Space Summary
The Twitter Space The Trenches – Omni Omega Launch, Sports Gambling, Prediction Markets hosted by OmniFDN. In The Trenches space, the launch of Omni Omega revolutionizes sports gambling and prediction markets by prioritizing user accessibility and enhanced user experience through L2 solutions. The focus on reducing complexities related to bridging, wallets, and chains marks a significant shift towards inclusive participation and streamlined interactions. By leveraging innovative L2 technology, Omni Omega sets a new standard in the realm of sports betting and prediction markets, paving the way for future advancements and growth opportunities.
For more spaces, visit the Innovation page.
Questions
Q: What is the primary focus of Omni Omega's launch in The Trenches space?
A: The launch showcases advancements in sports gambling and prediction markets with a focus on L2 solutions and user accessibility.
Q: How does Omni Omega aim to simplify the user experience for participants?
A: By providing streamlined access to existing L2 users and liquidity, Omni Omega reduces complexities related to bridging, wallets, and chains.
Q: What role does innovation in L2 technology play in The Trenches space?
A: Innovations in L2 technology drive advancements in integration and functionality of Omni Omega, enhancing user interactions.
Q: Why is user-friendly access crucial for sports gambling and prediction markets participants?
A: Enhanced accessibility and usability through simplified processes remove barriers to entry, fostering increased participation.
Q: How does Omni Omega set itself apart in the realm of sports betting and prediction markets?
A: By prioritizing user experience and accessibility, Omni Omega aims to revolutionize the space while minimizing complexities for users.
Highlights
Time: 05:15:20
Omni Omega Launch Overview An overview of the key features and functionalities of Omni Omega within The Trenches space.
Time: 05:30:45
User Accessibility Advancements Discussions on how Omni Omega simplifies access for participants, enhancing user experience.
Time: 05:45:10
Innovative L2 Solutions Exploring the innovative L2 technology integrated by Omni Omega for improved functionality and integration.
Time: 06:00:25
Reducing Complexities in Sports Gambling Insights into how Omni Omega's launch aims to minimize complexities related to bridging, wallets, and chains for users.
Time: 06:15:30
Future Potential of Prediction Markets A look into the future implications and potential growth of prediction markets within The Trenches space.
Time: 06:30:55
User Experience Enhancement Discussions on how Omni Omega's user-centric approach enhances the overall experience for participants in sports gambling and prediction markets.
Key Takeaways
- Omni Omega introduces new opportunities for sports gambling and prediction markets within The Trenches space.
- Streamlined access to existing L2 users and liquidity minimizes complexities related to bridging, wallets, and chains.
- The emphasis on user-friendly solutions aims to enhance accessibility and usability for participants in sports gambling and prediction markets.
- Innovation in L2 technology drives advancements in the integration and functionality of Omni Omega within The Trenches space.
- Facilitation of seamless interactions through improved user experience and reduced barriers to entry.
Behind the Mic
Opening Remarks
Close it. All right. Well, hello, everyone. Let's give it a couple of minutes and then we'll kick things off it.
Introduction to the Discussion
All right, well, let's kick things off. Thanks, everyone, for joining. It's a pleasure. This is another episode of essentially talking to existing developers, builders, partners on the network. In this case. Today we have Kera, which is aiming to build a decentralized dog pool on top of the Nile network. And I'm excited to have this conversation today to dive deeper into the team's background, but also to understand more deeply the problem statement that the dog pool is trying to solve, the different approaches that have been considered in solving that and the ultimate vision of the product and why the Nilia network could be the right fit from a technological standpoint to facilitate that vision.
Introduction of Participants
So, without further ado, thanks, Alexei, for joining today. We're looking forward to cover some good ground review and dive deeper into the products. Can you hear us? Are you here? Yep. Can hear you perfectly fine. Thank you for having me. And. Yeah. Hello, everyone. My name is Alexi and I'm a co founder of Cairo Exchange, a dark pool order book, decentralized exchange, which we are building on. Neelian, I can probably start off with a bit of background about myself.
Background of Alexei
I started in applied mathematics and computer science, and my career was mostly in software engineering in fintech. At the beginning I was working on high load backends for payment systems and payment networks. And at a certain point I switched to quantitative finance and also worked in quantitative risk management in energy trading. About three years ago, I ventured into Defi, into web three space, and never regretted doing so. Yeah, so that's just a short intro. Awesome. Thanks, Alexei. Pleasure.
