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🎙 0x's Will Warren On The Future Of DEXs And The Impact Of MEV

This week on The Defiant Podcast, we speak with Will Warren, founder and CEO of 0x labs, one of the oldest and largest decentralized exchanges. 0x API is currently the 5th largest DEX by trading volume but is structurally different from other DEXs as it aggregates liquidity from multiple venues.

We talk about the effect this bear market has had on the DEX ecosystem and how sliding prices have affected DEX volumes in 2022.

We discuss the evolution of DEXs, having seen some massive innovations such as concentrated liquidity with Uniswap V3. Will goes on to talk about the major impact that miner-extractable value (MEV) has had on the DEX sector.

Will hopes to see more real-world DeFi adoption in terms of stablecoins, decentralized exchanges and trustless lending and borrowing solutions, so people can have an alternative to their local financial systems.

Finally, Will talks about 0x’s vision to see a world where all forms of value are tokenized on public blockchains, from fiat currencies, stocks and bonds, to video game items and airline miles.

🎙Listen to the interview in this week’s podcast episode here:

📺 Watch the video here:

🙏 Thanking our podcast sponsors:

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👀 Only paid subscribers have access to the full interview transcript below.

Cami Russo: Okay, here we are with Will Warren, co-founder and CEO of 0x labs. Will, it’s a pleasure to have you on The Defiant podcast, welcome!

Will Warren: Thank you, Camila, really happy to be here.

CR: Awesome. So 0x is one of the largest decentralized exchanges by trading volume. And it’s also probably one of the oldest. It’s been around for a while, since 2017, I think, or around that time. So definitely an OG in the space. So to start, before we get into 0x specifically, I’d love to get your thoughts and perspective on the DEX ecosystem in general, especially in the context of this bear market or in this downturn. So what are we seeing with DEX volume? I mean, obviously lower than the height of late last year, but it looks like it’s holding up pretty decently. If you can just elaborate on what we’re seeing there in terms of activity and volume.

DEX volumes amid the downtrend

WW: Happy to. So I think DEX volumes tend to be somewhat cyclical, the same as the centralized exchange volumes. There will be some correlation, and as the crypto market goes down, there’ll be some volatility and volumes go up, but then they tend to fall. But I think what is exciting in what we’re seeing today is that DEXes have real product-market-fit. There are a ton of different use cases, [like] tokenized assets that people want to be able to access or to exchange with others. Some of those use cases are also cyclical — NFT markets — there’s a little bit less activity today than maybe at the heights, but there is still real demand to be able to access and exchange different tokens, whether they’re fungible assets or nonfungible assets. It’s pretty amazing that we’re even at the current level of DEX volumes that we’re seeing today. 

If we think about 2017 — we launched the first version of 0x protocol in August of 2017 — back then, it was exciting for us if there was $100,000 of trading volume in the entire day. I remember we had… a dashboard on the wall and… every time a trade trickled in, it would make a noise and everyone on the team would be excited about it. And then if you look at where we’re at today, it’s insane. The number of users, the number of trades that are going through 0x is just generally very encouraging… and exciting.

CR: I totally agree. The fact that we are seeing real scale in DEXes is super exciting. And I do remember those days in 2017 through early 2020, where DEXes were just a tiny drop in the bucket of total crypto trading volume. But that percentage has risen to a significant amount, a decent chunk. There’s stats that show DEX versus centralized exchange volume at around 15%, so it’s definitely becoming a force to be reckoned with for centralized exchanges — which have traditionally been the biggest players in crypto in general — and now DEXes are rivaling it. And just to give context, I have this Dune Analytics dashboard up and it shows that in June, DEX volume was at a bit under $80B total… and that compares to just over $120B in December [and] January.

WW: That’s more than $100,000 per day. That’s a step in the right direction.

CR: Definitely… There was this big bump up at the end of last year, but compared to all of 2020 [and] most of 2021, and before then, it’s higher than it was. So… that’s been a big evolution in the DEX story — there’s real users today, even in the middle of this huge downturn. But speaking of DEX versus CEX volume, while it remains around 10%, it has been dropping this year. So I’m wondering why you think this is? Are people just more comfortable [with] going to centralized exchanges in times when there’s more volatility? Maybe people are just cashing out, so that’s what that’s reflecting? Why do you think this proportion is changing a little bit?

