Making Trading Easier with Varun Kumar

All right. What is up, everyone? Welcome back to another episode of the Dibi Crypto Podcast. And today I am joined by Varun. He is the co-founder and CEO of Hashflow. How's it going, Varun? Great. Fantastic. Thank you so much for having me. Yeah. I'm excited to dig into Hashflow. I did some research beforehand. And I've always been in a big fan of Dibi. And I'm curious

to hear your origin story. How did you get into the space? And yeah, just what your background is. I was going to use that help to get into space. Bigger, bigger, bigger, I, a background is an aerospace industry. So, so, so before crypto, I was working in the space industry. And then the transition happened, I think, in 2016-17. So, so early on, I was just like

looking at the, the bull market in 2016-17 time, or era, and that kind of caught my attention. But at that time, I had no idea what was going on, quite a system. And just so happened, so I ended up running into a now-friend in a hot tub, who was telling me about a theory of that time. And he was like, I've mastered getting into it. So

that kind of pushed me into, the thing into what is going on. And I think that the key insight, that that that, that, that thing I realized that that brought me into crypto, was essentially crypto is to money that the internet was to communication standard, back in the 90s, right? So, so essentially crypto is to money what internet stands for the platform information. And, and I

think that was a powerful thing that that that occurred to me. And I was like, this, I have to be the forefront of this. So, I think, and I was like, recently, why I found, yeah, I was drawn towards it, this because I also might find the mental values that I believe in, which is self-sovereignty and, and, and individual freedom. And I felt like what crypto

did to money is essentially removed the monopoly, or states monopoly in violence, and force the use of money on the people, and it allowed anybody to basically freely experiment with monetary policy and deploy, and then let the markets decide where they're going to have the, showing point is, and I think that that to me was quite exciting. And I think that, that's what brought me into

crypto. Nice. And I wanted to kind of start unpacking hash flow slowly, because I think a lot of people listening are, you know, new to something like decentralized finance. And I think there's a lot of, a lot of moving parts. So, let's kind of kick this off with, from a high level, how did you get started with hash flow? What is it that you're trying to

accomplish from a high level? No, absolutely. So, so I can just start by talking about hash flow, generally, and then I'll go back into a bit of a history of, of how the Dexas evolved. But, in most of what, if straightforward way of defining hash flow, it's a decentralized exchange protocol. Right? And it works by connecting market makers to traders directly via a, a definative RFQ

system. Now, what does that mean? What does that mean? It means for the end user is, is it taking trade, any size trade with no slippage or, or, or, or, or, fun planning or sandwich attacks or any kind of MAB exploits? And they should be able to trade any asset class that is not limited to blue chips or smart assets. Right. So, so, this is, this

is essentially the core across the design. And then you can do other interesting things that cross-chain and whatnot without without using the bridge and, and make it final. So, it's a very simple seamless from a way user standpoint. Right. And all this is done in a way that is permissionless. So now, now, going, going, going back a few steps to see why this design allowed us

to do that. It goes back to simplicity again. Right. So, so, to, to dig a step back and look at something like Uniswap or more broadly speaking, AMMs, which, which kind of popularized the idea of, of, of Dexas. Right. So, in 2019, like it go back all the way to 2016, we had something like Ether Delta. Right. So, so, even before Ether Delta, I think the,

the most primary crypto trading happened on centralized exchanges. Then what Ether Delta did is they tried to replicate order book on chain. And what we soon realized is that order books on chain down scale really well. Right. They, they have, like every time someone has to update a transaction or a quote on chain, there's a cost associated with it. And then I think this doesn't scale,

especially for transactions that have to respond to, to real-world data in real time. So, so, so we had like a, an improvement of that, which was basically, both parties signed transactions. And then only the execution happens on chain. But really, they're even done after Ether Delta came zero XAP, and so on. What they were trying to do or accomplish is create limit order books on chain,

