- The speaker, CJ, introduces himself as the sales manager for GSR, a market maker in the altcoin space.
- CJ moderates a session with Anand Gomes, the CEO and co-founder of Paradigm, an institutional liquidity network for crypto derivatives traders.
- Anand explains that Paradigm is a wholesale marketplace where institutional buyers and sellers come to source liquidity for crypto derivatives.
- Paradigm is a major player in the global options market for Bitcoin and Ether options, and also offers order books on spreads.
- Anand's background is in traditional markets, but he was inspired to start Paradigm due to the manual and inefficient nature of OTC trading.
- Initially, Anand planned to build a platform for commodities trading, but was convinced by a friend to focus on crypto due to the growing market demand.
- Anand believes that crypto markets are technologically advanced, but still lag behind in terms of product innovation and institutional participation.
- The liquidity in the crypto derivative space is fragmented due to the division between centralized finance (CFI) and decentralized finance (DeFi).
- Anand believes that the future may involve a merging of CFI and DeFi, but also acknowledges the benefits of individual innovation and faster progress.
- The goal is to create better liquidity by finding the right structure that combines convenience and utility for customers.

- Paradigm is a platform that combines regulated and unregulated venues, as well as DeFi, on the same platform.
- The platform was built to address client needs and make trading more efficient.
- Paradigm focuses on understanding customer pain points and continuously improving their product based on customer feedback.
- The evolution of the crypto market involves cycles of hype and innovation, with some innovations remaining even after the hype dies down.
- The market is getting better in terms of infrastructure, allowing for the integration of CeFi and DeFi without performance and security trade-offs.
- FTX's exit from the market had a significant impact on Paradigm, but they have been able to recover and rebuild their business.

- Paradigm has found success in the spread business on FTX due to the same clients from Paradigm trading on FTX without the need for onboarding on a new venue
- Trust in the industry has taken a hit, but innovations in product and technology can help rebuild trust
- The market is moving towards on-chain exchanges and non-custodial solutions
- Major banks are having conversations about onboarding with Paradigm, but setbacks and lack of trust have delayed progress
- Paradigm aims to be an asset agnostic, venue agnostic, dealer agnostic liquidity network, connecting the entire ecosystem
- Paradigm is working on atomic cross-exchange trading and has ambitions in DeFi
- Builders in the industry should hang in there and continue to build during the bear market, as there is light at the end of the tunnel.

- CJ, sales manager for GSR, moderates a session with Anand Gomes, CEO of Paradigm.
- Paradigm is a wholesale marketplace for institutional buyers and sellers of crypto derivatives.
- They are a major player in the Bitcoin and Ether options market and offer order books on spreads.
- Anand was inspired to start Paradigm due to the inefficiency of OTC trading and the growing demand in the crypto market.
- He believes that crypto markets lag behind in product innovation and institutional participation.
- The liquidity in the crypto derivative space is fragmented between centralized and decentralized finance.
- Paradigm aims to combine regulated and unregulated venues, as well as DeFi, on their platform for better liquidity.
- They focus on addressing customer pain points and continuously improving their product.
- The market is evolving with cycles of hype and innovation, and the integration of CeFi and DeFi is improving.
- FTX's exit had a significant impact on Paradigm, but they have recovered and found success in the spread business.
- Trust in the industry has been affected, but innovations can help rebuild it.
- The market is moving towards on-chain exchanges and non-custodial solutions.
- Major banks are considering onboarding with Paradigm, but setbacks and lack of trust have delayed progress.
- Paradigm aims to be a liquidity network connecting the entire ecosystem and is working on atomic cross-exchange trading and DeFi.
- Builders in the industry should continue building during the bear market.

