Building a Fully Onchain Exchange: Inside World Markets | Aurelius & Hersch

Lucas and Hirsh from World Markets discuss their innovative approach to building a fully on-chain exchange on MegaEaf. Lucas emphasizes the importance of risk engines and state synchronization in their design, believing that the Ethereum Virtual Machine (EVM) will evolve to support this model. They highlight MegaEaf's cost efficiency, aiming to be ten times cheaper than traditional Layer 1 solutions, and note that it aligns incentives for both investors and applications, making it an attractive option for building exchanges.

World Markets introduces Atlas, their fully on-chain risk engine, which enhances liquidity for perpetual contracts and improves lending liquidity. They operate on an order book model, addressing risks associated with variable rate lending in DeFi. The margin system unifies their markets—perpetuals, spot, and lending—allowing for under-collateralized borrowing, which enhances trading flexibility. Atlas integrates various risk engines, focusing on risk management inspired by traditional finance, and aims to improve user profitability through atomic execution and better risk computation.

The discussion contrasts traditional markets, which are capital efficient but fragmented due to regulatory constraints, with the potential for greater transparency and conflict resolution in on-chain operations. They address the issue of borrowing rates in crypto, which can vary significantly and highlight the need for transparency in trading. The exchange operates on a separate order book model, distinct from others, and emphasizes the importance of integrity in financial markets.

Speaker 1 argues that liquidation should only occur when a trader cannot pay, advocating for bilateral counterparty risk management to enhance fairness and transparency. On-chain risk parameters are crucial for determining leverage and margin consumption, allowing traders to make informed decisions. The go-to-market strategy involves quickly listing high-liquid assets, focusing on user retention.

The conversation distinguishes between institutional and retail users, noting that retail users desire safety and simplicity in trading. Emerging platforms like MegaEaf aim to better serve retail users. Concerns about the potential shift from USDC or USDT to USDM are noted, with USDM being backed by stable assets to mitigate risks. The critical role of clean pipes and dependencies in ensuring the stability of a new stable coin is emphasized, along with the need for transparent monitoring and reporting.

A new vault concept is introduced, merging fund strategies with decentralized finance (DeFi), allowing trading teams to compete for capital. This vault offers flexibility, enabling users to leverage tokens across various platforms and capitalize on arbitrage opportunities. Hirsh's involvement in World Markets began when he was approached by co-founder Kevin, leading him to join the development team, which includes experienced members recognized for their contributions.