The Protail Thesis: Redefining User-Protocol Interaction for Sophiscated Traders
Special thanks to Jackson for feedback and review.
Introduction
With the maturation of the DeFi space comes the growing sophistication of the average crypto user. Many VCs look forward to the day when retail users finally accept crypto, when blockchain achieves “mainstream” adoption. However, they overlook the fact that the majority of the markets are still driven by crypto-savvy, sophisticated users.
We at Manifold refer to this sophisticated user base as “protail” traders. A “protail” (professional retail) user refers to a sophisticated retail trader who operates in the crypto markets with the skill set of a professional, but without being institutionally affiliated. Though they often look to derivatives products as a primary way to make profit, protail users have increasingly looked to spot token trading, creating a need for professional-grade trading UI and order execution that streamline the way they interface with underlying protocols. The popularity of Telegram bots highlights the demand for improved execution tools among DeFi users; however, these projects often exhibit a short-term, mercenary approach with little regard for long-term adoption, resulting in suboptimal UX and compromised security. Much like the narrative that allowed Blur to overtake OpenSea as the foremost NFT marketplace, we believe that advanced, all-in-one trading terminals could become the preferred choice for the on-chain spot market. These terminals, offering a range of asset types across all major chains, coupled with effective portfolio management tools, intent-based trading functionality, and a strong focus on robust security, have the potential to set a new standard in trading platforms.
What it means to be “Protail”
Key characteristics of protail users include:
- Advanced Knowledge: They possess a deep understanding of market dynamics, trading instruments, and investment strategies, comparable to professional traders.
- Creative, Active Trading: Protail users trade frequently, and they are creative in the way they generate value. They understand the PvP nature of the market, capitalizing on short-term opportunities, market signals, and early access to information.
- Technological Leverage: They use advanced trading platforms and automation tools such as algorithmic trading bots; they may engage in complex strategies such as high-frequency trading, MEV arbitrage, etc.
Protail traders are individuals who typically demonstrate a high level of market knowledge and utilize advanced trading tools and strategies. Whether they are trading perps or options, optimizing yield farming strategies, flipping NFTs, or pumping memecoins, protail traders actively manage their personal portfolios through a variety of ways with the aim of generating significant returns.
We believe there is still much value to be gained from apps that appeal to protail traders. This article delves into the defining characteristics of protail traders who possess advanced market knowledge, engage in creative and active trading strategies, and leverage cutting-edge technology to stay ahead. We will explore the significant impact of these traders on market trends, their influence within the protail market, and the evolving landscape of trading tools and platforms that cater to their unique needs. As we dissect the nuances of this segment, we uncover the intricate balance between high-risk ventures and strategic market maneuvers that typify the protail trading experience.
Overview of the Protail Market
While not institutional in size, the investment capital of protail traders must be substantial enough to allow for diversified and sophisticated trading strategies. At times, the protail traders may individually or collectively (as a market segment) exert significant influence on market trends and liquidity due to their trading volume. The volume metrics of the top perp DEXs shown below demonstrate the sheer volume that protail traders generate in a day. Even during the bear market, traders are generating hundreds of millions of volume per day, reaching over $2 billion on November 27.
While futures trading has long been an effective strategy for traders, on-chain spot trading has been bolstered by a number of strong narratives in the past year, particularly surrounding memecoins, early-stage projects that align with popular verticals such as gambling, and exotic assets such as Friend.tech keys.
Memecoins
This year, the narrative around memecoins has gained significant traction among protail traders. Memecoins can be seen as speculative instruments that capitalize on shifts in public attention. For those who can quickly identify trends and narratives, memecoins are a rapid means to achieve substantial profits.
The launch of PEPE in April 2023 was the watershed moment that kicked off the memecoin narrative. Commanding extraordinary volume in spite of the bear market, PEPE surged by almost 55,000% and reached its ATH in a little over two weeks. At its height, the token generated over $30 million in trading volume in a single hour. In fact, by May 6, spot volume on PEPE surpassed $2.7 billion, second to only USDT, BTC, ETH, and USDC.
