*New* Crypto Unstacked Trader's Edition
Deep Dive: Cumberland | Lessons Learned Growing Up as a Trader Within DRW's Global Powerhouse

December 29, 2021

Deep Dive: Cumberland | Lessons Learned Growing Up as a Trader Within DRW's Global Powerhouse
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Paul Kremsky is the Global Head of Business Development at Cumberland, the Chicago-based cryptocurrency trading unit of DRW Holdings LLC.


Sudhu Arumugam is the host of Trader's Edition. 

We unstack:
- Getting started at DRW Trading 
- Opening up the DRW Singapore office focusing on automated trading
- Learning about crypto from Mike Komaransky 
- Transitioning from DRW Trading to Cumberland
- From trader to relationship manager/business development
+ more!

Follow our Guest
Cumberland (Website)

This episode is presented by CoinFLEX.

CoinFLEX is the Home of Crypto Yield and committed to providing institutional and retail investors an easily accessible platform to earn and trade crypto. CoinFLEX creates innovative solutions to bring investors and markets together through simple and intuitive products such as flexUSD, the world’s first interest-earning stablecoin, and AMM+, the most-capital efficient automated market maker in the world. Visit www.coinflex.com for more information. 

DISCLOSURE
The Crypto Unstacked Podcast is meant for informational purposes only and should not be considered as financial or investment advice. Nothing expressed in this podcast should be construed as a solicitation, recommendation, endorsement or offer to buy or sell any financial products. 

#Cumberland #DRW #CryptoUnstacked

Transcript

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Sudhu Arumugam (1m 35s):
Good morning, Paul. Thank you for joining Crypto Unstacked.

Paul Kremsky (1m 38s):
Yeah. Thank you so much for having me. I'm a longtime listener first time caller.

Sudhu Arumugam (1m 43s):
Oh, fantastic. But those you don't know. Paul Kremsky, head of business development, global head of business development for Cumberland DRW, which is one of the largest trading firms, not just in the traditional finance side, but also in, in crypto. And we'll go in into his background and the business and everything that's going on during this pod. Paul, if I can just start with your background, you studied in Chicago, is that correct?

Paul Kremsky (2m 8s):
Yeah, so I, I went to the university of Chicago and while I was there, I studied math and a lot of people, when they go to U Chicago, they end up studying economics as well. So I did a double major when I graduated. You kind of have this choice. If you're in the econ department at U Chicago, the way you think people put it to you, they say, oh, you majored in econ. Are you going to go into iBanking? Or are you going to go into consulting? Like though that's the universe of choices. Neither of those really appealed to me. And when I was at the intern career fair, I came across the RWS booth and it was the first time that I had considered going into trading and the idea not just of trading, but of prop trading, it really compete, appealed to the competitive, my competitive nature.

Paul Kremsky (2m 53s):
I was an athlete in college. I wrestled. And so the idea of trading was very appealing. At the end of that year, I had a, a couple of different offers in the trading space and one of them was from DRW and then there were several from bank trading desks. And the pitch from the banks was essentially, you come work here and then two years later you can go get whatever job you want. And I said, okay, well, that sounds great, but what job am I going to want to do in two years? And when I really thought about it, the job at DRW was really kind of the job I was looking for. And so I said, okay, well, let's, let's skip those two years and let's just get to it.

Sudhu Arumugam (3m 32s):
All right. So, so one of the things that fascinated me, because I obviously come from the same trading floor background as, as where DRW originated was how do the sort of trading firms that are not kind of big brand names to schools compete with, say the trading side of banks to get your attention? Is it just through careers fairs or, or do they, you know, you know, kind of like all the big prop shops well-known around a university of Chicago by name already, or how did you discover the RW? For example?

