The Perpification of Everything

Kalidora from Ostium discusses the integration of traditional finance (TradFi) trading on-chain, highlighting early experiments with platforms like Mirror and Synthetix. She critiques existing models such as collateralized debt positions (CDPs) and automated market makers (AMMs) for their inefficiencies and proposes two onboarding models for traditional assets: a centralized model similar to stablecoins and a trading-first product to capture latent demand.

She anticipates growth in the trading-first model over the next three to seven years, emphasizing the need for perpetual instruments that align with on-chain activities. Kalidora notes a shift in trading behavior post-COVID, with traders diversifying across asset classes due to macroeconomic factors influencing volatility. She envisions a future platform enabling seamless cross-asset trading from a single account.

The conversation also addresses ASTM's focus on synthetic assets and the significance of contracts for difference (CFDs), which allow users to trade without redeeming the underlying asset. CFDs provide a more predictable user experience compared to perpetual contracts. Various trading platforms, including Binance and OKX, are discussed, highlighting their funding rates and the appeal of CFDs to retail traders, who often utilize high leverage.

Brokers are crucial in managing liquidity, quoting prices from underlying markets, and determining when to hedge trades. The discussion emphasizes the confusion between broker platforms and exchanges, with Binance serving both roles. Concerns about liquidity fragmentation in the crypto space are raised, arguing against the "fat protocol thesis" and suggesting that value is not inherently greater at lower levels of the trading stack.

Osium's operational model combines successful elements from traditional markets and crypto, inspired by CFDs to enhance exposure to longer tail instruments. The conversation addresses the cold start problem in crypto liquidity, emphasizing the need for traditional assets with good liquidity and predictable fees. Osium aims to create a system that ensures predictability in fees and allows for large trades without significant price impact.

The complexities of hedging and liquidity management in trading platforms are highlighted, particularly in the context of the "Perpification of Everything." A sister entity is involved in taking maker positions on Ostium while hedging in the underlying market, emphasizing the need for programmatic hedging to enhance capital efficiency. The discussion contrasts various trading models, noting that successful platforms monetize fees and flow, with Robinhood cited for its strategy of undercutting competitors.

Challenges in crypto trading are underscored, particularly in managing flow with anonymous participants. The conversation raises concerns about anonymity in decentralized trading compared to platforms like Robinhood, which have established user identities. The history of complaints against CFD brokers is referenced, highlighting issues with account closures and a lack of trader protections.

The discussion touches on the National Best Bid and Offer (NBBO) and its relevance to pricing and market making, as well as the proprietary oracle used for price feeds. A tweet highlighting a 365% funding rate on the XYZ 100 illustrates the unpredictability of funding rates, which can impact profit and loss more than asset price changes.

The conversation centers on the implementation of Real World Asset (RWA) perpetual contracts and their dependence on the spot prices of tokenized assets. The volatility of assets like Paxos Gold is discussed, underscoring the risks in volatile markets. The unpredictability of price movements in traditional assets is contrasted with expected volatility in long-tail altcoins, acknowledging the competitive nature of the market.

The potential for deep order book liquidity on-chain is discussed, highlighting benefits for arbitrageurs. The conversation shifts to market hours for different asset classes, confirming that FX markets operate 24/5, while commodities and indices operate 23/5. The potential use of perps by large institutional actors is also explored, with a suggestion that while hedge funds have access to bespoke OTC products, perps may not be optimal for long-term positions. The systematic long bias on perps among retail investors is noted, concluding with an acknowledgment of the topics covered and a suggestion to continue the discussion in the future.