Since then, other memecoins such as BITCOIN, SPX, шайлушай, and BONK have all experienced similar, long-lasting growth trajectories. The trader featured below, for example, has made over $1 million in the span of a month simply by buying tokens spot.
After moving profits from WEB to шайлушай, this trader began buying GROK the day the token launched on November 4. The trader started off with a $2,924.80 buy and built up a position over time, ultimately coming away with a PnL of over $1 million. On-chain degens flock to one high-risk token after another, and those who catch them early are able to make astounding gains in incredibly short periods of time.
Early-Stage Projects
Projects that achieved compelling product market fit have created lucrative opportunities for protail traders who bought into their tokens early. The most noteworthy project this year has been Rollbit, which has seen considerable growth as the foremost crypto gambling protocol.
A crude calculation of the data above shows a staggering $940 million in annualized revenue. The profitability of the protocol is reflected in the rapid growth of its token; since migrating to Ethereum on June 28, RLB has managed to achieve its current market cap of around $530 million in just under 5 months.
Protail traders such as the one shown above who noticed the gambling narrative at the outset were able to walk away with sizable profits.
Exotic Assets
Exotic assets have also seen large volume among protail traders this year. A snapshot of inflows on Friend.Tech gives a sense of the protail appetite for exotic assets. Friend.Tech is a social platform dominated by protail traders because, other than Manifold, very few (if any) institutions were able to create official accounts and profit off the platform. In addition, not only do users need to have a decent amount of capital to buy keys of popular accounts, but they also need to have a cultural understanding of the on-chain degen community.
As shown in the graphic above, at its peak, Friend.Tech had over $20 million in inflows in just one day. At the time of writing, the platform itself has had almost $512 million in cumulative inflows. Though the growth of the project has greatly decelerated since launch, Friend.Tech is still a prime indicator of protail traders’ demand for exotic assets that allow them to generate profit in unique ways.
Overall, the opportunity for quick, explosive returns that spot trading has brought in an otherwise anemic market has increasingly led protail users to rely on on-chain DEXs. This creates the need for new apps that allow traders to interface with underlying protocols more effectively.
The Next Wave of Protail Apps
The move towards on-chain DEXs highlights a growing need among protail traders for advanced yet user-friendly interfaces. Telegram trading bots like Unibot, Maestro, and Banana Gun have attempted to bridge this gap, but they are plagued by subpar UX and high security risk. The market is yet to witness a wave of protail apps that enhance the trading experience by combining an institutional-grade interface with features such as intent-based trading, enhanced security, and diverse trading options.
The Risk Behind Telegram Trading Bots
Telegram bots spearheaded the shift towards protail-friendly trading platforms. These platforms use intent-based trading to address UX challenges prevalent in the DeFi space, offering traders a more intuitive and efficient way to execute transactions. They have become a popular tool for protail traders to discover and snipe tokens, generating over $4 billion in lifetime volume to date. As shown in the graphic below, Telegram bots Maestro, Banana Gun, and Unibot make up the lion’s share of all DEX bot volume in the market.
However, while they have significantly improved UX, these bots are not without drawbacks. Telegram trading bot teams often lack a long-term vision for scalability, generally focusing on short-term product development with a horizon of just 6–9 months. Their approach tends to be more project-oriented rather than company-building, reflecting their inexperience in developing enduring businesses. Additionally, they have struggled to extend their operations beyond the confines of the Telegram platform. A notable compromise in their design has been on the security front, making them susceptible to various exploits and breaches:
On October 31, 2023, a Unibot contract exploit led to $560,000 in losses.
On November 6, 2023, a Maestro exploit led to over $500,000 in losses.
The vulnerabilities of Telegram bots underscore the need to strike a balance between user convenience and robust security measures, creating an opportunity for protail trading terminals to corner the market.
