Talk #1 Bringing Liquidity to DEX
Woorton and Melonport have been friends almost since the beginning. For the second edition of the Melonport Conference, M-1, they asked us to come on stage and share our vision of how we would solve the biggest challenge of decentralized exchanges: liquidity.
Below is a recording of our presentation. You can also read the full transcript right after the video.
If you are working for a DEX or launching one, feel free to get in touch with us to see how we could enhance liquidity on your exchange.
Woorton is a leading European digital asset market maker.
If you want to learn more about Woorton liquidity solutions, please send an email to firstname.lastname@example.org
Hi everyone. I am very happy to be here today. My name is Charlie and I am the CEO of Woorton. I'd like to start by thanking Jenna, Mona and the entire Melonport team for inviting me.
I have a background in financial markets. I used to trade billions on government bonds issued by emerging countries. I then jumped into the VC industry on funds that were investing in FinTech across Europe. I met a lot of entrepreneurs and I met entrepreneurs coming from the crypto space and that's how I saw the problem I wanted to solve: liquidity.
Like many big problems you solve it by solving a lot of small problems. When you trade on a regulated asset with a regulated framework. Everything is easy. You just focus on trading and execution. If you have a problem, you know who to call, you know what to do. Everything has been done before. Jumping into the crypto space, everything was different. We had to build everything from scratch: access to the bank account, building order books, building a settlement process. Everything I took for granted for years, I had to build it again. And that's why we launched Woorton.
We wanted to be at the forefront of this ecosystem to spot inefficiencies early on and try to solve them. So we launched Woorton in March 2018 with the support of two French institutional investors and we now have about 70 clients over two business lines.
The first one is providing liquidity on and off exchanges to a wide range of professional clients: traditional and crypto funds, family offices, payment provider and, actually, exchanges. Any company that wants to buy or sell crypto can go through us. We are among the few market-makers in the space providing a 24/7 API to trade. This API is easy enough for anyone to be plugged to it and trade on it and complex enough for sophisticated traders to build a trading strategy on top of it.
The second business line is Market-Making-as-a-Service (MMaaS). We borrow an inventory from a token issuer and we manage their liquidity on exchanges for them. As you can imagine, we started doing this on centralized exchanges. We are now deploying our tech on decentralized exchanges starting in the coming weeks by being a reserve manager on Kyber network.
In an ecosystem where the assets and the price of said assets represent not only the value of its underlying but also really the access to the related service, liquidity is key. If I had to define it, I would say liquidity describes the degree to which you can easily buy or sell an asset without affecting its price. Our job at Woorton is to allow you as community members, buyers, sellers to buy and sell digital assets with the best execution while we will be handling the market impact.
I am sure that if you're sitting here today. It's because you're convinced, like me, that decentralized exchanges have advantages over centralized exchanges. Ten billions worth of USD is what has been stolen over the past 10 years on centralized exchanges by hackers. I'm not gonna pitch you why DEX are just worthy and why we should use them. I'm just going to name three advantages.
First one is auditable security. Second one, transparency and the third one is the control of the assets on most decentralized exchanges.
Yet, 16 billion worth of USD are traded everyday on centralized exchanges. We are trading billions of an asset that take value from its decentralization on centralized platforms. In comparison, we have less than 10 million worth of USD traded every day on decentralized exchanges. What are the reasons for this illiquidity?
First one is easy: connectivity. Being plugged to an API of a centralized exchange is very easy. Communicating with a smart contract bit more complex especially when you want to place hundreds of orders. Every seconds on the centralized exchanges, you can trade more than 100 transactions per second. On decentralized exchanges, you rely on the execution of the smart contract. There are some solutions that are being built, for instance by Kyber network. They are centralizing the order book and decentralizing its settlement. This makes us as market-maker a bit more vulnerable. The hacker for instance could come into our system place order at a very low level. And then with another account hit this order and stole our inventory. We need a strong ecosystem with a lot of players to find solutions to these issues. For this one, one of the solutions could be to input into our code, in our trading strategy to not settle a trade that is too far from market conditions.
Another problem is funding. On centralized exchanges market makers can post 10 and trade 100. This is cheap for them. They love it. This kind of instrument does not exist on decentralized exchanges but I have good news. There is a reason for that and it's safety. There is a tradeoff to make as a market-maker: having a cheap access to order books or having safe access to order books.
Third one is regulation. If you want smart money to jump in decentralized exchanges, we will have to comply, at least a bit, with some of their requirements especially when it comes to KYC and AML. Lucky for us, there are some non-profits that are working hard on this. Organizations like MAMA Global or the French Digital Asset Association. I am sure they will find solution for that.
Last but not least is user experience. Market-makers are useless if there are no users. The challenge for the builders of decentralized exchanges are very high in terms of technology. But now, we need to have projects that users want to use and that's how they will come to the decentralized exchanges.
At Woorton, we are betting that liquidity will switch from centralized exchanges to decentralized exchanges. I was having coffee with my partner Zahreddine, our head of trading, and Jenna from Melonport came in and explained her vision. And we understood that we needed more than market-makers to build this. We needed strong players to build a strong ecosystem that allows to have execution, market-makers, decentralized exchanges, etc. And that's what they are building. That's why we are believing in what this ecosystem is building in terms of decentralization. It is now for us a 10 year challenge. But if we want to be ready we have to be prepared right now. We believe it's a three-step process.
First, being market makers on centralized exchanges. Why? To get familiar with the underlying. And to source the liquidity where it is right now. That, we already do.
Second, building an infrastructure that is agnostic to the fact that a platform is centralized or decentralized. This will be released soon by us.
Finally, for any asset that we are active on, we need to be active on centralized and decentralized markets.
Thanks for listening.