Paradigm Labs is shutting down

With sincere disappointment, I want to inform the community that Paradigm Labs is shutting down. After almost two years of active research and development, our team has come to the decision that without significant product-market fit and limited resources to pursue emergent opportunities, the kind of success we envisioned for Paradigm Labs is unlikely. Out of respect to all of our stakeholders, we assessed this situation as quickly as we believed we could responsibly do and converged on the decision to sunset the company. We’ve been incredibly grateful for the support of our investors and the wider community over the past two years and while this is not the outcome we had hoped for, we are proud of the progress we’ve made and the technology we have built.

It is important to note that this decision will affect the broader 0x staking ecosystem as Zaidan’s War Chest (ZRX staking pool #6) will no longer collect protocol fees beyond March 16th, the end of staking epoch 12. Stakers of this pool should reallocate staked ZRX onto other active pools. More information on the specifics of this are included in the Zaidan’s War Chest section below.

Why didn’t Paradigm Labs work?

The reasoning behind our failure to carve a viable niche in the DEX marketplace is multifaceted, and ultimately a result of both factors within and outside of our control. We have taken some time to reflect on our journey and would like to take this opportunity to highlight some of the challenges we faced that ultimately forced us to make this difficult decision.

Timing

Since our conception in early 2018, Paradigm Labs has been focused on building liquidity solutions for decentralized finance. In this period of time the landscape of decentralized exchanges (DEXs) has evolved considerably. We’ve been able to observe significant developments such as the launch of Uniswap, the establishment of the decentralized finance (DeFi) movement and more. While exciting and positive for the community at large, these developments have made the DEX space incredible fluid, and challenging for an organization like ours to navigate. Many of our early efforts and investment on the Kosu project were made obsolete by broader developments in DEX market structure. The idea for Zaidan, our non-custodial RFQ system, came to us late in the company’s life cycle at which point we were under resourced to fully develop Zaidan. In general, we believe we were a bit too early.

Hesitation to pivot

As mentioned previously, a majority of our early efforts and resources were focused on the Kosu project. In early/mid 2019 we started to have doubts about the viability of this project within the DEX ecosystem. The reasoning behind this included the growing popularity of Uniswap and early work on 0x mesh. Kosu’s unique trade offs didn’t seem significant enough to compel product market fit in what was becoming a crowded liquidity protocol/networking ecosystem. When we started to realize this, we had already come up with Zaidan, but were quite hesitant to pivot completely away from Kosu due to the investment we had made in the project. In retrospect, this hesitation was a mistake. We should have accepted the limitations of the Kosu project and focused all our efforts towards the Zaidan project earlier.

Constraint of capital resources

The growth of liquidity consumption from decentralized venues has been growing slowly but steadily. Smart order routing in the DEX ecosystem is a relatively new development that has made non-custodial liquidity consumption much more accessible. Overall the demand side of DEXs is growing and evolving. The same can be said for the supply side (via 0x market making, Uniswap LPs etc.) though the constraint of capital requirements is still especially large. When designing Zaidan, we were able to overcome many of the structural disadvantages market makers face on existing DEX venues, but were still constrained by the high capital requirements of supporting a non-custodial RFQ system. As the principal on every trade, the operator of a Zaidan dealer must maintain balances in their hot wallet at least as large as the maximum order size they offer. In addition, transfers between exchanges and hot wallets are slow, so managing risk effectively also increases capital requirements. To date, Paradigm Labs has developed a quite sophisticated non-custodial RFQ system. Unfortunately, without traction we were unable to secure the necessary funding to support a live trading system and as a result were unable to service trades.

The challenges highlighted above do not necessarily capture every hurdle we faced while building Paradigm, and we expect our understanding of this outcome to evolve as we continue to reflect on the past two years. We hope through our candidness on the above points to provide answers to those curious about the situation and lessons to those in potentially similar scenarios.

Zaidan’s War Chest staking pool and Zaidan trading system

Zaidan’s War Chest is a ZRX staking pool that allows Paradigm Labs to recoup protocol fees we pay to the 0x system during normal operation of the Zaidan trading system. We became the first mainnet staking pool to be included in the public registry, and enjoyed seeing the pool perform among the top three pools (by ZRX staked and fees collected) for almost every one of the last 11 staking epochs. At its peak, Zaidan’s War Chest had almost $1M worth of ZRX staked.

Since the pool was launched in late November, Paradigm Labs has been subsidizing the pool with our own internal trading operation to keep it properly staked for each epoch to maximally benefit all stakers. As we wind down operations at Paradigm Labs, this subsidy will be discontinued. As such, we strongly encourage all individuals staked with Zaidan’s War Chest to remove their stake or delegate to a new pool before March 16th, the end of epoch 12. We will continue to subsidize the pool through epoch 12 (which again, ends on March 16th), after which the pool will stop collecting any fees.

As of today, we have permanently shut down the Zaidan trading system beta and web portal.

I still have questions, how can I contact you?

We will deprecate our Discord server on April 1st, 2020. Until then, this venue will serve as a public forum for questions and support. Additionally we plan to continue monitoring the info@paradigm.market email indefinitely. If you have questions or requests that arise beyond the April 1st date, please shoot us an email. We will do our best to respond promptly. We also intend on keeping our Medium, Twitter and GitHub accounts hosted indefinitely, although they will be inactive and effectively archived. There will be no further updates to these accounts beyond March 16th, 2020.

What’s next?

For the remainder of March, the team’s priority is ensuring a smooth wind down of the project and company. This includes active communication with those affected and the business operations necessary to the legal dissolution of the company. The members of our team will be pursuing new opportunities both in and out of the crypto space. If your project is hiring and interested in engineers/operators with Ethereum/blockchain experience, please be sure to reach out.