The Opportunity for Protail Trading Terminals
At this point we have established that protail users are the ones who move markets and generate significant volume in DeFi trading. This past year, spot trading high-risk tokens has been a popular way for protail traders to generate value. While Telegram bots have garnered notable traction, their UX and security require considerable improvement.
This is where institutional-grade, protail trading terminals come in.
Protail trading terminals have the potential to become the primary execution interfaces for users, following the success of platforms like Bloomberg Terminal. To achieve this, they must not only streamline and optimize trading processes, but also provide a distinct competitive edge to discerning users. An ideal protail trading terminal should captivate the on-chain ‘degen’ community while upholding the sophistication of an institutional-grade trading platform. Key features of such terminals include:
- Intent-Based Trading with Security: These platforms should offer a seamless, user-friendly experience without compromising on security, setting themselves apart from other platforms that often sacrifice security for improved UX.
- Institutional-Grade Interface: They should provide an interface akin to institutional perpetual DEXs, catering to both professional and institutional traders.
- Diverse Trading Options: The ability to trade a wide array of chains and assets, including various tokens, NFTs, derivatives, and Friend.Tech keys, is crucial.
- Robust Wallet Infrastructure: Utilizing cutting-edge wallet infrastructure, such as Multi-Party Computation (MPC) and Account Abstraction, is essential for enhancing security and user convenience.
- Internalization of Orders: If enough users place non-trivial limit orders for different symbols, new takers can execute atomically against the terminal’s native liquidity, removing the need to pay high fees to execute directly through DEXs.
Several teams are at the forefront of developing such advanced protail trading terminals, including:
- Thunder Terminal: Leverages intent-based systems and turnkey wallet infrastructure with MPC and AA functionality for better UX and security. It offers the look and feel of an institutional perp DEX while supporting a diverse range of assets such as tokens, NFTs, and Friend.Tech keys.
- Shuriken: Also offers intent-based trading and a variety features like group sniping and quick swapping between assets. It also features a Telegram bot.
- TokenSight: Positioned as a DEX-trading automation tool and alerts management protocol, TokenSight is yet to be launched but shows promise in this emerging field.
- Kekotron Terminal: Developed by the NChart team, this advanced MEV tool targets a more niche segment within the protail trader community.
As optimism in the market continues to grow, these trading terminals are poised to capture large volume among protail traders.
Case Study: Blur’s Disruption of the NFT Market
The success of Blur in overtaking OpenSea as the leading NFT marketplace demonstrates the significant growth potential of professional-grade trading platforms when they are strategically positioned to appeal to sophisticated users. Coining themselves as the “NFT Marketplace for Pro Traders,” Blur flipped incumbent OpenSea by creating a trading platform with superior UI and deeper liquidity for NFT traders. Shortly after its launch, Blur overtook OpenSea as the leading NFT platform in terms of volume.
Blur was able to overtake OpenSea because it offered a suite of tools that made NFT collectors feel like protail traders. It looks like a trading terminal and it provides a suite of protail-friendly features like collection sweeping, NFT analytics, customizable gas fees, and detailed floor charts. To that end, we believe trading terminals that bring a protail feel to DeFi trading are positioned to follow the same growth trajectory and narrative of Blur.
Conclusion
The rise of protail traders in the DeFi space represents a notable change in trading dynamics. These traders, who combine the expertise of professionals with the approach of retail traders, play an important role in influencing market trends and liquidity. Their preference for spot trading diverse, volatile assets and the increased demand for advanced, secure, and easy-to-use trading platforms reflect a significant development in crypto trading. As the market evolves to meet the needs of these traders, the creation of specialized trading terminals and platforms, as seen with Blur’s impact in the NFT market, indicates a shift in the trading landscape. This shift is marked by the integration of professional-level tools with the flexibility and creativity of individual traders, paving the way for new developments in the realm of DeFi trading.