That’s a good question. To give you an honest answer, I don’t know. But to take a stab at guessing what might be causing it, I think that a lot of the yield farming activities that were going on over the last year [to] year and a half… all of that subsidy and all of those tokens that were funnelling into the market, I think, really inflated the amount of economic activity happening on-chain. And as there’s more economic activity happening, there’s more people that are doing swaps on DEXes — there are more people that are interested in getting into, [for example], the PICKLE token because they can earn 20% interest on it. A lot of that is starting to cool off. And I think the entire crypto, or the entire Ethereum and web3 space has learned a lot of interesting lessons from yield farming strategies and different ways of incentivizing activity. But now, I think we’re starting to go beyond it.

CR: This is maybe getting a little bit off-topic, but I’d love for you to expand on that a little bit, if you could. What are those lessons? What do you think is next after yield farming and the liquidity incentives we saw in the past year or so, especially post-’DeFi Summer’? What are lessons from that, and what do you think is the next model that people are looking at?

WW: That’s a good question. So what were the learnings from yield farming [and] DeFi Summer? So some of the takeaways that I’ve seen other people talk about and that I also have observed [when] a lot of projects that are launching a token, and you can stake your Uniswap LP tokens or SushiSwap LP tokens and earn an interest rate by depositing staked liquidity, those subsidy programs are really growth programs that you would see at a traditional tech company, it’s a user acquisition tool.

PayPal — I forget what the number was — but they gave new PayPal users $5 or $10 for signing up and getting a PayPal account. I think that’s essentially what a lot of these DeFi summer projects were doing. They were bootstrapping not only their project, but also their community. They were maybe getting a bunch of stakeholders that were excited about the project genuinely, [and] probably a lot of folks that were looking to maximize yield. But at the end of the day, a lot of these projects were looking to more or less acquire users with tokens that they were emitting.

I think that user acquisition [is] pretty hard to do effectively or efficiently, that’s my understanding. And if you look at the customer acquisition cost versus lifetime value of community members that aren’t actually really bought into a mission or that don’t necessarily believe in a project because it’s going to accomplish something important for the world — they’re just trying to chase yield or whatever. I think that we basically saw that it is really hard to keep people interested and engaged in a project unless it’s offering value without any subsidies. That’s not to say that there haven’t been projects that have used token subsidies effectively, and there probably have been really effective campaigns. But I think one of the bigger takeaways has been that it’s not a way to build a sustainable product that creates value for the world

CR: Yeah. So if that’s been a lesson from this past cycle, and the decreased amount of activity that results from less interest in these programs and fewer projects actually implementing these kinds of incentives, where do you think the next wave of activity and liquidity for DEXes… will come from?

DeFi adoption for real-life use cases

WW: So internally at 0x labs… we talk about crypto going through a ‘toy phase’. Chris Dixon has the quote, ‘many of the most important new technologies start out looking like toys’, or something that. And I think that’s very true in crypto where the things that have found product-market-fit and generated a lot of interest and excitement have — a lot of it has been things that are not necessarily changing the world. Another quote, Vitalik said ‘Ethereum has gotten so far, some milestones were reached, but have we really earned it?’ — meaning has this technology actually started making an impact on people’s lives beyond the ability to access probably very speculative and not necessarily great markets?

So I think there will continue to be speculative use cases or interesting use cases that are real, but also maybe [use cases that] get really crazy and frothy. But I’m also hoping that we’ll start to see the adoption of stablecoins, decentralized exchanges and trustless lending and borrowing solutions so people that want to have an alternative to their local financial system, that want to be able to have access to financial services that may offer some sort of important benefit to them — whether it’s economic or an opportunity to be employed by a DAO and go work on something that they would never be able to work on locally. Those are the use cases where I think we’re gonna see slow, consistent growth over time. And it’s gonna take a lot of time for us to get there, but I think we’re maybe starting to get to the point where it’s becoming real.

CR: What are some of the initial signs that you’re seeing of real-world adoption or use cases emerging? What are some of the first bridges that are being raised between crypto and real productive use cases that are useful for everyday people?

WW: There’s actually a number, and I’ll definitely forget a really good example and people will be like ‘why didn’t you mention that?’ and I’ll be like ‘oh yeah, I should have mentioned that.’ I think one is the ability to just earn interest on a lending/borrowing protocol [like] Compound or Aave. It’s a peer-to-peer system where demand for leverage, or the desire to short a specific asset. I think in a lot of cases, the borrowers are people that are looking to take some sort of financial position and they’re paying interest to this latent capital that we know is there. We know it’s solvent, it’s all viewable on-chain. We know exactly how the protocol works. We know exactly what’s gonna trigger liquidation. There’s no risk of funny business going on. I think that’s a huge and under-realized opportunity, where if people have access to earning interest in a relatively stable store of value, that’s massive. And we’re already seeing the interest is there — the total amount of crypto that’s deposited into these protocols is massive. And they’ve been functioning well for years now. So I think that’s one use case.