#AnandGomes
#Paradigm
#REDeFiNETOMORROW2023
#SCB10X

Fireside Chat: Unlocking Liquidity Fragmentation in the Crypto Derivatives Market With Paradigm
• Anand Gomes, CEO & Co-founder, Paradigm
• Moderator: CJ Fong, Head of Sales (APAC & EMEA), GSR

1/ This thread provides a recap of a conference session with Anand Gomes, CEO & Co-founder of Paradigm, and CJ Fong, Head of Sales (APAC & EMEA) at GSR, where they discussed liquidity fragmentation in crypto derivative markets. [Commentary Added]
 
2/ Paradigm, as explained by Anand, functions as a wholesale marketplace for institutional buyers and sellers for options and spreads trading, targeting inefficiencies in traditional OTC trading. It integrates both regulated and unregulated venues, as well as DeFi, on its platform.
 
3/ Anand's journey in the finance industry took him from being an interest rate derivatives quant to trading and sales, inspiring the concept of Paradigm. The shift to crypto was driven by the opportunity presented by the emerging asset class and the potential as a first mover.
 
4/ Despite crypto's technological advancement, Anand sees room for growth in terms of client participation and the availability of structured products. He sees immense potential for innovation and product development in this space.
 
5/ A notable topic is the coexistence of centralized finance (CeFi) and decentralized finance (DeFi). Paradigm itself embodies this integration, aiming to reduce market fragmentation and increase liquidity through technological advancements. 
 
6/ Anand recognizes the impact of events like the FTX incident on industry trust. The emphasis now is on rebuilding trust, with growing demand for on-chain solutions and noncustodial options. Infrastructure advancements play a crucial role in this effort.
 
7/ Regarding the potential entry of traditional institutions into the crypto derivatives space, Anand highlights ongoing dialogues and investments by institutional players. Despite recent setbacks slowing mainstream adoption, growth and investments continue. [Commentary Added]
 
8/ Looking ahead, Paradigm aims to function as an asset-agnostic liquidity network, connecting exchanges, protocols, and dealers. The goal is to provide a central point for accessing liquidity across different platforms and facilitating atomic cross-exchange trading.
 
9/ Ambitious in its future vision, Paradigm explores its own protocol development for clearing and derivatives within DeFi. This marks a significant stride toward a comprehensive and integrative financial solution in the crypto space.
 
10/ Closing with a note of encouragement, Anand emphasized the importance of perseverance for builders in the crypto derivatives market, believing in the industry's long-term potential.

Ladies and gentlemen, Thank you for tuning in.

I run sales for APAC and EMEA over at GSR, 1 of the largest market makers in the altcoin space.

It's my pleasure today to moderate this session that we're gonna cover the topic for unlocking liquidity fragmentation within crypto derivative markets.

And with me, we have a special guest today.

Anand Gomes, who's the CEO and co-founder of Paradigm.

Well, before we get right into it, sir, I think just for the benefit of people on the call as well, why don't you do a brief introduction about yourself and as well as Paradigm.

We would also love to know about what inspired you to begin your journey on Paradigm.

Paradigm is an institutional liquidity network for crypto derivatives traders.

What that means is you can think of us as a wholesale marketplace where institutional buyers and sellers such as CJ come to us to source, to make and take liquidity.

You know, on any given day, our claim to fame is options.

On any given day, we're about 30 to 40% of the global options market for mainly Bitcoin and Ether options.

And we also have a fast growing spreads business, which is effectively, we offer order books on spreads, such as the spread between spot and perp and so on and so forth.

So yeah so that's the business you know volume wise we do you know 400 500 million of ADV a day.

With respect to my journey, it started, you know, so I have, just like CJ, I have a background in, from the traditional market.

So I came, I was on a bank desk for many years, started out as an interest rate derivatives quant, then moved to the trading side, then just a stint in sales.

So sort of did all the roles that a junior person could do on a trading desk.

And then eventually landed up in commodities and then later on from commodities and specifically OTC.

And then from then on, you know, did either deliver of high yield as well, but all for the same bank.

And The origin story for Paradigm actually started off when I was on the desk and as most of you know, and or not know, OTC trading is a very manual business.

