The Founder Fireside Chat series hosted by DeFi Pulse interviews DeFi founders in the hopes of offering readers an opportunity to better understand their perspective and what drives them to build their vision.
Welcome back! It’s time for another chat. We’re joined by Farmwell, Co-founder of decentralized binary options protocol Thales, this week. Farmwell emphasizes the importance of building with purpose, getting hands-on experience and being willing to question convention.
What are you building and what sets it apart from similar offerings in the space?
When you think Thales, think censorship-resistant, peer-to-peer binary options trading on Ethereum. The initial rollout by the Synthetix core contributors in July 2020 gave rise to significant interest as many early adopters used binary options as a friendly way to compete against their peers on crypto prices. Chainlink marines and Synthetix spartans alike were eager to put their money where their mouths were about the bullishness around their respective projects.
Payouts on binary options are simple to grasp. If the price of SNX or LINK is greater than the strike price on the market expiry date, the long side of the market wins. If not, the short side wins. The winning side claims the full amount of sUSD in that market’s pool. Simple as that.
The original model had several drawbacks. First, the market for swapping longs and shorts was opaque and illiquid. Nocturnalsheet famously completed the first OTC trade by acquiring long binary options on SNX being over $2, at a price of $0.78 apiece. OTC deals can also attract scammers who try to use suspicious URLs to lure counterparties into their trap.
To address this unmet need, Thales implements 0x limit-style order books to enable seamless swapping of binary options with a familiar, comfortable UI. The other drawbacks of the first iteration stemmed from the bidding phase, which was problematic for several reasons.
If a market creator made the bidding phase 7 days, after that period nobody else could mint additional options into that pool, so you had to be present in the bidding phase to mint binary options. This meant pool sizes, and therefore volume, were effectively capped by the bidding phase. A prospective bidder also had an adverse incentive to wait until the last minute to bid, because the bidder would then have the informational benefit of knowing the prices everyone else was bidding. This dynamic can easily turn into a negative feedback loop depressing pool sizes, as everyone is waiting for the person next to them to make their bids first.
Thales solves both of these challenges by removing the bidding phase altogether. Anyone can deposit fresh sUSD into an existing pool to mint new options. This upgrade supports arbitrarily large pool sizes in a way the previous model could not. A highly-motivated Thales community, along with the Thales team’s relentless focus on users, and the censorship-resistant properties of sUSD make Thales unparalleled among binary options offerings.
Which quality of the Scalability Trilemma do you find to be the most important?
Decentralization. Without decentralization, there’s no way to assure censorship-resistant applications. Why does this matter? Without censorship-resistance, users are forever at the mercy of the Robinhoods of the world.
As many will recall, Robinhood prevented users from exercising options at critical market times and only supported buys and sells in one direction as it suited the interests of Robinhood’s non-retail counterparties, which were conveniently only revealed after users lost out.
Decentralization and censorship-resistance offer a way out from these rigged games. If DeFi applications cannot maintain equal access at scale, the “de” in DeFi devolves into a banal marketing gimmick.
What is the most critical part of forming a lasting community?
Pay attention to what power users want. For projects facilitating decentralized exchange of ERC20s, liquidity will always be king.
The only way to attract and retain power users who provide DEX liquidity is to proactively support and talk to them. Having fun and believing in what you do seems to help attract like-minded participants as well.
What is something in DeFi that you think more people should be paying attention to?
I try to keep an eye on projects using yield farming or liquidity mining as bootstrapping strategies. How exactly will this project and its users benefit from deeper liquidity?
For decentralized liquidity protocols like Uniswap, Curve, Synthetix and Thorchain, obviously deeper liquidity makes the protocol itself more useful to users because of lower slippage.
With many projects I fail to connect how liquidity mining programs improve the user experience in the context of the project’s goals.
Also, the trend of chasing metrics like TVL for TVL’s sake is a meme that will pass. When a metric becomes a goal, it stops being a useful metric.
What is a critical lesson you have learned on your journey?
Spend less time reading articles and blogs. Spend more time playing with dapps.
It’s difficult to overstate how much more informed you become after being a regular dapp user for some time. Just pray the gas price is low! And when gas prices are low, capitalize on those windows of opportunity.
What is your favorite meme from the DeFi community?
“Wen 6 dolla.” It’s a meme that gained traction in the SNX Discord in 2019. A character “Queen A” would pop into the general channels out of the blue and say “wen 6 dolla” back when the SNX token was trading under $0.35 or something. After SNX’s meteoric rise during the last year the meme was updated to “Wen 60 dolla”.
Thank you for reading! Special thanks to Farmwell for joining us.