Another use case is actually the ability to borrow money from Compound or Aave for real-life uses. So say, for example, if your money is denominated in crypto, you can’t get a mortgage with that. You can’t go and get a loan to buy a house. If your assets are in crypto, the banks don’t acknowledge that as being capital that they can treat as collateral. You can go and deposit your crypto into Compound [and] borrow USDC — if you’re in the United States, at least — and you can go and convert that to dollars. And you now have a mortgage through the blockchain, and theoretically, we should be able to convert USDC to every local currency, so people can do this all over.

CR: Yeah. Those are really exciting use cases. I think the issue is that still probably [represents] a small fraction of total liquidity in these lending protocols. Most of it is actually for speculating, but I agree that we are starting to see people actually borrow for real-life, tangible stuff, and that’s exciting.

Back to DEXes and where we are, I’d love to learn the state of the art of DEXes. So what’s the latest, most cutting-edge innovation that’s happening in that space? I think from where I’m sitting, to me, the biggest development recently have been concentrated liquidity with Uniswap V3. I would love your thoughts on how that’s been working, how managing that has been. I understand it’s pretty hard for retail users, but at least it’s a lot more capital efficient, so there’s some pros and cons. There’s [also] this multi-asset pool space with Curve, those are a couple of just innovations that have happened in the last few months. So I don’t know, I’d love your thoughts on those and if [there is] anything else that’s maybe under the radar that’s going on in the DEX space, like new innovation that’s happening?

How MEV is impacting the DEX sector

WW: Absolutely, there’s a lot going on in the DEX space. It’s a very active space with a lot of innovation and a lot of competition. So going back to Uniswap v1, when it launched — I don’t know if it was 2019, or maybe that was when it really started to get a lot of traction — Uniswap definitely changed the DEX space. It brought in a massive flood of users and suddenly DEXes were just way more useful in being adopted by many different projects [with] thousands of different liquidity pools being created. And that was massive for the space. There have been a variety of different automated market maker solutions — as you mentioned, Curve came in and made stablecoin-to-stablecoin swaps really capital efficient compared to [the] Uniswap approach.

Then Uniswap created this hybrid automated market maker-slash-order book approach with concentrated liquidity. And this massively increased the capital efficiency and the amount of liquidity available for markets, some of the more liquid markets especially. And it has also had the effect of attracting a much more sophisticated set of participants… Frankly, you have to be pretty sophisticated, to be a market maker on a concentrated liquidity system, unless you have a really wide range — but in that case, you’re getting a lot smaller portion of the LP fees being generated. So yeah, as you mentioned, it’s definitely more complex and challenging for the everyday community member to, say, just throw some tokens into this pool and they’re contributing in equal proportion to everyone else, according to their deposits.

So the release of Uniswap v3 with concentrated liquidity was huge, it immediately took over most of the DEX volume share. In a matter of months, Uniswap V3 was doing half or more of all DEX volume on Ethereum. And yeah, it definitely brought way more efficiency to these markets, I would say.

Getting to where the cutting-edge is, where we are today, there’s actually been a lot of cutting-edge work going on over the years and not all of it has ended up making it to end-users. I think the entire DEX game now is about how we address Miner Extractable Value, or Maximal Extractable Value — which gives [profits to] the miner who has the ability to arrange transactions into a block. How do we address their ability to have ‘trading God mode’, and the ability to just arrange transactions in a way where they can just take a bunch of money from those people that are sending the transactions. It’s a big challenge, but the space has gotten to the point where MEV is a mainstream topic now in the crypto space, it’s something that is discussed quite actively. Flashbots has offered a private mining pool or a private channel that protects your transactions from being viewed in the public mempool and getting sandwich attacked, front-ran, and all of these different [strategies] that will extract money from people trading. So Flashbots is definitely a big step forward. Beyond that too, in terms of transaction ordering, you can have a lot more control over how different transactions are strung together with Flashbots, which is really cool.

Arguably the more compelling piece versus the private miner channel, CowSwap is doing batching of transactions. So if there are a bunch of people that are doing trades on a particular market and they happen to be wanting to trade the same asset or on opposite sides of the same market, instead of having both of them cross over the bids spread, they can meet in the middle and they can both get a better price because they just happen to want to do a trade at the same time. Frequent batch auctions — that’s the technical term for this form of trade execution — is a really compelling approach. The challenge is that you have to have a high frequency of people submitting trades in the same period of time for you to really get a beneficial price improvement.