There's a lot of sort of like, you know, workflow related stuff where you're trading something, you know, non-standard.

So, and therefore it means the mode of transactional transactions needs to be bilateral or between, you know, or peer to peer.

And because of that non-standardization, there are no sort of like standard, you know, platforms or workflows that you can use.

And I hated that, you know, I love my job, you know, love everything I did about pricing and trading and structuring, but I hated the workflow aspect of it, right?

I was spending 2 thirds of my day doing, you know, trade booking, market statement, reconciliation, all the end of day stuff, that took more time than the actual trading itself.

And in my mind, I'm like, wow, we have an era where we have all these like, the computers are so advanced and why are we still using chat to trade?

And so that was kind of, that was the origin of how the genesis, I guess, of the idea.

And then eventually, I decided to do something about it.

And it took me a couple of years from idea to actually mustering up the courage to start a company or start a pilot or build a platform.

And eventually the idea, initially the idea was still to do it for commodities.

Crypto was this like thing that I was loosely interested in on the side, you know, I'm a computer science graduate.

So I was very interested in, you know, the Bitcoin white paper when it came out, but I'd never thought anything to do with, you know, work, right, because I was a trader on a trading desk.

And then when I built this platform, I was lucky enough to meet a few people in this space early on, and they all complained about not having a solution to trade size when they were trading spot.

And this, I'm talking about 2017, 18, when the market was just sort of like, you know, beginning to sort of like grow.

And, you know, a friend of mine suggested this idea.

He's like, hey, you know, you've built this platform or your ambitions are to build this, you know, OTC platform to trade commodities.

Why don't you use it for crypto?" And I was like, yeah, never thought of it that way, but it was a great idea.

And then it was very clear to me that this has to be for crypto, mainly because it was the beginning of an asset class.

And I thought to myself, I was like, when is an asset class being born?

It sort of happens once in your lifetime, if even.

And it's an opportunity for us to be a true first mover in this space, right?

Either I spend my time building a platform for commodities traders and fighting the inertia of that market because people don't want to change, right?

Usually when you have a workflow, it's very hard to get people to change.

either I fight people doing that or people in this market are literally begging for the solution, right?

So, you know, which, the probability of success seems sort of like, you know, asymmetrically higher, you know, in crypto.

And so, yeah, so that's kind of how we started initially again, you know, with a small, instead of starting with spot, we decided to start with options, but it was a similar line of thinking where we said, hey, you know, spot will be quickly commoditized.

Options is something that's kind of unique.

And, you know, back then there was absolutely nothing in options.

There's only Deribit was around and they were doing I think 20 to 30 million a day.

And so, you know, Paradigm in that sense was as much a bet on the platform itself as it was on options.

And the thesis was, hey, if spot is taking off, options are going to take off at some point.

It just, you know, in the evolution of sort of like how a market evolves, it just comes a little bit later.

I have a very, let's kick it off on the meat side of the discussion then.

If you were to look at where crypto markets are right now and crypto derivatives.

My background is similar to yours, is derivatives.

Where would you rank we are within that space from both a scale as well as an evolutionary standpoint, with 10 being very mature and 1 being, oh my God, it's barely seeing the light of day right now?

You know, it's not an easy question to answer because in some ways crypto is very mature and in some cases probably more mature, more advanced in the adoption of technology than even traditional finance.

But in terms of, you know, the maturity of participation with regards to client types or, you know, risk takers, I think in some sense, in that sense, it is sort of lagging, right?

Where we don't have the structure product flow.

We don't have all of these sort of derivatives that we're normally used to.

They're so commonplace in TradFi, we don't really have them.

I think that's just, again, it just takes time for certain things to come about and the base layers sort of need to be sort of in place before innovation on the top can be sort of like, can happen.

And so from a technology perspective, I think crypto is very advanced, if not more advanced, because I mean, literally we've created a world that anybody can access from any place in the world.

