OG punk of the first MMA transaction in the space. We think there’s a lot of value accrual from the event itself for both assets, so just something to put out there as well. 


19:32 • Avi
Love that listing price. Spot on. This is like the first time a sale of this nature is going to happen. I think it’s going to be a landmark event and push us into this new design space of, “How do we leverage NFTs to transfer ownership, transfer IP?” For that next generation of creators and businesses who are looking to maybe leverage NFTs in this sense and IP, what are the challenges that you guys have seen in organizing this sale, regarding NFTs and IP? I can only imagine that there’s regulatory pressure or certain rules that may be restricting or bottlenecking you hear. 


20:26 • Pat
Yeah. I think that this is a general topic in crypto – that there’s a lot of gray areas. How can we operate in a way where we’re doing things in a compliant manner but we’re still adhering to the crypto ethos of open and permissionless? I think for us, the conversations have been around more so the legal components of like, “How do you make sure that the IP is transferred successfully? How are you going to do this in a way that’s compliant?” Obviously, we’re based in the U.S., so we want to make sure that we check all the boxes that we can. We’ve teamed up with actually a great group of lawyers who are helping us navigate that space…So it’s like learning how to operate in what we see as more of like a Web2.5.


21:20 • Pat
It’s not full Web3, it’s not Web2, but there’s this middle ground of coming to a compromise on how things move forward. I think that’s where the space is pushing to innovate – where you want to go full Web3, but your hands are tied based on a bar of not wanting to go to jail. I think as long as we skate under that…but that’s kind of how we’re thinking about it. It’s kind of borderline on the Web2.5 transactions. 


21:57 • Avi
Totally. This is, in my opinion, that first step to full Web3, where we’re trading businesses back and forth on a daily basis and all kinds of cool things. 


22:11 • Pat
We just think the VOL has to get rolling. We think somebody got to do it to get the idea. We think if it’s not a punk, it’s a wasted opportunity. We think that’s such a big event for this space. 


22:21 • Avi
Totally. So you’re selling Degen Data because you’re doubling down on Genesis Volatility, and some of the really great traction that you got here, you have over there. Just for our listeners, we’re going to transition now and pivot towards the crypto options. If you came here for the NFTs, there may be a few more pieces of alpha at the end of the episode. We’re going to dive deep into crypto options. Ashwath, I’ll hand it off to you, and kickstart that conversation. 


22:58 • Ashwath
So, so the first time I used Genesis Volatility, which is your flagship product out of Pink Swan, I was blown away by the depth of the data, because I was used to broader data sets from providers like Skew and Glassnode. I hadn’t seen this kind of granular options data, even in my experience with traditional equities markets. I want to get into Genesis Volatility and what you’re building there. But before that, I’d like to go through the current landscape of crypto options on centralized exchanges. So, we have a bunch of players there: bybit.com, Deribit, Delta Exchange. Amongst all of them, Deribit has a lion’s share of the market. I think by open interest and volume, they have about 90% of market share. Do you have any thoughts on why Deribit does so well while the others have underwhelmed, and any thoughts on the general landscape of crypto options? 


24:03 • Greg
Yeah, sure. So, thanks. Thanks for that. I appreciate it. I think Deribit has a few things going really well for it. One is, they’re a really professional system with an amazing risk management system and liquidations policy. As a trader, you feel confident having money over there and knowing it’s not going to just disappear on you. I think that’s the first and foremost important thing. In crypto options, we don’t have clearing houses like we do in traditional finance that pretty much guarantee that counterparties get paid on their positions. What they do in crypto options is they do insurance funds. A portion of all the trades goes towards (or the commissions of the trades goes towards) this insurance fund. So, if someone ever goes bankrupt and loses more than their account value, then the insurance fund steps in and tries to make people whole. Luckily, we haven’t seen an event like that. 


