LIVE | Market Crash: What Happened and What’s Next

Shall we, Doug?

Let's, let's do it.

All right, let's do it. Sweet, everyone. All right, so, uh, I wanted to jump on with Doug because, uh, yeah, Friday was the biggest, um, liquidation in crypto history, and I think, uh, Doug probably had the best recap, um, of what happened, specifically focused on, on the, the ADL system. But, uh, there's a, there's a lot that happened here. I think, Doug, maybe the best place to start would be— I want to cover everything, like, did Binance do something wrong? Like should we have fixed price oracles? What are— what is the ADL system? What happened with Athena? I want to cover everything, but maybe I would just love to start with your best explanation of what happened.

Everything. Yeah, yeah. So I don't know, I think people are still kind of piecing together what, uh, what happened. And it's like we're kind of in an interesting moment in the market now because you have, uh, right, you have— you have the traditional centralized exchanges, you have all of these perp DEXs out there, um, people are all kind of doing like new behavior, especially like around, uh, farming and, and stuff, farming the PerpDex. Uh, I think it's like kind of been somewhat of a new like market structure lately, and maybe this is the first time it's like really been tested. But, uh, you know, obviously it started like Trump tweeted, uh, you know, tweets all the time. So is it like not necessarily should have been as big a sell-off, but, but I think, right, like, like in any case, there's a lot of liquidation in the system, um, particularly like maybe at the PerpDex level. Um, and I think there are a lot of— I, I think what was a big contributor were people who were running delta-neutral strategies, and meaning like long in one place, short in another place, whether that's long on one coin, short on another coin within the same exchange like Hyperliquid, or maybe long at Hyperliquid and, you know, short at Lido or Aster, another Perp DEX. Um, right, because there's kind of now this incentive there to like you farm points and you want positions at multiple exchanges and kind of collect collect the incentives. And so I think what happened is a lot of people thought they were delta neutral or thought they had less risk than they did, right? Like, there's a lot of, uh, a lot of liquidity crises happen this way, and people think their positions aren't as risky as they are, uh, and then it turns out they are, right? And I think, like, you know, the ADL stuff played a big part because when you think you're hedged and then one side of your hedge is no longer present, right, like, all of a sudden you have, you have a lot more, a lot more risks So, uh, it does seem to be that and probably some combination of— I think there was a lot of turmoil at Binance. Um, you saw a lot of spot coins there go to zero, or essentially to zero, um, which is crazy on the spot side. Uh, and I think there were a lot of liquidations of pretty illiquid alts. Um, and, you know, that kind of pushed this, this kind of cascade process. But yeah, exact details are debatable.

So what was the— you know, everyone always wants a clear headline, right? Like FTX Luna, Celsius, like the smoking gun, right? Um, I saw a tweet about, you know, how there's, you know, $60 million of USDE being sold on Binance triggered the entire liquidation, which I, I think is incorrect, by the way, after looking into the timing of when that happened. But what is there— is there a smoke— is there like, this is the reason for this massive liquidation in your mind? Is it like, you know, it was all an oracle problem, or it was all, you know, Trump's tweet triggered this, or, you know, Hyperliquid really screwed up, or is it a little more nuanced than that?

I, I mean, like, with— I guess it's hard to know, but I, I don't, I don't see anything that's like clearly— and like you said, like the Athena depeg, uh, some people were saying that. I think like CL like posted where he's like, okay, like the time just doesn't line up. Um, I think it's like just right, like there's a lot of leverage in the system, like this happens to crypto periodically, you get a lot of leverage build up. Um, and you get flushed. So it almost feels like, like May 2021 to me, where it's like nothing like obvious happened besides just a lot of people have been levering up over the past few months. Um, and you know, you just, you get flushed, right? Like the first time you kind of test that.

Yeah. Um, yeah, it's interesting. It does feel kind of more like this, like liquidation cascade, right? The last cycle, I think everyone is— it's interesting. We've talked about this a lot on Empire. So like usual Empire listeners will know this, but You know, last cycle was such a leverage-driven cycle, but it was leverage not in the traditional trading sense, I feel like, in today's trading, like, perp sense. It was leverage oftentimes given out by the centralized lending desks, right? Genesis, BlockFi, Celsius, Nexo, people like that. And so, but it was still a very leverage-driven cycle. Like, I think at one point Genesis had like, I'm going to totally botch this number, but like $60 billion of loans outstanding, or maybe I'm off by an order of magnitude, but have a colossal amount of loans outstanding. And, uh, this cycle everyone's like, oh, the, the centralized lending has not come back. There's not leverage in the system. Like, I think Galaxy had a report last month and everyone was pointing to it being like, see, there's no leverage. Like, we still got a long way to go. But people weren't looking at the other side of the leverage, which was, you know, we've had basically just this mania in perps. Like, people— I, I wasn't at Token, but, you know, if you went to, you know, a lot of our team was there and everyone's like, there's one topic, perps. And you've got Hyperliquid, and then obviously Aster and Lighter and all these things.

So yeah, I think, I think, right, like a lot of, a lot of leverage has built up, uh, in perps. And I think especially in, in alts, uh, well, I mean, across everything, like obviously BTC has like a ton of OI, but like you have— I think people got pretty comfortable going from, say, holding like Fartcoin spot to like Fartcoin 2x, and that doesn't feel like that risky of a position. Um, it's like this 2x, it's like, or quite a big, uh, big, you know, it's a big token, right? Like 2x shouldn't be super lit. And I think like a lot of people are kind of shocked thinking they weren't, uh, you know, they weren't really at risk. But like, you know, when these alts wick down, you know, more than 50%, obviously like 2x is gonna get liquidated, um, liquidated as well. So, and so I, I feel like the alts are a big part of this, um, You know, if you look across like the markets, um, you know, whether that's like LIDR, uh, the LLP vault, like a lot of like that took a lot of losses in, in like kind of the longer tail of vaults. Um, the HLP, you know, made money on the other side, but that a lot of that was from like ADL and just kind of turmoil there. A lot of the ADL was like in, you know, longer, longer tail alts.

Wait, before getting into ADL, can we— can you explain kind of like, okay, so you— the At the very top, you said, you know, people were delta neutral, right? You're long on one thing, you're short on the other thing. And then, you know, what happens is like, oh, one of those legs actually gets carried off. Well, you're not so delta neutral. Can you explain how it's supposed to work, right? Starting with like, you've got, you've got two legs of the trade, maybe then you've got like the, maybe the insurance funds start to step in. If we blow past the insurance funds, we get into the ADLs, like explain the cascade of how it's supposed to work.