And you have access to spot, you get access to futures options.

You can do it from a custodial standpoint, from a non-custodial standpoint in DeFi.

I mean, it is truly a miracle in my mind that in the last 10 years, we've really built this thing from the ground up.

And I always say to myself that like, Paradigm as a platform has gone through the same amount of evolution that TradeWeb, which is kind of our counterpart in the old world, what they took 20 years to do, Paradigm was forced to go through in like 2 and a half or 3 years, right?

So that kind of gives you, you know, an idea, but that's mainly from a technology standpoint.

I still feel like there's so much to do in terms of, you know, innovation in terms of product innovation and also, you know, opening up access to So, you know, the institutional institutions are just like dipping their toes, you know, right now, I still think there's so much more we need to do to truly like, you know, welcome the these folks.

So, so from that, in that regard, I think we're a little bit behind, but from a technology standpoint, I think we're, we're, you know, right there, if not more.

We're going to come back to the institutional question a little bit later.

The part that I want to cover very briefly with you is this.

I think we can establish the fact and with an understanding that liquidity within the crypto derivative space right now is fragmented.

And I think a large part of that, if you think about it, is fundamentally because you have that concept of CFI and DeFi and the nature of the different players in the market.

Do you ever see a world where this merges or do you think it runs in parallel?

And if so, on either view, what do you think is the right, I guess, outlook in terms of structure to put in place to have this sort of better liquidity in space?

Yeah, look, I think, you know, unbundling and rebundling is just kind of, if this is this perpetual cycle that human beings sort of go through with every technology cycle, right?

But it's kind of anchored in the fact that it is easier to do things individually and move faster from an innovation perspective, but from a utility perspective, it's always higher utility for a customer to have everything in 1 place.

So those are kind of like opposing forces that kind of like drive this kind of perpetual cycle that we're in.

And CFI and DeFi are kind of in the same boat in that sense.

I mean, this evolution that you just talked about is governed by the same forces.

And I think Paradigm is a good example of that, not to show Paradigm too much, but I think we're the only platform in crypto that has a regulated venue, such as the CME.

It has the unregulated venues, such as Deribit, and we also have DeFi on the same platform.

And if you want to trade an option on CME, you can do so.

If you want to trade an option on Deribit, you can do so.

If you want to participate in ribbon auctions, you can do so.

There's no platform in the world that I know that can do that, right?

And so ultimately that, but that was driven by client need that like, hey, we saw our clients saying, hey, I want to participate in ribbon auctions, but they're, you know, but it's like, but the process of doing so is very inefficient.

And can you just, you know, make it a part of the paradigm, you know, RFQ workflow?

And we said, yes, we can absolutely do that.

And the platform was built to be asset agnostic and network agnostic or settlement solution agnostic.

And so I think to answer your questions, I think where we are today is all these like different, you know, innovations that are like sparking C5, D5, but they're doing that because they want to move fast.

Ultimately, you do need someone or something to, you know, combine it together.

I mean, you see this even in like Microsoft, right.

And Microsoft as a platform versus Google, Google has this like loose connection between their products, but Microsoft is very sort of like tightly integrated with each other.

And so this, you know, it's, I think they're both needed.

It's just like, you know, 1 happens earlier than the other.

And then later on somebody hopefully comes along and tries to unify them or somebody builds it from scratch and unifies them, But that's kind of hard to do.

But yeah, hopefully that answers your question.

The way I look at it is if you got it, flaunt it.

And it's obvious that paradigm is in a very unique proposition space.

You actually mentioned something which I liked and it sort of alludes to something that at GSR we've used paradigm since almost the beginning, right?

It's been 1 of those things that we've sort of grown with you.

What would you say has contributed in terms of the evolution of product?

Because you mentioned 1 thing where you were trying to fit the need, a solution, because you asked your client what did they want and you built upon that.