CR: Is that related to MEV? Or is that a separate innovation, these batch orders?

WW: They are in the same universe — batching orders together is a way of executing trades that can potentially provide better pricing. It can technically help with MEV, or help avoid MEV that you might have gotten if you went to an AMM versus just trading with a counterparty that wanted to trade with you at that very moment. I don’t think it’s necessarily eliminating MEV today, but it could get there.

CR: Okay. So the state of the art, or I guess a lot of the innovation now, is focused on eliminating, avoiding, or minimizing MEV for traders on DEXes. And ways to do that are through Flashbots, using these private pools so miners don’t have access to your trades before they’re executed. And then these batch orders, is that right?

0x’s slippage protection

WW: Yeah, that is right. Frequent batch auctions. But wait, there’s one more amazing approach — now I have to, of course, pitch our recently released slippage protection. So we recently launched slippage protection within 0x API. So it’s an easy feature you can choose to turn on or off. But slippage protection is, in my mind, one of the biggest developments in the DEX space that has happened in quite a while. Basically, our team was curious to understand how MEV impacts the prices that 0x API users are getting, or any DEX user. How much is slippage reducing the price they’re getting from what they were told they were gonna get in the user interface?

To be more specific, when you go to a DEX and you go onto the website, it shows you a price. That’s the quoted price, it’s the ticker price that was advertised to you. Oftentimes, that price is really just based on a snapshot of the most recently mined block, and it doesn’t really tell you what price you’re gonna end up getting when your transaction is mined into the next block — that price can be very different. Usually, it’ll be distributed around the price that was shown to you. So what we did is we studied this, we captured data on 700,000 trades that went through 0x API, and went through automated market makers that, due to their price curve design, can induce slippage — you can get a different price than you saw in the user interface.

What we found was pretty shocking. We didn’t go into this necessarily having any assumptions of what would come out. But what we found was that on average, you’re inducing 20 basis points or more of slippage — if you’re trading over $100,000, the relationship between how much you’re trading through an AMM and the amount of slippage that you realize once your transaction is mined is a linear relationship. So slippage increases with the trade size. And that was pretty shocking. If there were no malicious MEV bots extracting money from trades, slippage should average at zero. There should sometimes be negative slippage, sometimes positive. It should be a normal distribution, but instead, what we saw are that MEV bots are just attacking these trades, they’re extracting every penny that they can and pushing it to the very limit of what price is acceptable, and millions of dollars per month are being taken from [traders].  For example, $27M was lost to MEV… through 0x API [in] the 30 days leading up to our launch of slippage protection.

So slippage protection was the second part to that. We went and captured all this data because we were curious and interested. We’re like ‘holy cow, this is a big, big problem, users are getting fleeced’. And so what we did is we basically created the second part of the solution, which is our slippage protection solution. Basically, we’ll look at what amounts of slippage that are likely to be induced for a specific trade on a specific trading pair [at a] specific trade size, and it will factor that into the order routing. So when 0x API is choosing to route liquidity source A or B, instead of routing based on the quoted price that you see in the UI, it will route to get you the best executed price — which is what you see on the blockchain. So I know that was a really long explanation and quite a lot to unpack, but I’m really proud of the team. I think it was a really awesome achievement, and all the 0x API integrators and their users are benefiting.

CR: I’ll start with the results of that, and then I want to follow up on exactly how it happens. So after this was implemented — you said traders were losing $27M in the last 30 days before slippage protection — so what has the effect of this been on trades?

WW: We just launched slippage protection last week, so we’re still gathering data. And yeah, I’m really excited to be able to show all of our integrators how much we’re saving their users when we get more data coming in. But we have a really high degree of certainty around how much slippage will be induced just by looking at historical trades.

CR: Can you explain again exactly how this happens, how you’re able to save a user’s money? You said it’s about the difference between the ticker price of the trade and the actual execution price on the blockchain, but can you explain that a little more, I didn’t really get it.

WW: No worries. It’s pretty hard to explain [but] I’ll do my best… So when you go to a decentralized exchange interface… what you would’ve seen prior to using slippage protection is you would see a price in the user interface. And usually, a user would say ‘okay, I’m getting this price that looks good to me, let’s move forward with the transaction.’ They sign that transaction with their private key, and then that transaction is transmitted to the blockchain, to the peer-to-peer network to be eventually mined into a block. What happens with AMMs and slippage in particular, is that the price that you saw in the user interface before you shipped it off to the blockchain — that’s the price that you know was present at the end of the last block that was mined.