Defining the Turning Point
What was the. Out of curiosity, what was the tipping point for you? So you mentioned very mathematical background and tratfi experience, and then three years ago, it seems like Defi called you. What was it, was there like, one moment that made you realize that, do you think this has tremendous potential and deserves all your attention? Or were you in crypto before that for some longer time? And it was just the point then where you then finally decided to fully focus on that? Out of curiosity? Yeah, that's a great question.
Introduction to Crypto
Actually, my first introduction to crypto was way back in 2011 when I read Satoshi's seminal paper on bitcoin. You can say I'm pretty og in our relatively young industry. So basically, yeah, bitcoin was something I studied in depth very long time ago. And after that there were many altcoins and of course Ethereum that started all that programmability on the blockchain. At that time, I was always more interested in tech behind blockchains and distributed systems and cryptography, rather than just the financial part.
Continued Interest in Web3
And, yeah, so I worked at the treadfi and the web, two traditional it industries. And in parallel, I was always, like, picking at what is happening in the web three in the defi space. And at one point I realized that a few of the things in traditional finance were terribly wrong. And I really saw at the same time the rapid development in privacy enabling technologies in web three, namely zksnarks, MPC, fully homomorphic encryption. And that was the point when I get back interested my interest in the tech behind it.
Transition to Crypto as a Career
And I also saw the opportunity to make things much better, not only in Defi, but in the treadfi space as well. So that was like turning point for me. And that was when I moved to crypto as my full time occupation. Yeah. Nice. And what do you think were the biggest problems with treadfire? Or what are the biggest problems with Treadfire? What do you think is Defi introducing that gets you most excited?
Excitement About DeFi
Well, obviously, in the very beginning, I was fascinated how Defi and blockchains in general, how they solve the settlement, how they solve the value transfer. So Defi and crypto have definitely revolutionized the settlement layer for finance. They just made it permissionless, made it global, and reduced cost to the fraction of pennies, something that was previously unseen, that you can send millions and millions to just any destination globally, and you pay fractions of what you would pay in traditional finance, and you avoid all that middleman banking and traditional structures.
Recognizing Problems in Trade Execution
So that was something that was always a very, like the best proposition of defying crypto for me. But when I started working in finance, I learned more about the execution part, the trading part, and where the trade execution happens. And I immediately realized that not only there are problems in the trashfight space, which is basically around, always around the information, symmetry and privileged position of some players relative to the other players in the market. But also I saw that while the settlement was drastically improved by Defi and by crypto, the trade execution has actually remained relatively the same as in treadfi, with the same problems.
Realization of Opportunities
So basically, treadfi, you have front running, which transforms into Mev and nicer term, but again, in a nutshell, the same problem in the crypto and the defi space. So that's where I saw a huge unrealized opportunity in both tradefi and Defi spaces at the same time.
Excitement and Agreement
No, I mean, this is exciting, and I very much agree. I think here with a lot of the key points you mentioned. I mean, I think the exciting things about crypto, and especially specifically defi here, is obviously, first of all, the global money transfer. I think that is more the e money side and the payment side. I think it's very uncontroversial to say today that it's way more efficient, and it's pretty obvious that's the direction we're going down, particularly with the significant growth of stablecoins.
Future of DeFi
And I think the global adoption, that just makes so much sense when it comes to international money transfer. So that's certainly the first one. The second really exciting one is the programmability aspect. Once you introduce programmable money and you're benefiting from the global composability, the permissionless aspect, the open source aspect of people building on top of each other's solutions and ability anywhere in the world to access those applications, then innovation flourishes.
Challenges for DeFi
That's what we have seen on the DeFi side, particularly since, well, the beginnings of the early days of DeFi, and certainly throughout Defi summer, where a lot of experimentations happened. And I think that's just very obviously going to continue to grow and offer really exciting alternatives to more traditional financial venues and institutions that we have today. I guess what I would like to talk about before we go into the tradfi parallels and the likes is what do you think are the main challenges for DeFi today?
Adoption Challenges
Why haven't we not seen yet the adoption beyond what we have seen? We have seen adoption, we have seen usage, we see it every day. That's exciting. But I would still say the vast majority of users obviously are our niche. It's very early days for DeFi still, it hasn't yet quite made the big breakthrough globally that we obviously aspired to make. And I think that's normal on any adoption curve.
Identifying Issues in DeFi
But we'd love to hear your thoughts as well if you see there any obvious issues, while it hasn't happened, if it's Mev related, or if it's just broadly more with crypto as a whole. Yeah, that's a great question. So obviously, one part of the problem is Mev. So again, as I mentioned in traditional finance, front running exists for ages and it is a problem, but traditional finance has the legal framework, has the infrastructures to solve that problem and to address it.