It's a very different approach because in crypto right now unfortunately a lot of people come up with products, come up to solve a solution or a problem that's technically in their head.

It's not really something that we've asked for in the street.

I mean, what sets Paradigm apart there then?

I think, you know, if there's 1 thing that sets us apart, it's truly that, that we, you know, we've always been driven by, you know, what is your pain point, right?

Even when we first started, It came from something that I felt on the desk that, hey, this is, I'm spending 75% of my time with booking workflow and doing things that I should not be doing and, or not should not should be doing, it should be, it's better automated.

And so it started, that was sort of like how the company started.

But when we started in crypto and we moved to options specifically, there was a Telegram chat.

And this was started by a friend of mine who now runs another company.

But he was like the largest market maker on Deribit at that point, at that time.

And I met him and he's like, hey, I'm trading.

I'm the biggest market maker on Derivate.

And I'm like, OK, well, how do you source liquidity when you need to get out?

And he's like, oh, I've just created this chat.

And hopefully somebody comes in and takes the other side.

I'm like, so OK, even if you do that, how do you actually cross?

And he's like, oh, we didn't then agree to put our order at the top of the order book and somebody aggresses it.

I'm like, wow, that's, you have leg risk and somebody can front run you because those conversations are public, right?

And so it was very clear that this solution, that institutions wanted to be a part of this market.

They wanted to trade size, they wanted to trade multi-leg and they wanted to keep their orders away from the order book.

And so, and because this is what institutions need, like that's just, that's how they play.

And so we knew that there was no solution out there.

And then since then, you know, conversations have, you know, the evolution of the product has been, what are we missing that you need today?

And we, you know, we have 500 chats open with our customers globally.

We have, you know, very deep account management and product team that is constantly talking to you every day in 24 hours a day, we have a global desk that never sleeps, there's always talking to you.

So I think if there's 1 thing that sets us apart, is that we truly understand your workflow that we said, because we've sat in that seat, we've clicked that button and we understand what your pain points are.

And, you know, we're not just satisfied saying, hey, we came from TradFi, so we understand your workflow because crypto is unique, right?

So crypto, the crypto angle makes the institutional traders angle sort of unique.

It's not the same as equity somewhere else.

But so I think continually being in that seat and talking to you and understanding that like, hey, what really is like your pain point?

And then distilling that back and then, you know, basically making the product better.

If you ask anyone in the market, I think, you know I'm most proud of the fact that, you know, when you meet people you know, globally, the first thing they tell you is that, Hey, your customer service is amazing.

You're the, how fast you react to our needs is amazing.

And I'm like, that's, That's all I want to hear, right?

It's like, we're listening to our customer because that's the only person that matters.

Paradigm is almost unrivaled customer service.

It's fantastic to see and to hear from yourself as well.

As crypto derivative markets continue to mature, there is going to be a bifurcation between CeFi and DeFi, right?

DeFi obviously had a DeFi summer, came, didn't really go, but it does feel like it's going to come back in another form.

How do you think this re-evolution is going to affect that balance with regards to liquidity for crypto derivatives?

Yeah, that's a, I think with all these cycles that we're having, you know, DeFi and NFTs and so on and so forth, there's of course the bubble and the hype that, you know, that comes around.

And that's, you know, that's just part of, you know, the early stages of any product, any product's life cycle or any sort of asset product, whatever you want to call it.

But when those fads or hype sort of go away, those temporary fads, There are these like quiet innovations that they bring about that remain, right?

And over the last 4 years, if you keep adding up those innovations that actually that happened and then, okay, maybe the hype went away but the innovation remained.

And then the next cycle happens and then something else happens.

And now over 2 cycles, you have 2 things that have permanently made the market better, right?

Now the tourists, you know, come in in this market and then like they play the hype and they're out.

But the builders like, you know, we're out there, we're looking at these things, you know, for the last 4 or 5 years.

And it's very clear to us that like, you know, DeFi, I mean, there's a lot to DeFi, right?

