Audio and transcript from the February 3rd, 2022 installment of “Conversations with the Coop” with Evgeny Gaevoy, the CEO of Wintermute.
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Crypto Texan: Hello, everyone. Welcome to Conversations with the Coop. This is where we source questions from the Index Coop Community, to gain insights from today's leaders in crypto and DeFi. I'm your host Crypto Texan, and today we have Evgeny Gaevoy from Wintermute with us today. Evgeny, thanks for being here with us today. How's every thing going?
Evgeny Gaevoy: Yeah. Everything is great. Thanks for having me.
Crypto Texan: Yeah. Absolutely. We're excited. So let's just go ahead and get started by just your background, and how did you get into crypto?
Evgeny Gaevoy: Yeah, sounds good. I think my journey into crypto is pretty much intertwined with my Wintermute journey, but basically, my background is in traditional finance. So, I was at Optiver, one of the largest global market makers and TradFi for about 10 years building the ETF market making desk. And, to me, basically if you're in TradFi for about 10 years, at some point you realize how convoluted and how legacy their tech stack is for... Well, and it's trading related, really. And, as a market maker, you see even more of it. You see, I know, all those custodians, settlements, agents, clearers. It's basically all legacy tech, it all contributes to this two, three days settlement for stocks, and so, there are so many examples of inefficiencies on the government level as well, and you need to find your way around it, which is really annoying, because all you want is to make markets efficient and make money for your company. But it also... You cannot help but think, is there a different way to do it? And so, at some point, I stumbled upon blockchain, and I think, for me, the initial thinking was, "Sounds like a great technology." I don't really care about the crypto aspect of it, because I know, what the hell is Bitcoin saying? So I just focused on the enterprise blockchain initially in my, I don't know, internal research, which sounds really horrible, but yeah, that's how I started.
And I think it was back in 2015 or something. So I was really, really late already by that moment, but I didn't really touch anything crypto until I actually left Optiver back in 2017. I actually started to have a lot of spare time to look what I want to do next, and I also started to invest in the crypto first, bought some Bitcoins, and created account on Kraken, found out that there are other cryptos as well, started doing some training for myself, a bit of that, a bit of that, and eventually I thought, it actually make... With my experience in market making, it just makes sense to start the market making firm and crypto instead. So, I teamed up with other two acceptable guys, and we created with Wintermute with the ideas that, yeah, we just want to make a market that will be providing liquidity on all the centralized exchanges, DeFi was not the same back then in 2017, and same time it'll be doing it in, well, in a decent way, like no pump and dump schemes, nothing about, I don't know, creating fake volumes for projects. Basically doing proper, saying that we would not get into jail in traditional finance, but also something that was quite in line with our values.
And basically, somewhere along this journey, over the last five years, I basically learned a lot more about how this stuff operates, and it grew in me. It basically grew inside of me from the speculative angle that, all those tokens move a lot, it's so much volatility, it's so nice to make money of it, to actually appreciating the blockchain technology, to actually, on the philosophical level, even appreciating decentralization as a value, and as a way of doing things in this world, opposed to current centralized state basically.
Crypto Texan: In 2015, you were getting into the enterprise blockchain solutions, and I remember when I was getting into the space in 2017, that that was still a pretty hot topic, the private blockchains, or the enterprise blockchains. And I'm just wondering if you had any opinions as to why, I don't know, that space hasn't really panned out like a lot of people thought that it would, and I don't know why it's not just that effective of a solution compared to the public blockchains.
Evgeny Gaevoy: Yeah, I was saying my guess would be, is just inertia inside those big corporations that were pushing it, because, obviously, it's a great alternative to what's already build, but in order to change things, in order to move to the blockchain, in a lot of those examples, so many processes would have to be changed inside those corporations, for example, that I don't think there was enough buy-in internally in most of them, that would be my guess, at least. I was never involved in any of those initiatives, because, well, likely I was not part of this massive corporations ever, but that would be my guess, is just not enough buy-in, just too much inertia, and I think a lot of push back from people who would be displaced by this potentially.
Crypto Texan: Okay. That makes sense. So, let's move over to Wintermute, and you touched on this a little bit when you were discussing your background, but can you just tell us what is Wintermute, what is the purpose and its importance in the ecosystem?