25:00 • Greg
I think the reason we haven’t is because of these risk management systems that are really good. Another aspect is the first mover advantage. Deribit was the first crypto options player to the scene and they’ve constantly grown their offering, iterated their platform over time, increased the user experience, etc.. I think that’s why Deribit has the number one spot, and I think they’ll keep the number one spot even with the advent of traditional finance. Right now, we have CME options, CME future options. We just launched ProShares ETF BITO that also has options on it. Now the U.S. market has more of an institutional-grade solution. LedgerX is another solution for the U.S. players. That being said, there’s something about 24 hour markets that TradFi just can’t compete with. 


26:00 • Greg
In the long-run, if you’re going to be trading crypto options, and the crypto markets open 24/7, you want to be able to adjust your book on the weekends. You want to be able to capture opportunities on the weekends, and having an ETF that just trades normal stock market hours, or at least the option portion of it, is not going to be a sufficient solution. Even for CME future options, which have more of a six days a week, 23 hours a day type of solution, that market has a lot less liquidity. I mean, it’s a huge contract. You’re looking at five Bitcoin option multiplier and a lot less liquidity, so it becomes cumbersome to trade these things. Ultimately, I think that Deribit continues to hold its position, and we’ll see what happens with that. 


26:52 • Greg
The last aspect of it is that we have CeFi, we have TradFi, and then this nascent DeFi option market as well. That’ll be interesting to see how it plays out in the future. 


27:05 • Ashwath
That was an amazing explanation. We can get to the DeFi stuff in a bit, but with respect to Deribit, I think they are the largest player in the space. We are seeing some competitors crop up that are trying to take advantage of the fact that Deribit only supports Bitcoin and Ethereum options. Did you see this as something that they can compete on and try to attract more users in Volume by offering options on these longer tail assets? 


27:38 • Greg
Yeah. I think that’s actually in the works. So, there’s two things that Deribit I know has in the pipeline. Well, three things. I’ll get to the last one, the most exciting one, but the two simple ones are: stable coin denominated accounts. There’s a lot of convexity problems to having coin-denominated accounts. Meaning, if you have your account funded in Bitcoin and call it, you sell a put option. Even if you just sell one put option at like $10,000 strike, as Bitcoin loses value, the capital base in your account also loses value. Then the liability that you have approaches infinity Bitcoin as Bitcoin asymptotes to zero. So, you have this negative convexity that makes a lot of traditional strategies a little bit more complicated in the crypto options market. One of their solutions is introducing USDC or USDT-denominated accounts. I’m actually not sure what currency they’re going to go with. 


28:37 • Greg
I think there are pros and cons to both. One thing that I do think would be interesting is if we have USDT options, is that all the fear around Tether and the collateral base of Tether now will have optionality to it. So, you could trade Tether risk on Deribit option markets. That’ll be something interesting that we’ll see how they go. So, that’s one of them. The other interesting thing is that they are looking at new option markets. I think PolkaDot and Solana are two that they’re really thinking about. I know that Solana’s getting a lot of traction, a lot of people like Solana. So, so maybe that’ll be the option market that gets introduced to Deribit next. 


29:25 • Greg
And then the last thing that I think is… this is where, “Who can compete with Deribit on this?” This is, VIX futures or DVOL Index, which is the VIX of Deribit, which is the Bitcoin VIX and Ethereum VIX. They’re going to launch index futures on that. For the very first time you’ll be able to trade DVOL futures, which are denominated for Bitcoin Volatility or ETH Volatility. So, these volatility products are one of the most complex products that we have in traditional markets. To see that come out in the crypto market is something really exciting. Again, what I mean by Deribit being the only one who can really do this is that you need the underlying liquidity to create a good, robust index to trade products on. That’s going to be something really interesting. I’m really looking forward to that. 


30:15 • Ashwath
That makes a lot of sense. And, if I recall correctly, you guys actually helped Deribit develop that index, right?


30:23 • Greg
We didn’t help them develop it, but we built some supporting educational material around it. We created a DVOL video that explains what the underlying concept of this index is, how can someone trade it, and why an index is so good for trading pure VOL as opposed to approximating a pure VOL via regular options. 