Legal Framework of Traditional Finance
To a certain extent, yes, it's still there, but at least the traditional finance, they know how to handle that. And what is key for the DeFi to basically go to the next level and develop further is that the traditional finance becomes more and more integrated into deFi. So right now, we don't have institutional players in the defi space, but it's a fraction of what defi is capable of.
Opportunities for Growth in DeFi
It can be much, much more than it is right now. So, for example, with the rise of real world assets that's going to be tokenized and traded on chains, the amounts of MeV will increase drastically. And there will because there will be more profit opportunities for searchers and arbitrageurs. But at the same time, what traditional finance doesn't know how to do is how to handle that, because it's a completely new world for them.
Barriers for Institutional Adoption
It's a completely new rule set that they have to adopt. But before even MeV, the very public nature of the most liquid blockchains themselves create a lot of barriers for entry. So, for instance, if we talk about, again, institutional adoptions, market making, the market impact is one of the things that any institutional trader would love to control.
Impact of Trades on the Market
So market impact is basically, how do you address the effect that your trade has on the market itself?
Privacy in Public Blockchains
And in the public blockchains, you basically have no privacy. So in the traditional finance, you at least have privacy from the public. But probably you still have some privileged players. Your brokerage, your exchanges, where you trade, your dark pools, let's say, where you trade, they can have certain privileged information on your order flow. But generally you are at least, you know, at least the surface to which you are exposed in the public blockchains, it's completely different. Any attempt to, let's say, deposit a large amount of tokens to a centralized exchange will be immediately noticed and immediately reflected in the order book positions of the players. So there will be a market impact, so you won't have your price that you desire, so you won't have the trade execution that you are looking for.
Challenges of Privacy Solutions
And the important thing here is that while there are a lot of projects building privacy solutions for public blockchains, or even completely private blockchains, with privacy enabled and embedded in the, enshrined in the core protocol, they do not really solve that issue. So let's say you have a way to make your funds, make your tokens private from the public, but the very moment you are actually trying to mix them in a certain mixer and make them private, you already give out the information about your possible intent to trade them or to liquidate that position. That creates a whole new space of issues, that of challenges that a large institutional trader, beat trader, in DeFi or in treadfi space, should think of. And take into account.
Growth Potential for DeFi
So coming back to your question, the main challenge and the main point of growth for DeFi, I believe, is given the right tools and the right infrastructure for the institutionals to adopt DeFi. Yeah, exciting stuff. I appreciate you diving deeper there. I mean, maybe for the audience, because there are some, probably some more technical members and some members who are very much familiar with sort of the intricacies of MEV and DeFi trading, but others might not be. So maybe just zooming out a little bit in terms of addressing some of the points you mentioned here.
Understanding MEV
When you talk about MeV, what we mean by that is maximal extractable value. Initially, I would say it probably was referred to more as the minor extractable value. But given that the ongen architecture has changed over time, it's more referred to as maximum extractive value today. And what it refers to is essentially, as you said, the value that can be captured in having more information available than others. There's information symmetry, or just having information available that you can exploit in capturing value that others have too, but you're just faster in doing it or more efficient in doing that. That's what we refer to with MeV.
Types of MEV Attacks
And specifically what we see in this context are things like front running. Front running means if I submit a trade, you can front run that trade and capture valley, and essentially make money in doing so. Classic attacks like this are like, for instance, sandwiching, which essentially refers to submitting a bundle of trades such that value can be extracted. And then there's also other things like back running, which actually is more about trading in pools across different trading venues to bring prices back to equilibrium, which actually is a good thing, because that means that markets are more efficient. But also there obviously value can be extracted for those that are fastest in doing so.
Impact on Users and Institutions
Now, the issue with that is for users, that is that they want to submit the trades, they are not even really aware of it. And even if they aware of it, they usually get essentially taxed because somebody else is changing the order of trades in such a way such that they can make money. But the user, the end user, unless they're very careful in how to do it, is the one that in one way or the other, pays for that. That's not a good experience for retail. And unless retail knows exactly what they're doing, and even if they know exactly what they're doing, requires trust, they get essentially sandwiched or captured, the one with the other. And for institutions, obviously equally, that's not an option.
The Need for Privacy in Trading
They need to make sure that whatever trading information they submit to decentralized trading venues, that those are kept hidden and that they can nonetheless execute those transactions efficiently and performantly. So that's essentially what we are talking about here in the context of MEV and on chain trading. And I think this is where the crux of the issue is, right, because on the one hand, the benefits of decentralization is obvious, the trustlessness aspect is obvious, and the benefits of blockchains as a whole are obvious, but it comes with significant cost, and that is on the trading side, specifically MeV, and leaking sensitive trading information.