Evgeny Gaevoy: Basically, for the past four-and-a-half years, we made the journey from relatively small market participants. So, we had maybe $3 million worth of assets in the beginning of 2020, for example, and now, basically grew, pretty much, 1000-fold to this year, and we grew from just the market makers that want to make some money, to a pretty significant part of the DeFi ecosystem, pretty significant part of CeFi ecosystem. We are trading on all the main major centralized exchanges, we are trading on all the major DeFi protocols. We support DyDx back in 2019, and we were one of the first major market makers to do that. And, in general, our philosophy is, we want to support decentralization as much as possible, and it's not just about, I don't know, blockchain in principle, it's basically about not going behind one layer 1, for example. We are not, I don't know, Ethereum Maxi or Solana Maxi.
It also means that we are not backing any particular protocol. We are not, I don't know... We are good friends with DyDx, but we will also be good friends with Mango, for example, and Solana, or whatever, as our third protocol, for example. Our values, in general, is basically making sure that there are enough similar protocols out there, and it's basically what drives, well, our values, but it also what drives our... Basically, that's what differentiates us as well from others, because we spend so much time on integrations, so much time on connecting to different liquidity pools, that we differentiate ourselves from other market makers in that way. So, it makes sense for us to actually support, basically, let 1000 flowers bloom basically kind of strategy. And the same goes for our venture business, which we started last year as well. So we did over 16 investments so far since beginning of last year. And it's the similar kind of philosophies that we...
You would often see venture funds size not investing in competitors, or just spraying and praying, like, "We are doing something else." That's what we're saying, that basically we are making sure that we invest across the whole space, in the teams that do make sense from a team perspective, from technology perspective, but, again, we don't back any one L1, or any one protocol, or anyone Drift's protocol, lending protocol. We actually want to support as many as possible.
Crypto Texan: And can you also describe for the audience just what market making is in its most basic form?
Evgeny Gaevoy: Yeah, I would say in the most basic form, it's providing bits and offers. If you imagine order book, the bits and offers you will see in this order book are most likely provided by market makers, and that's basically the core of the business, basically market makers providing bits and offers, and effectively making money from the spread on the exchange minus the cost. So, our business is doing thousands or millions actually, transactions on a daily basis, and capturing the spreads, and basically manages the results and risk.
Crypto Texan: And, another question I have is just, what do you feel like are the most major differences on being a market maker for a centralized exchange versus an AMM, and what challenges and hurdles do you have on both sides of that?
Evgeny Gaevoy: Yeah. I'm still getting warm to the idea of AMMs in general, when they appeared back in DeFi Summer. Well, I mean, they appeared slightly before that, but in general, when Uniswap started blooming back in 2020, I have to admit, I was super skeptical, and the success took me very much by surprise, because market making business is very difficult. There are, I don't know, so many different parameters you need to manage, because you cannot... And Uniswap, the initial version was making it rather simple. You have this very simple formula, you provide liquidity, and you basically... There's a market maker around the CR rate scores that is basically defined for you by the market forces. I think there's Uniswap V3, it does changes a bit. So, it's basically becomes a bit more complex. We're not super big fans of market making in AMMs at this stage with normal Uniswap, simply because that it's very much kept inefficient. With Uniswap V3, it's primarily around gas costs. So, it is just not feasible for us to do it properly on the main net, for example. It does change on others. So we are currently experimented with that, but in general, yes, I think you do see that's, I think, the bottom line.
Evgeny Gaevoy: The main challenge is, I think there are not enough parameters still to play around with. So, Uniswap V3, we have three different fee schedules we can adopt, for example, but that's pretty much it. I think, at some point, it'll get more and more complex, but then I would also question, if it gets more complex, then why not just run a normal order book. But that has been my opinion for the past two years, and all while those AMMs have been quite successful businesses in terms of how much, how many... Well, how much liquidity is there, how much fees they collect as well? So, I guess time will tell. Maybe they'll become advanced enough for us to participate properly, and I'll be proven wrong.
Crypto Texan: I think that's a good point, is that when you do look at it, the bid-ask model is probably the most efficient form of market making and trading, and AMMs are just objectively inefficient, but it's really just because the limitations of the code, and the limitations of, I guess, just the economic of the blockchain. Would you agree with that statement?
Evgeny Gaevoy: Yeah, pretty much. Yeah. Economics of blockchain makes a big difference, especially on AMMs like SushiSwap, we have extra benefit of receiving, well, extra rewards. So, we do provide liquidity in some protocols that are just up and starting, for example, I know, one of the more recent examples in that is Angle, for example, we were provided... We seeded liquidity on AMMs for launch of the token. So we do that for... It does make sense to seed liquidity for the initial launch, it doesn't really make sense for us to provide liquidity afterwards with the current model.
Crypto Texan: Okay. That's helpful. So, I guess on that note, what does your typical client look like? When you have a protocol, or an organization that is looking for seed liquidity, how does that benefit them, and what's just your typical makeup of that type of client?
