Wall Street Traders Are Using DeFi: Interview With dYdX Foundation’s VP of Strategy, David Gogel

Between the mismanagement, opacity, and regulatory attacks on centralized exchanges, crypto users are growing more incentivized to transition into decentralized finance (DeFi).

While plagued by a host of its own issues (hacks, thefts, market manipulation, etc.), DeFi allows market participants to conduct trade on a peer-to-peer basis using purely transparent smart contract code. As the sector develops, not only does user experience improve, but the number of products offered rises to meet those of traditional finance.

At EthCC Paris in July, CryptoPotato sat down with David Gogel, VP of Strategy and Operations at the dYdX Foundation. dYdX is one of the largest decentralized exchanges available today and draws the largest trading volumes for perpetual swaps than compared to other decentralized marketplace.

Gogel shares what he sees as the most exciting developments for dYdX going forwards, how Wall Street traders are already using the protocol, and the most likely way of onboarding new users to the ecosystem.

But first, let’s clarify where the name comes from. For many, the term “dYdX” might raise eyebrows, but as Gogel explains, it’s all about derivatives.

“dYdX is the math term for derivatives, so it just means derivatives. We’ve heard every pronunciation you can think of, and every capitalization like big D, small Y, dye-dix or did-ix, but it’s pronounced D Y D X,” Gogel clarified.

A Shift from Wall Street to Crypto

With a Wall Street background, Gogel has been a prominent figure in the crypto space for about seven years. In the interview, he detailed his journey from traditional finance to leading growth at dYdX Trading and eventually joining the dYdX Foundation.

He stated:

“I’m the VP of Strategy and Operations at dYdX Foundation. I’ve been with the foundation for about two years now. Our mission is to enable communities, developers, and decentralized governance over the current version of the protocol and future versions of the protocol.”

The Evolution of dYdX

Since its inception, dYdX has seen substantial growth, with peak volumes reaching $10 to $15 billion daily. Although volumes have declined, David confidently expressed that net flows into crypto have increased over time, with a shift from centralized exchanges to DEXs.

He explained dYdX’s dominance, saying: “Today in the perpetuals volume landscape, we’re a low single-digit market share in the one to two percent, but we’re by far the largest DEX. Even within perps, I think in the last 30 days we did close to 40 billion dollars in volume, and the second player did maybe three or four billion in 30-day volume.”

Transitioning Away from Ethereum to Cosmos

An intriguing topic in the interview was the ongoing transition of dYdX from Ethereum to Cosmos. He emphasized the historical importance of Starkware’s L2 for settlement on the Ethereum network.

He also noted that dYdX accounted for around 90% to 95% of volumes on Starkware, crediting them as “great partners.”

By the way, you can check our podcast with Starkware’s Gal Ron here.

He further elaborated on the move to Cosmos:

“The Cosmos ecosystem allowed us to be able to build a custom chain specific to our use case, which is around trading high-velocity products. So, dYdX Trading has been building the Cosmos open-source code for the last year and a half. The big difference is the order book and the matching engine will run in memory by the validators… it allows for a highly scalable system, high throughput, but also has that decentralization ethos.”

Regulatory Challenges and User Experience

When asked about the impact of the clampdown on regulated exchanges and its effects on dYdX, Gogel observed some spikes in users and volume but acknowledged that the experience is more suitable for advanced traders.

“The dYdX platform offers perpetual products, which are synthetic products that allow people to go for more advanced trades,” he explained. “It’s much more focused on the pro-retail or institutional segments.”

“We Like Bear Markets”

On the horizon, Gogel emphasized the potential migration of the user base to the new ecosystem and the exciting opportunity it brings.

“Should the community decide to vote for v4, the next 12 months are really focused on supporting a migration and then developing and growing a big ecosystem around the dYdX chain.”

His final remarks on the matter were a reminder of dYdX’s resilience and innovation throughout market cycles. Whether bear or bull, he said, “dYdX generally is a crypto OG. We like bear markets, bull markets are more fun, but the collective teams have been heads down building the last two years.”

And What About Crypto Mass Adoption?

“We see some advanced traders from Wall Street. We don’t service any US people, but there’s a lot of sophisticated trading firms that historically only traded traditional financial products” said Gogel.

“Many of them, if they trade in crypto, will trade perpetuals as a way to manage their risk and hedge. And then many of them, if they’re going to trade on a DEX, they are very familiar with order book type models.

Generally, the first DEX that they will integrate with is dYdX. I would say we’ve seen really strong adoption so far. Certainly, there’s a lot more work to do to bring more people into the ecosystem. I think regulatory clarity in different markets around the world would certainly help. I think, again, the tech does move exponentially.”