This is episode #02 of Trader Spotlight, a series on trading insights & strategies used by well-known cryptocurrency investors.
On May 14th, we hosted a live AMA Spotlight with Andrew Kang. Andrew has a wealth of expertise in crypto through prop trading, venture investing, mining, and more. He has his hands in almost every corner of the crypto markets!
In these AMA spotlights, our goal is to bring you the best insights and commentary from professional crypto traders, market makers, and leading industry experts!
Below is a recap of the AMA with Andrew Kang.
To get started, we’d love to hear a quick background about yourself. What got you into crypto, investing, and trading? When did you have the “aha” moment? Would love to hear your story.
For crypto, my first real exposure was probably in 2013. It was around the point when Dogecoin first started and it was blowing up on Reddit which I frequented. The fervor around Dogecoin was real and what was interesting was that a “Dogecoinmarkets” subreddit where people bought Dogecoin OTC also emerged. The thing was that people were bidding 2x-3x over market price since most didn’t have access to coinbase/onramps.
I didn’t either at the time, and Coinbase applications were taking days/weeks to approve + long banking transfers, so what I did was find a sketchy website that accepted credit cards + instant BTC purchases to start arbitraging the Dogecoin BTC markets. Made maybe $5k in a two weeks which was a lot for me at the time in college until the arb started to go away
What do you make of the difference in markets between the American and Asian lately? What is causing the divide between one being a buyer and one a seller?
Asia is such a big market and I think all of the countries have their own different sentiments, but I’ll focus on China which is the largest. From my friends there, the sentiment seemed to be bearish/neutral on this entire runup. Many miners and traders got really wrecked on Black Thursday, so they weren’t sure there would be new buyers in this market. America seems to really start to pick up on BTC as a SOV and the Paul Tudor Jones news is resonating a lot.
Also, I’ll say that it’s interesting that Okex and Huobi futures curves have consistently been more backwardated. My suspicion is that miners are now being a lot smarter about hedging than previously as black thursday was a huge slap in the face, but haven’t validated this widely yet
Thoughts on the taxonomy of DeFi trading instruments? Do borrowing, options, perps, etc all exist in parallel? Who eats whose lunch and how much?
The markets are definitely related to each other and there are going to be traders out there that interact with all 3. For those, we are going to be constantly reevaluating what trades offer the best yield, and where the best R/R trade is if directional. Borrowing rates are usually a reflection of the opportunities in the futures markets for basis trades.
What’re the main differences between traders in the east and traders in the west? Are some products more or less popular? Any differences in mindset?
Good question. I’m not sure I am the best person to answer this as I know there are a ton of trading funds in deep China that pop up all the time and most of us have never heard of. Many of which are trading with sizable capital. I think generally they use a lot more leverage. I know of two western funds that blew up on Black Thursday, but many more large punters in China that blew up then.
A lot of the same analytics products are popular with them! I see skew, tradinglite, etc. screenshots whenever I pop into those chinese wechat groups.
Where do you see tokenized BTC on ETH’s chain (like wbtc), by the end of the year?
I’m most bullish on wBTC out of all the tokenized BTC projects. The reason is that trust minimized projects like renBTC & tBTC aren’t economically scalable. imBTC seems to have less friction in scaling than wBTC, but it’s going to be a lot harder for western projects & players to trust asian projects. Tokenlon (imBTC parent) isn’t as well known or trusted as BitGo (wBTC custodian) for most.
Converting from BTC to wBTC has a lot of friction right now – it took like 1 hour + a lot of fees + slippage last time I did it, but a lot of projects like Ren & Thorchain have apps in development to turn this into a 1 step process which will alleviate a lot of friction.
You can read more about my thoughts on the tradeoffs of different tokenized BTC projects here:
Also what’s interesting is that the supply of wBTC pretty much doubled in one day on May 13th.
Can you provide any color on who might be depositing USD to buy USDT? There’s been a crazy surge recently, mostly originating from Asia perhaps. Are these OTC desks, miners, hedge funds, businesses? Use-cases? Any hypotheses?
USDT supply has definitely been exploding. I think generally it’s the arbitrageurs (including OTC desks) and not the holders/users of USDT that are doing the actual depositing. Combination of OTC desk, miners, businesses, and normal people. In Asia, you see USDT being used for cross border remittance alot, and even some traditional import/export businesses are making it a standard part of their business. Main advantages are faster & cheaper remittance, and also tax evasion for some businesses in Asia.
