Michael Safai: High Frequency Crypto Trading - [Web3 Breakdowns, EP.40]

This is Eric Golden, and my guest today is Michael Safai. Michael is the managing partner at Dexterity Capital, a high-frequency trading firm that trades billions in crypto every day. We discuss market neutral trading strategies, the challenges of high-frequency trading in crypto compared to tradfi, and the pros and cons of trading on DEXs versus centralized exchanges. Please enjoy this conversation with Michael Safai

For the full show notes, transcript, and links to the best content to learn more, check out the episode page here.

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Show Notes

[00:02:07] - [First question] - Pivoting away from law and winding up in crypto

[00:04:45] - A thumbnail sketch of Dexterity and what a proprietary capital firm is 

[00:06:08] - The juxtaposition between TradFi and DeFi in high frequency trading

[00:09:13] - How non-standardization is as much an opportunity as it is challenging for builders

[00:11:18] - Whether or not he plans on managing money for outside capital 

[00:12:43] - A high level overview of running a market neutral firm in the crypto space

[00:14:24] - What a retail trader would need to take advantage of their arbitrage strategy

[00:15:20] - Strategies to deploy to reduce volatility in crypto at a microstructure level 

[00:16:35] - How much large firms are trading against each other and their market structures

[00:17:13] - What perpetuals are and trading them as a security  

[00:18:53] - How he’d interpret Ethereum’s negative funding rate during the merge

[00:20:29] - Whether he’s seeing traditional firms trying to get into and staying in crypto

[00:22:07] - Top data and indicators to get a sense of the healthiness of a market 

[00:24:39] - His high level thoughts on web3, NFTs and new mainstream assets

[00:26:04] - Pros and cons of a centralized exchange versus a DEX

[00:28:51] - Thoughts on the code is law versus trading philosophy

[00:30:46] - Some crazy stories from his early days of trading on DEXs 

[00:32:34] - The level of difficulty to getting alpha today compared to in the early days

[00:33:55] - The different game of trading on DEXs versus centralized exchanges

[00:35:15] - How to find an edge when everyone’s cards are face up 

[00:35:59] - His approach to diligence and analyzing an investment firm like his to invest in 

[00:37:10] - What good regulation would look like to minimize public skepticism 

[00:38:46] - How he looks to recruit talent and managing a global workforce

[00:40:38] - Staying on top of all of his teams and what’s going to happen next for Dexterity

[00:41:26] - Managing risk in automated systems when unexpected events occur 

[00:43:11] - Where we are in the cycle of standardization and what it means for finding returns

[00:45:34] - Binance shifting to a single stablecoin affecting liquidity for market neutral firms

[00:47:23] - Leverage six months ago compared to today and what it means going forward

[00:48:44] - What he’s most excited to see built over the next six months and six years

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