Interview with Deri Protocol CEO: Interpretation of DeFi Derivatives Opportunities and Project Development


0xAlpha, CEO of Deri Protocol, talked about the status quo of DeFi, the derivatives market and Deri development plan.

Interviewee: 0xAlpha, CEO of Deri Protocol
Interview & Writing: Alice Qu

In traditional financial markets, the market size of derivatives transactions is 40 to 60 times that of spot transactions. However, in the field of encrypted finance, the current derivatives trading volume and spot trading volume have not been able to bridge a significant gap, and because of this, many practitioners believe that encrypted derivatives still have a lot of room for development.

In order to have a deeper understanding of the project and to better grasp the market trends, we invited 0xAlpha, the CEO of the Deri team, to address various topics such as team qualifications, DeFi status, the current derivatives market, and the future development of Deri. discuss. 0xAlpha said that Deri Protocol is the first complete DeFi derivative solution in the true sense. It can interact deeply and seamlessly with many head DeFi projects. In the future, Layer 2 solutions will be considered to solve the current high cost of Ethereum. Gas fee. In addition, Deri is expected to launch SUSHI’s hot spring program this week. At that time, users can pledge DERI/USDT SLP token to SushiSwap, and receive two token rewards, $SUSHI and $DERI. The following is the core content of this interview.

Question 1: In Deri’s official website and white paper, there is no direct disclosure of team information. Why did you choose to be so low-key?

0xAlpha: In my understanding, the white paper is a description of the project concept, design principle, and implementation plan. For example, Bitcoin’s white paper and Uniswap’s white paper are like this. The white paper is actually a document similar to an academic paper, not a commercial solution, so there is not too much discussion of the team in the white paper.

Question 2: Who are the core members of the Deri Protocol team? Why are you together again?

0xAlpha: The core partners of Deri Protocol and I are university classmates. In fact, we knew each other before the university because they were all sent to the Department of Physics of Peking University through participating in the Olympic Games. Later, we all went to New York. He studied for a PhD in physics in New York and then started to work. After graduating from a PhD in physics, I went to New York to start work. Later, we started to do quantitative trading of digital currency and entered the emerging field of DeFi together.

Question 3: As a core member of the team, what is your background and how did you enter the currency circle and decide to make this a career? What is your view on blockchain and virtual currency?

0xAlpha: I am a Bachelor of Physics at Peking University and a Ph.D. in Physics at Rice University. Later, I worked at Deutsche Bank, Hedge Funds, Goldman Sachs (also known as Wall Street) in New York, and worked on derivatives pricing, trading strategy design and risk management. I also co-founded a quantitative hedge fund trading commodities and financial futures with other partners before, so I have extensive experience in the design, pricing and trading of financial derivatives. There is an article on the chain “The Encrypted World Gangster, Learn About”. According to this article, I should belong to the “Goldman Sachs Gang”, but I am actually a “Wall Street Rebel”. Years of working experience in the core areas of Wall Street (including the experience of the financial crisis storm), let me draw conclusions more of a critique of the old system. Long before I knew Bitcoin, I thought that there should be a new financial system to replace the current financial system. This is my view after working on Wall Street for many years, but I didn’t know what this new financial system should look like at that time. . This is why when I saw Bitcoin later, I knew that Bitcoin and the blockchain system it represented were the revolutionaries I said to replace the old system. However, in addition to providing a currency replacement or value store, Bitcoin cannot provide complex financial functions, and the “new system” that truly provides complex financial functions is later DeFi. As a revolutionary who comes from the core circle of “classical finance” but believes that the classical financial system is rotten and we need to build a new world, I think DeFi is the revolution to build a new world.

Regarding how to enter the currency circle, I bought some Bitcoin after being strongly preached by a VC boss in 2015, and then read the white paper and various documents. In 2017, I began to plan to officially enter the currency circle. At the beginning, I did quantitative trading of digital currencies in centralized exchanges. During this process, I gradually felt the limitations of centralized exchanges and realized that DeFi has an impact on the entire digital currency. The meaning of the currency system, and then began to invest in the field of DeFi. I think blockchain is one of the two most important technological waves in human society in the next decade (the other is AI). On this point, you can read the article “AI to the left, Crypto to the right”, which has an in-depth discussion.

Question 4: How do you understand the booming DeFi in the past year? For you, what is the revolutionary significance of DeFi?

0xAlpha: If Bitcoin’s value storage or currency substitution function is not called a functional application, then DeFi should be regarded as the first functional application in the blockchain world, which is the actual functional level of the blockchain Influence the beginning of the world.

Question 5: What is your purpose for initiating Deri Protocol? And do you have any insights into derivatives?

0xAlpha: The core tool invented by finance to manage risk is financial derivatives. Based on the status of risk management in the entire modern financial system, we can say that derivatives are the jewel in the crown of modern finance. The essence of financial derivatives is to extract a certain risk factor in the financial market (such as the stock market, a certain interest rate, the price of a certain commodity, the default probability of a certain company and the volatility of a certain price), and agree on a The cash flow of the contract is linked to this risk factor, so the contract participants can accurately obtain the risk factor they want in this contract.

In the traditional financial market, the derivatives market consists of two parts: exchange transactions and OTC transactions. The former is responsible for selecting the most common and representative risk factors in the market and defining them as standard contract products for trading on the exchange. Trading is usually based on continuous bidding in the order book for price discovery and matching between buyers and sellers. The latter is responsible for meeting customers’ refined and customized needs. Generally speaking, the former single product has large transaction volume and good liquidity, but it may not exactly match the specific needs of users. OTC derivatives are generally tailored to the needs of their customers by the “sellers” of investment banks. They can generally meet customers’ financial purposes more accurately, but they are generally relatively expensive and lack liquidity because they are not standard products. For details, please refer to my article “The Road to DeFi Derivatives”. The first two parts mainly discuss this issue.