You have product innovation, you have actual blockchain innovation, the things that powers.

And we care mainly about the, from a builder's perspective.

And, you know, we've seen really cool things like DYDX is a great example, right?

Like what, you know, they were the first sort of like crossover company where they said, hey, you know what, we don't want to trade off performance and liquidity for the promise of decentralization or whatever, right?

And they said they took this sort of hybrid approach.

And we look to, and those are like pivotal moments, I think, in a market's progress where companies take a view that, hey, we can use the best of this world and the best of this world, and we can actually push the ball forward.

And so from an infrastructure standpoint, I think the market is getting better and better and better, where all these primitives that exist in CeFi can now firmly exist in DeFi without the trade-offs, the performance and security trade-offs that you sort of, you know, that DeFi sort of has a bad name for in some sense, right?

But I think that is like firmly getting better.

And now that, you know, you have comfort doing that, you'll see more and more companies building these things squarely on chain, including the interconnectedness of things, which ultimately will make things less fragmented and will make things more liquid as a result of that.

And I think we, hopefully we see that within the next 1 year, It's been a bit of a quiet winter, but I've heard the momentum picked up.

I still recall being in New York when Lehman went under.

And that was pretty much what the 7 year, right?

In banking, we used to call it every 7 years, for real shit used to hit the fan, right?

FTX came and went, and that was probably 1 of the biggest shocks, especially to the institutional trading, because they covered a large part of it, be it the most efficient type of cross-margining, spreads as well came with them.

And I would like to get your take on that.

I mean, has someone come in yet to fill the void that they left?

But more importantly, what are the lessons learned then?

Have we actually gone ahead of that to make sure this doesn't happen again?

Yeah, I mean, that's, I mean, you know, FDX was definitely a Lehman moment in crypto.

But it, last year, I think there was like 5 Lehman moments.

And so it was like, what is really happening here?

But, you know, in terms of our business being affected, it was, FTX was, we had a very big business on FTX.

So when FTX went away, it really hurt us, right?

Of course, you know, markets bounced back and we're doing, you know, all time highs again.

So it's been, we've been lucky in that regard.

We're finding out now as we were trying to rebuild that future spread business on Bybit, that we're finding out that like, wow, we were just super lucky that the same clients that were in Paradigm were basically the same client.

When we had to, clients didn't have the extra hurdle of onboarding on a new venue when they were trading spreads on Paradigm.

And that made things a lot easier for us to sell.

And so therefore, you know, spreads as a business on FTX took, just like absolutely took off.

I think we went from 0 to 500 million a day in like less than 70 days, which is unheard of, right?

And so, yes, it was favored by institutions because the margin engine was supposedly superior, et cetera.

And there was trust in Sam and the team and all of that.

And as a result of that, you know, all these institutions participated.

It has definitely taken a hit because when we've tried to re-onboard those folks on other exchanges, their first concern is, you know, like, hey, we only trust 1 exchange now.

We don't go to 3 exchanges that we don't trust anymore.

And so trust definitely took a hit, right?

That's just like a human thing rather, but it's helped by innovations in product and technology.

So I think as a part of FTX, the non-custodial, the FTX sort of debacle, the non-custodial narrative started to sound, basically everybody started to like talk about that again, right?

And I think that's kind of where, that's the lesson that this market has learned is that you can't really trust anybody, right?

And I think the market, because it's learned and it's been hurt now, it has started to demand that.

So I think for this next cycle, having an FTX on chain is probably where the market is going to get.

And you've seen as a result of that, a bunch of projects come in.

In fact, you've even seen to fill in this trust void, you've seen folks like Gemini and Coinbase throw in their hats and say, hey, you know what?

We're going to build an overseas exchange, a purpose exchange because of this like, you know, trust void that FTX has left, right?

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Unlocking Liquidity Fragmentation in the Crypto Derivatives Market With Paradigm