Paul Kremsky (4m 0s):
Yeah, there's a few things there in the case of DRW, they, they really appealed to the nerdy side of my nature. And when I interviewed there, there were a lot of math puzzles, a lot of mental math that they kind of had us jump through and, you know, for someone like me, that was really exciting and really appealing. Obviously, if you come from Chicago DRW is a brand named there, although it was kind of niche at the time and this prop trading space. And I think since then, you know, this is 15 years later, it's expanded a lot, but I definitely definitely had that, that knowledge of the RW.

Sudhu Arumugam (4m 35s):
Yeah. And the other trait, which is interesting that you mentioned your sporting bank, athletic background was the other trade. I, you know, I think from a trading background is you see a lot of athletes who kind of get selected by, by these firms. Right. And now Chicago is kind of interesting because, you know, in the pit traders in Chicago came to London, we just, we just kind of, it was just huge, you know, and I was just like, they sent us shorter guys. And, you know, I remember these two guys coming for, I think, Apollo trading at the time. And there were student student next to Don and Don who's, the principal in DRW comes off, are his initials. I remember Don is kind of like my height and those, these two rowing giants who just come from winning the silver medal at the Olympics, I know are now pit traders for these us houses.

Sudhu Arumugam (5m 17s):
Right. And I think that, you know, the combination of your maths and athletic background, I could see why, why would a TRW would totally like to have you as a trainee?

Paul Kremsky (5m 28s):
When I first started trading, I was the upstairs trader and I was working with a couple of guys who were in the CME Euro dollar pits. And so these guys, as you say, these guys are six foot, four big loud guys, and then they've got me upstairs listening and working on the computers. And then you could always tell at the end of the day, they would come back up to the office, talk about the trading day. And you could always tell the pit traders and the upstairs traders just by looking at them.

Sudhu Arumugam (5m 55s):
Yeah. So at this point you are I'm upstairs. And I guess you were training on the, on the, your dollar books you just said, was that futures or was that options or both, or,

Paul Kremsky (6m 5s):
Yeah, so I was a futures guy, a lot of the company at the time and still was focused on options and I was focused on futures. So when we would do our training sessions and we would do the mock trading of options, I would just get destroyed by my fellow classmates and the guys who I had started with, but it was an amazing education. So it's one of the reasons that I really liked the idea of starting with new hires and recruiting directly from a university is because the education on that, that I got in that first year, I was sitting literally a foot away from one of the DRW partners and he was trading all day and I was hand punching his trade into an Excel sheet.

Paul Kremsky (6m 45s):
And it sounds a little bit mind numbing, but you learn so much through osmosis through just sitting that close to a trader, hearing him talk about it to the other guys on the team. And to me, that's, you know, really one of the best ways that you can learn. I've obviously been with DRW for my whole career for 14, 15 years. I'm not alone. Cumberland's global head, Chris Silkie. He started in DRW in 2014, and this is the only job that he's had as well. So we kind of share this, having, you know, the company background and having learned through the company. And that's one of the reasons why, when we think about recruiting, we really like to focus on the graduate recruiting as well, because we think that that's really, when you start with people that young, you get to kind of instill the culture and teach them how people within DRW are not just running their own books, but kind of working across desks, working as a team, working for the good of the company, as opposed to a single desk.

Sudhu Arumugam (7m 42s):
Yeah, no, it's a phenomenal house. And, and the training programs that you get out of this as I, I totally agree with you. You know, I come from, I joined a phone call, Cooper Neff, which is a Philadelphia, Pennsylvania based market making firm, just like the RW in the day. And, you know, we used to have mock trading sessions after a 10 hour day, you know, at night. And there was no mercy, you know, there was just, you just go full on with, you know, and the partners would mock trade with you and be so upset if you beat them to a trade or you out traded them. And an equally, they will just rag on you for like, you know, making mistakes. But it was a learning experience as you know, been, I've never seen since, so I totally get it. So then from Chicago, you then made a move to the London office. What was that all about? Was that a kind of a new book or was that to cover your dollars again?

Sudhu Arumugam (8m 24s):
Or what were you trading?