Yeah, yeah, yeah. So I guess, you know, whether it's delta neutral or not, there's, you know, there's the same liquidation cascade. But like, maybe we can start with like the same, like the whole idea, like delta neutral, right? And, you know, the point being, I'm going to, you know, go long, you know, I'm going to go long BTC and, you know, this one venue, I'm going to short it in this other venue. And like normally, right, like you would do that maybe to capture like a funding arbitrage right? Like funding's higher one place and lower somewhere else, and you can kind of collect, uh, this basis, uh, trade, you know, which, which is what like Athena does, right, to a large extent, right? Like this is a pretty big trade, it can scale up a lot. Um, you can also do that right now because Perp Stakes are, you know, incentivizing you, right? Like you get, you know, you get points which eventually translate into tokens, and those are valuable. And just for having OI, even outside of that, like that is a kind of a plus EV position. Um, and I think especially they like are incentivizing OI or positions in, in longer tail assets. So, you know, the idea would be, right, you pick one Perp DEX, you go long there, you pick, go short somewhere else, and like you do have to kind of manage your collateral back and forth. But like theoretically, if you keep that balanced, right, that's kind of like a risk-free, right? That's theoretically, not practically, but like theoretically is risk-free because you're hedged, um, you're hedged out and kind of earning, earning income. Um, so that's like the whole idea, like delta neutral. And then like where liquidation like comes into, and whether you're delta neutral or not, is like if you're on an exchange, um, you know, you have a certain amount of collateral at that exchange, uh, and you know, whether that's Binance or, you know, whether that's a centralized exchange or, or Perp DEX, right? Like they can only see the collateral you have there, right? Like TradFi kind of solves this because they have like central clearinghouses, so you can have one exchange and like, you know, they can kind of see your whole position, or your broker can see your whole position. Um, but it's a little like crypto is always like, okay, every exchange is also its own clearinghouse.

So your position on Hyperliquid, Hyperliquid can't see your position on OKX.

Exactly, exactly. So even though you like your head, right, and you shouldn't be that risky, like they don't need to, but they don't know that.

They don't know that.

They don't know that, right? They just see, okay, here's an account, he's levered up on, you know, whatever, ETH or or SOL or, you know, whatever, this account's levered up and, uh, you know, ETH is, you know, down whatever, 20%, um, right? There's only so much collateral in the system, there's so much margin, um, at the end of the day, right? Like, the, the exchange's whole goal is like, we— you, you can't have more losses than, uh, you have money to back it up, right? So like, you have to— when stuff goes down really fast, you either have to liquidate people quickly um, or failing that, sometimes stuff just gaps down. I think that was a big part there. You looked across every single alt and things were down like 50% within, within minutes. And there's just not enough liquidity to liquidate, um, liquidate everyone. So, uh, you know, you go through this process where normally in the happy path you liquidate, the exchange takes your position, uh, before you get underwater, um, and it tries to, you know, sell it off, um, into the open market. And, you know, they'll do different things and they have different rules about how aggressive they are. But the idea is they take that position and That's the insurance fund. Insurance fund is— insurance fund is a little different. So the insurance fund is, I'd say, the next step on the waterfall. So normally, normally the insurance fund shouldn't happen in that, like, the happy path, right? Like, normally it should just be the market itself, right? Like, you have—

okay, so where we're at now is just the normal path of—

normal— this normal path. You're just a regular, right? People get liquidated every day and it's not chaos. Um, so, you know, you, you have, say, a million-dollar BTC position and you have $100,000 of margin in there collateral, but, uh, you're down $50,000, you're down to like your last 5— like you're down $95,000, right, or something like that, right? So you hit your, your maintenance margin level, um, and that's the point where the system says like you don't have enough money left to support this, you're too close to zero. Like it's not gonna wait till you get to zero, it's gonna wait till you're close to zero. You're too close to zero, I'm gonna try to sell off this position, um, and hopefully, right, like I'm— we're not gonna lose another $5,000 in it before we can sell it off. And hopefully we sell off to the market and the market you know, you'll pay some amount to transact, but like, you know, every— everybody's happy. Um, maybe you're not happy you got liquidated, but like, in general, in general, the system works. It works, it works, right? And, and so then though, the next step though is like, okay, what happens if the market can't absorb it, either because you haven't been fast enough to liquidate it? Like, sometimes markets just move fast. Uh, you know, Bitcoin goes down 20%, you didn't move fast enough to liquidate this guy, and now the balance is minus $100,000, or, uh, you know, there's just not enough liquidity in the market. Like, you have these massive whales, um, right now, um, and you're right, like, I forget the size of the position the guy put. It was like $110 million margin, but like huge, huge positions, right? So market just isn't a lot of times liquid enough to absorb it. So like, the, the next step is like, okay, how, you know, if I sell, if I drop this into the order book like right now, or even if I try to work it like You know, I'm gonna have a price impact on this, right? Like, you try to move a big position, you're gonna move the market. Um, and so that's where once you start getting into, uh, you know, um, you know, bankruptcy being right where the position— if I tried to sell this off all right now, I would be under zero. That, that's where the insurance fund stuff comes in, in the ADL. And like, uh, that differs a lot between exchanges. So it's where you start getting into interest.

And then let's go— let's talk insurance fund, and then we can do ADL. So insurance fund Um, real or more of a marketing thing?

Well, I mean, first of all, like most Perp DEXs, all the major ones— I'm not sure about Aster, but neither Lido nor Hyperliquid actually technically have an insurance fund. They go straight into, into ADL. So like, that's the first thing to understand. Um, real, I would say real are like the centralized exchanges. They're kind of cagey about— so this all goes back to like BitMEX, right? Like kind of invented by BitMEX, and we're all kind of like playing using the same playbook like 10 years later. But like the original BitMEX system is, um, they charge liquidation fees over time, and that goes into this fund, and that builds up. And the idea being, okay, if you are liquidating someone and, and you force it into the market and there's this shortfall, um, the insurance fund steps in and says, okay, we're willing to make up— we're willing to make up the difference. Um, And so that prevents ADL from happening because, okay, it's like, I'm going to liquidate you. I'm not going to recover any money. The insurance fund is going to make up the difference, but I can keep doing the normal tempo of operations. The Perp DEXs have kind of taken a different approach where they have these vaults. They have HLP or LLP at Lido. And the vaults will step in and take liquidation positions, but they won't take people past bankruptcy. The vaults won't go in and actually put money back into the system the way a traditional BitMEX insurance fund works, or Binance, or OKX, or Bybit. They'll step in at a given market price, but if for whatever reason the price has moved— and they'll provide a lot of liquidity— but if the price has moved too much, the vaults will say, well, we're not going to take it. We're not going to take stuff at a loss. And then they'll go straight in into ADL. So, uh, you know, I think, right, like, that is kind of the difference. Or when you don't have an insurance fund and markets are moving really fast, a lot of times you, you jump right over.

Yeah, I haven't even— even the SECS though, like, I haven't seen— right, a lot of this plays off of BitMEX, like you mentioned. Like, I haven't seen any of the SECS use their insurance fund in, in years. I mean, I think Binance did something in 2019 when there was a BTC hack, if I remember correctly. And but yeah, I haven't really seen anyone do anything like a liquidation.