Centralized vs Decentralized Trading
On the other side, if you go into the centralized venues, then you only have to trust one actor, which is the exchange themselves, who obviously they see the trading information. You don't have to trust the whole world that they frontrun you, but you obviously have to trust that actor. But by doing so, you don't get the benefits of the decentralization and the global permissionlessness and trustlessness that you get on the decentralization side. So neither of two are great in this context. And I think that's where, as you said, privacy and technologies can become really powerful.
Combining Decentralization and Privacy
Because all of a sudden now you can combine the benefits of decentralization. You can combine the benefits of trustlessness or trust mitigation with privacy such that you can submit trading information, but do so in a manner that doesn't leak anything about your underlying information, in this case, your trading information. So that's really interesting and exciting. How much do you think our retail users are actually aware of that? You're obviously very much focused on the institutional side of things, and that makes a ton of sense that they're very much aware of that.
Awareness of Retail Users on Trading Tax
How much do you think is retail actually aware of that tax that they pay? That's a very good question. I think that for many, many retail users, this sometimes goes unnoticed. So it's the aggregate impact that counts at some point. So if you just make certain swaps here and there on, let's say decentralized exchange on Amm style Dax, or you trade on a centralized exchange, you probably won't notice that much of the MEV and you won't be born for a victim for it. But at the same time, if you look at how much tax does it actually impact inflict on the whole ecosystem and the whole cryptonomics in general, that would be pretty significant.
Cost Implications of MEV
So MEV basically leads to higher costs for the liquidity providers, right? So whenever you trade, you pay something to the liquidity provider, you pay something to the protocol and liquidity providers. They have to account for the MEV costs in the fees that they get. Also, yeah, obviously there are very predatory techniques, such as sandwich attacks. That is the worst case, the front running that you might have, that can literally leave you with huge losses on your on chain trade. But again, that would probably mostly affect those who trade often, and those who trade in larger quantities.
Impact of Slippage and Fees on All Users
But again, things like slippage that affect each and every trade that you make. LP fees, gas fees, because MEV is all about competition in putting your transaction in the block on a certain slot, on a certain position. And whenever this basically is being auctioned, this position is being auctioned, it reflects in final gap costs, gas prices. And these are the prices they affect every user of a certain blockchain, let's say, on Ethereum. So, yeah, while I would say most of you haven't probably fell victims of MEV and noticed the significant impact on your own trades, there is definitely a huge net impact, probably estimated in millions and millions of dollars monthly on the total defi space.
Global Adoption and Equity in Finance
And that's very important, because if we talk about global adoption, if we talk about building more equitable, more efficient markets globally, that can be used even by the tret fi part of the financial sector, and can give access to financial instruments for those unbanked, underprivileged in the global south, let's say that's something that has to be addressed, because otherwise we are basically slowing down the adoption of the DeFi as an industry as a whole. Yeah, absolutely. No, I mean, the value loss here, at least for a significant amount of actors, be liquidity providers, be retail traders, is massive.
The Scope of Value Loss
I don't know the exact number now on top of my head, but I remember hundreds of millions, so north of 700 million that I was reading last year. So I'm not sure where we stand today, but it is. It is obviously massive. So I want to switch gears a little bit. So I think you highlighted the problem statement quite clearly to recap, and then sort of move into the more technical part. So the problem statement is, on chain venues, whenever you submit trading information, you leak information.
Leaking Information and the Retail Tax
And by leaking information, other actors take advantage of that. Right. And that is a tax that retail pays. It's a tax liquidity providers experience. And the overall value of that is very significant, hampering global defi adoption. And it can be pointed to one thing, and that is that, yes, decentralization is great. Permissionlessness and global composability and trustlessness are great, but we are missing that sort of privacy angle, certainly, at least on the pre trades side, to eliminate that value capture by other third parties.
Exploring Privacy Techniques
Now the question is, how can that be solved right now? We touched initially on privacy and technologies, which obviously for those of you who are new to that space, is essentially a family of different techniques that aim to do one thing, which is introducing privacy in a trust minimized manner. That means that you can process information in a privacy manner without any of the parties seeing anything about that. And obviously in this context, that would be a very interesting and very exciting introduction where you can continue to benefit from the trustlessness angle, but without leaking anything about the incoming information.