Paul Kremsky (8m 26s):
Yeah, so one of my really close friends, Chad Miller, who I believe, you know, he wanted to start an equities desk in London. And he asked me if I was interested in starting that up with him, that he was also at the time he was part of my <em></em> team, who I also know, you know? And so I went out there and we started an equities desk. We were trading equity Delta one. So we were trading a lot of different derivatives on the underlying equities. We would trade the equities as well. Things like roles, things, EFS, things like dif swaps. And then later things like ETFs, which is really important because if you fast forward and I know we'll get there, but if you fast forward a few years, that same team is still running at DRW and they are trading the crypto ETFs.

Paul Kremsky (9m 13s):
And so that's still, you know, a very active part of my life today.

Sudhu Arumugam (9m 17s):
Fantastic. And so how long were you in London

Paul Kremsky (9m 19s):
For? I was in London from 2010 to 2015. So I spent a lot of my twenties there and spending one's twenties in London is something I really recommend. And then in 2015, I was part of the team that helped open up the ERW Singapore office. And so I moved out here and again, spending one's thirties in Singapore, I would also really recommend,

Sudhu Arumugam (9m 42s):
Well, first of all, I need to ask you, I mean, do you miss the warm beer that used to have in London? I mean, you know, that's kind of like a rites of passage, but

Paul Kremsky (9m 49s):
There are a lot of things I miss I miss about London. The warm beer is actually not one of them.

Sudhu Arumugam (9m 55s):
Fantastic. The move to Singapore was within equities as well, equities trading.

Paul Kremsky (9m 59s):
So the team that was starting out here was a little bit more of an automated trading desk. And so I had to kind of build up my skillset to join that team. So I had to spend my nights and weekends teaching myself just a little bit of programming, not enough to, you know, really cause a lot of damage, but enough to be a little bit dangerous. And so I joined that team and then a few years later I had the opportunity to start the RWS Asia commodities team. So I was trading things like iron or rubber, Singapore, electricity, really getting the exposure to a lot of different commodities in a lot of different asset classes

Sudhu Arumugam (10m 35s):
On SGX, primarily I would take it right. Would that be the case?

Paul Kremsky (10m 38s):
A lot of SGX. Yeah, that's right.

Sudhu Arumugam (10m 40s):
So it would have been around this time that, you know, you mentioned my <em></em> ski, you know, who's, who's a DFW partner, one of the founders of Cumberland and a huge conflict stakeholder in many ways, you know, as a trader, as a, as a yield farmer, as a token holder equity holder. So he, so I know Coldwell kind of got into crypto very, very early and would kind of, you know, get on, you know, bash to crypto Bible, to everyone who was around him and in the London office at Dr. This time. But it was that how you started learn kind of became interested in crypto or heard about it. Was it through Como? Was it through somewhere else and, and how was your journey there?

Paul Kremsky (11m 15s):
Yeah, no, I have to, I have to give the credit to Como. He talked to about it to us really early. And you know, one of my eternal regrets is what he was saying, made a lot of sense. And at the end of the day, I thought, yeah, this sounds like a great trade. How do I do it? And he started to describe it and I kind of, okay, that's that seems like a lot, right. It wasn't as easy back then as it is now. And so it was sheer slough that made me not invest in crypto, you know, $2 or whatever it was at the time. However, eventually I did jump on the bandwagon. I did get involved, get some skin in the game in crypto. And like the next day it dropped in value by like 35%, which you remember the early days of volatility, this may have been a blessing in the long-term because as everyone knows, a long-term trade is a short-term trade that goes badly.

Paul Kremsky (12m 5s):
And so by getting in with a pretty hefty drawdown, I kind of said, okay, I guess I'm a wholesaler now. And I have been a whole lot ever since,

Sudhu Arumugam (12m 14s):
Oh, that's fantastic here to here. So for those who don't know the listeners, so obviously DRW is the parent company and the kind of trad fi Hoft business and Cumberland DRW or Cumberland trading or Cumberland mining and trading. I think you guys are called in at the start it's the crypto arm at which point, or which year did you start transitioning away from the DRW side of the, of the business to the Cumberland side?