Well, that's just— yeah, because I know on Friday Binance did hit ADL. Uh, like there were traders who got ADL'd at Binance. Uh, I don't know if the insurance fund stuff—

okay, so let's walk, let's walk through ADL because I think a lot of people had, uh, never even heard of ADL until you posted this big Twitter thread. Probably the most, the most read docs over the weekend were the Hyperliquid ADL docs. But yeah, maybe you can walk through, uh what this concept, what this is.

Yeah, yeah. So, okay, so the general, like, I guess the thing to understand about ADL is it's really actually doing two things technically. Like, uh, right, you have, like, you have these derivatives markets and, uh, people are long, people are short, um, but right at the end of the day, like, there's no actual BTC there. It's kind of all imaginary, right? So my ability to stay short is only there because someone is willing to stay long and was willing to put, like, margin and cash in, right? Like, if there's no cash left in system, there's no longs left in the system, uh, like eventually, like, you have to take the, the, the, uh, the shorts out of the market, and vice versa, the market's going up a lot. So, uh, right, ADL is kind of like the last stop on the train on this liquidation cascade, uh, and it's like, this is what we do when we have, you know, there's no one left in the market, um, like there's no one left for like who's willing to trade at this, um, and so we have to start forcing people out. Um, so that's like the, the force-out function. Um, and kind of the analogy there I, I used, uh, in my thread, which I guess people liked a lot, was the specific analogy was that it's like an airplane, right? When an airplane's overbooked, uh, normally the airline like starts bidding and you, you get better and better deals, uh, you know, $2,000 a seat, $3,000 a seat, like if you're willing to take the next flight. But if nobody takes that, like eventually they just have to pick someone and kick them off the plane or not let them on, right? Because there's only so many seats on the plane, um, and you can't come on. So So ADL is like, if there are no more longs, or, you know, in different cases, are there no more longs at certain prices, uh, we start forcing people out. Um, and in, you know, different exchanges use different criteria, but generally they look like something like whoever has made the most— whichever positions are the most profitable and levered and maybe big, like, we start forcing those positions out quicker because, uh, we think like they're the most able to handle it. And then I guess the final thing just to keep in mind from ADL is this is also how, like, ultimately the, the socialized loss component, right? So if, if for whatever reason, uh, we haven't liquidated people fast enough, or the market has just moved too fast, and, uh, the, uh, the longs no longer have enough margin to cover how much the shorts have made— if Bitcoin wicks down to, I don't know, $50,000, uh, there's just not going to be enough money in the system. So ADL also, instead of using a fair price, will use a bankruptcy price, and we'll say like, you know, the position we're liquidating only has this amount of money, so we're gonna fill it at kind of this artificial price just because this stops us from going, going below zero. So yeah, there's kind of serves two functions there: force-out function and socialized loss function.

So you've got the plane analogy here. So you've got 5 extra seats on the plane. Who do they kick off the plane first? Is it the, you know, or maybe to use actual, you know, this example, this, uh, real situation here is like, do they kick off the, the most profitable trader because they want to kick them out of the casino? Do they kick off the person with the largest size? Do they— who are they kicking off?

Yeah, they all have different, uh, different criteria, uh, but in general it's some combination of whoever's made— whichever position is the most profitable, whichever position is most leveraged, and sometimes whichever position is the biggest. The biggest is kind of harder to do, right, especially like in a PerpDEX context because Like anyone can open 1,000 different wallets. So Hyperliquid will do— they have a formula where they take your, your P&L and your leverage. So basically like— and BitMEX used a very similar thing. What was interesting about BitMEX though, is they actually showed you where your position was in the ADL queue. So like they'd show you— yeah, the lights are all that, hey, here, like you should. Yeah. And I think at least people were kind of— that made at least made people aware like that it was happening. Um, so, so I do like kind of that having that in the system, uh, like even just like from a user perspective. Uh, so yeah, they kick out the most profitable people. And yeah, the idea there is like you've made a lot of money, like you shouldn't— like number one, like it is kind of a haircut because that socialized loss component, like we're filling you at a kind of a bad price, but you know, you've made a lot of money, like you shouldn't really be complaining, like you've just cleaned up. And then you also generally want to take leverage down when markets are very volatile because the problem is, right, markets go down, they can go back up. So if you're taking out shorts, right, like you also— the most leveraged people are kind of at the biggest risk of like causing more instability.

Yeah, I think the thing that got so many people so upset this weekend, especially with Hyperliquid, is that they weren't even that levered. They weren't, they weren't 30x levered. They were, you know, I'll read a message from a friend. Which says, uh, Hyperliquid failed. I don't care what nonsense they preach, they just sold our funds. 8-figure position. Pretty much an existential day for perps in my opinion. Not sure how anyone can trade on them. You could have been on 1.2x leverage and fully liquidated, which is insane, right? So I think the expectation is like, yeah, you know, if you're, if you're 30x levered, like, you're taking risk and you know that. If you're levered up like 1.2x, like, that's You shouldn't be at— I mean, everyone's at risk of being liquidated, but like, you should be.

Yeah, you should be in the— like, if, if they're going that far deep, right? Like, I, I don't know, like, it's interesting. I don't know how many— I don't know if anyone's generated this, but like, what percent of the positions were, were ADL'd? Um, like, eventually you're gonna ADL everyone in the market. Like, if, you know, if things move bad enough, like, everyone's gonna get ADL'd. You're gonna—

even if you're in profit, right? Or even if you are— yeah, even if you're in profit, you'll get ADL'd, right?

Yeah, even if you're, even if you're in profit, like, like there are these criteria how we rank people, but eventually, uh, like you need a way to shut down the entire casino, right? Like if Bitcoin goes to zero and never goes back up, like the market's okay.

So this doesn't directly answer your question, but this is, this is a little bit of data. Um, okay, so open interest dropped 34% on Binance. OI dropped, uh, let's look at Bybit, 39% on Bybit, and it dropped 55% on Hyperliquid. So actually I'll turn that into a question. Like, why did Hyperliquid have the—

have the most?

Yeah, the most, like 55% compared to Binance's 34%, right? Why, why did Hyperliquid force more positions to close compared to other SECS?

Yeah, I mean, that's also— I think I saw the similar stats there. I was trying to like figure it out before, before this actually. I thought I'd have a better answer, but like, I don't think anyone really has a strong answer here. But I mean, the most obvious would be people I'm Hyperliquid, we're just more levered, uh, you know, that would be like the first. Yeah, and, and that would make sense, right? Like, um, especially if people are doing like farming, right? Like you kind of want to lever as much as, as much as possible, you know, especially if you're doing this delta neutral stuff, right?

People are farming on other things. People are farming on EdgeX and LIDR and Aster and other things, you know.

But, but they're, they're kind of double dipping, right? Because they're farming on one and then hedging on the other, right? So it's like you're trying to get your, uh, you know, you're trying to get your, your Hyperliquid whatever Season 2, Season 3 airdrop, and you're also trying to get your, your lighter points at the same time.

Hmm, yeah, it's interesting. Maybe it's because— yeah, yeah, that's interesting. Um, in your mind, did Hyperliquid do anything wrong, Doug?