I use USDT & USDC in everyday life. Financed a hand sanitizer bottle manufacturing business opportunity in Indonesia by sending USDT and having a local OTC desk convert to IDR. Invested in a US based Biotech by sending USDC to VC friend that led the deal
Why don’t we see enough adoption in the Asian market for DeFi? Lack of translations? Reluctance to custody one’s own funds?
The excitement over DeFi is growing pretty quickly. Hard for many of us to see since sites like DeFipulse.com tend not to track asian defi projects. dForce was $20M+ TLV before the exploit, imBTC almost overtook wBTC a few months back, and I remember Rune Christiansen even saying that China was surprisingly their largest market for CDPs when they did analysis on web traffic data. Tokenion DEX (on imToken) gets some substantial volume from what I remember – surpassing many DEX’s we’ve heard of in the west.
If you were to allocate a portion of your portfolio towards optimizing for crypto dollar yields, which platforms and strategies would you focus on?
I think perps will still be dominant and their volumes will grow since delta = 1 is just easy to understand, but options definitely have a lot more room to grow. In legacy finance, options:futures volume is something like 2:3 and in crypto, options volume is only low single digits % of futures/perps
What market making opportunities do you see in dYdX? Do you see market makers providing liquidity across multiple DEXes or do they tend to focus on one or two?
From the market makers I’ve tracked, it looks like they are market making across multiple DEX’s. E.g. Oasis in addition to dYdX. The books are obviously not as liquid as CEX’s and the infra to market make is not as easy to set up yet and the whole DeFi thing is still relatively new compared to Crypto CeFi. Whenever a market is new & inefficient, there’s opportunity. Even some of the older DEX’s that have OK volume still have really wide spreads.
Would love to get your thoughts on what kind of token models and growth hacks you have seen as effective for bootstrapping liquidity/early users.
Generating value for token holders while bootstrapping network growth is definitely the most important balance to strike for token projects. I think previously you saw a lot of token models detract from the network more than they added to it, but models these days are getting a lot better.
What’s interesting are the token models that essentially provide subsidies via token inflation for network participants that contribute positively and where their actions result in network effects. E.g. Kava & Synthetix.
Synthetix sETH pool becoming the largest Uniswap pool (1/3 of total Uniswap TLV at one point) is a testament to the effectiveness of the model. Made it 100x easier for people to go in and out of synths.
How large really is the market for those who want decentralized exchange infra? How would you respond to the argument that DeFi isn’t really innovative and is just rebuilding the traditional financial system on crypto rails?
I think the two important factors that DeFi has over CeFi is:
2. Regulatory Arbitrage
People tend to focus on self custodial finance as something really important, but I think that’s overplayed and the market for that is small. Projects whose only differentiator is the self custody aspect have generally failed to get any traction. The fact that these decentralized financial systems are able to interact with each other using the same database allows for a lot of interesting things though. For say JP Morgan & Apple to collaborate on a financial product, it’s extremely friction heavy, but is seamless in DeFi.
Regulatory arbitrage is also huge. And will be even more important when regulators crack down harder on crypto exchanges. It’s why Bitmex, deribit, etc. have started to be more restrictive recently. Right now, its difficult for most US people to trade crypto options for example, but they could always use DeFi apps as a get around.
How does contango/backwardation affect your trading strategies?
From a directional trading standpoint, deep contango or backwardation is one of the indicators that can tell us if we’re overextended or not in one direction. There are a lot of yield generating strategies you can take advantage of when curves are in contango/backwardation.
Do you think USD Tether should be supported more in DeFi?
This will probably make some people mad, but yes. It’s an order of magnitude more liquid than USDC/DAI and there’s obviously demand for it. Look at how quickly the USDT pools in Aave and Curve grew once they were added and that’s all you need to know about the demand
What’s better… a 30% return in a bull market or a 30% return in a bear market?
30% in a bear – the majority of people aren’t generating any returns in a bear. But bull/bear markets are starting to look less like past ones (i.e. black thursday) since we are seeing a secular change in crypto markets in general, so be careful out there!
dYdX is the most powerful open trading platform for crypto assets with spot, margin, and perpetual markets.