rather that that could be, utilize, but other than use. But it didn't quite find as much success until the swap came in, which, which essentially changed the whole paradigm of how we interact or create with the Dex. In a nutshell, what they built was a very high performing, bending machine. Right. But you, all you do is go, you have a simple terminal, wherever you request a

quote, you receive something, and then you do a swap. Right. So, and more importantly, you don't need anyone to price the assets. Your smart contract is all the pricing. So, you just throw in a bunch of assets, and your smart contract uses something called a bonding curve to, to, to, to basically find the price or a quote, a price based on the inventory that's present in

the smart contracts. Now, the plus side of this was, it's a, it was a very simple and seamless user experience. It had a very, very, very low dependency on any of the parties to keep it functioning. Right. So, it's a, it's scale really well. But the downside of this was obviously the things I mentioned is that A was extremely capital hungry. In the sense that unless

you have lots of lots of capital locked in these pools, it's, it's really, really, really difficult to have great markets. And if you look at the most popular pass on your swap at the moment, you will see that they are mostly stable coins or, or you blue chefs at ease and WTC and so on. And the moment you go into long tail, even though long tail

is one of the bigger value propositions of your swap, the markets there are not as good as as you would see in finance. For example, and that's probably because of the lack of sufficient TBL to the price those assets, especially for slightly larger trades. And then not to mention that when you price assets on chain, it also created this new problem, like you do NEV exploits

or front-training and sandwich attacks. Basically, what that, we can talk about that in detail after this. But in that nutshell, the idea was someone like your miners in particular, or anyone like that, who has the power to reorder transactions on chain, and also has the last look on an incoming transaction, can combine those two powers with the fact that any transaction will move the price on

chain to basically take advantage of that in any coming trade. And benefit at the cost of any normal user. Right, so, so, and if you go beyond that, you will also realize that if you want to price anything, such as options or futures or anything like that, that you cannot really do that using a bond in curve on chain, you need a professional market maker. So,

so in a nutshell, if you want to scale DeFi, while you're in a swap or AMM swap the zero to one problem from getting people excited about trading on Dexys, if you want to get to a state where there that you de-file truly scales, you can trade any asset class, the user experiences, Stella, and they're very little security issues related to these things, where that users

are being exploited, then I think we need to revisit the design, and I think that that's all that too, hash load. Right, so our thesis current chaos, our views are going to be the future of how people will interact with Dexys, and I think it's kind of exciting to see that play out real time. Yeah, yeah. Now, I want to jump into a little bit more

of a complex thought here for beginners. Now, it took me a while to wrap my head around it, but in permanent loss, I think there's a, it's a bit of a fancy term for everybody out there. But I know that you guys have really kind of come up with an innovative way to prevent that, if I understand things correctly, is that there's no permanent loss, and

it's kind of like a continuous rebalance that's taking place. And I want to start with what it is in the most simplistic way possible for listeners. If you could describe what impermanent loss is, and then we can kind of go from there into how you guys have come up with a way to avoid it. Yeah, so it's off-feach. The most ambass way to put it is

the impament loss, you know, it happens when you deposit assets in a liquidity pool, and the price of the assets that you put in, change compared to when you actually made the deposit. Right? So, so it is essentially you could think of impermanent loss as the difference in the, in the, in the, so, so, so this is the bigger this changes, bigger the delta is, the

more you expose to impermanent loss. Right? So, so does that, does that make sense? Yeah. Yeah. Yeah. I think, for me, it was sort of understanding that if I wanted to withdraw funds, like I put funds in, let's say I put Ethereum into a liquidity pool, and it's for a pair that people who are listening, understand that it's like, you know, Ethereum to insert token name

here. And people are actively transacting using my Ethereum that I put into that liquidity pool. Just pulling that out, it comes out differently than when I put it in. Correct. So, good example would be, let's say you put in like, you, you, you, you look at the price, like one, ETH equals 100 USDC. So, so you deposit, you know, some, let's say you put in like

10,000 USDC, Dimash that ratio. Right? In an, in an AMM. Now, now, at some point people start trading against this pool. Right? So, so, so, and at some point over time, let's say the price of ETH became 400 instead of 100. In this case, what will happen is your arbitrage will trade more against the pool until the ratio in the pool matches. One is to 400.