30:50 • Ashwath
Got it. Yeah, that’s my bad. I saw the educational video and I just jumped to the conclusion that you guys probably helped develop that index given your expertise with the space. So, just jumping back to the data side for a second, I’m sure our listeners are familiar with Skew which is a pretty popular data product. How do you see Genesis Volatility next to these existing players? What differentiates Genesis Volatility when you compare it to other platforms that have derivatives data like Skew?


31:24 • Greg
Yeah. The way that we think about ourselves versus the Skew’s of the world is that we really wanted to go deep on the options analytics portion. So, one of the main features that we wanted to develop when we first created Genesis Volatility was historical data to give context to how these Volatility curves trade. Anyone who’s not really familiar with volatility trading: one of the big complicated problems is that you have say 800 instruments to choose from. Why trade an at-the-money call that expires in three weeks versus an out-of-the-money call that expires in six months – what’s the relationship? People look at the volatility surface to make those decisions in a consistent manner. Looking at how the volatility surface is priced right now is one thing – but then looking at how the volatility surface moves in different historical environments – that really helps traders understand what they can expect in different environments and trade accordingly. 


32:24 •Greg
Something else that we found really interesting that we wanted to make is a set of tools to measure and analyze realized volatility. Something that’s kind of true in traditional markets and a little bit less true in crypto options is that realized volatility and implied volatility have a really tight relationship. Realized volatility is the volatility that occurred in the past and implied volatility, which is how options are priced, is telling you what we expect the realized volatility to be in the future. Why I say it’s a little less connected in crypto options is that crypto options are pretty thin compared to traditional finance. What happens is that the market will move just based on flow. If a big player just wants to buy a bunch of ETH call options, despite the volatility that ETH is actually displaying right now, while implied volatility will just shoot up in order to stay priced high for a while, no matter what realized is doing, just because there’s not enough counterparties to come in and price it back down. 


33:29 • Greg
So that relationship creates a lot of opportunity for crypto volatility traders. I think that’s something really interesting, and using tools to measure that realized volatility is super important. 


33:41 • Ashwath
That’s great. I think you guys have some fairly deep and complex data sets. To the untrained eye, some of these things look like rocket science. How did you go about identifying which data sets were important and what traders and investors needed to make informed decisions? 


34:04 • Greg
That’s a great question. One of the main things for myself is that, over the years of learning options, it’s this never ending game where you learn one thing and then there’s a thousand other things that are left to learn. For me, just kind of having a trading background, I really designed some of these features around things that were useful to me and that were interesting to me. Before building Genesis Volatility, I had made a lot of things in Excel VBA and used Excel VBA to help price my own options and things like that. Building Genesis Volatility, I used that trader template that I had in order to build some of these features. 


34:50 • Ashwath
Yeah. That makes sense too. Was it your background with the options and trading that ultimately led to your decision to start building out Genesis Volatility? 


35:03 • Greg
Yeah. Ultimately. Pat and I were working at this place called FRST. I used to consult for them. Pat was their main developer, or one of the main developers. Basically, what we were noticing is that – at that company we analyzed on-chain data and tried to find trading signals via on-chain data – but working with prop firms in Chicago, this dataset was still sort of novel and complex, and it wasn’t as actionable as people had hoped. But, when I would come up with derivative trading ideas or options trading ideas, people really liked that. There’s a lot of interesting trades in crypto that people weren’t doing such as like relative VOL trading. So, trading ETH VOL versus Bitcoin VOL. I think those trades line up once in a while, and they’re just kind of these great trades that you probably wouldn’t find anywhere else. Trading relative VOL in the crypto space is sort of an uncrowded market. 


36:05 • Greg
So when we would talk to prop firms and I’d come up with relative VOL trading ideas, that’s when people got really interested and they can wrap their heads around, “Okay, I’ve traded relative VOL in grains, so now I can trade relative all in crypto.” Things like that. This is the pull that we had to build our own thing and push the crypto options analytics forward.


36:32 • Ashwath
That’s, super cool. So, when we look at these centralized exchanges, they have pretty liquid, vibrant order books with a lot of activity going on. And, when we look at DeFi next to that, the activity and the numbers have just been pretty underwhelming. In your opinion, what do you think has been the main reason that DeFi options have underwhelmed and what do you think is the necessary catalyst for this activity to start ramping up? 