Evgeny Gaevoy: Yeah, I think typical project is primarily looking at getting listed on centralized exchanges. That's usually number one priority for most of them. I would say with this, with growth of DeFi, the last couple of years, I don't think it should necessarily be a super big priority for most of the projects. I think it's much more important to focus on product itself and focus on technology, because once it's successful, once you have enough TVL, for example, in your protocol, centralized exchanges will just list you automatically, but in general, in terms of what we offer is, it does become a bit easier to get listed on centralized exchanges. We also provide liquidity.... Well, we also see liquidity in AMMs, for example, for starters, we are one of the largest, well, if not the largest market maker on RFQ aggregators, like 1inch, or Matcha, ParaSwap. So, we do provide a lot of liquidity there as well, and we generally try to be even more helpful, well, basically with Interop, we're also trying to support as many index products as possible on liquidity side of things. So this is more of a example of us trying to deliver much more values than a normal market maker would.
In that regard, we are trying to be helpful on OTC front, where we also manage projects treasury, so basically provide liquidity for... Well, basically for selling the tokens or selling tokens of employees, for example. So, we are basically, the idea for us is to be engaged with the protocol as much as possible. It's not really interesting for us just to get a loan, and I don't know, get at least on centralized exchange. It's just not enough for us in terms of value that accrues to us and to the project.
Crypto Texan: That makes sense. You said that a lot of protocols, or DAOs will look to you to, I guess, get assistance in being listed on the centralized exchange, is that because of the network that Wintermute has, or is it also that CEXs are looking for certain liquidity requirements, or market making requirements before it's listed on a centralized exchange?
Evgeny Gaevoy: Yeah, CEX is typically need at least one, sometimes two market makers to just list protocol. Some of them have their own market makers. It's not necessarily the practice that we like, but that's the reality we live in, but any investor in exchange, they typically don't have in-house market makers, so they would rely on one or usually two market makers to support the listing on the listing date, because if the project lists and there are no bits and offers... Well, maybe there are bits, but if there are offers, it's not going to be a very successful launch. So, they often come to us and introduce projects to us that are going to list, and basically also, it's much easier, I think, for projects that they're already in advanced talks with exchange to mention, "We have a market maker behind us."
Crypto Texan: Okay. That's helpful. I feel like Wintermute was just, from an institutional standpoint, when it comes to DeFi, was just very early compared to other firms that are similar to yours. What did you and Wintermute see in DeFi so early, that perhaps others did not?
Evgeny Gaevoy: Well, quite honestly, I think it was more, well, part a gamble, and part just part of driven by values again, because to me, already by 2019, I was already a lot down the rabbit hole in terms of understanding how blockchain works and how it can change the world potentially. So, it was just really interesting for me to dive into it and actually kick start liquidity and protocols that really needed it. So I think it was, quite honestly, on one hand, value driven, on other hands... Also, I think, the calculation also was that if we can jump in earlier, we would have a pretty good moat compared to anyone who would come in later, which proved true last year and the year before as well.
Crypto Texan: I'm also thinking just with the recent price action that we've been seeing, and there's talks of a bear market. Does the role or importance of a market maker change in a bear market versus a bull market? I would assume that there are probably higher demands for Wintermute's services in a bear market, maybe opposed to a bull market. I'm just wondering, is there any differences there, if you could just add some color to that?
Evgeny Gaevoy: Yeah. In general, I think the demand is much higher, because... Well, demand might be relatively same, but supply is lower, I would say. I would say it's also a big consideration, because a lot of market makers that were profitable in a bull market with really high amount of volatility everywhere, might not necessarily be profitable in the bear market, whereas if volumes are lows, there is no retail anywhere, and you just need to survive and just focus on the most liquid past probably. And so, being big enough, and being able to support liquidity in the pasts that are not necessarily going to be profitable for the next few months, that's something only a handful of big market makers can afford to do.
Crypto Texan: Okay. That makes sense. And let's talk about the Index Coop and Wintermute. Can you just describe for everybody the relationship between Wintermute and Index Coop, if there is one already? And then you already touched on, what challenges are there in providing liquidity for Index Coop, both the products that we have, our index funds, as well as our native Index token?