Paul Kremsky (12m 37s):
Yeah. So in, in 2017, like a lot of people, I was paying a lot of attention to crypto during my, when I was supposed to be doing my day job when I was supposed to be looking at, you know, Australia important inventories and Chinese housing starts and things like that. Instead I was reading about, about segway and Ethereum ICO's and I was really spending most of the time I was supposed to be working, reading about crypto. And I think a lot of people were in the similar situation, but what I had going for me is that I sat literally one row away from one of the largest crypto desks in the market, that being Cumberland. So as opposed to like making this huge plunge into a new company, into a new market, I was able to literally walk around the row and give them my resume and say, Hey guys, I would be really interested in working with you.

Paul Kremsky (13m 23s):
And I want to take the jump into crypto.

Sudhu Arumugam (13m 26s):
Yeah. How does that work in, you know, for newbies, you know, traders joining these kinds of big firms even know like w how is the transition within your firm between people who kind of want to switch from <em></em> five to crypto? Because obviously we're seeing a lot of people coming over from banking, from trading sides, you know, who Lee banks to set up their own businesses. But let's say within Dr. And Cumberland is, are a lot of interaction between the two teams in there. Can people switch around young grads who had kind of stopped on one side of the business who become super crypto interested? Can they kind of like put their hand up and say, Hey, if something comes up, can you consider me? Is that, is that how it would work for those listening?

Paul Kremsky (14m 1s):
Yeah. It's often how it works. It's how it works for myself. It's how it works for Matt Connolly. Who's on my team and several other guys as well. You know, for me, I was very attracted to the newness of the market, right? To be able to trade in an environment that hadn't already been worked over by 20 years of guys squeezing all of the edge out, squeezing all of the efficiency out. The other thing that was really appealing to me was I viewed this as my chance to be part of the, of the cutting edge of a new financial instruments of a new financial market. I mentioned earlier, I do a little coding, but for the most part, if I want to be involved in FinTech, it's not going to be by coding. That's just not in my skillset. So if I wanted to be part of the frontier, I have to do it as a trader because that's who I am.

Paul Kremsky (14m 47s):
The other thing that really appealed to me at the time is I loved the ambition that Cumberland tab. This was not a case where we wanted to find a very, very small niche of the market and, you know, scratch out a nice little PNL. This was a case where we want it to be the largest OTT OTC desk in the market. We wanted to help bring institutions who were still potentially decades away. We wanted to bring them into the market within a matter of years instead of decades. And so this ambition, this really, really large-scale vision is what attracted me and what really clinched it for me in a way this has played out the way that we foresaw when we were first speaking to institutions and trying to convince them, Hey, you know, crypto is something you should pay attention to.

Paul Kremsky (15m 35s):
At the beginning, we couldn't get a meeting. We couldn't get guys to listen to us and I'm talking hedge funds, banks, asset managers, you know, someone comes in talking about crypto, how did you get into my office? How did you get here? And now, you know, it's just four years later. And the crypto space has been moving towards the institutions. The institutions have also been moving towards the crypto space. And it's really gratifying that now we are speaking to and working with the same banks, asset managers, inter-dealer brokers, we're speaking to the same ones now that I was trading with back in my London days. And before I made the jump over to crypto,

Sudhu Arumugam (16m 10s):
No, this is fantastic. So what, what was interesting in, you know, maybe this time, you know, you can give a, give the listeners a little, couple of little bits about what Cumberland does, but maybe in the context of, so when I was speaking to max Boonen, who's the CEO of B2C two who came on here and, you know, a similar background to you. He was an FX trader and then founded B2C two for crypto. His approach to building up B2C two for OTC trading was really around being electronic because he looked at where he thought crypto would be four years from there in the future a few years forward from what he saw at Goldman's. And when all in kind of electronic, rather than sort of more chat-based and hand-holding relationship-based type trades. How did Cumberland position itself, was it electronic and OTC how it started and how has that evolved from when you, when you joined the business?