I don't think like anything obvious. Like, I, I don't think anything obvious they did wrong. And the system, like, the system is very transparent. Like, number one, they didn't lie to anybody. Like, they're nothing like they didn't lie. As far as I know, like, nothing was covered up. Like, everything worked as, as it was documented. So if you read the docs, um, and like, you know, I, I guess people have to see, but like, as far as I know, like, nothing dishonest, uh, or anything like that. Like, these are just like— the markets do work that way. Uh, like, if you want to be critical of them, like, maybe one thing would be like they don't have an insurance fund. And like, okay, you should have an insurance fund, right? That's the debatable thing. Like, people say one thing or another. I think like optically it's not great that, uh, HLP is up like $40 million, right, when everyone's losing money, right? Like that kind of like, even though you can like deposit, it feels bad, right? Like, and people especially like, these are kind of like unfair things, right? Um, so I think, right, like if you had an insurance fund, um, and you know the insurance fund was taking some of that, uh, loss before people are getting ADL'd, I think that would be, um That would be better. Uh, there's more transparency. I, I mean, like, the ADL criteria is there, but like, as far as I know, it's not easy to like figure out what your position is in the queue or stuff like that. Um, so right, like, I don't think anything like unethical for, for sure, at least like as far as we've, we've seen publicly. Um, I think like they operated fine, they documented everything, they're transparent. But, uh, you know, people, people might be a little unhappy there's no kind of insurance fund would be the main thing.

Yeah. And the idea of ADL, I saw a lot of people being like, we shouldn't have this ADL system. It's my, and my take on that is like, I mean, you kind of need the system to function, right? You either, there's only two options here. You either have ADL and you trade permissionlessly, um, on things like LIDR and Hyperliquid and things like that, or you, or you have legal recourse and yeah. And it's like, yeah, which I mean, we're trying to build this permissionless system. Like you have, you have to have a system like ADL, right?

Yeah, yeah, yeah. I mean, yeah, you wanna, you wanna sign, sign a contract every time you open a position of PerpDEX? Yeah. And then here's my bank account information, uh, you know, for me, my 9th PerpDEX of the day. Here's my, here's my passport. Um, yeah, I mean, like, they're like, even trad— even clearinghouses will, uh, you know, even tradfi clearinghouses, like, they do, like, any derivatives, like, you need some rules. Like, when something moves and there's not enough money left to pay people out, like, there is going to be some waterfall system. Um, you know, it's just a question of how, like, how, how safe is the system built before you get to those points?

Yeah. So here's something I didn't know, is that ADLs can be negotiated or negotiated away. I did not— that is a, uh, behind-the-scenes backdoor thing I did not realize could happen. And, um, so I think one thing that struck a lot of people as unfair is Athena, it seems like, had negotiated for no ADL, or maybe like lower in the ADL priority list or something like that. And I think a lot of people— my takeaway is like, wow, honestly really smart of Guy and really smart of Athena. Uh, probably a little unfair because if you're— that means if you're trading on an ex— you know, a, a platform that Athena had negotiated lower ADLs with, that means you are inherently—

you're higher, right? Yeah.

So what is your thought on, you know, just negotiating ADLs generally?

Yeah, well, I mean, first of all, from Athena's perspective, it makes a ton of sense to do super smart. Yeah, because the people most at risk of this are delta-neutral traders, right? And Athena is a delta-neutral trader. It like collects funding on its short perps, long spot, and collects this funding. And, and this is where kind of the system breaks down, the ranking system, because it says, okay, we're going to take our most profitable traders out first because they're doing the best. But, but if you're market-neutral, you're like, it doesn't actually reflect your position. And this is where I think a lot of trading firms got hit, because you were liquidated on your short leg and you're ADL'd on your long leg, and like everything kind of blew up, um, for a lot of like trading firms here. Um, so Athena, right, is doing kind of a simple, you know, very similar thing. They are a delta-neutral trader. It makes sense if you're a delta-neutral trader, like you do not want to be in this system that is ranking you on criteria that doesn't really apply to you. So it makes a ton of sense from their perspective. From an exchange perspective, yeah, it's, it's not great if it's not disclosed for sure. Um, and like, to the point, okay, should we be critical of Hyperliquid? Like, Hyperliquid is very transparent here, um, about what— like, you can go on their docs and see the formula. You could, you know, watch, run a node, or— I don't know how easy it is, but like, you could run a node and like check your exact position in the queue. Um, Binance, like, yeah, like, yeah, like, I guess apparently, or wherever, sex that has this negotiation. I'm not sure if it was Binance where they negotiated it, but, you know, whatever sex they have that's negotiated at, like, it is, uh, probably something that should be disclosed to, like, yeah, yeah.

I mean, Binance clearly had special non-ADL deals with certain counterparties, and that, that should be— you, you, when you trade on an exchange, you expect it to be a neutral platform. And, um, that, yeah, I think that stuff needs to get disclosed. So why did— speaking of Binance, why did Binance flush harder than others. Is that an issue with market makers? Is that a technical outage? Is it something else?

Yeah, that's a good question. Um, I mean, I've seen a number and be like talking to people like pretty active trading. Um, I think one thing, you know, I've heard is that their API was just lagging and slow. And I think technically, right, like in these conditions, if you're an automated trader, you have to move capital around. Um, quickly to kind of balance things out. And it's like the API isn't working, you can't connect.

Like, but how does Binance's API like not work in this moment? But it's been working. Is it that it's been working and now it didn't work and it was like just a technical glitch?

Yeah, I mean, a lot of traffic, right? Like, you know, if everybody's, you know, everyone's online at the same time trying to, trying to trade, right? Like things are going to, things are going to collapse eventually. I yeah, I don't know. I obviously can't comment on like the inner working of their technical stuff. But yeah, like, if it's not great if your API isn't working, especially if you're derivatives platform. If you're spot, okay, maybe okay, because like you can trade. If you're derivatives, like you need to hedge, you need to post collateral, like derivatives are constantly in motion. So API not great. And again, I don't know exactly how degraded it was. It just like is what people keep saying. The other component of it is seems like a lot of alts got liquidated at Binance. Um, and, and this is like in the spot side. Um, and you saw like, uh, what was like— Adam, you saw Adam went from $4 to 1 cent, right? 1 cent, like literal 1 cent.

Let me read something. So we went from $3.40 to 50 cents. Aptos went from $5 to 75 cents. Sei went from 28 cents to 7 cents. Link went from 22 to 8. Cardano went from 80 cents to 30 cents, I think it is, right? So you have these top 100—

yeah, these are not small coins—

top— actually, top 30 coins, top 40 coins nuking 80% in 3 minutes, right? So actually, to turn that into a question, like, why is that? Is that like— that's not just an API, that's not normal.

Nobody like— yeah, I mean, like, it's not normal. Like, people don't log in and be like, I'm gonna sell my Atom out at 1 cent. Oh, because then like, what does this show?