Evgeny Gaevoy: Yeah, sure. I think I'll start from afar actually. So, basically, back to my TradFi experience. So, what I was doing at Optiver was market making ETFs. So in general, this team of indexes, team of market making is very close to my heart. I would say, back at Optiver, market making ETFs is a very difficult business. There are a lot of small things you need to take into account, like starting a risk protections for different stocks, finishing risk managing your inventory, managing any risks from running exposures and individual stocks, for example. And a lot of this complexity is shared with DeFi index product, and basically, early last year, started to look into the space, because I said, market making ETF is something I pretty much made my career on back in the days, and what are the products being out there? So I heard about DPI, I heard about a few others, so I started researching into the space, and basically I found roughly four biggest projects, Index Coop being one of them, obviously the largest one. And I basically appeared with the same focus on decentralization, with the same focus on that we don't want, really, to back one protocol, but we actually want to back the whole space.
We started approaching all of those protocols, so we started with... I think we started with PowerPool initially, then we approached Indexed, we approached PieDAO, and finally we approached you guys as well. And the deal we made with, basically, all four protocols was pretty much the same where we would market make the governance token, so, Index, in your case, but on top of that, the main value-add from our side would be to market make the Index products as they get listed on centralized exchanges. So now the biggest challenge last year was, on one hand, there was not enough traction in most of those index products, concluding in it... DPI got listed on KuCoin, but that was pretty much the only centralized listing that we've seen. In terms of other hands, I think in DeFi community in general, there was still a prevalence of opinions that you can make much more money by aping one or two tokens that you really believe in, and since everything was going up, this view got reinforced and people had that you don't really need to diversify. I think after this bear market, this view might change, but we'll see. Hopefully it will be.
I think another thing was that most of the centralized exchanges on top of it, they still don't have a good idea about basically whether those index products are securities or not. So we had quite some discussions with all the key centralized exchanges, and most of them are just saying, "It sounds really interesting to list those products, but we just don't know if they're securities, and I don't know, SEC will come after us," for example. And so, that bit was not super successful, and basically, instead of continuing to push centralized exchanges to list those products, which did not really get much traction, we decided to focus on making those products more successful on DeFi side of things. So, for example, last year we supported launch of data on Index Coop site, and in generalizing what we're going to focus on, is basically support liquidity of Index products on DeFi with an idea that if it grows a TVL large enough, if it grows a trading volume large enough, they might get interested enough for the centralized exchanges to reconsider the listing that.
Crypto Texan: There seems to be a big difference, at least from a perceived regulatory stand point of the retail-oriented centralized exchanges like Coinbase, but there's also the institutional side of this as well, where you have Coinbase institutional, which DPI is listed there, and also BitGo as well. Can you just talk through the differences of why the institutional custody side is more willing to adopt those products versus the retail side?
Evgeny Gaevoy: I think on the custody side, it's relatively easy, because it's only RC20, it's listings the tokens on custody side doesn't necessarily expose them to any regulatory risks, because, basically, if they sell those products to institutions, I think it's a much smaller regulatory risk, because then institutions are, I don't know, less certified investors, they can buy pretty much whatever they want. While for retail, if you sell securities to retail, you need to have a proper license for this in most countries. So, that's basically the main reason, I think.
Crypto Texan: So, what advice would you give the contributors at the Index Coop? What do you feel like, what steps do we need to take to move forward to potentially get to a centralized exchange listing?
Evgeny Gaevoy: I would say focusing on institutional adoption would be one good pass. We would be super interested, in general, in partnering on that side, because OTC business is a very important direction for us in general, and it's also much easier for us, just on the infrastructure side. It's much easier for us to, if a client comes and wants to buy $10 million worth of DPI or data, it's much easier for us to do it, because it's a delayed settlement, because they don't need it right away, unlike if we traded on aggregator, for example. So we have, I don't know, few hours to get those components, move them from centralized exchanges to DeFi, means DPI, and deliver to the client. And it also basically...
Most of those institutional clients, they will do rather big tickets, which means that TVL will grow, and if TVL grows, it will make those products much more visible, and once they're visible, again, they go catch attention of centralized exchanges, because all those centralized exchanges, they want to attract the same institutional flows that's buying those products OTC, so they will inevitably then list them because they want to attract this flow, and they want those institutionals to actually trade on the exchange instead of doing it via OTC desk, or with remit, for example.
Crypto Texan: Absolutely. That's helpful too. So, Wintermute has obviously been very successful in this space, this very niche space, what do you attribute to Wintermute's success, and how have you been able to differentiate yourself from organizations that do things similar in this space?
Evgeny Gaevoy: I think the key thing for us was, we are just trying to be helpful as much as possible. So, I think we're just very friendly in general, to a lot of protocols we engage with, to a lot of projects that we engage with, because we have a very much long term view on most of those protocols, and about the space in general. And that really differentiates us against much more mercenary type market makers, a lot of them out there who just focus on shorter term gains, for example. For us, it's much more important to build our brands, to build our name, and just to make sure that everyone knows us, not because we are, I don't know, the biggest market maker in DeFi, but also because people see us as a, basically part of the ecosystem, not just a market maker who wants to make a lot of money there.