Paul Kremsky (16m 57s):
Yeah. So the electronic pieces take time to grow. Electronic trading is a huge focus for us now and has been for the last several years. And we think that this is where the market is going to go in general, with that said in 2017, most of the trading wasn't telegram, wasn't Skype was over email over the phone, really quite low tech. And so the relationships really did mean quite a bit. There are always trades, and this is true in traditional markets as well. There are always going to be trades that just work better when you're having a conversation with a relationship manager, who's kind of working out the trade with you. However, we have a huge focus on electronic trading, and that's really where we're trying to help the market grow.

Paul Kremsky (17m 37s):
I think since 2017, there are really three main ways that the market has changed. The OTC space has changed. The first is the regulatory picture. Not that the regulatory picture is completely clear now, but in 2017, it was really a lot, a lot murkier in an unclear regulatory environment. You kind of have two choices, you can say, okay, what can we do? Let's go do it. But if you're a major financial institution that is, it's really not going to fly, right. You have to look ahead and you have to say, okay, what do we think the regulations are going to look like five years from now? And you have to kind of abide by that. And so over the past few years, you know, this has really has started to clear up and it started to play out in the way that we've always thought it has.

Paul Kremsky (18m 21s):
And so a lot of times we've kind of, we've been on the conservative side compliance. We registered with Vincent as a money service as an MSP. And we applied for licenses in several jurisdictions, kind of trying to stay ahead of the curve. We're also part of the regulatory conversation. We're not just bystanders, we're also in the conversation. We were invited, for example, to be part of the president's working group for stable coins.

Sudhu Arumugam (18m 46s):
Gotcha. Yeah. I mean, you guys are perfectly positioned for that side of the, to try and guide to the market, you know, which is fantastic, especially because like using Max's another example, you know, he, you know, they recently sold a chunk of his business at SBI because he had constant issues with institutional customers about credit risk and the size of his balance sheet, which obviously when people come to Cumberland and they know that Dr. W sits behind them, you know, that helps you do size OTC trades without the risk of, you know, whilst, you know, diminishing the, the counterparty credit risk question, which is a huge help for you guys and know no doubt why you're so successful as a business during this point, you kind of left trading and became BD and then global head of BD. What, what made you leave the trading side and go more into the relationship side?

Paul Kremsky (19m 29s):
An easy one for me, you know, at the end of the day, when you look on my tombstone, it's going to say, Paul Kremsky husband, father trader, like trader is really, you know, very firmly in my DNA. It's definitely, you know, part of who I am, but, you know, as you said, I started spending more and more time on the business development side of the ball. And that really appealed to me a lot of the times when you're trading, you're kind of thinking, okay, how can I approximate maximize profit maximize the position that I'm in right now, or, you know, the next 24 hours or even the next month. And one of the things that is really appealing, you know, particularly when you're talking about a new market is when business development is very similar, but you're actually thinking more, okay, how can we grow the entire size of the pie?

Paul Kremsky (20m 14s):
Not just how can we have a good month or how can we have a good year, but how can we actually grow the whole market? Because we know that if we have a certain slice of the pie, as the pie grows, as crypto gets bigger and financial institutions come in, that's going to be good for the people who are involved in our trading and on day to day basis. So that's, I'd really, really appealed to me. And I love working with other companies, forming partnerships and cooperating with other players in the space.

Sudhu Arumugam (20m 40s):
Yeah, fantastic. No, it's good to have you in a, you're a great counterpart for us too. So now one of the other interesting trends I've been seeing, you know, which was very different to yours and my day as a, as a trader, was that a lot of the big market-making firms and now also becoming active investors. And, and, you know, we're seeing this a lot across crypto what's Cumberland's history being on the investing side, both in sort of trad, Fiat and crypto. Are you guys like these guys as well?