Right? So, at this point, basically what will happen is, is, is, you know, if the ETH is like 400 at the moment, the ratio is being 100. It is a one is to 400. Which means when you go on to take out your ETH again, you may not receive the same amount of ETH. Right? So, so, in this case, you may have, if you had not

made the deposit in the pool and kept it, then, then, then basically you would have had more ETH technically in, in value as a person leaving it in the pool. So, this is what you call in permanent loss. Right? Obviously, the assumption is if the price again goes back to something different, then, then, then you will have your original amount back. But I think, the core

fundamental is basically what you get may be different from what you made the deposit for. Right? And that's in permanent loss. Got it. Well said. So, let's talk a little bit about the market itself. I know that there was, for anybody that was under a rock and wasn't paying attention, there was a collapse that took place off of an algorithmic staple coin called Luna. And there's

just kind of a chaotic ripple effect that's happened throughout the space. So, I want to get your take on where the market is right now as someone that's actively, you know, building in DeFi. What do you think the current status of the market is and what will it look like over the next 12 months? Oh, absolutely. So, I think, so the macro-solic hot dip did it.

things seem pretty flat. So, so. And I think at least, you know, I think they're going to continue to remain flat for a while. And then I think I think I don't think I'm like the best person to comment on the market trends at the moment. But I generally tend to read a lot of art or haste. And then Hasiba, they have three interesting blog posts

on on how they think the market is going to evolve. But generally speaking, I think we are somewhat in a bit in between bear and bull market. Where it's not like a bull market where everything is going up. It's also not something where there is a massive lot about happening. So, I think things look pretty fair. But I think that's a lot of the same thing.

And I think people who are building are still building. So, I think, you know, I've been in there's still a lot of excitement in my crypto. And I think it's going to continue to grow. So, that sentiment hasn't changed. And I wouldn't really let the prices of assets dictate what the excitement level is for the technology. So, I think there's the desire of cool stuff to

be built. And we will continue to do that. That's better. What the prices of the assets look like. So, so, in our opinion, I think it's either continue to stay flat. Or maybe change if you're talking about prices themselves. But I don't think I have a very educated answer on why. Or how the prices are going to change over time. But I could say that the

excitement is pretty high. There's a lot of cool stuff being built in the space. And I don't think the innovation is going to stop anytime soon. Yep. Totally agree. Totally agree. So, the final piece here on Hashtlow is I want to go over. You know, you guys are very focused on decentralized exchange. And the exchanges and sort of how that process takes place from a trader

interacting with pools. So, I wanted to get your take on automated market makers. So, for everyone listening that isn't familiar with market makers. If you could kind of let us know a little bit as to what those are, what roles they play. And the request for quote concept that you guys have that is kind of allowing for the, the management. I guess you could call it

of managing pools and just kind of let us know from a very basic level how this works and what market makers are. Yeah, absolutely. So, market making basically is the process of what they're responsible for is price is company. It's just so. And traditionally, you market maker so the ones who build this order books on your centralized order books. It's just so. Or CLB is the

most important thing. The most fundamental centralize limit order book is the most fundamental form of, you know, fundamental primitive that constitutes price is company. And the way it happens is these market makers how inventory of assets. And then they quote a bunch of bits in asks to build different price levels. And then let people trade against that. So, eventually you meet like a somewhat stable price

that at which people are willing to buy or sell those assets. And that's kind of how you meet in the middle. And then you have this. It's almost like auctioning whether you quote different prices. And at some point people will take bite on those prices and you eventually end up finding the made market price. Right. And then that's kind of about the assets trade. And there's