So we’re looking at the last block that was mined. We’re like ‘okay this is the price that was on Uniswap at the very end of the last block’, that’s the price that we’re showing users. That’s how every single DEX works every single DEX interface. And what happens is when you send your transaction off to the blockchain, other malicious participants in the network can view your transaction — they can view every transaction and they know what you’re trying to do before you do it. And so what they can do is they can do something called a ‘sandwich attack’ and they can put your trade in between two of their own trades, pushing the price up so it’s a very bad price. Then your trade goes through, then they push the price back down — this is called a sandwich attack.

The bots are on top of every single transaction where it’s possible to pull this off. If your transaction can be sandwiched, there’s gonna be a bunch of bots competing to sandwich it every time. And what happens if you look at many of these different trades and compare the price in the UI versus the price that was mined on-chain, what we find is there’s a negative average — the distribution of outcomes of slippage is heavily shifted towards negative slippage. So the users are losing money on average, or they’re getting a worse price on average. Does that make sense?

CR: Yeah, that part, how MEV works and how bots get in front of trades to take advantage of those opportunities. But then, how do you fix it?

WW: So we simply base our routing on what will produce the best executed price on-chain. So every time a user requests to trade some amount of tokens, instead of pointing them in the direction of a liquidity source that provides just the best ticker price, we factor slippage into the ticker price so that we’re able to show a price that is reliable — you are gonna get what you see. And you’re on average, you’re not gonna be suffering from that slippage the same way.

CR: Ah, got it. So you’re able to better determine the actual price of the trade. So traders aren’t paying more than what they’re seeing on the UI.

WW: Yes, exactly.

CR: But are traders actually beating bots? Are those sandwich attacks being avoided, or is it just more transparent? Do you just understand what the final price will be for the trade?

WW: Good question. So it’s both. So when 0x API’s routing is evaluating two routes, instead of comparing the quoted prices for each of them, it will compare what it expects. The price will be inclusive of slippage, and it will route to the one that provides the best executed price, inclusive of that slippage. In some cases, what that means is you’ll go to a source that doesn’t have any slippage. It could be an RFQ, or it could be a limit order. In other cases, it might say ‘okay, if you route your entire trade to this liquidity pool, you’ll incur way more slippage than if we split that up and put it between two different liquidity pools, because that way on average you’ll induce less slippage. And so it’s always looking to maximize the outcome for the user that actually hits the blockchain.

CR: Ok. This was a nice way to segue into my next set of questions, which are just specifically on 0x. So I’m seeing that… 0x API is the fifth largest decentralized exchange by trading volume, and Matcha, your DEX aggregator, is the second largest DEX aggregator by trading volume. So it’s a large player in the very competitive DEX space. So I want to understand the basics of 0x, because I know that it is pretty different from Uniswap and other AMM-type DEXes. So yeah, how does it work and how is it different?

The growth and evolution of 0x

WW: So this has gotten a little bit more nuanced over the years. Today, our team is a proper corporation in 0x Labs, and 0x Labs is the original creator and steward of 0x protocol, in the same way that Uniswap Labs is the creator and steward of Uniswap Protocol.

0x protocol is a peer-to-peer exchange protocol. So with automated market makers…, a smart contract is your counterparty. Whereas with 0x protocol, there is an entity on each… side of that trade. So you can go directly to your friend and email them this cryptographically signed order [and] they can go and complete a trade with you in a peer-to-peer manner. You can create a peer-to-peer order book. You can do RFQ, where market makers are providing customized quotes just in time. There are many different ways to propagate these protocol orders. But at the core of it’s this message format for trading in a peer-to-peer way.

My co-founder and I started working on 0x protocol in October 2016. We released the white paper on r/Ethereum in February 2017. We met our very first teammate through Reddit. He read our white paper there and reached out to us and was like ‘hey, this would be really useful for my project. We were like ‘you should come work for us and work with us.’

Today, we kind of view three layers to the DEX stack. There’s the application layer — so this is the consumer-facing piece. It could be a dApp [like] Matcha, or a wallet [like] Metamask or Coinbase Wallet. [Second is] the execution layer. This is where 0x API sits, providing liquidity aggregation from many different sources, weaving it all together to achieve the best average price for the user. And now it has slippage protection. Then finally, the third layer that sits at the bottom is the trade-settlement layer. So application, trade execution, trade settlement, and 0x protocol is the trade-settlement layer that sits underneath the entire stack.