Introduction of Zero-Knowledge Proofs
We've seen quite a few of those ideas trying to introduce CK in a trading venue. CK primarily used today, to be fair, for verifiability, as when we talk about CK and crypto primarily, we don't talk about privacy. We usually talk about verifiability in the context of scaling blockchains for l two s. But CK can also be used sometimes, obviously for privacy. And I think particularly in this aspect, in this context, people were trying to introduce CK for private trade execution.
Initial Ventures with Zero-Knowledge Technology
I think, Alexey, you tried that too. So I would love to hear from you firsthand your experience on that and why you recognize that's probably not the right technology to use for what you're trying to achieve. Yeah, sure. Indeed, the first venture into the dark pool under the privacy space that we had was with ZK. And more specifically, we built our first privacy preserving decentralized exchange, which was an AMM constant market making function, Dex on Elio, which is a layer one blockchain that is currently in the testnet, and its privacy model is fully based on the off chain execution of zero knowledge proofs.
Lessons Learned from Initial ZK Implementation
That was the first time that we made and we got firsthand experience of what the ZK can and cannot do for the defi space for the privacy preserving trading. So, just to give you a short like overview, non technical, but still. So you get the point, basically, when we talk about the ZK and the zero knowledge proofs, we mean that there is a certain party we call approver that can make a statement about its private inputs and computations.
Understanding Privacy Models in Blockchain
It's private, nobody knows it's not linked to anything. It never leaves my private environment. So basically, that's the model of the privacy that most of the privacy centric blockchains adopt. So it's alio, basically adstack, which is, I think now in the Devnet stage, and Polygon maidenhouse, which is still, I believe, in an earlier development phase. So again, their privacy relies on the fact that you can perform certain calculations on your private inputs and just prove the outcome. Now, the problem is that even if we do this, even if we, let's say, never review our trade order, and we just perform the calculations and match it with another trade order, this requires two inputs, not just from my side, but from the side of the order book or from the counterparty with which we gonna trade.
Challenges and Limitations of Zero-Knowledge Proofs
And that's where the ZK fell short. Basically, they are suitable and perfect for the proofs that you generate locally over your data. But as soon as you have several inputs, multiple participants, and you want to perform computation over the private inputs, not just your inputs, but over the inputs of several participants, then you have to have something more. And that's how we basically arrived to started exploring NPC's and discovered nillion for ourselves. Basically. Again, coming back to what we built on earlier was that we protected the identity of those who trade, but we cannot protect the execution because the execution requires multiple parties to collaborate and to find out the price. And that's where you cannot. This is something you cannot do with CK starks alone. Yeah, so that's the basic idea.
The Need for Diverse Privacy Technologies
I would love to, if you have any more questions, delve deeper into details. Yeah, no, thanks for sharing that. And I mean, this is really a perfect exemplification, I think, for thesis that we have at Nilian. Like for us, it's very clear that there is no one size fits all privacy enhancing technology, right? Like crypto is a trouble place. And if you scroll through the Twitter feeds, then you see all sorts of people becoming very vocal about the one over the other. But the reality is it's not the one or the other. I think particularly for this one, it's very obvious that we need to bring them all together, because all of them have different advantages and disadvantages. And every use case also has different performance, security and cost assumptions.
Implementing Multi-Party Computation for Diverse Needs
And for some use cases, even under different assumptions, it just wouldn't make any sense to use the one technique over the other. So our take is we're bringing them all together, we're creating a universe of new tools that currently are not accessible, but it's not the one or the other. And I think in your use case, it's a great example for that high level. I think the way one can think about it is if you want to work with your own data and you have a public model that you want to run, sure. Then if you can actually generate those pros locally, that makes sense. But if you have private input and the private model, for instance, so a private program and private input, then obviously that wouldn't work. And what you would need is MPC or FE in this case. So it really depends on what you need to keep private.
When and How to Utilize Multi-Party Computation
And also whether input comes from multiple parties, or whether input only comes from one party. So if it only comes from one party, that's me, and I can actually run it locally, then great, then let's do that. But a lot of things cannot be run locally, even if the input just comes to me. So I need a cloud solution. But if I want to keep my input then private, then I need to tap into the likes of MPC or FFG, and in case multiple individuals provide inputs, as is obviously the case for things like financial implementations, where trades come from all sorts of different directions, then MPC obviously becomes a much more viable and logical choice to pursue. It's great to hear that, because I think particularly in crypto today, there's a lot of education needed in terms of how these privacy and technologies work and how they're applicable for different use cases.