Paul Kremsky (21m 5s):
Yes. And a lot of ways we are actually active here in two separate spaces. One is on the DRW VC side where typically the deals are going to be larger and more equity focused. So for example, we are investors in coin flux. We partnered with fire blocks. So doing these equity deals, these are really exciting for us. However, in crypto, you also have to think about the crypto native side of investments, and we've gotten really active there in the past few years. Part of the reason for this is we realized that with our trading experience, both in traditional markets and in crypto, we had a lot to add to the conversation because so many of these projects were really focused on trading. And so we started getting involved with a lot of projects that were really, really focused on training or trading infrastructure.

Paul Kremsky (21m 51s):
A great example. There is something like Vega, something like Detroit, where we felt that we had a lot to add to a conversation. It sounds like a total line. I know it does, but when we make an investment, our goal is not just write a check and hope that the underlying goes up, but we really do want to focus on projects where we can add something a lot more than just, okay, here's some money, best of luck. I hope it goes well. We really want to, you know, work with them. Talk to them about, you know, what traders are looking for in these projects. Now at the beginning, we were really focused on trading centric projects. But recently, obviously we spend a lot of time thinking about crypto in general. And what that has meant is we see a lot of room for growth in other sectors of the market that are not directly related to trading.

Paul Kremsky (22m 36s):
So recently we've made investments in gaming projects. Obviously we pay a lot of attention to defy as well.

Sudhu Arumugam (22m 43s):
Oh no, that's fantastic. No, it sounds like exactly. Like everyone else in this space with a, you know, kind of a wide spectrum of, of a hundred X thousand X place. So good for you guys as well. One of the things that's fascinated me and I'll come back to the default question I have for you. But one of the other things that has been fascinated me about Cumberland, particularly as that, obviously crypto options has been growing over the last few years. And you know, this on terabit and CME and an a on a few other exchanges, obviously those two dominate the options ROI. Now DRW's one of the largest options traders in the world by far and yet on the crypto side, there's been like, no word of DRW on sorry of Cumberland to very, very recently. And I remember asking Don when I met him about two years ago for coffee, ask him, you know, why that was the case.

Sudhu Arumugam (23m 28s):
And at the time, you know, his, his kind of main reasoning was that was counterparty risk. And he was like, look, we take on enormous positions. And we're not really sure whether the, the, the other side, the venue essentially, and the counterpart is on the venue will be good enough to stop, you know, steaming up the P and L or there's a sort of a black Swan event. What's changed because I, now, now, obviously I hear in the market and correct me if I'm wrong, but you guys are becoming very, very active on options now, particularly on CME. What was that sort of, that was the change in position that really around because of the size of CME and stuff. And I, is that what kind of brought you guys into the market?

Paul Kremsky (24m 2s):
Yeah, I think there are a few pieces here. One of the main ones is in crypto, you have to kind of choose your battles and you have to choose where you want to focus and spend your time. And for us, we really wanted to focus on being the spot desk where counterparties could trade spot, both electronically. We have the chats, know that they were getting the absolute best execution that they could get in the space. And so we really leaned into that. We really kind of put our blinders on and said, we want to be the spot desk of choice, the liquidity provider of last resort in spot for the whole market. And I think that at the time, you know, the options market had not grown large enough yet. And that's obviously changed the options market has grown a lot and not just in the past three months, but you know, over the past year.

Paul Kremsky (24m 48s):
And so for us, you know, now it is time to get involved there. We are trading with counter parties now, and those can either be lifts, listed options, something like CME, something like terabit, or they can be OTC. We can trade OTC options via an and you know, this is not, it's not just options. We're also going to be trading NBS with our counterparties and to your comments about the credit risk. That's certainly true. But one thing that we've obviously seen is that the size of the counterparties has grown a lot larger and now a lot of them are actually larger companies than Cumberland. And DRW, so they're the ones who are looking at us and saying, okay, you know, they're Cumberlands, we know them, but there's, it's more symmetric when it comes to the sizing of the credit risk.