0x protocol is an open-source project. It is DAO-governed, it has a community treasury. Our vision for 0x ever since 2017 has been that this should be public infrastructure that is governed and managed by a community of stakeholders. It feels like we’re finally starting to see this model really become more viable. A lot of really great DAOs are operating pretty efficiently and autonomously, and that’s our vision for the protocol. It’s a public good, it’s open-source. It’s out there. We’re one of the big stakeholders as 0x Labs, but we’re also building our own products on top of the protocol as a way to generate revenue, [which] also drives growth in adoption.

CR: Super interesting. Okay, so on the DEX protocol level, 0x protocol is where this peer-to-peer trade messaging system lies

WW: Yeah, that’s correct.

CR: Okay, and so the protocol works to connect traders peer-to-peer, rather than using [a] function that automatically sets a price, like traditional AMMs. Does it work more like an order book [where] there’s different traders waiting to agree on a price, and then the protocol matches those traders? Is that the difference?

WW: Good question. So the protocol is really a messaging format. We call it off-chain orders with on-chain settlement. So it’s this package of data that specifies the details of a trade — what tokens are on either side, how many, how long is this order going to remain — something that you can go in and fill out — but how that message is passed from one party to another, or how it’s stored and surfaced to the world, that is out of scope for the protocol. It’s really just focused on how we support swapping arbitrary tokens in a way that is in a system that is modular, upgradeable, can support future community standards, and future types of cryptographic signing operations. So it’s really much more of an upgradable system that accepts these messages — how those messages are generated and then find their way to the counterparty is out of scope for the protocol.

But people have built systems on top of this protocol. There’s these formally peer-to-peer systems — Sudoswap provided an interface where you could manually enter in the details of a trade you wanted to do and click ‘sign’, and then you could copy it and paste it to a friend over Slack, and then they could go and take that and fill that order on their end. There were also, especially in the early days of 0x, there were a lot of relayers that would take all these cryptographically signed orders and arrange them in the form of an order book and display them to you in a traditional order book-looking user interface. And then there’s the RFQ systems where if a user wants to complete a trade, a market maker is pinged at that very moment, they generate and cryptographically sign a 0x order, and it’s shipped off to the user in 100 milliseconds. And it’s all the same message passing, semantics are flexible. And the protocol itself is really just around trade-settlement, and supporting an ever-evolving set of community standards

CR: Ah, that’s so interesting. Okay, so the protocol is there to just gather all these messages around trades, and then it’s up to developers outside of 0x to take those messages and actually execute trades in whatever way that they want?

WW: Yeah, exactly. I think one example that might resonate with a lot of folks is OpenSea. So OpenSea uses a very similar DEX approach. So same idea, there’s these off-chain orders that are cryptographically signed and they sit in OpenSea’s database, and it says ‘I’ll swap this NFT for this amount of token’. And when a counterparty comes along and wants to purchase that NFT, they take that cryptographically signed message from OpenSea’s database, and then they sign it as well, and send it off to the blockchain for processing and settlement — same idea with 0x protocol.

CR: Got it. And then is the 0x API a way to access those messages?

WW: So 0x API is a complete liquidity aggregation-as-a-service solution. It’s a hosted API endpoint for developers of apps and wallets. And what it does is it basically provides a way to support liquidity aggregated swaps in your wallet or in your app. And it sources liquidity from 0x protocol orders, whether they are limit orders or RFQ orders, it sources liquidity from 95 plus different liquidity sources across seven different blockchains — soon to be eight different blockchains. So if you want to get an asset and you want to get it at the very best price, 0x API is the most comprehensive solution, or at least we believe it is. You’ll always get the best price available.

CR: Got it. Okay. So it’s not just a way to access 0x protocol liquidity, it also accesses as much liquidity as possible. And then the final layer that you guys built, the app layers you mentioned, and that’s where Matcha comes in. Is there another application that you’ve built, or is Matcha the main one?

WW: So Matcha is our main consumer-facing product. We’ve also built user interfaces for 0x governance and a 0x trade explorer, etcetera. But yeah, Matcha is its own consumer product that is for opening up the world of tokens to everyone in the world. At least that’s our goal.

CR: Nice, okay. And then before we continue on 0x, I want to take a step back and get your story. Why did you want to create 0x in the first place? What was your goal with it?