What does this show you, Doug? Does it show you that It's like, oh wow, the, the SECS order books are just way thinner than we thought.

I mean, I have a couple theories. Like, I guess one theory I have here is like, also pretty dependent on like market making arrangements for a lot of their liquidity. Like Bitcoin, there's no like— no one's getting paid to market make. You're just, you're just there. Um, if you're in an alt, like usually, you know, they're market making arrangements. A firm is, you know, there and has a contract saying we're going to quote at, you know, X amount of liquidity at top of book like within 1% width or whatever, like 99% of the time. Um, but the key part is that like 99% of the time or 99.9% of the time, so they, they, the market makers have a little wiggle room there where they can kind of, you know, they can get that liquidity offline if they need to. Um, and like if you're gonna use that 1% or 0.1% or whatever, uh, you know, Friday night's probably a good time to take it offline. So, uh, that would be, if I had to guess, that would be a big part of it when you have these like market making deals. Um, they— the liquidity you have normally, it's like kind of in very stressed times, it is easy to disappear. And you're dependent on one party, like, right? Like, or maybe two, two, three, right? But you're not dependent on like a big ecosystem of providers.

So what you're saying is it's all Wintermute's fault. It's so funny because I think, uh, you know, everyone, when something like this happens, everyone blames Wintermute because Wintermute's like the only market maker people that has like the brand.

It's the only one they know. Yeah, yeah, yeah.

They're like, you know, 50 market makers. It's like, you know, everyone just knows Wintermute, maybe GSR a little bit, but yeah, yeah, it's, uh, yeah.

And everyone was talking about, oh, did somebody get blow up? It was on Friday night. It's like, I think Wintermute blew up. It was like, I doubt it was Wintermute.

I can assure you they did not blow up. Um, Um, what do you think about— so there's this, uh, tweet from Chris, who's the CEO of Crypto.com. Here, I can pull it up. I don't know if you saw this, but, um, he said, yeah, regulators should look into the exchanges that had the most liquidations in the last 24 hours, conduct a thorough review of fairness and practices. Any of them slowing down to a halt, not effectively, not allowing people to trade? Were all trades priced correctly and in line with indices? Uh, what's the setup for trade monitoring and AML programs? Are their internal trading teams fully Chinese-walled? $20 billion in licks, A lot of users got hurt. The job of regulatory bodies is to protect consumers and ensure market integrity. Um, what do you think of this?

I mean, I guess the first part, like, this seems like a subtweet of Hyperliquid. Like, I, I don't, I don't know Chris, I don't know really what it means, but it seems like a subtweet of Hyperliquid. You're putting a chart where Hyperliquid's, um, at the top, uh, and right, saying, oh, you got to look into things that don't even necessarily— like, Hyperliquid doesn't have an internal, uh, or at least like there's no indication they have an internal trading team.

Uh, he's kind of subtweeting Binance here, but—

oh, you think so? All right, I, uh, I don't know either. Uh, maybe. So I go again, like, I, I, I don't really know Chris too, uh, too much, uh, from his Twitter presence. Uh, but yeah, I mean, like, a lot of this, like, it, it sounds good. Like, this all stuff sounds good, but like, I don't think if you like an effective AML pro— like, there may be good reasons to have an effective AML program, but I really doubt if you had like people's passport information, uh, and better— like, if that's really going to prevent like an OI flush.

Oh, AML programs. Okay, he is subtweeting Hyperliquid, you're right.

Yeah, yeah, yeah, yeah, yeah, yeah. I mean, like, like, people are levered. Like, it doesn't, it doesn't really matter too much, uh, you know, there. And I, I don't know, like, it just feels like, right, like, uh, these— it's easy, it's easier to just like criticize things, um, when they happen. But again, like, I agree, Liquid is very like transparent through, through the whole process. So, uh, yeah.

What did this tell you, Doug, about the, um— what did the price action of different coins tell you about the, about the different coins?

Uh, You know, that's— I think these are all the coins that had strength or bounced back, had, uh, you know, whatever. Just so many path dependencies. It's some guy got liquidated before somebody else, and he happened to have more ATOM than the other guy had something else, and so ATOM got liquidated on Binance first.

Like, but does it tell you anything about like the— how like the organic bid bid on the spot, basically.

I, I guess you could say that. I guess you could say, right, like if, if, uh, you know, coins had dropped a lot and, and just weren't there, right, you'd probably say you're more dependent on like market maker deal or like institutional liquidity. Um, I guess like stuff that's very healthy should be, you know, it has a lot of diverse liquidity, should, should kind of hold up. But I, I think that's fair. But like, I, I would like caution, like reading too much into— like, when markets get chaotic, like, things just kind of move in random directions.

So yeah. Um, what are your thoughts on the insider trading stuff? So, right, so there's this big whale that opened a big short, yeah, right, right before this happened. Um, what are you— I don't know if you have any—

what was the timing? Yeah, what was the time? Some people said it was like 5 minutes, other people said it was like 24 hours, and somebody said he's back now or short.

I think it was 1,000 Bitcoin was transferred from a cold wallet. Yeah. Like, you know, 20 minutes before it, shorted it.

Yeah, I mean, look, like, if you're gonna— if you're gonna, like, I guess crypto is the place to do it if, if you know whatever, there's going to be a tweet coming. And I don't know how many people— like, many people in the circle, like, know, oh, there's going to be a, like, a bad Trump tweet and want to kind of position ahead of time. Um, yeah, it could be, you know, it could be a lot. Uh, if you're gonna do it, it'd probably be the place to do it. Um, I, I don't really— like, it's, it's hard to say. For sure. Easy. These things are always hard to know for sure until you kind of like catch someone. Yeah, I guess.

Yeah, 100%.

Um, uh, what about—

okay, let's talk oracles a little bit. I don't know, so actually, uh, Omer from Chaos Labs has had a couple of good posts about this. Um, it seems like the fact that USDE was a fixed rate oracle instead of a floating oracle you know, floating rate oracle, uh, saved a lot of people a lot of money, especially on something like AAVE, right? So yeah, yeah, can you kind of explain this dynamic?

Yeah, yeah, for sure. So I, I think, right, like USD has become like a pretty big part of, uh, people have levered up a lot on it in, in DeFi space. So, right, like you had Plasma. Plasma has like these incentives out, you have a number of other incentives, and, and usually, uh, you know, USDE has like a lot of kind of big incentives. So kind of the trade there has been to deposit USDC or your other stables, or I guess other assets even, into a place like AAVE, borrow USDE against your USDC collateral, take that out, put that on Plasma, and then kind of farm the incentives. There. And you want to kind of juice that up as much as possible. And so like typically that's like looping, you know, for like most everybody knows looping these days and right. Okay, I'm going to take USD, I'm going to deposit that as collateral again. I'm going to take out USDC, I'm going to run that, I'm going to take out, lever up as much as possible. And so like typically, right, like people do this quite a bit because like USD is pretty safe relative to USDC. So, you know, you might only have like a 1% margin there, like a very small margin. And I believe on AAVE, this went way back. And, you know, AAVE is obviously the largest, largest place to borrow liquidity. And I think there was this proposal way back saying, well, should we use a market-based oracle for USDE or should we use, you know, just hardcode it to USDT? And they did hardcode it to USDT. And I think the problem is if they had used the market-based oracle, Uh, you know, on Binance, USD was trading at like 65 cents or something. Uh, so, right, like, was there even a market for USD? And like, what would that have looked like? That would have been massive amounts of liquidations, um, in the DeFi, like, borrow-lend space, which, you know, obviously would not be great. And, and I guess that in turn, though, the worst part about that is that in turn, uh, you know, once you liquidate people, you have, you know, deposit BTC, ETH deposits in there. That would have created sell pressure on the spot side, pushed the market down more, Yeah, yeah, exactly.

