CRΞ8R - Interview With Compli.Fi Co-Founder Dmitri
Primer: In this episode of the Cre8r podcast, Gabriel Haines interview Dmitri, the co-founder of Compli.Fi. Learn how Dmitri entered the space and how he is building his derivative protocol.
Origins
Has an investment banking background. Used to work for Goldman doing M&A
Stumbled on crypto quite late. Observed from the sidelines
Started an algo stablecoin project, but it did not launch on Mainnet
Subsequently, stumbled into derivatives and is currently building Compli.Fi
Fundraising Back Then....
People were dreaming big about creating a monetary system to replace the existing one
That mindset still persists today, but they are a lot more grounded this time round
What Attracted Him To Algo Stablecoins
Trillions are invested in negative-yielding bonds while central bank rates are still positive but inaccessible to the public
He questions why does the public have to go through a commercial bank and not go direct to the central bank to access those rates
"You have this whole crypto world exploding, and you know, if you have a piece of mathematics in your head, you can just kind of write the code, put it out there, the incentives are aligned appropriately, you've got yourself a monetary system." - Dmitri
People realized that the banking sector has put themselves into a very privileged position
His motivation is to open up central bank money for the general public
Have quite a few supporters
The monetary policy committee were not too keen with his idea as it disrupts the entire industry
What Attracted Him To Finance
In the past, he viewed investment banking as the most pretigious job that one could get
From Finance To The Startup World
In a startup setting, he feels empowered to turn an idea into a tangible product
Had to take the plunge and have near-absolute self-belief. Got to be prepared to fail as well
Has to enjoy what he is doing in order to sustain himself in the startup world
Processed a lot of math in his mind. Subsequently, he put it down on paper and began building the protocol
Compli.Fi
CompliFi is a derivatives issuance protocol combined with an Automated Market Maker (AMM). It aims to allow users to trade and provide liquidity for derivatives as easily as for regular tokens on Uniswap.
Background
1.5 years back, MakerDAO CDPs were liquidated at near-zero prices and they had to recapitalize
He tried to get to the root of the problem as to why people lost their money. Isolated it down to counterparty risk
In derivatives, there are two parties with an open and bilateral agreement where the winner gets paid by the loser. In some cases, the winner gets an unbounded payoff
It is not possible for people to ever provide enough collateral. Hence, systems are made to liquidate losers before their losses exceed the value of their collateral
Every derivative issued by Compli.Fi is fully collateralized upfront. Both counterparties will be dividing that fixed amount of collateral between them. No one is able to win more than the collateral amount
Fully decentralized stablecoins are important and required in the crypto space
For instance, if the primary asset is defined as synthetic BTC, a rise in price of BTC on external markets would result in the same percentage increase in the primary asset's share of collateral. The complement asset would, correspondingly, decline in value, since its share of collateral always equal 100% minus the share of the primary asset.
"So essentially, we're turning derivatives, I mean, the way you kind of logistically work with them into simple tokens with some intricate internal structure, they get the job done." - Dmitri
They are currently designing a derivative where half of it exists as a stablecoin and the other half exists as a leveraged token
The stablecoin needs to maintain its peg. Hence, they instituted periodic settlement, where holders of the stablecoin portion will receive a dollar back after a certain period has elapsed
The Mechanisms
Analogy of a synthetic risk factory
Users deposit collateral and receive 2 ERC tokens of a short and long position in a derivative of their choice
To handle IL, in every block, before the 1st trade, the AMM uses the oracle to reprice their derivatives. Their AMM would shift the price to the new point without the need for arbitrage. Trading would then commence from that point in every block
CompliFi creates a derivative by taking a fixed pool of collateral and issuing equal quantities of two derivative assets that together always have a claim on the entire pool. The first (“primary”) asset is the chosen derivative, and the second (“complement”) asset represents the opposite side of the trade. In other words, if you combine one unit of the primary asset with one unit of its complement, their respective risks cancel each other out.
Preventing LPs From Getting Burnt
"What we have found ourselves with is essentially a derivative risk management system that kind of consistently has delivered up to this point across different market conditions." - Dmitri
Pool with equal quantity of long and short positions
The greater the imbalance between both positions a trade makes on the pool, the more fees traders pay to compensate LPs
Launched the pools in Spring this year and observed that actual behaviour is in line with their simulations
AMM Formula
All AMM pools contain two assets - long and short position tokens in a given derivative - and offer terms of trade between them. The issuance protocol is, in a sense, also a market in its own right. It offers users to mint and redeem derivatives - effectively to swap between a collateral asset (e.g. USDC) and a portfolio containing equal amounts of long and short position tokens
Invariant used is a leveraged constant product
Their AMM can detach price from the pool itself. This is useful for derivatives as they can be repriced at every block
The invariant can be scaled upwards or downwards for better control of slippage
Will be deploying covered call options on their AMM soon
Option for LPs to deposit their tokens, remove the potential upside of their tokens, and then enable trading in it. Able to generate fees and potential upside by allowing traders to buy/sell a covered call option
Biggest Challenge Right Now
The amount of marketing thrown at crypto users. Too much noise in the space
Biggest challenge for them is to show how their complex product is able to sustainably support the APY reflected on their app
Have to explain a difficult concept into concise bite-sized pieces
Getting Involved With Compli.Fi
Try out the app
Join their discord community
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