37:07 • Greg
That’s a great question. One of the big problems in DeFi options, we think, is the fragmentation of the market and the lack of direct comparability between the various protocols. Oftentimes, options traders are not just going to buy a call and walk away. What they’re doing is they’re trading a call versus another option and trading relative valuation of these options against each other. We think that this could be the similar interest in the DeFi options market but between protocols. So, maybe you’re looking at the Siren AMM and you’re comparing that to the open order book or the Hegic AMM, things like that. Well, we think that allowing someone to view all these markets from one place would be a really good solution to introduce people to DeFi options, because I think a lot of people don’t even know about them, especially regular TradFi options traders. 


38:09 • Greg
A lot of them don’t even know crypto options exist, let alone DeFi options exist. So, getting people’s eyes in front of these protocols in these markets is one solution. And then, allowing people to compare the pricing between these various protocols, and then comparing that pricing versus CeFi, and then comparing that pricing versus TradFi. So, by comparing the whole volatility landscape in one place is a huge solution. 

The last element of that is, creating some sort of smart contract wrappers around all these various DeFi options protocols and allowing traders to route DeFi option trades directly from one place, seems to be, to me, a really good solution. If I’m looking at what Deribit’s trading on, and I have an account with Deribit, and now I’m seeing where 17 DeFi option protocols are all pricing ETH options as well…well now I can put on some trades on the DeFi market, hedge out my risk on the Deribit market, or, whatever, something like that. I think that becomes a really interesting solution and it creates more flow.


39:16 • Greg
There’s this notion that if you took away all the strike prices, there would be more liquidity. I think that’s wrong. A great example is that if you look at a call spread that’s a thousand dollars wide on Bitcoin, you can trade a lot of those. You could put on a 25 by 25 for probably less risk than selling one at-the-money call, so to speak. All of a sudden, you have 50 contracts trading of volume or 50 units of liquidity as opposed to one. Having more options and more markets will allow people to put more volume on DeFi and hedge more volume on CeFi. We think the combination actually increases volume for both venues as opposed to fragmenting it further. 


40:17 • Ashwath
Got it. Yeah, that’s amazing. I’m not sure if I’m allowed to leak this alpha, but you guys are actually building something to help bridge this gap, aren’t you?


40:27 • Greg
Yeah. It’s definitely on our roadmap as something that we think is really interesting. We think that the first element is really getting the data component all in place. The way that we think about it is that having the data solution will really allow traders to get familiar with these markets, see how these markets are priced, and basically herd all these cats in one place, so to speak. And then, providing a solution for routing orders, to potentially the DeFi options market, now becomes a winning solution. Because, if you just come out with a DeFi options DEX, we think that’s a really hard value proposition for the market, because, all of a sudden, it’s just one more DEX in a sea of DEXs. But, if you come out with the platform that you use to trade crypto options from a holistic perspective, and now a DEX solution is incorporated in that, well, all the traders are already there, and it becomes the sole solution, and it becomes your sole point of access for everything DeFi options or crypto options or just crypto volatility in general. 


41:36 • Greg
We think that makes the most sense. Right now, we view ourselves as a Web2.5 company for Genesis Volatility. Our roadmap is to eventually be a Web3 company. 


41:50 • Ashwath
DeFi has a severe lack of institutional flow, at least on the options. And, I know a lot of what institutions do is just capturing a spread, so they’d have two legs to their options trade. Do you think a product like this helps them enter both of those legs simultaneously and at optimal execution prices? 


42:17 • Greg
Yeah. Something that’s really interesting that we look at is we look at block trades. And, exactly what you’re saying, people will put on spreads in size in order to trade VOL at an institutional level. So, from our analytics perspective, we analyze Paradigm block volume, which allows traders to see what institutions are doing and how they’re trading VOL. We think that a solution like that in the DeFi space is soon to come and it would make a lot of sense. Just like you said, people want to trade spreads all in one clip without necessarily moving the market. They just want to put the size on. So, finding a counterparty and settling on Deribit or finding a counterparty and settling on-chain, to me, seems pretty similar. 