Paul Kremsky (25m 33s):
There,

Sudhu Arumugam (25m 35s):
I love to be able to be a customer asking that very question. Like, I'm not sure about you Don, you know, and watching him touch the a that's great to hear because, you know, he's been a pioneer in, in options trading, you know, and, and even when I remember even on the live floor, you know, when he first turned up in London and, you know, we, we thought we traded fairly large sizes and it was nothing compared to the size that Don chopped around, you know, and he was even bigger than Swiss bank O'Connor and UBS. And, you know, the banks were just in order of him and, and it was always his own money, which is just incredible, you know? And it's so cool. How well he's done going back to the defy side you mentioned earlier. So, you know, I had an interesting pod with a, from the trading, from FFT in the business where they've now become a very active market makers in defy as well, and the kind of blending CFI and defy trading, whereas Cumberland in this journey of defy.

Paul Kremsky (26m 25s):
Yeah. So for awhile, we were doing things like listing some of the defy coins as an OTC trade, which is kind of like a centralized way of being involved in defy. We helped found the divine Alliance. So again, that's a somewhat centralized way of getting involved in the space and getting some skin in the game, but we're now moving towards define in a little bit more active way when defy summer began last year, which to me, I don't know the exact date that it started, but to me, it was June, 2020 when compounds first started liquidity mining. And by the way, we were talking about my early days of at DRW Rob Leshner, the, the Compound's CEO was actually in my starting class at DRW itself.

Paul Kremsky (27m 6s):
He and I were in those mock trading sessions together. Yeah, no way. I had no idea. So when that kind of all started kicking off, I had like this, this real moments of FOMO where I said, I wish that I had been spending the last two years learning about defy. We have counterparties who have been trying to talk to us about defy since 2018. And I had this moment where I was like, man, I should have listened. I should already know all of this stuff right now. And I don't. And I realized that that was a little bit silly. And so what I did is I said, okay, I'm going to spend a couple hours every night for a month or two. And I am going to learn about defy. I am going to roll up my sleeves. I'm going to read everything. I can get my hands on. I'm going to follow everyone on Twitter.

Paul Kremsky (27m 48s):
I'm going to read all the mediums and I'm going to get familiar with these products. And, you know, maybe at the end of a month or two, it's still an early enough market that maybe at the end of that, I'll be one of the global top 500 most knowledgeable people in the space. And it kind of worked. I didn't foresee how, just how many people would come to defy. And so I don't think I'm anywhere close to the top 500, but that kind of, that kind of approach has always worked really well for me. Whereas basically you say like, okay, I'm going to take some of my free time. And I'm going to learn about this thing that I don't know anything about. And so at the end of it, you know, I have, I feel like myself and other people on the team were able to get ourselves pretty comfortable footing in defy.

Paul Kremsky (28m 28s):
Now, if you are, and I want to get involved on some defy platform, whether it's, you know, buying an NFT or aping into a liquidity farm or, or doing whatever, you know, it's pretty easy, right? You spin up your med, a mask, you, you check some Ethan, you do some transactions and urine, and maybe it goes, well, maybe it doesn't okay for institutions. It's not like that. Right? If a bank decides that they want to start yields farming, there are going to be multiple years of work that are going to go into it. Right? You're going to have to think about security controls on chain AML, worrying about MEV, thinking about how to book liquidity provider tokens from an operational side.

