Cypher Twitter Spaces with Project Serum
This week’s Project Serum Twitter Space dives into the world of Web3 investing with Barrett and Izzy — two of the minds behind Cypher. Cypher is an investment protocol built on top of Serum that allows users to trade expiratory futures.
This revolutionary platform gives users access to pre-public markets that historically have been gated from widespread participation. Read on to learn more about how Cypher is changing the crypto world and what it means for the future of the overall digital economy.
For the audience who are not familiar with Cypher, tell us a bit about what you’re building.
So, Cypher is an expiratory or dated futures protocol built on top of Serum’s order books. These are synthetic assets that allow for the creation of a niche type of market. That’s what we’re focused on for our initial launch — pre-public markets, or pre-IPO/pre-IDO futures. But the protocol does more than that. It can spin up futures around any type of spot token like SOL, ETH, or BTC like you would see on Mango, Drift, or Zeta. But, instead, these futures would expire unlike perpetual futures.
Tell me a bit about your background before building Cypher and how the idea for Cypher came about.
Barrett: My background comes from mathematics and finance. I originally started working on calculations for sea ice movement in Antarctica and how that affects biomass production. Then, I realized the same math used to calculate sea ice movement is used in pricing derivatives. So, I moved into creating pricing models and then spent about five years in the finance industry as a data processing engineer.
At that time, 2020 came around — pandemic, right? Utter chaos. And I was like, “this is the best time to start a company, right?” So I quit my job, linked up with one of my co-founders, James. And we went and found one of our other Cypher co-founders, who I met while working at another startup, and we initially wanted to start a matchmaking platform for startups and investors. But our angle was taking this “quantitative finance” approach to it and trying to democratize access to the platform.
This probably started in August. Fast forward, and we realized we’re not democratizing the platform as much as we would’ve liked. We weren’t going to impact a lot of people, and we were essentially serving this very niche group of startup founders. So, we decided to “sunset” the project two weeks before launch.
After that, we pivoted and brought this idea we had on our original roadmap to the forefront. It was an idea for this “exchange” but we didn’t actually have to build the exchange thanks to Serum. So, we essentially got to build derivatives and allow people access to trade private capital markets.
That’s how Cypher really started. And then, we started to realize the true generalization of the protocol and that Cypher could push far beyond the democratization of pre-public capital markets to be applied to a myriad of financial instruments.
How does Cypher improve market efficiency?
Great question. So, the way I look at Cypher improving these market efficiencies is if you aren’t letting the market price something, it will inherently be inefficiently priced. Again, that’s why we want to have the open order book. I’m a massive believer in the order book and that’s why we’re built on top of Serum — it’s the ultimate price discovery mechanism.
You have people on the buy or sell side willing to buy an asset at X dollars or sell an asset at Y dollars. People can see both sides of that order book and kind of come to consensus on a price. That’s really, at the end of the day, how it’s done.
The futures products kind of enable us to bring forward that price discovery mechanism because you can set a date for expiration. Unlike the perpetuals that never expire and use a funding rate to keep the perpetual pegged to a spot price, we don’t have that funding rate because these futures settle.
Building these special markets on top of Serum, the protocol allows us to halt trading and force execution of these markets at a set date in the future. So, let’s use Cypher as an example.
If we set up a pre-IDO derivatives market for Cypher, we could sell futures that expire at a date two weeks in the future. That price could go up or down during that time frame. And, once the market reaches consensus on what those futures will be worth in two weeks, before this IDO event, you can have an idea of a price that’s been reached fairly by participants in the open market.
That’s a really good way of bringing that price discovery forward. Dutch Auctions are a good step in helping people participate but there are a lot of ways to increase the effectiveness of bringing price discovery forward and I think that this is one of the big enablers.
How are you guys integrated with Serum?
Great question. One, we’re built on top of Serum’s permission markets which allows us to create “middleware” which has the update authority to the market itself. This is how we mimic a true expiry or dated market. It allows us to halt trading, close the order book, and settle the orders at a certain date, which is obviously necessary if you want to do expiry or dated futures that are cash-settled or physically delivered with tokens, for example.
Now, what does the order book provide us? It gives us the ability to bring that price discovery forward.
With an AMM, for example, people can’t place a Bid order or an Ask order. On an AMM, if people want to buy 100 tokens at $10, you just pay $1000 and the AMM does some math based on its curve and liquidity size, and that’s what the token is priced at.
But, on the order book, you can say “I want to buy 100 tokens at $10” and maybe 75 of your tokens get bought at $10 before the price goes up. You can cancel the order for the remaining 25 tokens if you’re not willing to pay any more than $10. And that’s what you need to really bring price discovery forward. That ability to say “I’m willing to buy or sell at a set price.”
I think we’ll be migrating to the asset agnostic order book that’s on Serum Core when that does come out. We’re really excited for that because it can operate more like a true futures market since we don’t need a minter to mint a token before it can be traded back and forth.
What are you guys working on next?
I mean, other than fixing the bugs, some of the big next steps for us — I don’t know if you’ve actually connected to the application yet but it’s very simple. It’s basically like a line chart.
We made it look like Robinhood or Public, but we have a pro version coming out that will have candlestick charts, more analytics, traders will be able to see the order book, etc. And then after MainNet, we’re going to work on launching Para futures which is super exciting. So, people will actually be able to trade the BTC/ETH pair or SOL/ETH pair.
Now, all we need to do to spin up new markets is just design the price feed. Everything else is good. From market initialization to expiration, which is something that’s really exciting in my opinion. So, we’re going to launch Para futures pretty quickly.
We may even try another market on DevNet. I don’t want to say like a “just-in-time” market but maybe something that’s really popular right now due to world events. Maybe a commodities market or something like that. So, we’ll launch a good amount of markets that are really exciting for people to trade here in the near future.
What are you most excited about in Defi, Web3, or crypto right now?
Great question. I think I’m generally amped on everything Solana. I think that it’s really cool to watch more and more people building in the ecosystem. I think the developer growth is something that I’m super excited about.
Watching the whole ecosystem expand and have really sophisticated offerings and really awesome protocols coming providing real value. I’m also really excited about on-chain applications providing more than just crypto stuff. Crypto assets are really important, but protocols that help bring non-crypto assets on-chain. Things like these pre-IDO derivatives, you could make the extrapolation to commodities or equities — things like that. That’ll help on-board a bunch of new people to the space.
Maybe people are less excited about trading crypto because the price is going down and they don’t feel comfortable shorting, or don’t know how to do that type of stuff. They can trade other assets which will help keep activity on Solana up for retail as time progresses.
It would be a good entry path for people that don’t know what Defi is but are familiar with other asset classes. Then, once they’re in they can explore other applications, NFT projects, etc. and then they become “crypto native.”
Deciphering Defi and More
That’s a wrap on another week of the Project Serum Twitter Space interviews. What an insightful look into all the amazing things happening on Serum and in the digital economy as a whole. Thanks to brilliant people in the space like Barrett, Izzy, and their team, we’re seeing a new economy spawn right in front of our eyes.
For more on what the Cypher team is doing with Serum, check out the full YouTube video or Twitter Space interview.
Check out Cypher here:
Check out Serum here:
