Written by: Lao Bai, Investment Research Partner at ABCDE Capital
GRVT (Gravity) is a hybrid on-chain trading platform - Hybrid Exchange (Hex), which combines the user experience of Cex + the fund security of Dex. Gravity will become the leading derivatives trading protocol on zkSync, standing on the same level as Arbitrum's gmx and Dydx, which originated from Starkex, and will be launched on the testnet in Q4.
ABCDE invested in Gravity in the seed round. Other institutions participating in this round include Matrix Partners China, Delphi Digital, C² Ventures and others.
1. The way out for on-chain derivatives
In the era of EtherDelta in 2017, spot trading on the chain was "awkward". Although it held the banner of decentralization and shouted the slogan "Not your Key, not your Asset", its body was very honest, and 99.9% of transactions took place on centralized trading platforms.
Later, Uniswap emerged and revolutionized the AMM paradigm. After several years of development, the spot trading volume of Dex relative to Cex has climbed from less than 1% to 10%-20%. At the same time, it also established the Dex situation of the duopoly of Uniswap and Curve. If the new Dex wants to break through the siege in the spot field, perhaps there is only one chance left for a new chain in the wilderness period.
On the derivatives side, compared with the red ocean of spot trading, it is still in a transition period from blue ocean to red ocean. On-chain derivatives trading accounts for only 1%-2% of centralized trading platforms, which is similar to the starting point of the spot Dex Defi Summer period. Although GMX and DYDX seem to occupy a duopoly similar to Uni+Curve, their dominance is completely incomparable, as can be seen from the recent release of GMX V2 and DYDX V4, which has not changed in either the coin price or the trading volume.
So the question is, where is the direction of on-chain derivatives?
The fundamental reason why on-chain derivatives have always been popular but not popular is that they cannot provide a differentiated experience from Cex. Uniswap started out by relying on "unlicensed copycats" (commonly known as local dogs) and liquidity mining, while Curve has an absolute advantage in ultra-low slippage in stablecoin transactions, liquidity pools for bills and pledged assets (such as stETH), and innovative veTokens. These are services and experiences that Cex cannot provide. However, due to the characteristics of derivatives, the derivative Dex can only provide futures or options services for mainstream or blue-chip assets, and cannot form a real differentiation with Cex. Under the premise that the performance and liquidity experience are not as good as Cex, there are often very few ordinary users willing to switch from Cex to Dex, except for Degen or whales who attach great importance to security and financial autonomy.
In other words, for functions that cannot be obtained on Cex, users can come to the chain and "decentralize along the way." However, they will not give up the performance and experience of Cex for the sake of "politically correct" decentralization.
Let’s change our thinking. If you can make your assets more secure and autonomous through decentralized means without giving up the performance and experience of Cex, will users be tempted by this? Is this the possible breakthrough for on-chain derivatives?
2. FTX crash - a suitable time to assist
Security issues are never taken seriously—until they occur.
No one would have expected that FTX, the world's second-ranked crypto exchange, which may be the exchange with the best overall trading experience, would collapse within a few days. Many users and institutions' funds were implicated and suffered heavy losses. The security issues of Cex finally attracted the attention of users, and Not your Key, Not your Asset once again sparked heated discussions.
The derivatives field has finally ushered in a new paradigm - Hybrid Exchange (Hex)
3. Hybrid trading platform - Gravity
In general, as a hybrid trading platform, Gravity is more like Cex, but compared to Cex, it has a different core mechanism - Self Custody Trading, which is the self-custody of funds mentioned above. For Degen, you can easily use Metamask or Wallet Connect to trade, which is close to DYDX or GMX. For new users who are familiar with Cex and don’t play on the chain, Gravity will very considerately provide an email registration and MPC Wallet generation experience similar to Web3Auth experience, eliminating a series of troubles such as mnemonics and private key management. Minimize the entry threshold while ensuring the safety of funds.
Compared with common Dex, such as DYDX, GMX, etc., Gravity is much more differentiated, such as the main features
Transaction privacy - Current on-chain derivatives are basically "transparent". Gravity uses Validium technology to ensure that each user's transactions are invisible to other users on the chain.
High-performance Orderbook — Ultra-high-performance off-chain CLOB order matching system, which can achieve up to 600KTPS and 2ms latency, basically consistent with the Cex trading experience
User Proforlio Management — The system provides a series of user panels and management functions that are often seen on centralized derivatives trading platforms, such as SPAN analysis, portfolio margining and cross-market hedging
· Provide options and futures at the same time - Usually on-chain derivatives options and futures are completely different projects. Gravity also tends to be CEX-style in this regard, providing options and futures contract trading at the same time, making it a one-stop platform for derivatives
Actively embrace regulation and compliance—strict KYC and AMP (anti-money laundering) support
4. A team integrating professional finance and Web3 experience
In addition to the product itself, the team and market positioning are also a major factor in our decision to invest in Gravity
The team itself comes from traditional "financial veterans" such as Goldman Sachs and DBS Bank, as well as Crypto "native OGs" from Bybit and OKX
The team is rooted in Korea and is very familiar with the Korean market. The trading enthusiasm in the Korean market is also significantly higher than that in other countries. The product radiates outward from the Korean market at the beginning, and the cold start is relatively easy
Gravity will be launched on Zk-Sync. ZK-Sync has been plagued by various Rugs and lack of original projects for some time, and urgently needs an innovative and high-quality project to revitalize the entire ecosystem. GMX made Arbitrum a success, and we see the possibility of Gravity leading the Zk-Sync ecosystem.
In the last round of Defi Summer, the main focus was on spot trading, and on-chain derivatives were basically absent. In the next round of bull market, on-chain derivatives trading, especially this hybrid innovative trading platform that combines the advantages of Cex and Dex, will definitely occupy a place.
The team will launch the testnet in Q4 this year and the mainnet in Q1 next year. We are very much looking forward to the hybrid trading experience that Gravity will bring. It will take over the baton from Dydx leaving Starkex and will become the "new Dydx" on Starkex, bringing a new chapter to on-chain derivatives.