Deri is the abbreviation of derivative, which aims to help people trade derivatives on the blockchain. In essence, the Deri protocol provides a decentralized way for people to trade derivatives accurately and efficiently.

Question 6: Derivatives exchanges are currently a hot spot for DeFi, including dYdX and MCDEX, which are all doing various attempts. What do you think are their problems? Or what is the core advantage of Deri Protocol?

0xAlpha: Simply put, dYdX and MCDEX are both semi-centralized solutions, and are transitional solutions in the initial exploration of DeFi. In this type of attempt, the role of the blockchain is mainly to record the results of transaction matching. For details, please refer to my article “The Road to DeFi Derivatives”. The third part is a discussion on derivatives exchanges such as dYdX and MCDEX.

Deri Protocol is the first truly complete DeFi derivative solution, with the following features (the following four features are the core elements that I have summarized in the DeFi derivative solution):

  • Real derivatives: can help users accurately and efficiently trade risks: the profit and loss of the user’s position is calculated from the mark price fed by the oracle machine, and the underlying price is accurately tracked; the position is subject to margin trading and has inherent leverage;
  • Real DeFi: Deri’s core transaction logic is completely implemented by smart contracts on the chain, and participants trade completely on the chain;
  • Composability: Positions are tokenized. Users can see their position tokens (a kind of NFT) in the wallet or etherscan, and can combine position tokens at will, or import their own DeFi projects as basic components;
  • Openness: Anyone can start a trading pool based on any functional currency. Usually stable currencies such as USDT, DAI are used. In addition, I think ease of use is also very important. Deri’s trading interface is simple and clear, and it has the same ease of use as Uniswap.

Question 7: Why are you and your team able to do this? Why are you so special?

0xAlpha: The last part of “The Road to DeFi Derivatives” I wrote summarizes the characteristics that the DeFi team, especially the DeFi team in the financial deepwater area, will need: “2020 is the year of the outbreak of the DeFi world ecology, but currently Most of the more mature DeFi projects belong to the shallow financial waters-areas that do not need to deal with risks. With the continuous advancement of the DeFi movement, a new wave of decentralization will surely sweep the entire financial world. In the financial deep waters that dance with risks The development of DeFi projects in the district requires a team to have a deep understanding in the three fields of finance, mathematics and computing. If a DeFi team is missing any of these three skills, it may be buried in their financial deepwater DeFi project. A fatal hazard.”

Simply put, we are a DeFi team that has reached the world’s top level in finance, mathematics and computing. Such a team is very scarce whether in New York, Silicon Valley, Europe, Hong Kong, or in mainland China. It can even be said that for some of the top projects that have established their status in the DeFi field, the overall quality of their teams in these three aspects may not be as good as ours.

In addition, we have the advantage of an international background: we can seamlessly connect with top international teams in terms of language and culture. In Deri’s external project cooperation, we have very in-depth communication with many current front-line DeFi teams (such as SushiSwap and BASIS) at the technical level and project cooperation level. As far as I know, this ability to deeply and seamlessly interact with international DeFi projects is not much in domestic DeFi projects. DeFi is a Lego game, and the interaction between projects is extremely important. If you can’t seamlessly communicate and interact with current mainstream DeFi projects (currently mainly in European and American countries), success is very difficult.

Question 8: Derivatives exchanges on the chain are generally limited by high gas fees, and it is especially difficult for retail investors to participate. How do you personally understand this situation, and in what way will Deri Protocol solve this problem?

0xAlpha: Gas fee has been our key consideration from the beginning. We designed the transaction process to be as simple as possible to reduce gas fee. Therefore, the gas fee on Deri is relatively low. The gas fee for operating a transaction on the Deri platform is only two to three times the gas fee consumed by a simple transfer of ERC20 tokens. The following paragraph is directly quoted from the FAQ:

The gas consumption of the Deri protocol is relatively small, and most actions consume about 100,000 Gas each time. The most expensive gas operation is to add or subtract margin while adding or subtracting positions, because this is a combined operation of transaction and margin, and each operation costs about 200,000 Gas. If users want to trade frequently, it is recommended to add sufficient margin in their pToken, and try to perform simple position additions and subtractions without adding or subtracting margins, then each transaction will cost about 100,000 Gas. If you are not sure what 100,000Gas is, you can refer to it: A single transaction on the Ethereum blockchain requires 21,000 Gas for each transaction of ETH, and ordinary basic transactions such as sending ERC20 tokens such as USDT or DAI You need 40,000~60,000 Gas. In other words, the Gas fee for an operation performed with Deri is only twice the Gas fee for simply transferring ERC20 tokens. But even so, we continue to seek further optimization solutions. At present, we are mainly considering Layer 2, specifically ZK rollup or OP rollup.

Question 9: Regarding the decentralized derivatives exchange, what changes do you think it will evolve and develop along with? In this process, what role will Deri Protocol play?

0xAlpha: Simply put, a full-chain solution based on a liquidity pool will be the mainstream paradigm for DeFi derivatives, and Deri is the first mature such DeFi derivatives protocol. You can refer to my article “The Road to DeFi Derivatives”, which discusses the evolution path of decentralized derivatives solutions.

Question 10: Which institutions support Deri Protocol currently? In the current DeFi era, whose support is more important: capital, community, KOL?

0xAlpha: At present, FBG and some international VC organizations have expressed interest. In the DeFi era, of course, the community is more important. Whether the project is supported by the community consensus is the only criterion for testing the project.

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