Crypto Texan: We're also interested to know your thoughts on, there are these automated Uniswap V3 liquidity managers like Visor Finance, which is now Gamma Strategies, and G-UNI. What are your thoughts on those? What are some risks and limitations that should be taking into consideration when trying... If an organization is trying to decide, "Should we try to use this automated V3 liquidity manager, or someone like Wintermute?"
Evgeny Gaevoy: I think they can be used in conjunction, because we are not necessarily super thrilled about foreign liquidity even on Uni V3. So I think providing liquidity via those parties, it's still better than trying to manage liquidity on your own. I'm not super familiar with how they operate, but the way I can imagine they operator is, they have some kind of internal Oracle or pricing that basically keeps moving those bands as the market moves, which is still much more efficient than just have heavy liquidity being a sitting duck, basically. Because, part of our business, and we're not hiding it, part of our business is providing liquidity, but another important part of the business is taking liquidity as well, and we take a lot of liquidity from Uniswap, or Uniswap, both V2 and V3, because, I don't know, if there is a big buyer on Binance, for example, in one of the DeFi tokens, and there is a lot of liquidity on Uniswap, we'll take it.
And so, if you have a partner that can basically move liquidity out of harm's way, that's much more efficient than just not manage it at all by yourself. I think, going forward, once we get more comfortable with Uni V3, we can also provide this kind of service in terms of liquidity provision. So we'll start competing with those guys, but I think it's still better than us and to use them, for sure.
Crypto Texan: I mean, one of the benefits, obviously, of Uni V3, and you're right, it's just, they've got price oracles that move the bands. That's exactly what they do. But one of the risk of Uni V3 is, there is just this... A much greater risk of impermanent loss when you've got more of those concentrated liquidity pools, versus Uni V2. So, if you were to get more involved in that part of the business, would you focus more on V3 regardless of the higher risk of permanent loss, or would you focus more on a V2 strategy, do you think, with less permanent loss, but also less fees associated driven to the bottom line? I just want to get your thoughts on both of those, and where do you think you all would fit in?
Evgeny Gaevoy: Yeah, I would say, there are some more interesting AMM constructs out there, for example, there is a CowSwap, despite the fun name. The idea is actually really interesting, because, well, you have basically liquidity being provided in a passive way, but also on top of that, you have solvers who can basically provide liquidity on demand. And I think that's actually a much more interesting model to explore, because it's takes the best of both worlds, because it has the passive aspect of it, but it also has a more active aspect of more active market makers stepping in when liquidity is really needed. So, I think you'll just see a lot more innovation in the space, and Uni V3 is much more concentrated, so it's much more risky, but it also means that it's also so more liquid for the end user, because if you think about multi-arbitrageurs, that actually people who want to buy index products, for example, for sure, in the Uni V3 would be much more interesting for them.
And if you're looking at, for example, DPI/ETH pair, it's not so much of a risk to market maker, even if it's Uni V3, because those two products are so much correlated, for example.
Crypto Texan: And I think IDEX has that hybrid liquidity model. Are you familiar with that at all?
Evgeny Gaevoy: Not with IDEX, no. It's just so much happening in the space, it's not always possible to keep track of everything.
Crypto Texan: I understand. Well, what are some, I guess, stereotypical, or just strange assumptions that someone would make about a crypto native market maker that are just completely false, or just complete out of left field that you've experienced in your time?
Evgeny Gaevoy: Oh, I think the main thing I got spammed with messages quite often, is that we manipulate the markets. That's the most common one. So, it's basically people see that we are selling them Uniswap, for example, and they think that we are dumping and trying to bring the price down, but all it means that we are buying Coinbase or Binance and selling on DeFi. So, that's all you can read and do it, but, in general, this assumption that a lot of market makers are making money by manipulating things, that's something we still need to fight, this perception. I still see it on... Because we do participate in the governance on quite a few protocols, so there's still a misconceptions that we need to fight a lot. I think another quite common one is, and that's a bit more interesting to explore, is basically that we are basically facilitating bad OTC flow. Well, one was just literally from a few days ago was, there's a SiFu funds, for example. Basically what happens is, we trade on Matcha or 1inch or ParaSwap, against somebody who... For example, against the hacker who stole some money from some poor guy on Binance, for example. And then this poor guy texts me on... Well, DMs me on Twitter and says, "Return me my money, because the hacker did it via Wintermute."