Combatting Misconceptions About Privacy Techniques
Usually when people talk about privacy, they instantly respond with CK, but that's just not really the case. It is a combination of all of them, particularly when it comes to computational privacy. It is usually MPC and fhe, and certainly in the short term, more MPC in terms of feasibility, but in the medium to long term, I think really a combination of all of them that ideally are orchestrated and coordinated. So that's interesting to hear firsthand. We have actually, on the network, seen a couple of builders. We call them internally, sometimes CK refugees, who started with CK initially, but then didn't really get that far in their implementation. Although CK is a critical part of a lot of the implementations, there's oftentimes computational privacy techniques like MPC needed to actually deliver the end to end solution.
Implementing a Transaction: An Example Walkthrough
But yeah, that's interesting. I mean, in terms of your implementation now, it would be great, I think, to hear firsthand from you how exactly it works. So let's say I'm a user, I want to buy an asset. So let's say I want to buy Eth. How does it work? So can you walk through the audience, through the current implementation that you're envisaging and sort of where the privacy comes in? Yeah, sure. So at the very first step, you need to make a transaction that's going to provide the liquidity for your order. So that's the probably first and one of the most important step, because again, as I mentioned before, the mere fact that you're sending something, making a transaction, it's public on the most public, on the public blockchains, and it becomes immediately obvious for any advanced player in the space who is monitoring the blockchain that's probably going to be a transaction.
Detailed Steps in the Privacy-Preserving Trade Execution
So our model starts from the very first step. Our trade execution starts with the very first step where you actually send the funds that you're going to trade. Let's say you want to sell some Eth for USDC or USDT. What are you going to do is you're going to locally calculate a brand new address that has never been seen before and used before for any purpose. And that would be a deposit address for your funds that you're going to trade in your order. So basically, any third party that is observing blockchains and monitoring your account, let's say we'll just see it as a regular transfer to never seen before address that nobody controls and nobody has ever interacted with. Basically, it looks like if you have just moved your funds from part of your funds from one account to the other account in your metamask chrome extension, let's say that's the very first step.
Securing the Order Process and Privacy
So next step is that locally you create an encrypted order which is then submitted to the neon computation cluster for matching. So that order contains all the information that is required for the dark pool to execute your order and to settle it. It's important to mention that address and the way it is calculated, it never leaves in the open text. Your execution environment, your browser, your laptop, and all the encryption is done locally and is fully private. That order is submitted to the nillion cluster, which confirms the matching of your orders against the orders of other traders. Again, this meshing itself is done on an MPC cluster where node is able to look into the orders and gather information about what's going to be traded, what's the size of the order, or who is trading, who is making the swap, who is making this trade.
Ensuring Privacy Until the Order Execution
Only after the order has been matched, only then the actual order information is revealed. So that's a very important property that we actually want to preserve is that we're focusing on this pre trade privacy part, where you send you funds to be able to trade them, and the order execution. So the trade execution privacy part where you order is matched with the other orders in the order book. But at the same time, we don't want to guarantee the post-rate privacy due to the compliance reasons and due to the fact that many would probably be fine with revealing the information about their order after the order has already been executed. And that's very important.
Post-Trade Privacy and Approval
So whenever order is executed, the information is revealed, but the order has already been matched and it's going to be settled with the amounts, with the correct amounts mentioned in the order book. So there is nothing anyone can do about it. So there is no mev anymore, it cannot be front run. So even if it's becomes public and a third party knows about your order, there is nothing that can affect your trade. Basically, your trade is finalized at this point, and the final step is the settlement where you get your USDC and give away your eTh. It's also worth mentioning that all the steps that I just walked you through are fully non custodial.
Decentralization and Control in Trade Execution
So at any point in time, if you wish to cancel your order, you can do it in a way that doesn't require an interaction with our back end or with our servers. That's a very important property that we're going to preserve. And that's something that makes us a decentralized exchange rather than a centralized exchange. Because the first step might sound like a way you deposit to your centralized binance account. You do basically the same thing. But the key difference is that if binance servers go down, there is no way you can recover your funds. In our case, you can unilaterally exit and withdraw your positions or your funds from all your positions without interacting with our backends.
Final Thoughts on Privacy and Decentralization
So just enough to send transaction on a blockchain, and as soon as the blockchain confirms the transaction, you get your funds back. So this way we preserve both the pre trade and execution trade privacy again, from all parties, including ourselves. We never see the content of your order before it's actually executed. We are compliant because we don't step into the zone of the post trade privacy and of the mixing of transactions. If you do this on your own. But if you don't need it, if you just want to trade and don't want to be subject to MEV front running, that's something that you already have. And at the same time, we are the centralized exchange.