Will’s journey in crypto

WW: I learned about Bitcoin on HackerNews in 2011, 2012, and a good friend of mine who knew my wife — who was my girlfriend at the time — they also became super interested in Bitcoin. They wrote a paper on Bitcoin for university, back before anyone really knew what it was. We both were just interested, we thought it was interesting technology. So my wife, Linda, eventually went on and joined Coinbase pretty early on. It just seemed Bitcoin really had potential to have a broad impact globally at that point. And it had really advanced from a hobby project to something that could be really impactful. So she joined Coinbase, and throughout her being at Coinbase, I was a grad student doing a Ph.D. in structural engineering at UC San Diego. I also spent a year and a half at Los Alamos national lab in New Mexico doing physics research. 

While I was doing that stuff, Linda was at Coinbase doing amazing things, learning about all these cool things happening in the crypto space. And through her being at Coinbase, I basically became much more interested in crypto. When Ethereum came out, it felt like the most important invention since the internet. If you want to work on something that is going to have broad impact, Ethereum was, in my mind, one of the few opportunities that comes along in a decade or multiple decades to have a really big impact.

So I dropped out of grad school and moved to San Francisco with Linda. She was nice and didn’t charge me rent so I could work on 0x and I could just focus on developing on Ethereum. I was initially developing a protocol for options tokens on Ethereum. The thinking being that [being] crypto is too volatile for most use cases, and if there was a way to hedge against that volatility with options tokens, then that could make crypto more useful. I met my co-founder, Amir, in San Francisco later, in 2016. We were introduced through our co-worker who was the one that wrote the paper about Bitcoin with Linda back at UC San Diego in 2012 or something.

Amir and I were working on this options tokens project. We quickly realized that options tokens on Ethereum would be very useless without somewhere to go and trade them, and there was no way a centralized exchange was going to support options on arbitrary tokens on Ethereum — they would support Bitcoin and Litecoin, pretty much. So it became clear that someone needed to build decentralized markets infrastructure on Ethereum, so that any token on Ethereum could be exchanged. We were working on this more so as a proprietary decentralized exchange product, but as we spent more time in San Francisco with the Ethereum developer community and met a bunch of projects — Auger for prediction markets, Melanport, MakerDAO — what they all had in common is that they were working on a use case that required exchange functionality and exchange wasn’t their core focus, but it was a necessary building block. For example, MakerDAO created their own proprietary decentralized exchange called Oasis, and that was where market makers were able to provide the very first liquidity for the DAI stablecoin. They were building this out of necessity, same with Auger and Gnosis — they both required markets to trade these prediction market outcomes.

So it became very clear to [Amir and I] that there are going to be so many use cases that require exchange functionality, there are going to be billions of tokenized assets that require exchange functionality. And so instead of building a product that is a decentralized exchange, we should build an open-source, public good exchange platform that anyone can build on top of, and that can standardize exchange functionality. So that was the initial vision for 0x protocol, and yeah, now we’re here.

CR: Has that vision changed over time? What’s the big 10 [to] 20-year idea? Where would you want 0x to be?

WW: So first of all, our mission is to create a tokenized world where all value can flow freely. So 0x labs is an organization, that’s our mission. We want to see a world where all forms of value are tokenized on public blockchains [like] Ethereum. So fiat currencies, stocks, bonds, derivatives, startup equity, video game items, airline miles, internet reputation points — we envision billions of different tokenized assets existing on blockchains, and that’s the future that we’ve been working towards since the beginning. And it feels in the last few years, we’ve really seen a lot of validation of this idea that tokenization is the killer app for blockchains, it’s the movement and the transmission and the exchange of value. So our conviction has only gotten stronger in this tokenized world.

CR: I love it. And then to start wrapping up, so that’s the big, long-term mission. What about just the next specific milestones and projects that you’re working on? I know that you recently raised a pretty large round with Greylock, I believe $70M. So what are you planning to do with all this cash?

0x’s Series B round

WW: Yeah, we were fortunate to get to work with a really great group of supporters. Greylock led our Series B round, and the reason why we raised capital is… to achieve two things. So supporting this transition to a multi-chain or cross-chain blockchain ecosystem requires an immense amount of building capacity. So at the beginning of 2021, it became clear to us that the transition to multi-chain is happening now. Ethereum has gotten such strong product-market-fit. There’s so much demand for block space on Ethereum that it’s way too expensive, and it’s pricing out so many different use cases. All of these users are going to spill over into other networks — Polygon, at the time, Binance smart chain was one of the biggest ones, and now there are many different Layer 1s and Layer 2s that have significant adoption. So it became clear to us at the beginning of 2021, this transition is happening.