So I mean, wow. But yeah, very lucky that USD was hardcoded at 1, right? Because it, it, you know, knocked down to I think what, 65 cents on Binance?

65 cents on Binance. Yeah, yeah.

So that would have obviously triggered a ton of liquidations. What, um, there's a downside to this though, right? You can't just like hardcode all— yeah, the stablecoins.

Yeah, I don't know, how do you think about it? Just hardcode everything, right? Yeah, you see at like 120, that'd be great.

Oh yeah, yeah, like a fixed rate oracle is— it's kind of a double-edged sword, right? Like if something actually is insolvent insolvent, or if something actually de-peggs, you, uh, I don't know, like imagine if we had like pegged Luna and a bunch of these like lending pools. It's so—

I don't know, how do you think about that? Yeah, the market would— I mean, like, like obviously at the end of the day, like what Aave cares about is that the collateral in there, um, they can recover it, or like, you know, whoever's liquidating it can recover the value or take the value, um, there. And I, I think the argument— like, I had a post, um, even just like a few hours ago this morning about like, uh, I think he even said like, oh, probably a 1-to-1 peg isn't like, isn't great because like there's no guarantee that USD is going to be like 1-to-1 USDT for like ever and always. Um, but like a market, maybe not market-priced oracle for, uh, Athena isn't great because you actually have like reserve assets. Um, and so, right, like you should maybe have a reserve oracle or something that reflects the fact that you redeem it. And then the problem with Binance was actually, uh, I think that Binance itself doesn't have a mint/redeem function built into the platform, and the API wasn't working, so people couldn't kind of take out the USD and run kind of that arbitrage. Um, but everywhere else, like Bybit, where you do have the mint/redeem function, or Curve, which is on-chain and you can redeem, uh, USDT, right? Like, those were working fine. Like, Curve, I think, barely depegged at all, and even Bybit was only like 93, right? Or something. Um, so I think the argument here is, is that for assets where you have the kind of this very mechanical redemption process, uh, the oracle should not necessarily reflect the market as much as, like, as long as that redemption process is still working.

Yeah, yeah. Um, Doug, what's your— maybe zooming out from a lot of the details of, like, oracles and stuff, like, what, what, what's your sense of how bad this really was? I think there's, like, two sides, right? What one side is Wow, this is— I mean, this is the worst liquidation in crypto history. It's going to take a— it's going to take a long time to recover from this. The other is, you know, $15 to $20 billion in liquidations. That's not actually $20 billion that people lost, right? You could have had— yeah, you know, you could have had $1,000 in your account levered up, you know, to, you know, $20,000. You lost the $20,000, but you didn't— you didn't lose $20,000. You lost— you lost the underlying $1,000, right? So there's not really $20 billion that was actually lost. How do you think of how bad this actually was?

Yeah, I, I think that's a good framing. Um, I think I largely align with that. I think like, as you like, you see in like finance, like people— is it financial systems? Like oftentimes you have like huge losses and financial systems are fine, um, as long as the people who are losing are kind of not like too big to fail or like too interconnected to fail or like whatever, whatever you want to say. Like a bank losing money and like bank depositors losing money is like way worse than like a bunch of hedge funds. Like hedge funds like very frequently, like years, right, where like 2011, 2016, right, like where hedge funds just get like slaughtered in some trade and like it doesn't really affect the broader financial system. Like they're fine, they lose money and like maybe they risk off for a little bit. But like, I, as far as I can tell, I don't think any, like, I don't think this is like— 2022 was bad because you had like these lending, like, like you said, Celsius, these things where people thought they were super safe and then it turned out they weren't super safe. Um, I, I think when you really— stuff that's perceived as safe or super safe and then that fails, that tends to be a lot worse. This seems like there are people who are pretty far out on the risk curve who have been doing pretty well, and it's terrible for them that they kind of got flushed out. Like, a lot of people kind of wiped out, but like, these are people are pretty far out on the risk curve, and I don't think like they're really going to have a huge systematic effect.

I just want to underline that. I think that's a super important point that you just said, right? Because I think I this isn't just, hey, leverage 2.0. This isn't like, you know, we had leverage in 2021 with, you know, Celsius and Nexo and Genesis and BlockFi. We have leverage now with the perps. But the difference is you're levered up on perps, you know, you know that you're taking a risk. Now, you didn't realize that you're going to get licked if you were at 1.5, but, you know, you were like, those are, those are risk takers as opposed to someone who had their assets on, on BlockFi earning 8%. You didn't understand the risks you were taking, probably.

Yeah. I mean, I think like you heard people in 20— yeah, 2020, 2022, like talk about BlockFi like it was like a savings, like regular people, like, oh, just put a block.

I was like, I put all my savings.

It's like a savings account. Yeah. Like my bank has replaced my credit union.

Yeah. All right, Doug, we've got some questions from the Empire audience actually that people were asking me in Telegram chat. So one of them is Okay, this is a kind of a long— longer question. Said, I don't think— I said, can you guys talk about just what happened here at a really high level? I don't think it's acceptable that in 2025 exchanges handling trillions in volume simply stop functioning, causing a flash crash of this proportion. What is likely to remember— be remembered as the 1987 of crypto. It's hard to believe it got bigger than black swans like COVID, Luna, and FTX. Um, I get the industry has grown massively in size since then, but what is now a $20 billion liquidation day should not be the result of poorly managed infrastructure. Is that on purpose? Stop losses didn't hit, delta-neutral trades blown up on ADL mechanisms, etc. Counterparty risk remains real, uh, these days even more. And yesterday's events are the result of someone big going belly up. Maybe. Time will tell. Um, personally, I lost 90% of what I had, and it's my responsibility ability to hold myself accountable. But in hindsight, I thought we have made much more progress as an industry to prevent things like this from happening. Would love to just hear your comment on that.