43:08 • Ashwath
So, do you eventually see, the dynamics of flow on DeFi options protocols mimicking what we see on exchanges like Deribit and Delta Exchange?


43:20 • Greg
I think from an institutional level, you could make that argument. I think from the retail level, the value proposition of DeFi options is really different. So, Uniswap – everyone kind of poo-pooed Uniswap until it proved itself – and now it’s a huge leader in volume. One of the big aspects that Uniswap provides is this flexibility to list whatever tokens you want to list. You don’t have this gatekeeper like Coinbase saying, “Okay, your coin gets listed, your coin doesn’t get listed,” so on and so forth. That flexibility or that versatility is, to me, a huge winning point of DeFi. I think we could see the same thing in DeFi options. Whereas, for the exception of Delta Exchange, most exchanges just have Bitcoin and Ether options. Now, if you look at DeFi market, you can fractionalize a punk, and you can create optionality on it, and you can create an AMM that just trades fractionalized punk options. You’re not going to find that anywhere else. That will necessarily need to live on DeFi, which I think is a huge value proposition.


44:19 • Greg
I think the other interesting value proposition for DeFi is passive vehicles. We look at teams such as ThetaNauts or Ribbon Finance – they’re providing these vaults that allow you to just do simple covered call strategies, cash-secured put strategies, things like that just allow crypto holders to gain yield on their assets in a sort of “set it and forget it” manner. We think that, with yield farming and all those things, the demand for enhanced yield strategies in a passive manner is going to be a great solution that DeFi can provide. Ultimately, for complex strategies, especially from the retail perspective, as opposed to the block trading perspective, you’re never going to be really able to compete with Deribit on trading butterflies.


45:24 • Greg
If you want to trade butterflies, I don’t see how that’s going to be in DeFi anytime soon. The value proposition of a sophisticated options trader remains on CeFi with the exception of a few crossbows and for the exception of executing big block trades on various venues.


45:43 • Ashwath
That’s super insightful. I think we’re seeing a similar dynamic with perpetuals where there are different use cases. The reason you would enter a DeFi perp versus a centralized exchange perp vary because of underlying variables like funding rates. Back to individual DeFi options protocol – now we have a bunch of different products with different designs. We have, Open and Hegic, we have Charm Finance building on Ethereum, there’s Light on Optimism, there’s Zeta markets and PsyOptions on Solana. This is a more opinionated question, but do you guys have a personal favorite, like a design that you would back over the others? 


46:34 • Greg
Yeah, well, I think there’s some really interesting aspects going on. So, we’ve been working with Siren. Siren created something that’s pretty interesting, which is sort of a Black-Scholes priced to AMM with a slippage factor. So, the slippage factor accounts for volume driven pricing. We think that’s a really unique insight in their design. Pods is another one that’s pretty interesting. Pods wants to offer altcoin optionality. One of their design concepts is that they take ETH volatility surface and then overlay that into realized VOL of an altcoin and then set that as the initial pricing of their AMM, and then allow the market to adjust the pricing over time. I think that’s a really unique solution for altcoin pricing. Again, I think these vaults can be really interesting. Like Open has great infrastructure for, essentially, Ribbon Finance to allow covered call selling strategies. 


47:41 • Greg
Then you have the other side of the market, which is mostly QCP buying that optionality and allowing them to get a source of VOL for their overall market-making books. They’re the perfect example of someone who’s going to be trading various venues and making these markets all over the place. I think that order book style for Ribbon building on top of Open is really fascinating as well. Those are the three protocols that we’ve had the most discussion with and that we’re really interested in. Zeta and Lira are two really cool ones, too. We haven’t dug into their stuff yet, but we’ve chatted with their teams, and they have really talented teams and stuff like that. Ultimately, we want to work with all these protocols. A big component of that is building education material around DeFi option protocols themselves, including: allowing people to understand how these protocols work at the smart contract level, how to trade these protocols, and what kind of risk and pricing is going on within them. 


