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ABCDE: Why do we invest in Gravity?

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Gravity, a hybrid on-chain trading platform, combines the user experience of Cex with the fund security of Dex.

Original author: Lao Bai, partner of ABCDE Capital Investment Research

Gravity is a hybrid on-chain trading platform - Hybrid Exchange (Hex), which combines the user experience of Cex with the fund security of Dex. Gravity has taken over the relay baton from Dydx leaving Starkex and will become the "new Dydx" on Starkex, and will launch its testnet in Q4.

ABCDE has invested in Gravity in Series A round, with participation from other institutions such as Jingwei China, Delphi Digital, C² Ventures, etc.

One, the way out for on-chain derivatives

In the era of EtherDelta in 2017, spot trading on the chain was "awkward". Although the banner of decentralization was held high and the slogan "Not your Key, not your Asset" was shouted, the body was very honest, and 99.9% of the transactions occurred on centralized trading platforms.

Later, Uniswap emerged and revolutionized the AMM paradigm. After several years of development, the trading volume of DEX relative to CEX has climbed from less than 1% to 10%-20%. This has also established the duopoly of Uniswap and Curve in the DEX market. To break through in the spot trading field, perhaps only a new chain in the wilderness period can seize the opportunity.

On the derivatives side, compared to the red ocean of spot trading, it is still in a blue ocean to red ocean transition period. The proportion of on-chain derivative trading in centralized trading platforms is only 1%-2%, similar to the starting point of the Dex Defi Summer period for spot trading. Although GMX and DYDX seem to occupy a similar duopoly position like Uni+Curve, their dominance is completely incomparable. This can be seen from the recent releases of GMX V2 and DYDX V4, which have shown no changes in both coin price and trading volume.

So the question is, what is the direction of on-chain derivatives?

The fundamental reason why on-chain derivatives have always been popular but not crowded is that they cannot provide a differentiated experience from Cex. Uniswap relied on "unlicensed shanzhai" (commonly known as "tu gou") and liquidity mining to start, while Curve occupies an absolute advantage in the ultra-low slippage of stablecoin trading, bills and collateral assets (such as stETH) liquidity pools, innovative veToken, and other aspects that Cex cannot provide. However, the characteristics of derivative Dex can only provide futures or options services for mainstream or blue-chip assets, and cannot form a real differentiation from Cex. Under the premise that performance and liquidity are not as good as Cex, ordinary users who are willing to switch from Cex to Dex are often few and far between, except for Degen or whales who attach great importance to security and financial autonomy.

In other words, in order to access features that are not available on Cex, users can come to the blockchain and "incidentally" experience decentralization. However, they will not sacrifice the performance and experience of Cex for the sake of "political correctness" in decentralization.

Why not try a different approach? If you can ensure the security and autonomy of your assets through decentralized means without sacrificing the performance and experience of Cex, would users be interested? Is this the breakthrough that could make on-chain derivatives a reality?

二、 FTX Thunderbolt - A Suitable Assist Opportunity

Security issues never receive true attention until the moment they occur.

No one could have predicted that FTX, the world's second-ranked cryptocurrency exchange, could be the best overall trading platform in terms of user experience. Within a few days, it collapsed, causing significant losses to many users and institutions. The security issues of Cex have finally attracted the attention of users, and the phrase "Not your Key, Not your Asset" has once again sparked discussion.

The derivatives industry has finally ushered in a new paradigm - Hybrid Exchange (Hex).

Three, Hybrid Trading Platform - Gravity

Overall, as a hybrid trading platform, Gravity is positioned more towards Cex. However, compared to Cex, it has one core mechanism that is different - Self Custody Trading, which is the fund self-custody mentioned earlier. For Degen, it is easy to use Metamask or Wallet Connect for trading, similar to DYDX or GMX. For those who are familiar with Cex and not very familiar with new users on the chain, Gravity will provide a very intimate experience similar to Web3Auth email registration to generate MPC Wallet experience, eliminating the trouble of managing mnemonic words and private keys. Minimize the entry threshold while ensuring the security of self-owned funds.

And compared to common DEXs like DYDX and GMX, Gravity has many distinctive features. The most significant ones include:

· Transaction Privacy - Current on-chain derivatives are essentially "transparent", Gravity uses Validium technology to ensure that each user's transactions are not visible to other users on the chain.

· High-performance Orderbook - A highly performant off-chain CLOB (Central Limit Order Book) matching system, capable of achieving up to 600KTPS and 2ms latency, providing a trading experience similar to that of Cex.

· User Proforlio Management - the system provides a range of user panels and management functions that are often only available on centralized derivative trading platforms, including SPAN analysis, portfolio margining, and cross-market hedging.

· Simultaneously providing options and futures - Typically, on-chain derivative options and futures are completely different projects. Gravity, on the other hand, leans towards the Cex style by simultaneously providing options and futures contract trading, achieving a one-stop platform for derivatives.

· Embrace Regulation and Compliance Actively - Strict KYC and AML Support

Four, Integration of Professional Finance and Web3 Experienced Team

Other than the product itself, the team and market positioning are also major factors in our decision to invest in Gravity.

· The team itself has both traditional "financial old guns" such as Goldman Sachs and DBS Bank, as well as Crypto "native OGs" such as Bybit and OKX.

· The team is rooted in South Korea and has a deep understanding of the South Korean market. The trading enthusiasm in the South Korean market is also significantly higher than in other countries. The product initially radiated from the South Korean market, making the cold start relatively easier.

· Gravity will launch on Zk-Sync. For ZK-Sync, it has recently been plagued by various dog rug and lack of original projects, and urgently needs an innovative and high-quality project to revitalize the entire ecosystem. GMX achieved Arbitrum, and we see the potential for Gravity to lead the Zk-Sync ecosystem.

· In the previous round of Defi Summer, spot trading was the main focus, and on-chain derivatives were basically absent. In the next bull market, on-chain derivative trading, especially innovative hybrid trading platforms that combine the advantages of Cex and Dex, will inevitably occupy a place.

The team will launch the testnet in Q4 this year and the mainnet in Q1 next year. We are very excited about the hybrid trading experience that Gravity will bring. We have taken over the baton from Dydx, who left Starkex, and will become the "new Dydx" on Starkex, bringing new chapters to on-chain derivatives.