Yeah, I mean, I think that's fair. Like, certainly, like, that's— yeah, certainly not, uh, certainly very sympathetic to that. I think a lot of people were trading and things weren't working, certain, right? Like, PerpDexys went online, uh, I think just a lot of exchanges weren't functioning. I Hyperliquid. I think Hyperliquid actually worked pretty well as far as I know, but like, right, like the ADL mechanism wasn't super well understood. Um, yeah, I, I mean, yeah, it's, it's, it's definitely a fair, fair thing. Like, it's, it sucks. I think like a lot of— especially things not working are pretty bad because it's like, like kind of mentioned before, if you— once you're in perp space, like, you can't, you can't just like turn off the system and come back like later and like everyone has their BTC and like you're fine, or everyone has their USDC and it's fine, and it's like spot Um, right, things are constantly in motion. So like, if you can't move collateral, you can't, uh, take your positions off, you're like—

you—

it's really bad being offline for a long time.

Yeah. Should, um, what one solution here would be circuit breakers, right? That's how it works in traditional capital markets, obviously. Should these major crypto derivatives markets have circuit breakers, right? And like, what that allows for you to do is like, one is arbitragers can come into the market and something like, should USD trade at $0.65, even though Athena remained fully collateralized, mint/redeem functionality was operational, but like there was this price dislocation and you just need a little bit of time and the arbitragers came into the market and pulled it back to, to a buck. The other thing is it allows you, it allows users to post more collateral, right? So give a little bit of time for people to react. Um, what do you think of this idea of circuit breakers?

Definitely sympathetic to that. I think one challenge, like crypto major challenge, is you— markets are so decentralized that even if you turn off markets in one place, uh, right, they're still going to be online somewhere, somewhere else. Um, and so, right, like traditionally in trad finance we have circuit breakers, uh, you know, the whole stock market like, right, like turns off, right? It's not like NASDAQ turns off and then like NYSE keeps running, or like a lot of things. Like, you can kind of— regulators can kind of put those rules between everyone. Um, it would be right, like, there, there are kind of nuances there. If I'm offline here but price discovery is still happening and the price is still dropping somewhere else, like, is that going to cause, you know, other problems? But generally, like, pretty sympathetic. Like, I, I think especially, like, to, to your point, when people can't even get collateral in, like, this isn't a pricing discovery issue, this isn't like a market risk issue, this is just like, I can't I can't bid like something. So I think like having circuit breakers where at least people can like move collateral around makes, makes probably a fair bit of sense for like derivative exchanges.

Yeah, I guess the counter is there's just no central clearinghouse. Like, uh, there's no—

yeah, that is just—

there's so many platforms and so much liquidity fragmentation. It's like, how— yeah, I don't, I don't even know how you could do that.

Yeah, yeah. I mean, you definitely couldn't force everywhere because you even I mean, you're going to have, you know, on the spot side, you're going to have like liquidity pools on-chain. Like it is, it is tough. Like I guess you just shut down and say other people are running and, you know, we're going to, we're going to open where we open. But yeah, it's, it's definitely a thorny problem.

Yeah. Okay. A few other questions from, from the Empire crew. This is Dan Smith.

Oh, this is good. I saw this one. Yeah.

Yeah. Who's our head of data? So Dan said, can you ask Doug about the impact of prop AMMs on on-chain market structure? Does he view this as toxic liquidity that pulls quotes when volatility spikes and risk increases? What does this mean for users? Can it be sufficiently offset with passive liquidity residing in traditional AMMs that serve as always-on liquidity? Okay, before you answer, can you explain his question for people who missed that?

Yeah. All right. So I think like this is a really good question. I actually didn't see the data until Dan posted this earlier, but yeah. And so it looks like for people like maybe haven't been following like Solana microstructure world as much, like these, uh, these kind of prop AMMs are basically, uh, they're basically like one, just one, one market maker will sit there and, and provide liquidity. And, and it looks like an AMM, but like unlike a traditional AMM where like anyone can kind of join the pool and provide liquidity, it's just one person, right? And, and they basically use like oracles. They have something that they update very frequently. So, uh, the problem with like traditional AMMs is like you kind of pick them off when the prices move somewhere else. Bad for LPs and these prop AMMs have kind of figured out a clever way to get around that. So yeah, I think like in Solana world they've taken over a lot of the spot liquidity. So this is outside Perp's world, like a lot of the spot liquidity on Solana has moved into these prop AMMs and you don't see as much volume going through Orca or Radium or kind of your traditional AMMs anymore. So like they've done very well because they're kind of— they can be aggressive about pricing stuff. Uh, I, I do agree with Dan here, right? Like, there is kind of a problem here where it's just, it's kind of like an ecosystem-level problem where these prop AMMs, because of their structural advantages, can be very aggressive about getting order flow and take it away from like traditional AMMs. But they're, they're kind of fragile, and it's just one per— like, one person is behind— or not one person, one firm is behind Solfi, one firm behind Humidify. And like, between those, those are like— you have two, so you have two firms like providing a lot of liquidity.

By firms, you mean market makers?

Yeah, market makers. Yeah, yeah, yeah. It's maybe like an open secret who the two are, but I, I won't say specifically because I might be mad at me. But, um, yeah, but like, yeah, it's kind of open secret, like these two firms behind these two market makers. Um, and, uh, yeah, like if they decide for whatever reason, uh, they're, you know, you market volatility, but hungover on Saturday morning and don't want to provide liquidity, like the market's kind of screwed.

So you're saying a platform like, like each of these AMMs basically has one market maker behind it?

And exactly, exactly. So like Humidify is just one. Like, you can't, you can't like get on, like you can't provide—

yeah, it's like a front end for a, for a market maker basically.

Yeah, exactly, exactly. It's just a front end for a market maker. Um, and so, you know, if it goes off, like it, it kind of leeches away volume from the other like traditional AMMs. And if it goes offline, like now you're kind of— you don't have the Prop AMM, you don't have the traditional AMM, so you don't have any liquidity. So like that is, that is a fair like criticism. The flip side is like they do give, you know, very, very good pricing like, yeah, during normal times, like Solana market structure is great.

Yeah. One more from, from Dan. Pretty interesting to see the significant spreads for ETH/USD across Ethereum Base and Arbitrum. Only, and only looking at the USDC/USDT pairs, the price on base and Arbitrum basically mirrors Binance and Coinbase, while the price on Ethereum mainnet bottomed lower and stayed depressed for longer.

Uh, I actually didn't see this. Well, I mean, like, here's the reality, like, mainnet isn't scalable. Um, I don't know what, what was like transactions on mainnet, uh, Ethereum mainnet, where I don't know, $1,000 at one point, uh, like to do a swap. So like, yeah, the market's gonna be— the market is not going to be efficient like during those periods, right? Because even if there's a— even there's an arbitrage, like you got to pay your gas fees, um, to do it, let alone, uh, right? So I mean, like, this is like kind of— I, you know, this is kind of like what happens when you try to run, you know, very huge markets on a chain that can do like 12 transactions. Per second.

Yeah, yeah, yeah. Fair enough. Um, all right, let's move, uh, maybe thinking about the future a little bit here, Doug. How, um, how many— like, do, uh, this idea of like dead bodies floating to the surface here, do you think anyone blew up? Um, would it be a market maker? Would it be a delta-neutral fund? Would it be a, uh, centralized exchange? What's, what's your take on this?