48:51 • Ashwath
That makes a lot of sense. One slightly higher level macro question I have about crypto options is: I think in traditional markets, if you look at notional volumes, options eclipse that of futures, but if you look at crypto, perpetuals and futures are the most traded instrument.  Do you think that, in the future, we’re going to see crypto converge to the trends we see in the traditional derivatives markets? 


49:21 • Greg
I do think so. Pat and I are both we’re very long on this market for the future. As you pointed out, another way to measure that is the open interests, notional open interest of the options versus the market cap. So, Bitcoin notional open interest is 1.5% of the market cap, something like that. Whereas SPY, which is the S&P500 ETF has 200% notional open interest compared to the market cap. So, you could just think about it, wow. This thing could grow 130x just to match TradFi. So, we think this market is still really young. It’s just the beginning, and there’s so much room for upside growth just from CeFi alone, yet alone DeFi, that we think, over time, it’s going to converge and mimic probably similar levels to TradFi 


50:21 • Avi
Greg, I’m definitely going to need your help in coming up with more sophisticated strategies for crypto options. I’m a bit more of a smooth brain degen. I’ll probably be aping naked calls and puts, so I’ll definitely need your insight there. Just to bring everything together…we’ll have a few closing questions, some rapid fire ones. You guys are some of the best builders that I’ve met in this space, especially on the data side of things, and the way that you’re thinking about options and also are so crypto-native and involved in NFTs, I think you guys have really valuable insight to new builders in this space. I’m wondering if you have any advice or insights that you could give some of our builder listeners here today about building in the crypto, options, NFT, or data space. 


51:23 • Pat
From the building perspective, the biggest piece of advice that I could give is get started if you have an idea. Put stuff out there. Don’t wait for it to be perfect. Put B minus work out there, get feedback, listen to the community. Everybody wants to see this space grow. The more that you can give and help drive that attraction, that’s what I would do. The crypto community has so many good resources and people want to help and contribute. So, the more you put out there, the more you get back. That would be the one thing that I would share. 


52:00 • Greg
Kind of similar to that vein. One of the things that actually – Pat’s the guy who taught me this and I really appreciate it – is that, get something out there and refine later. Don’t go for perfection and wait for perfection to release. Release now and then refine over time. I think this is especially true, like squared true, in the crypto space, because crypto is moving so fast, that timing becomes such a crucial component. If you wait a month, the timing component is gone. You have to be quick to get your thing out there and then just make it better over time. Have it out there, build a reputation while your product is out there, and continue to make it good. I think that’s a really good winning strategy. 


52:51 • Greg
From a trader’s perspective, as a trader you’re often rewarded for doing nothing and being patient.  If you just look at the market, really pick your points and not get bored and put on a stupid trade because you’re bored, and now you’re worrying about some trade that you didn’t like in the first place – it’s way better to be patient. But when you’re running a company, it’s quite the opposite. The company is either dying or it’s growing. There’s no in-between idling spot. So, you’re either growing or you’re dying. Just sitting and waiting is quite like the opposite mentality that you would have as a founder. 


53:24 • Avi
Those are great insights there. I’ve heard this many times before and I’m stealing this from somebody who I can’t remember their name, but – it’s not timing the market, rather it’s time in the market. Right. I think you guys have done that quite well. And, that’s why you’ve successfully been able to go from building something in the NFT space, and moving to the other side of the spectrum, in crypto options. Now, I’ve got a few rapid fire questions to ask you guys. These will just be short answers. Going to preface this saying none of this is financial advice. So, please do your own research. The first one, if you had to hold one of these projects for the next five years, what would they be? Crypto Punks, Fidenzas, or Bored Ape?

 

54:20 • Pat
I would go Crypto Punks.


54:24 • Greg
Oh man. Can I put Gods Unchained cards in there? Is that part of it? I was pumping my own book there. 


54:36 • Avi
That goes into the second one. Favorite non blue chip NFT project right now? 


54:42 • Pat
There’s a new movement in the AI art movement. There’s a project called Brain Drops. I think Brain Drops is really interesting. 