Simplicity and Clarity in the Trading Process
So you don't need to entrust us with your funds and with the custody over your funds. So just a quick recap, three easy steps. A deposit that cannot be linked to any of your intents to trade, and no one, including us, can establish this connection. The encrypted order that gets sent to the MPC cluster, again, it's locally encrypted on your machine, and we never see what's in there. And nodes on the nilian network are able to look into the order unless it is executed. And at the moment it is executed, the information for the settlement is revealed, but there is no maybe anymore. Nobody can affect the price that you matched.
Discussion on Transactional Privacy and MEV
Yeah. So that's the flow. Yeah. Fascinating. Well, thanks for highlighting this distinction. I think that's really important. Important and interesting, because obviously today when people think about transactional privacy, they might initially think about the likes of sea cash, Monero, or even the sort of the mixer applications. But it's important that I think you just highlighted the different focus areas. For you, it's less about hiding the recipient or the sender, it's about the value capture that sort of originates with MEV and front running that you aim to eliminate utilizing privacy to do so. Otherwise, you always have a trust vector, you always have either an exchange or you have the whole public looking at the main poll, and then obviously then front running and capturing value, which you're aiming to limit with privacy, which I think is very interesting in terms of the differentiation between the two. It might not be initially, obviously, to people when they hear about sort of private trade execution, but it's really the emphasis on the execution side of things, which I think is interesting to highlight.
Execution Mechanisms in Crypto
One point I want to dive deeper into before we close it off is really on the execution side itself. So there is obviously different ways of how you can match today in crypto, if you look across the DeFi exchange implementations and sort of purpose protocols, there are things like Amms, automated market makers. We see also things like Oracle based processing. We see things like order books. Can you highlight for the audience the difference, and maybe also what your plan is in terms of how the execution actually works. Sure. So let's probably begin with something that most of the listeners are well aware of, amm, decentralized exchanges. So things like uniswap, Pancakeswap, Sushiswap, and so on. So one thing that was really revolutional about amms is that they are both very efficient, so they can be executed on chain, and at the same time, they can do the price discovery. So what does it mean? They set the price so they don't rely on any information about the true price of an asset to trade coming from somewhere else.
Price Discovery and Oracle-Based Exchanges
They basically discover the price with the help of arbitrage transactions. With the help of traders, informed traders who sell and buy assets, they converge to the true price of a certain asset. So that's what it's called, basically a price discovery. The ability of the execution mechanism to give you the price of two assets in relative terms, like USDC and ETH, let's say. So on the other hand, there are so called oracle based perp exchanges, let's say, and even like, more general exchanges with the spot assets being traded. And these exchanges rely on the external information. So basically, they take data about the true price that should be used to conduct a trade from somewhere else. This can be just a one source or a weighted combination of different sources, such as another Dex, or a centralized exchange, Nasdaq, whatever, like any source of information where the asset of interest is being traded and it has its own benefits, because you can build very simple mechanics. You just have the price, and you just need to settle the orders or the trades based on this price.
Limitations of Oracle-Based Exchanges
But at the same time, you cannot trade something that is not traded anywhere else. So if you come up with a new meme coin, let's say, and you want to trade it, there is no price for the meme coin. There is like no binance listing, and no other Dex is trading it. It's something new, and it's up to traders and arbitrage searchers to discover this price. So that's the key difference between this price discovery versus oracle based price matching. Now, what Kaira is doing, Cairo, is taking the most efficient mechanism for the price discovery, which are order books, and we are building our dark pool based on order books. So order books are, by many different metrics, are better than the amms, especially when it comes to capital efficiency, enterprise discovery. And this is something that has been there for courageous in traditional finance. So what we are aiming to do is not just take the price that comes from an external source, but to build a foundation for the trading in Defi, and not only in deFi, then potentially in trendfi space that is able to come up with the price itself.
Innovations by Kaira
So it's a more fundamental mechanic that is able to trade new types of assets and discover the prices and help traders execute more complex trading strategies, such as limit orders, for instance. So that's probably the key distinction that Caira has in terms of the execution from the existing dark pool projects that mostly are about the Oracle based pricing. And one of the also things that you might probably hear sometimes about the oracle prices are hacks related to oracles. Because when you rely on certain data coming from outside, you basically are subject to any vulnerability or any way to manipulate that data. If there is, let's say your oracle infrastructure is giving you a wrong price, you're going to start matching the orders at a wrong price. Say you sell ETH for 1000 USDC, which is definitely completely wrong. But that's the price that is coming to you. And your smart contracts, they basically have to execute based on this price.
