Zima Red ep 114: Dilip Das - High Frequency Trader Turned Web3 Builder
Primer: Dilip comes from the fast-paced world of High Frequency Trading. In this Zima Red episode, he shares about what goes on in that world, how competitive it has become, and why he is now in crypto building his own project.
Background
Studied Math, with a bit of Economics and Computer Science, at MIT
Started his career in algorithmic trading at Getco in 2007. Got to know Dan Tierney, the Co-Founder
Trading became more competitive and Getco started to decline
Subsequently founded Eclipse, a prop shop trading futures
Eclipse was acquired by Stellar
Started exploring DeFi and NFTs
For the past 10 months, he has been working with Dan Tierney. Dan now runs a venture fund called Wicklow Capital
What Is High-Frequency Trading (HFT)?
A competitive interplay of hardware optimization, networking optimization, software optimization, and quant stack
To be in HFT, you must have at least some tech edge or strategy edge
TradFi exchanges have data centers. You would want to be co-located at the same data center to optimize for speed
The HFT space has gotten incredibly competitive:
Shift from fibre optic cables to dark fibre
In 2011, a bunch of firms figured out that they can transmit a microwave signal through the air that is 92% of the speed of light
This provides speed that is a couple milliseconds faster, if you are trying to compete on a tech edge
There are different categories of trading:
Straight arbitrage
Latency arbitrage
Different kinds of risk models and strategies
Thoughts On TradFi Entering The Crypto Markets
Is a concern as we are heading down a less democratized path
Crypto began as a retail driven movement
When TradFi quant firms and VCs are in the game, they tend to dominate certain aspects of the market
AMMs have leveled the playing field by allowing anyone to become a market maker
It’s tough for founders to find the balance between raising funds from large VCs and mitigating the same inequity that we are seeing in TradFi’s IPO system
Thoughts On The NFT Markets
Sees some signs of a bubble
Many projects will not survive
It boils down to the quality of the team behind the project
Will More Quantitative Traders Enter The NFT Markets?
This is happening
It will be a more pure form of trading (e.g. real estate) rather than HFT (e.g. speed, tech edge, etc.)
“It's sort of like a Blackstone for real estate-type of thing, as opposed to algo trading or algo market making.”
- Dilip Das
Over The Long-Term, Will Non-Quantitative Traders Stand A Chance?
It has to do with market cap
For large cap projects, computers will outcompete retails
For small caps, retails with bots still have their edge
Will Citadel Be Trading JPEGs 15 Years In The Future?
Thinks that there will be other crypto native players (e.g. Jump) entering before Citadel does
The trades would be more similar to what Optiver is doing — systematic and extremely low latency trading approach, with curved parameters that are set discretionally
Real estate trades in a similar manner to NFTs
Thoughts On Play-To-Earn
As games get better fit, the “earn” aspect will become less emphasized
There’s an analogy to online poker:
AI is increasingly used to solve poker
Usage of bots has increased
Bots have become harder to detect
For players who play for fun, they do not want to play against bots. They leave and the ecosystem dries up
As poker is inherently monetary and the incentives are there, they have gotten good at detecting botting
As games are more complex, he has faith that games would last for a couple of years
Thinks that the play-to-earn/tokenomics side of blockchain games will shorten its lifespan compared to popular traditional games (e.g. Starcraft, Minecraft, Roblox, Age of Empires, etc.)
Thoughts On The Gaming Community
💡 Dilip asked for Andrew’s thoughts on the gaming community.
“The meme is gamers hate everything new.”
- Andrew Steinwold
Gamers have been burnt so many times that they distrust anything new
Gamers see NFTs as pay-to-win
Dilip thinks that social media contributes to this polarization of views
What Is He Currently Building?
Working very closely with the Wicklow team
Building on the concept of freedom through decentralization and the next iteration of the societal operating system
Looking at enabling reputation as a sort of primitive
Will be leveraging NFTs in his project
Will be keeping it low-key for now
Single Favourite NFT
Torn between his Top Hat CryptoPunk and his Cowboy Punk
Most Controversial Thought On Crypto
Web3 has the potential to be worse than Web2
Difficult to fully decentralize search and feed algorithms
There are major risks to less sophisticated newer entrants — loss of funds, loss of work, loss of reputation
Scams have gotten more sophisticated
NFT Ecosystem In 3 Years
See many more applications of NFTs
Large percentage of NFTs are being collateralized and borrowed to unlock liquidity
Continue seeing the fight for the attention economy
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