54:55 • Greg
Yeah, for me, there’s two other NFTs that I’ve invested in. One was ENS domains. I basically bought like all the volatility related ones. Yeah, doxxing myself, but there they are. The other one is Gods Unchained to me. I used to play Magic the Gathering when I was in third grade, and I thought it was such a cool game, and the cards were so cool. So, when Gods Unchained came out, I saw a few years earlier how popular Hearthstone was and how my nerdy friends would just play that all the time. To me, I was like, “Dang, this is going to be just as good.” Now I’m playing Gods Unchained. Oh my God… spending so much time…it’s ridiculous. Don’t get started – just buy the cards and don’t do anything. 


55:38 • Avi
Yeah…Greg will buy them later. Greg, if you had to take one crypto options trade today, what would it be? 


55:49 • Greg
Yeah. Well, I keep tweeting about this. I keep chatting about it in the VOL pit chat that we host. I think this is such a layup. I mean, I think December 31st VOL is so expensive in ETH and Bitcoin, but ETH especially. I mean, you’re looking at 10 day realized is like 76, 30 day realized is 67 and then December implies like, 105, 110. To me it’s just like, that is such a layup. So, it’s a safe way to play it. It’s just, you’re sitting on ETH… sell some calls against it. That’s kind of the safe way to play it. The other safe but more complex way to do is – I think some butterflies can be pretty interesting. Potentially, 45, 5,000, 5,500, butterflies could be interesting. If you’re more YOLO and you want to max some yield, I think one by twos could be cool too. 


56:46 • Greg
Buy 4500 sell two 5200 type trades. I just think VOL’s going to collapse. And, and I think that trade’s a lay up. 


56:57 • Avi
Nice. Alpha alert right there. Closing one: Pat, what’s the best gate trick you can pull off? 


57:04 • Pat
Oh man, that’s a good one. Actually, probably my best – I’ll send you the clip – but I did a kickflip back tail down an eight stair handrail at the park down the street from my house. So…


57:17 • Pat
I don’t know if I’ve got those anymore. I think I’m getting a bit too old, but yeah. 


57:23 • Avi
Awesome. Well guys, this was fantastic. Before we wrap everything up, where can people find you both on, social media, and where can some of our listeners maybe find out more about the Degen Data sale that’s coming up?


57:43 • Pat
Yeah. On Twitter, you can follow Degen Data @DegenData. Our website is degendata.io. In terms of details around the sales, we’re just finalizing the terms and everything, but we’ll we’ll be sharing a bunch of new information in the coming weeks. We think first week of December is when you’ll be able to get some more details, but we’re really excited by that. 


58:10 • Greg
On the GVOL side, you can follow us on Twitter @GenesisVOL. We have a weekly volatility wrap-up newsletter that we put out and that can be found at genesisvolatility.substack.com. We have a YouTube channel with some educational material. You can just type in GVOL in the search bar. Lastly, the product itself is Genesisvolatility.io. 


58:35 • Avi
Awesome. Well, it was a pleasure chatting with you guys as always. Thanks guys. 

Show Notes: 

(00:00:00) – Introduction.

(00:00:33) – Guests’ backgrounds.

(00:04:32) – Ethereum maximalism.

(00:06:35) – Thoughts on the NFT revolution. 

(00:10:09) – Overview of DeGenData.

(00:12:30) – Most interesting insight from DeGenData. 

(00:14:00) – Building a brand around a CryptoPunk.

(00:16:46) – Selling DeGenData as a CryptoPunk.

(00:19:33) – Complying with regulations.

(00:23:00) – The landscape of crypto options.

(00:27:06) – Offering options on long-tail assets. 

(00:31:03) – Genesis Volatility’s differentiator.

(00:34:54) – The inspiration for Genesis Volatility.  

(00:36:36) – Thoughts on DeFi volatility.

(00:41:52) – Bringing institutions into trading DeFi volatility.

(00:43:09) – Thoughts on flow dynamics on DeFi options protocols.

(00:46:06) – Guests’ favorite DeFi options protocols.

(00:49:13) – Thoughts on convergence toward traditional markets. 

(00:50:38) – Advice for builders in crypto.

(00:53:56) – Rapid fire questions.

(00:57:26) – Closing.