Paul Kremsky (29m 9s):
Like there's all of this stuff that you don't think about when you're just doing it with your own money. So Cumberland has gone through this process. We've thought about this stuff. We've thought about how does an institution get comfortable with this space? It's been a really informative process, not just because it taught us about defy, but in a way, because it taught us about how institutions have to think about this space. So this has led us to form some theses. One of them, for example, is we're really excited about the idea of permission to pools, because a permission to pool basically takes away a lot of those questions. It kind of answers it for you because you can say, okay, if there's KYC on this pool and it's going to make it easier for a bank, for example, to do the AML required to trade with this pool, it's also made us a lot more excited by the way about centralized AMMs, which obviously at CoinFLEX, you guys are really familiar with and a pioneer in this space, right?

Paul Kremsky (30m 2s):
AMM is bring a lot of utility. And whenever someone says the word AMM, people automatically assume that you're talking about a Dex because AMMS grew up in the decentralized space because it was necessary, but AMMS are actually like a piece of financial technology that can apply to centralized exchanges, as well as you guys are seeing, you know, one of the things that interests me is, is this going to work in non crypto assets? Could you have an AMM on the CME? Could you have one on large institutional centralized exchanges? That's something that we find really interesting and that we've, we've thought about a lot because AMM spring, a lot of, you know, they, they bring a lot of utility and value that you don't get from order book AMS.

Paul Kremsky (30m 48s):
And the problem with on chain AMMS is you have to do, you have to learn all of these different things and the centralized AMM, you can get access a lot more quickly. In fact, you can trade on a centralized AMM, like CoinFLEX without really considering that it's an AMM. You can just be like, yeah, it's an order book. I don't care. There's actually really no difference from a trading perspective.

Sudhu Arumugam (31m 9s):
Absolutely agree. Yeah. I mean, if you had told me 20 years ago, when I started in derivative trading that, you know, Cumberland will be trading the same futures or the book is as an old lady, who's fast asleep with $2,000 of liquidity in there. I would have been like, you know, look, you know, you lay off the, the booze, you know, like, you know, get to bed, but it's absolutely fascinating this, this, you know, to, to allow passive capital on conflicts to interact with active capital and like you guys in the same order book with the same fair chance, same fee, same Q priorities, same order, you know, API limits. It's absolutely fascinating. I think it's a game changer for the industry and we're very, very grateful for defy for showing us the way here now we've, you'll see, we've, you know, viewed with 10 X date with a lot of the functionalities around repo and single collateral and a bunch of stuff that from a functionality perspective on conflicts, we just wasted superior to the .

Sudhu Arumugam (31m 59s):
So we've got that to our advantage, capital efficiency, leverage things like that. Of course know we've got the defy centric benefits to I E there's no gas fees, there's no MEV or front running, like you mentioned, and the blockchain, we're not limited by blockchain speeds. You know, you can trade hundreds of times per second versus, you know, six, second, 15, second blocks on each. But it's really, really fascinating. And I, you know, I just really cannot stop learning and, and have enough of this new world, this

Paul Kremsky (32m 27s):
Another example of a, of a piece of financial technology, which has emerged in crypto, but doesn't necessarily have to be crypto native. And I think that you guys have really found a good utilization for it is the purpose. We know why the perp emerged in crypto so that you could basically have a single asset both as the collateral and as the products that you were trading, but perps could have come about in traditional markets as well. It just didn't. And so we think that this is another product, which, you know, we might see in other non crypto products eventually. And, you know, I think one of the things that you guys have done really well is that you've recognized that the space that we're in now is not that different than the space that yourself and mark come from.

Paul Kremsky (33m 7s):
And, you know, the way that you've kind of married the perpetual markets and the repo markets I think is, is really fascinating. And I don't see anyone else doing that yet.

Sudhu Arumugam (33m 15s):
Well, thank you, Paul Kremsky, we're running at a time because Leslie always reminds me to keep it short and sweet. And we've got way over, because it's been fascinating, but I really, really appreciate you making the time to get on the phone. And thank you so much for joining Crypto Unstacked,

Paul Kremsky (33m 29s):
Man. I had a great time. Thank you for having me.

Sudhu Arumugam (33m 32s):
Thanks, dude.