I think a centralized exchange would be pretty unlikely. I don't think, right, like by this, you never know. I guess you never know like where the bodies are hiding. But like as far as I could tell, like, right, we don't like people aren't doing like FTX style stuff where they're like lying about reserves or anything like that. And if they are like, or so you think, or something, if they are, we're in trouble. So it doesn't even matter. Like, this isn't going to— yeah. So, so I think I guess knock on wood, hopefully. Yeah, I think a lot of like, probably the good thing about like Carnage and PerpDex space is like a lot of the bigger players weren't really that involved in PerpDex because for various like regulatory reasons. Um, so I think like you have a longer— not a good thing, like, but like you have a longer tail of kind of market makers and trading firms on PerpDex. Um, and so like if, if someone— probably some did fail, but like I don't think anyone like gigantic get, as far as I can tell. Um, as far as Abdel, right, you never know, I guess, until stuff surfaces.

When would it surface in your mind?

Yeah, it would probably be— if I had to guess, um, I think you'd see the nice part when things are on-chain is you can kind of see what people have lost. But if, if people had like credit arrangements, like this is kind of going back to 2022, like I don't know what these firms credit a range. So someone's doing, you know, has $100 million on Hyperliquid and maybe they're down $30 million, like at least on-chain they look fine. Um, but you know, maybe this is the firm that borrowed $90 million, you know, from someone else to provide it. So like they would be kind of in trouble, uh, you know, when they get the phone call. It's really the stuff that takes a while or is like stuff that has to go through like legal, the legal system. So, you know, this is unfortunately stuff we, we can't really see.

Yeah, yeah, yeah. It'll be interesting. There's probably some like delta-neutral funds that, you know, because oftentimes these delta-neutral funds are not as well known as the like Panteras and Dragonflies of the world. They're, uh, they're quite large, but you know, oftentimes just they don't do— they don't do the marketing that the VCs do. So yeah, yeah, we'll see. Um, anything else we haven't talked about, Doug, that you think is interesting from this?

Yeah, that's a good, uh, it's a good question. I mean, like, I, I think the most interesting thing here is just it's, you know, this is really kind of a good chance to like explore how, uh, you know, how like ADL or various like kind of what the limits of derivatives are. And like, this is like kind of a topic people don't think about in normal times because derivatives are happy, but like, you know, the whole waterfall thing. Um, I think we covered that pretty well, but that, that to me is just kind of the most fascinating part of this. And kind of the cool part about crypto is you can experiment a lot quicker.

So it's kind of interesting to see who are the winners of this crash, would you say?

I don't know. This is like— I think a lot of times in crypto you think there's like stuff like this happens, uh, but it's just kind of bad for like— especially like we're so hyper online, you're like, oh, you know, so-and-so did better, someone else did worse. But like, for the average like retail user who like, you know, is— has a day job, actually something outside crypto, like it just doesn't, it doesn't look great, um, for anybody, I think. So I don't know, I actually think this crap—

like people don't— a lot of my like, you know, when FTX blew up, like a lot of my normie friends were like, yeah, oh my God, like FTX blew up. Or even when Luna, they're like, oh my God, I heard there's this like big scam in crypto. Because there's no— like I don't have people being like, oh my God, like Binance's oracles were Uh, you know, mismanaged. Uh, oh my God, the ADL system on Hyperliquid, like, seems pretty intense. Like, I, you know, actually, people— a lot of people, my friends, didn't even know that this, that this happened. Like, there's very little text.

Um, yeah, that's actually true. Yeah, yeah.

Um, so we'll see. Uh, anything else?

No, I think that's, uh That's, that's a good conversation. We covered a lot.

Good. Doug, what are you working on these days?

Yeah, so we're actually, we're actually building a Perp DEX, um, at, uh, at Ambient. We were a spot AMM for a while. We're doing Perp. So I don't know if it's good or bad we weren't live, uh, for this, but at least we get to, we get to learn a lot.

Lucky you get to learn. So what do you learn? Yeah, someone building a Perp DEX, like what's the takeaway here?

I think we're thinking a lot about like this whole ADL thing, kind of what we talked about, uh, where like, how do you— like, you do have to ADL people, but is there a way for people to kind of, uh, like, especially for delta-neutral people, is there a way to, like, you know, do smarter criteria? Um, or like, people say, hey, like, either, you know, flag it, uh, you know, opt into a system with, like, better protection, and I think keep everything transparent. So we're thinking a lot about that, especially after this. The, uh, the other component is I think we're also thinking a lot about an insurance— like, insurance system. We're kind of always planning to do that. But no, like, as far as I know, no, like, major on-chain Perp DEX really has an insurance fund. I think, like, this kind of reveals that you need somewhat of an insurance buffer in there between, uh, between the vault and, and everything else. So yeah, it's, uh, it's, it's fun though. Like, Perp DEX is— there's so many different, like, mechanisms you can go into in Perp DEX space. So it's been really cool kind of work on it.

We didn't talk about LIDR. What happened with LIDR? What? It sounds like Lighter's mechanism broke or something like that.

Uh, well, they went— a couple of things. It went offline for a few hours, which is, uh, not great. No, you can't do that. Um, I think they had less ADL, so like people were, you know, people were, uh, the, the Lighter maxis and the HL maxis are kind of battling on Twitter now. And yeah, they say, well, like like, uh, you know, the ADL is necessary. And later Maxi say, well, uh, you know, the, oh, the later vault, their vault lost a lot of like 5% or something, um, in one day, which is, which is not great. Um, because vault's supposed to be kind of a super safe product. Uh, and people are saying, well, the flip side is they don't have as much ADL. And I think like people are kind of oversimplifying, uh, the trade-offs here. But it does seem like the Hyperliquid has kind of moved away from this system of providing liquidity, through the vault and Lido is still providing a lot of liquidity. So, so I think like one flip side there is like their system did kind of remain more liquid at the bottom of the LIX there. But, but yeah, like obviously people lost money because of that.

Yeah. All right, Doug, appreciate you, man. This is great. Thanks for breaking it all down for us. Yeah. Rooting for you. And so people can't trade on Ambient yet.

No. So we're building on Fogo, which is kind of a new high-speed network. So should be around next month.

Nice.

Yeah. So yeah, check out Fogo, check out Ambien at FogoChain and at Ambien_Finance, our Twitter handles.

Cool, Doug. Appreciate it. All right, everyone, thanks for listening. I think tomorrow we are releasing an episode with the Kalshi founder, Tarek. Um, so that should go live. Oh, let me get— sorry, I'm getting some calls. Uh, yeah, that should go live tomorrow. Um, and then actually the big acquisition, because of the market turmoil, the big acquisition, uh, recording that we were going to do got pushed to next week. So you'll have to stay tuned for that. But yeah, thanks for listening to Doug and me break down this, uh, all the market turmoil, and enjoy Calci episode tomorrow. See you, folks.

Thanks for having me.