And then I need to explain it actually went through Matcha, there's nothing we can do about it, because we cannot identify every single bad actor who just stole money from Binance, because it's literally impossible. And with SiFu, for example, it was also not possible, because even the chain analytics software that we use to see activities, it would not mark his wallets as suspicious, for example. So, again, there is really nothing we can do about it. So, that's an interesting challenge we face on RFQ side of things, on aggregator side of things, and DeFi, that often the deal... We basically trade with counter party who can be considered malicious or actually malicious, and it's quite impossible for us to filter those out, because it's the same. If you provide liquidity on Uniswap, and the hacker trades through Uniswap, then you trade it against the hacker, and you have no way to avoid that. And I think the way we want to... I think one important way to understand why it's not... I wouldn't say not a big deal, but smaller problems than it actually is, is, let's say somebody converts ETH to USDC via us on Matcha, they still need to convert this USDC to dollars somewhere.
So, it's not like we help them to move money away, it's actually much more complex than, because they still need to access those Fiat trails somewhere else to cash out. And that's where they will get into trouble properly, because if they, for example, start on-boarding with us as a OTC fronts, we'll do proper KYC/AML with them, and we'll basically tell, "We're not going to trade with you, because you're probably a bad guy." Those two are the most common.
Crypto Texan: Interesting. I didn't realize you all got mixed up in that SiFu debacle a little bit. Did you all receive a lot of push back or flak from that?
Evgeny Gaevoy: I mean, yeah, somebody wrote a thread on Twitter, I had to respond to it, and I think it ended up like I was able to explain how we operate quite nicely, but it just something that pops up every now and then. I think it's a curse of being a big firm in general, that you just get a lot more thought about your activities and what you do, and a lot of people are just trying to make conspiracies here about what we are doing all the time, I think. And, the bigger we are, the more people will try to, I don't know, connect the dots that are not actually there.
Crypto Texan: I guess we can stay on the same topic of, I guess, exploits or hacks, and do you have any opinions or hot takes on the most recent 320 million, however much it was, Wormhole exploit, and does Wintermute provide any liquidity, or seed any liquidity on any multi-chain bridges?
Evgeny Gaevoy: Yeah, bridges is a really interesting theme in general. We were not really affected by the Wormhole hack. There was a way it works in Solana, there are two Ethereums there. So there is one that's provided by FTX pretty much, and there is one that's provided by Wormhole. We didn't really touch the Wormhole one, because it doesn't trade that much. So I think people primarily use it to move value across chains, and basically to deposit it in lending protocols. My perspective is, bridging is tough, and I think that's the take you can read on Twitter a lot these days. Bridging is properly tough, especially if you want to make it in a decentralized way. So I think the more successful bridges, the more the bridges that you don't expect to fail are pretty much has a centralized exchanges like FTX or Binance, or basically, the protocols that are behind the stable coins like Tether or Circle, and those are the bridges you don't really expect to fail, and also the bridges that much less likely to do something malicious so bad, because they have a pretty big business behind it.
But decentralized bridges, we've engaged with quite a few protocols. We were integrated with Solar chain for a while when they were transiting. We actually invested into CreDA. So those guys are doing something different in that regard, but we just know it's very difficult, and, well, I think everyone wrote Vitalik's comments from a month ago recently as well. So, I pretty much agree with them, and I think with bridging the main, the only benefit from bridging really is moving value. Nobody really needs to trade Ethereum on Solana, because if you want to trade Ethereum and Solana, you might as well just trade Ethereum perks in Solana. So it's all about moving value. So, I think in the long run, it will be whether somebody can figure out this, a proper decentralized way of storing value, well, like Wormhole does, or people will just resort to centralized places like centralized exchanges or Circles or Tethers of this world to do the bridging for them. I think that that's what it will end up with.
Crypto Texan: Wait. So were you saying that you feel like Wormhole is a decentralized bridge?
Evgeny Gaevoy: Yeah, Wormhole is a... I think that it is properly decentralized bridge. It is still has a connection to a very much centralized entity jump, but the nature of it is very much decentralized, because there is no KYC/AML when you move assets across. You can do it in a totally anonymous way, which is basically what decentralization is about for me as well. So, yeah, Wormhole is properly decentralized. In this case, they had a bug, it got exploited, which is very unfortunate, quite sad really, but I think that's an unfortunate reality of building this new system, because it's just really hard.
Crypto Texan: I think it feels like, too, that, one of the major themes for 2022 in crypto is layer 2, and I guess, side chains as well, and with that, you've got to use multi-chain bridges. And so, if it's the year of layer 2 2022, it's probably going to be the year of cross-chain bridge hacks as well. Just my thoughts on that. But, in your opinion, what are some other important themes that investors should be paying attention to in the crypto space in 2022?