As an organization, we need to be really focused on supporting what we think is going to be a 10x or more expansion in the size of the ecosystem through new and more accessible and less expensive blockchains coming to market. And so a large part of why we decided to raise our Series B round was so that, we could scale our existing product offering, and while supporting basically this fractal scaling and fragmentation of the blockchain ecosystem, instead of aggregating liquidity across 10 different liquidity sources on Ethereum, 20 sources on Ethereum, there’s seven different blockchains that we have to aggregate liquidity across, and each one of those blockchains has different tokens to support and different ecosystems to support. So for us, it was a matter of ‘how do we support the growth of the entire ecosystem as effectively as possible?’ And that just requires more engineering, product, and go-to-market resources.

CR: So how big is your team now, and how big do you want it to get to actually be able to achieve all this?

WW: So right now, we’re around 65 people. We’ve been around for almost six years now, and I’d say throughout that entire time, we’ve taken a pretty measured approach to growth in hiring — really only growing when there was clearly a gap that needed to be filled, and I would say that we continue to be pretty measured in our hiring. That being said, we do have about 20 or 30 open roles. We’re actively hiring, so if you’re interested in considering one of the roles we have open, check them out at 0x.org/jobs. So we’re 65-ish and we’re looking to grow by 20 or 30 roles in the next six to eight months.

We currently support seven blockchains — Ethereum, Polygon, Binance Smart Chain, Optimism Celo, others, Arbitrum coming soon. And yeah, I think the most heavily-requested blockchain that we don’t support is Solana. [There is a] big, growing community on Solana, lots of activity and excitement around the use cases that are being built on Solana. It is a completely different tech stack from the one that we are using to scale across different EVM blockchains, so it would require a specific technical skill set that we’re hiring for. So if someone wants to come and join our team and help us support the Solana ecosystem as well, send us a message and we can talk.

CR: It’s pretty telling that the demand for Solana is such that projects are having to hire specifically to build out that capacity.

WW: Yeah, it is. I mean, there’s a lot of demand for blockchains and block space, and Solana has done a pretty incredible job onboarding new users to the ecosystem.

CR: I’m about to wrap up, but just curious, so [I] keep hearing the main headlines — besides Solana phone and all this activity, are also the outages. Are you worried about the performance of the Solana blockchain?

WW: Yeah, that’s a fair question. And I think that this probably goes beyond just outages. Also, a lot of people in the crypto space have strong opinions or philosophies on the important properties of a blockchain — the security guarantees, the consensus mechanism.

For us…, we’re true missionaries. We want to see decentralized finance and markets be available to everyone in the world and never go down. And decentralization is important at the same time… Ethereum is so successful that they’re too expensive to use. People are just willing to pay so much to use it. And in order to support this massive wave of new adoption, people that are setting up self-custody wallets for the first time, for us, it’s all a win-win.

These are all people that are going to be self-custodying their assets, that are going to be educated about blockchain technology, and they’re going to experience some of the rough edges that come with brand new, cutting-edge technology. So we’re not dogmatic about which blockchains users decide to use. We’re more so invested in getting them onboarded to the space, and they can educate themselves and make their own decisions about which blockchains they want to use and why.

Over time, when it comes to things like outages for a blockchain, I do think that has a significant impact on user experience. And so [for] people that are using Solana, maybe there is network congestion — well, now they’re gonna learn about network congestion. And how good is that? We’re educating users about this technology that they’re using. So in my mind, all of this technology is rapidly evolving, and it’s pretty hard to make a judgment call on technology today, because you never really know what it might end up looking like in three years.

CR: Yeah, totally. And then, to really wrap up, final question: Will, how are you defiant?

WW: Okay, I think one of the ways that I’m defiant, that our team is defiant, is that we don’t necessarily buy into the current way that the world does things. We want to hire people that have exposure from all different cultures and parts of the world. We want the very best and most motivated and aligned people to come and spend time working with us. It doesn’t matter which college you went to… we just want folks that are bought-in and long-term aligned with our values. We have team members from all over the world and it couldn’t be better.

CR: So you want other DeFiers as part of the 0x team. Well, thank you so much for taking the time, this has been awesome. Such an interesting conversation on DEXes, on 0x, and this amazing big tokenized vision for the world, which I also share. So thanks again, it’s been a pleasure!

WW: Thank you, Camila. The Defiant is my favorite and I always read the newsletters, so thank you!

CR: Yay, awesome. I really appreciate it, bye Will.



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