Paradigm — Automated workflows for OTC Digital Asset Traders
Note, Paradigm is based in NYC but from time to time we will showcase some of the most exciting company we see. Paradigm is one of them.
Hi Anand, you started working on Paradigm in 2016, which automates OTC trading within chat for institutional traders; can you share a bit about your background?
I’ve spent my entire post grad-school career (6+ years) on an OTC trading desk focused first on interest rate and commodity derivatives, and then High Yield credit. Paradigm was conceived of during my early days on Keybank’s energy derivatives desk. Back then, about 90% of all OTC Energy derivatives trades were being transacted over AOL Messenger and ICE Chat. It seemed odd that we were trading billions and dollars of these very sophisticated derivative products with very sophisticated counterparties, but the best we could come up with for a communication medium was AOL Messenger?
I was also in a junior role back then which meant that all the most painful tasks of onboarding a counterparty, structuring the RFQ, pricing credit/CVA, sending confirmation emails and booking of the trade into our risk system were delegated to me. This daily ritual, although critical to the trading process, was mind-numbingly repetitive and extremely time consuming. Importantly, it took away from all my trading-related responsibilities…which was the part of my job that I enjoyed most. There had to be a more efficient and less error prone way to transact. I’m lucky to have a computer science background so the first thing I set about doing was trying to automate most of my workflow using Excel/VBA. That Excel spreadsheet was probably what you could call the earliest version of Paradigm!
How did you get into the bitcoin and blockchain industry?
I bought my first bitcoin in early 2014 when one of the guys I worked with mentioned it (thank you Dusko Djukic). Took me a whole year to get to the whitepaper but when I finally did it was a pretty epic moment. This idea of outsourcing trust to mathematics seemed so radically innovative! The protocol also brought together existing ideas around public key cryptography and digital signatures in such an elegant manner that it had a certain ring of inevitability to it. I worked for a bank back then so the irony was not lost on me, especially given that its first use case was this new disintermediated form of value transfer.
Of course, I sold most of that Bitcoin when the price rallied to $1100 thinking that was the greatest trade ever made… Fast forward to now and I don’t ever look at my transaction history on Coinbase anymore because all I see is regret, regret, regret…
Paradigm’s advent into crypto, however, didn’t occur until December of 2017. A friend, who had transitioned to being a crypto trader, suggested that we start with OTC crypto instead of commodities. So for the first half of 2018 we studied the landscape and the players, many of whom we had relationships with, and it just seemed like a no brainer to us. We were witnessing the birth of a new asset class. This doesn’t happen very often and seemed like an opportunity to be a true first-mover in a market that had virtually zero infrastructure. It also helped that Paradigm was built to be asset agnostic, so we figured that if crypto doesn’t take off, we can always go back to commodities.
Tell us a bit more who is behind Paradigm? How big is your team? Are you hiring?
Yes! We are hiring for a senior backend engineer (Python/Django).
We are a small team of 8 very very awesome people. My co-founder Sharaf Nassar, also known as the wizard of distributed systems, was previously at Cisco working on embedded Linux kernels and then AI-based Alzheimer’s pre-emption at Neurotrack (no big deal!). Micki Koonin runs Sales Trading, and was an options market maker for 10 years at Wolverine Trading, trading soft commodity options and US Indices. The rest of our team is stacked with some of the best engineers I have ever worked with.
What is the mission of Paradigm? How are you bridging the gap between the crypto and traditional investment spaces?
Paradigm’s mission is to bring traders together and automate their workflows so that they can focus on what matters most: trading!
Most institutional crypto traders have some traditional capital market experience. They’ve spent years using institutional-grade trading software such as Tradeweb, MarketAxess and the Bloomberg terminal. Over the years, these applications have evolved to adapt to traders’ workflow, connectivity and compliance needs. So their expectations of what trading infrastructure should look and feel like is already well defined.
Paradigm was born out of our own frustrations with the OTC trading process in the commodities markets so most of the connectivity (i.e. clearing integrations) and compliance essentials (pre/post-trade audit trail and chat logs) were already built into the original vision. The hardest part was nailing down OTC workflows in crypto since they are quite unique. We spent most of last year speaking with traders and getting their feedback before we finally developed the product. The result was a product and workflow that has instantly resonated with every single trader we have demoed so far. The most common first reaction we get is: “This is impressive, looks like you guys have put in the time to understand workflows, how soon can we onboard?”
Can you talk more about the technology behind Paradigm? How are you making institutional traders’ workflows more efficient?
Depending upon the asset, Paradigm can save a trader anything between 3–15 minutes per transaction. It is a really simple set of ideas but extremely powerful when they work together. The easiest analogy is an institutional-grade chat app with an embedded RFQ (Request-For-Quote) mechanism. Counterparties use the RFQ to request and agree on a price by clicking buy or sell. Once a price is agreed, Paradigm automatically submits executing and settlement instructions to whichever clearing or settlement solution is selected for that product. We offer multi-asset, multi-venue, multi-dealer connectivity via a single-channel.
We are currently live with Futures and Options cleared on Deribit, but are in the process of adding other venues (exchanges) as well as uncleared products such as spot crypto and crypto loans.
What’s your business model?
As a communication tool, Paradigm is and will always remain free to all users. Our automated blocktrading solution is a pay per use model where both the buyer and the seller pay a few bps on the notional transacted.
Who is your target audience?
If you trade large blocks of crypto, spot or derivatives, either on exchange or bilaterally, you should use Paradigm. We connect you directly with 44+ of the largest institutional crypto trading firms including OTC desks, hedge funds, family offices and other proprietary market makers.
Can you share a bit more information on your traction, whether it be clients or partnerships?
We launched 2 months ago and are a relatively new firm, but have already onboarded 44+ of the largest institutional OTC counterparties trading crypto derivatives and traded ~8000 BTC equivalent of block options trades so far.
Any recent news in your industry you want to highlight?
CME and Bakkt are both launching Bitcoin options! We’ve known this for sometime now and would like to add both those venues next so it was super exciting to see the formal announcement.
What are you thoughts on the crypto US ecosystem?
It is thriving, especially in New York and Chicago, and it’s been a privilege to grow up (as a firm) in the midst of it all. We could do with a bit more regulatory clarity but generally speaking I think it is the best time in the last 4 years to be a crypto company providing infrastructure to institutional crypto firms.
Anything you read recently that you think is very interesting?
A bit stale but Tradeweb’s hugely successful IPO and the rise of MarketAxess — tales of two firms built on the premise of automating trading workflows via RFQs that were relatively obscure in the early 2000s but are now the status quo in each of the markets they serve.