Conclusion of the Comparison
So in a nutshell, the key difference, well, both ways are they have obviously their advantages and disadvantages, but the key difference is that order books are at the foundation of the trading itself. It's the most efficient structure it can do price discovery, and it's what traders are more aware of and more capable of using effectively. That's why Cairo is focusing on specifically that part, and that's the key value proposition that our dark pool decentralized exchange is bringing to the market. Awesome. Well, I really appreciate it, Alexei, walking us through this, and I think this is again, also a debate in crypto that is going on for years at this point, emms versus order books.
Reflections on Trade Execution
But appreciate your insights and your reasoning for pursuing order books and how they all differ from each other, the different execution engines. So appreciate that. Let's wrap it up here. I think we covered a lot of ground. I think it is fascinating, both from a product standpoint, but also from a technical standpoint to talk about this. I think we can go on for ages. I think the way we can probably holistically summarize this, and I will give my best to recap it as concisely as possible, is crypto is a revolution. Crypto started 2009, and particularly with Ethereum being the first programmable engine, we started to actually develop applications.
The Evolution of DeFi
And DeFi came out as one of the strongest ones, if not the strongest one in terms of use cases of global ledgers beyond stablecoin transfers, and they really grow quite astonishingly with emms, but also on chain order book implementations that we've seen over time and have really introduced new possibilities for users globally to transact with each other permissionlessly, composably and globally. But the challenge of that is information leakage. So today, when you use those exchanges, you are leaking a lot of information every time you submit a trade. And that gives rise to what we call MeV, which is a significant amount of value capture in the hundreds of millions of dollars that somebody needs to pay for, which is either the user trading or the liquidity providers and or both. And that is a significant hindrance for basically global defi adoption, or global crypto adoption as a whole.
Introducing Kaira's Solution
And Keira's approach, essentially is to eliminate that problem, and it aims to eliminate that problem by creating something that takes the benefits of on chain exchanges. So decentralization and global trustlessness, but introducing that also with privacy, pre trade privacy specifically, meaning that whenever you are submitting information, whenever you're submitting a buy order or sell order, nobody sees anything about it. So neither the other party trading nor the notes that get the information from you have any idea of what they're doing. They have no idea which asset you're trading. They don't know what size you're trading, they have no idea. But nonetheless, they can take that and run a trading execution and generate a trait which only once it's generated, is then revealed. And that way, Kera's promise is to essentially limit MEV without sacrificing on the other key principles that come with crypto, which is decentralization, which is permissionlessness, which is composability.
Closing Reflections
Is that a fair summary, Alexi, in terms of what division is and how you're trying to approach that? Yeah, that was actually the perfect summary. I guess it's even much better than I could have done myself. Yeah, I appreciate it. I mean, it's fascinating to hear about this, and obviously, we rambled a little bit on all these sort of technical details, which are fascinating for me, and certainly for you, Alexey, as well. Not everybody's favorite in terms of how exactly all these differ, but fundamentally, I think what everybody should care about and should value is how does trade execution work, and how can we create a better system than we have today?
Importance of Continuous Improvement
And I think it becomes quite obvious with what we have today that there is a lot of progress, there's a lot of exciting things that we've put in place as an industry as a whole, but there's still a lot of work to do. And one of the big ones is this value capture. And I'm thrilled to see approaches that are trying to improve on that. And Keras certainly is one of them that is trying to find the better way to achieve trade execution without having to trust somebody and without leaking so much information that ultimately you get taxed with. Thank you very much, Alexei, for joining. Thanks everybody else for joining. I think this was a thrilling session and it's always great to hear about both products visions that are built on top of privacy and technologies and crypto and at the same time to dive into the technical details in terms of how all of these differ.
The Future of Crypto and DeFi
Because I think there's a lot of education needed in the industry as a whole that we all collectively need to pursue to make people aware of all the different opportunities and new functionality that can be introduced with all these different decentralized infrastructures and technologies. So thanks everyone for joining. I hope it was helpful. I hope it was educational. We'll be back soon with other builders and very excited to see Alexei, you and the Kera team, to progress on your journey and your development and then also to obviously see your application getting live for all the audience and obviously many more than that to then start interacting with the application. Yeah. Thank you very much for having me.
Conclusion of the Discussion
And that was an excellent space for us to talk about things that we build and things that get us excited. Hopefully we're going to see you guys, everyone here live on our testnets very soon on nilian. Awesome. Thank you very much, guys. Talk to you soon. Have a good evening. Thank you. Ciao.