Evgeny Gaevoy: I think plumbing in general, whether it's bridges, whether it's, I don't know, all the software around DAOs, or around gaming, for example, or around NFTs. That's probably the most exciting stuff that's going to be there. There are a lot of exciting companies, in general, operating around that. So, as a venture investing firm, we are actually much more excited about those companies that operates on the sideline that are actually powering the whole thing, rather than, I don't know, focus on certain, I don't know, trading protocol, or for example, I don't know, the NFT project, a new game, for example. So I think this stuff that powers everything, that's the most interesting on the investment side for us.
Crypto Texan: And when you say assets that are powering everything, are you talking along the Chainlink, The Graph, Ocean Protocol, Numerai, or are you talking more about REN protocol, THORChain, things like that?
Evgeny Gaevoy: I think more the latter. So, more like the latter, because Oracles is still... I think it will be, not necessarily a crowded space, but you already have a link obviously, but you have, I don't know, you have quite a few new ones up and coming. You have a piece on Solana, you have... I think it's going to be quite an interesting battle between those, but for us, it's much more about the latter, looking at companies that actually doing something that's... Well, something that can be composable with other protocols basically.
Crypto Texan: And you also touched on NFTs as well, and NFTs are just inherently illiquid assets. Do you all have any Metaverse or NFT related plays, or do you all provide any liquidity for NFTs, maybe through an NFTX Vault or a Nifty Museum vault, or what are you all's thoughts there, and do you all have any plans for that?
Evgeny Gaevoy: We're looking at NFTX, for example. We haven't done anything with it just quite openly and honestly, but I think NFTX is a really interesting model to basically bring liquidity, and basically make NFTs more fungible. We quite like that. But I think the extent to which we will be involved in NFTX system will be much larger in general. We are looking at how to price the biggest collections, for example, how to price fair trades, so it's much more akin to quant trading to a degree, because you need to build rather sophisticated models to be able to price those. But it's not really about market making more and more often, but it's much more about market taking really, because you need to be able to see the opportunity and snap it before anyone else. That's how it works.
Crypto Texan: Okay. That's interesting. Thanks. And so, on your Twitter profile, you describe yourself as a libertarian in doubt. What does that mean?
Evgeny Gaevoy: I think it means that, in the most basic sense, that nothing is black and white. It would be awesome if we have a perfect, I don't know, libertarian system where everything is free and everything, but ultimately, just the world is way too complex to say, I don't know, we should have perfect, I don't know, libertarian state, or we should have a perfect communist state. It's just, either of those extremes is just not going to work, because I don't know, because of human nature, because any system would simplify things way too much, but also, I don't know, talking about hacks, for example, I was firmly in a coders law team, I would say a year ago, but looking at those hacks often very closely, because some of those were protocols we were really close with, either as an investor, or just teaming up with them, it's really clear that sometimes you get hacked, and it's not really arbitrage, it's just proper person stealing money from other people, and from libertarian perspective, code is law, too bad, everything goes, but from...
Once you understand that it's literally normal people that lose money in it, that's basically, I don't know, developer communities that getting destroyed, and so having to find what to do next, it's not that simple basically. And I think this whole seems that the world is more complicated than the extreme views that we can think, that's why I'm libertarian in doubt now, because it's just much more complex.
Crypto Texan: That makes sense, because I think it is a gray area in some parts, because the code does allow for that type of exploit to exist. So in that sense, it's like those are the parameters for the environment, for the game that you're playing, the parameters for the game that you're getting into when you're interacting with that protocol. And then, at the same time, it is theft of other... You're taking something that doesn't belong to you, and it goes outside the scope and the spirit of the code that was written. That makes sense to me. Where do you feel like these libertarian views came from?
Evgeny Gaevoy: That's a very deep question. I think it's, in general... Well, okay, I think it's primarily just a function of environments, for me personally, because I grew up in early '90s in Russia. My father was one of the early entrepreneurs after the collapse of Soviet Union, and he was initially quite successful. Later on, not so, but basically I grew up with those ideas of communism doesn't work, and suddenly have all this freedom, and people can just make... Well, they can make whatever... Basically you have your own faith. So, if you put enough effort into things, you can accomplish pretty much everything. And then, afterwards, I started studying in a, basically, university called Higher School of Economics, which was also super libertarian. I don't know, I started reading Ayn Rands, and, I don't know, it all cascaded to me being pretty much hardcore libertarian, I would say three, four years ago, already. So, I think my whole life shaped me in this way.
