Ming Wu, a former Goldman Sachs trader and crypto founder, explains why he launched a decentralized derivatives exchange that allows investors to speculate on interest rates. He also shares two key trends in DeFi and five altcoin projects he thinks have potential in his portfolio.
Transition to the crypto market and the birth of Strips Finance
In a trading career that spanned high-frequency trading firm Goldman Sachs and blockchain firm Paxos, Ming Wu has dealt with everything from stocks to stock index futures and from there to cryptocurrencies. However, it is decentralized finance or financial activities automated by software that really attracts the trader. In an interview, Ming Wu says:
I understand that DeFi is one of the best use cases for this technology and is probably what Satoshi envisioned when he created Bitcoin as a digital currency to serve a digital financial infrastructure.
He first engaged in DeFi through a popular investment strategy called yield farming, in which traders generate potentially high returns by staking or lending crypto assets. While yield farming can produce yields as high as three-digit annual percent yields, it is fraught with risks such as volatility, permanent loss, carpet pulling, hacking, and fraud.
Potential dangers did not go unnoticed by Wu. Soon after, crop farming was frustrated by the lack of places where it could easily and conveniently maintain its returns. “I spent a few months trying to find various projects that could build something to maintain returns and trade returns, and I came up empty,” he says.
This is how Strips Finance was born, claiming to be the world’s first decentralized interest rate derivatives exchange, allowing investors to swap, speculate and hedge interest rates. Built on the Ethereum layer-second network Arbitrum, the exchange serves as a venue for trading and pricing interest rates.
Access to the interest rate swap market via DeFi
An experienced trader, Ming Wu is well aware of the importance of interest rate swaps in traditional finance. These OTC interest rate derivatives, which allow traders to exchange one set of cash flows for another, reached a staggering $6.5 trillion daily volume in 2020, much of it attributed to hedging and speculators, according to Strips Finance’s whitepaper. Ming Wu states:
It is the most critical financial market in the world, yet most people do not have the ability to participate in it. The interest rate market has always had a very high barrier to entry and only ISDA chartered institutions and fund managers are privileged to participate in this market.
According to Ming Wu, Strips Finance users can trade, speculate or hedge interest rates on DeFi lending platforms and funding rates on centralized crypto exchanges to expand access to the interest rate market. He adds that the team is also working on adding the safe overnight financing rate (SOFR) and potentially the Fed Funds rate.
Trading interest rates is no easy task, even for the most mathematically minded trader. Ming Wu says that Strips Finance, which was built with the philosophy of ‘simple complexity’ in mind, aims to abstract all the complexities of interest rate swaps and leaves a simple interface for users.
Of course, as with all DeFi protocols, investors run the risk of heavy losses if their bets on interest rates don’t pay off. Their positions can also be liquidated if the margin margin ratios fall below the minimum. Other risks may also come into play, such as increased regulatory scrutiny of DeFi loans in the US.
2 DeFi trends and 5 potential altcoin projects
Despite a number of new product launches in the DeFi space, many blue-chip tokens in the industry have seen steep declines since hitting all-time highs. Meanwhile, the total value locked in DeFi apps also fell to $208 billion from $256 billion in December, according to DeFi Llama.
“I don’t think too much about the current market price because we’re in the area to build on over the next 5 to 10 years,” said Ming Wu, adding that the firm needs to work on it after raising $8.5 million last year from Multicoin Capital, Sequoia Capital India, Fabric Ventures and Morningstar Capital. He adds that there is a lot going on.
Rather than actively trading these days, he is keeping a close eye on the changing trends in the DeFi space. What caught his attention is that the on-chain main brokerage that protocols like Gearbox Protocol (GEAR) are trying to create is a ‘much needed service’, he notes. Another notable trend is the continued growth of fixed-rate lending and borrowing, which more people think will seek out as the industry grows.
In a sign of his high faith in DeFi, Ming Wu’s crypto portfolio consists of altcoin projects he calls ‘the stalwarts of the DeFi ecosystem’, including Aave (AAVE), Compound (COMP), and Uniswap (UNI). Ming Wu also holds Bitcoin (BTC) and the leading altcoin Ethereum (ETH) in his portfolio, as well as STRP, the native token of his own trading platform Strips Finance.