a market swing significantly. So market makers are essentially responsible for for creating providing liquidity on both buy and sell sites when the human time. It's like if you got an Airbnb and you want to try to less you trying to. Rent an apartment. You can only rent an apartment if someone is providing liquidity in the form of listing or creating listings. Right. So you don't have

listings. Then you can't really bend anything. So so that's literally what market makers do is they're creating listings they're creating liquidity for us buy and sell orders that anyone can come and buy and sell. Right. So the other response will be providing liquidity. Traditionally in both C5 markets and now. Next is right. So that's what market makers do. Now what am I going to do. The

MAM set is we don't need an actual hedge fund like winter mute jump or or or or autonomy in GSR likes of these to market make. Right. What we'll do instead is we'll have a smart contact. And the way the smart contact will do this is by taking inventory of assets from from any LP who cuts money in the pool. And then we'll apply this math

formula to to determine the price based on the asset inventory or the ratio of assets present in the pool. And one of the things it does or it cannot do it doesn't do price discovery. Instead it relies on price discovery to happen on a centralized venue. And then and it creates this arbitrage opportunity for anybody looking at the prices to to look at the price on

C5 and new and then look at the price on your NSW pool and then look at the delta to trade against NSW pool and to the price itself reflects what's been discovered in a C5 and use. It's also the same. That is trailing that there is always trailing behind the price discovery that happens on C5. Right. So so that's kind of how AMMS work. And all

these happen at the expense of LP's putting in money in the pool. Right. So so they essentially giving quotes to everybody. But but the person who is really taking the hit is the person putting in money in the pool. So so that's kind of how fundamentally AMMS work right. So again, the pros of AMMS design is you can instantly create markets for anything just by throwing

in a couple of times. So that's a piece. But the cons is, you know, there is no price discovery. So so really those markets may not be good markets. On the other hand, if you directly use market makers and RF use to do off-chain pricing, you're basically bringing price discovery to D5. Because at this point, the same folks responsible for creating these markets in price levels

on any other venue are essentially making markets on hash low. So as a result, you're not really relying on price discovery to happen elsewhere. Instead, you're basically having a market makers give you quotes directly based on what they think is a fair price and and be able to change it or improve it as needed without going through the cost of doing any on chain transactions, which

makes the system far more efficient and capital. So capital efficient and price discovery being far more seamless than that. It ever was right. So that's that's generally the idea of market making and why we chose market makers as opposed to going to AMM route right to. So as somebody that's in the space, you know, you're you're very, you know, well versed in all these different aspects

of D5, you're seeing what's going on, you're monitoring everything. I'm curious as to what you're excited about outside of hash flow, you know, as a person that's in Web 3, what gets you excited in the morning about the space? I think this is like I've been blushing put it the best way in his work. Essentially what we saw previously is you know, if he has a

whole lot of the nations now we're looking at is the network state, right? So I think this whole idea of of of basically the new network states being formed. I always see blockchains as new nations, right? So nation states. I think VR VR, witnessing a new tectonic shift, whether you're moving away from a society that is controlled by the state as the Almighty to networks being

the being the Leviathan. And I think and I think being able to witness that and being able to part of being part of the revolution to essentially create this new order that that is lot more sovereign in terms of individual freedom. I think I think that's what except that's what's exciting to me. Very cool. Very cool. Those are all the questions I have for you. Where

can people go and learn more about hash, hash flow. So hash the dot com. So so that's the site that you can basically find everything, including the app that you can trade on. And we also have a pretty active Twitter. So so the Twitter handle is just hash flow. And then and then we should also have discord links that you can go through on Twitter itself.

So and then we are pretty active on discord. So so we respond pretty much most everything. Got it. Very cool. Well, wherever you guys are listening on iTunes or Spotify, all the links that were mentioned will be in these show notes. But thanks so much for coming on and sharing your story. Absolutely. Thank you so much. Thank you.