Crypto Texan: Ayn Rand is a pretty thick book. That's probably one of the largest books I've read, I would say.
Evgeny Gaevoy: Yeah, and really horribly written as well from literature point of view. I actually like Fountainhead much more as a... Well, as a piece of literature, I would say.
Crypto Texan: Oh, I haven't read that one yet. Okay. So, we've got about six minutes left. I don't know, what projects out there are catching your eye? What teams are building in this little bear market right now that you feel people should be paying attention to?
Evgeny Gaevoy: I think I'll revert to my initial statement that we're not really... We are doing a lot of investment in the space, but we are not really looking to back one protocol or one team. So, I'd really don't want to name names, partially because I really don't like to talk, I don't know, talk up our bags, partially because, I really think there's this value of decentralization, value of what's interesting out there is just much bigger than any single team we work with. I could think praises about DyDx, for example, but there are a lot of really interesting teams, other teams out there that I work with equally, talk a lot of nice things about. So I think, for me, it's much more thematic, and I would say, I could say about things that would excite me in general to do, for example, I was not super excited about gaming stuff last year, for example, because, well, as a gamer, I actually tested quite a few of them. I think the ones that I liked the most was Dark Forest, but it's just so hard to play it properly without doing some coding on top to automate things. So it wasn't... And it was still time sync, so I couldn't really dedicate myself that much to it, but I tried Taxi and I didn't really like it, and I tried other games, and they were just, I don't know, not proper games.
You go to your iPhone and you download the random game, and it would be better than anything we have on blockchain now. So, what would excite me would be actually a proper gaming studio, maybe in the studio, coming with already ready products, and making a game out of it on blockchain, and basically Wintermute, I know, for example, market making in-game assets, or market making NFTs. Well, basically finding some proper game, and actually support it in liquidity front. That would super, I think, for us, and for me as a gamer as well.
Crypto Texan: I think it's been so interesting to see all the push back from gamers about having NFTs implemented or integrated into the games that they play, but I'm thinking, all these games that are on the blockchain, Decentraland, Axie Infinity, I don't know, once they reach the point where they can implement the mobile aspect... Actually, I think Axie is on mobile, now that I think about it. And I know I can think of two projects right now, Decentral Games, we had Ryan on the podcast a few weeks ago, and he said that they're working on a mobile app, and I think that's going to be huge for them. And then Xone, X-O-N-E, is another one that is, I think, about to release their mobile app for their... They've got land sales and it's a metaverse play as well.
And I think it's just so much less restrictive when you have a mobile app for your NFT related blockchain game. And I think that is going to be a huge unlock for the space, once that happens.
Evgeny Gaevoy: Oh yeah. Yeah. Totally agree. Yeah.
Crypto Texan: Well, it looks like we're up on time here. Evgeny, I really appreciate you coming on the show, and I'll just give you the final word, and just let you tell everyone where can they go to find out more about you and Wintermute?
Evgeny Gaevoy: Yeah, sure. Well, about Wintermute, the easiest way to go is our website. It's literally wintermute.com. So it's very easy to find, but, in general, I should post a lot on Twitter. Well, maybe I could do even more now, but that's definitely a proper place to get familiar with, I don't know, my views and what I think about this space, but in general, more for Index Coop, we're just really excited to support you guys to continue supporting you guys. And I think it's been a tough year last year in terms of just not enough growth, I guess, in those Index products, but we are very much determined to continue supporting you guys. We're very, very much determined to make the space successful, and to continue educate, well, general population why, I don't know, why it makes sense to diversify, why it makes sense to index your investments. So, from that perspective, we're really determined to make this year successful for both of our companies.
Crypto Texan: And we appreciate the relationship too. I mean, I think... I agree with what you said there, people are starting to wake up to the power of these crypto native index funds, and we've got listings on BitGo, and Coinbase Institutional now, and I think the partnership that Wintermute and Index Coop have together, and just the team that we have in place at Index, and how we just... We never stop building, we never stop growing, and, I don't know, it's very bullish for me, personally, but also I'm a contributor, so I'm supposed to be bullish.
But anyway, thanks to everyone who's listening live in the Discord. This being recorded, and so, we will get this mixed and edited, and we will get this out sometime next week. Have a great weekend, everyone. Thanks again, Evgeny, for being on the show. All right. See you all next time. Bye.
Evgeny Gaevoy: Thanks for having me. Bye-bye.
Host: @Crypto_Texan
Audio Engineer/Mixing: @LloveraFrank
Marketing Image: @crypto_diller_
Conversations with the Coop - Evgeny Gaevoy - Wintermute