Decentralized exchanges must prove their worth to compete with traditional finance’s efficiency and trust.
Key takeaways
- DeFi must match the performance of TradFi while maintaining verifiability.
- Building in crypto should focus on solving significant problems, not just innovation for its own sake.
- Centralized trading dominated digital asset transactions in 2022, undermining blockchain’s potential.
- Verifiable on-chain intermediaries can enhance efficiency compared to opaque TradFi systems.
- Perpetual contracts attract traders due to their capital efficiency and leverage.
- Core technology development should involve real customer feedback for effectiveness.
- Perpetual exchange dominance shifts with each market cycle, reflecting evolving trends.
- The lack of product market fit limits DEX adoption among traders.
- Competition between centralized and decentralized exchanges is expected to intensify.
- Building on Ethereum is crucial for capturing future financial opportunities.
- Solving technical challenges first can unlock greater long-term benefits.
- Ethereum’s connectivity and institutional use cases are set for significant growth this year.
- Building on Ethereum L2 offers security and access to existing DeFi protocols.
Guest intro
Vladimir Novakovski is the Founder and CEO of Lighter, a decentralized perpetual futures exchange built as an L2 on Ethereum. He previously served as Head of Machine Learning at Quora and VP Engineering at Addepar, and pivoted his AI networking platform Lunchclub into Lighter in 2022. Lighter has partnered with Robinhood and launched its native token $LIT in late 2025.
The challenge of DeFi performance and verifiability
- DeFi must perform at the level of TradFi without losing verifiability. “If we think about how does defi actually perform at the same level as tradfi without sacrificing kind of the verifiability” – Vladimir Novakovski
- The focus should be on addressing important problems rather than building for the sake of it. “It’s not like okay let’s like build in crypto for the sake of building crypto” – Vladimir Novakovski
- The dominance of centralized trading in 2022 highlights a missed opportunity for blockchain. “99% of the way digital assets were traded didn’t actually use the rails of blockchain” – Vladimir Novakovski
- Verifiable intermediaries on-chain can enhance efficiency over opaque TradFi systems. “If what they do is verifiable and is on chain that just makes things more efficient” – Vladimir Novakovski
- Perpetual contracts are favored for their capital efficiency and leverage. “Most active trading happens with perps… it makes sense when you think about it” – Vladimir Novakovski
- Building core technology without customer feedback is ineffective. “Without having that iteration where loop where you actually have like real customers using the tech” – Vladimir Novakovski
- Perpetual exchanges’ dominance changes with each market cycle. “Every cycle you have like one perps platform that kinda dominates” – Vladimir Novakovski
- The lack of product market fit for DEXs is a barrier to adoption. “The product market fit for most traders at the time of being on a dex is just not there” – Vladimir Novakovski
The evolving landscape of exchanges
- The competition between centralized and decentralized exchanges is expected to grow. “The shift from cefi to defi will continue” – Vladimir Novakovski
- Building on Ethereum is essential for future financial innovations. “Building on top of ethereum and being connected with kind of the broader ecosystem” – Vladimir Novakovski
- Solving technical problems first can lead to greater benefits later. “If you solve the hard technical problems first then you get the bigger unlock later” – Vladimir Novakovski
- Ethereum’s connectivity and institutional use cases are set for significant growth. “This year will be a lot of things will happen right as far as between unlocking the full connectivity to ethereum” – Vladimir Novakovski
- Building on Ethereum L2 offers security and access to DeFi protocols. “The whole point of being a part of building on top of ethereum” – Vladimir Novakovski
- The low latency of the trading system is achieved through an optimized sequencer. “The sequencer can be highly optimized… the idea is that because everything that’s done is proved” – Vladimir Novakovski
- The trading system can process 500 million orders a day at low cost. “We’re processing 500,000,000 orders a day right now and the cost of doing all that are like under 50 k usd” – Vladimir Novakovski
- Verifiability in trading systems is crucial for fairness and efficiency. “If you had something where trades are settled on chain but matching is done off chain in a way that’s not verifiable” – Vladimir Novakovski
The role of Ethereum and technical innovation
- Building on Ethereum is crucial for future financial opportunities. “Building on top of ethereum and being connected with kind of the broader ecosystem” – Vladimir Novakovski
- Solving hard technical problems first can unlock greater benefits later. “If you solve the hard technical problems first then you get the bigger unlock later” – Vladimir Novakovski
- Ethereum’s connectivity and institutional use cases are set for significant growth. “This year will be a lot of things will happen right as far as between unlocking the full connectivity to ethereum” – Vladimir Novakovski
- Building on Ethereum L2 offers security and access to existing DeFi protocols. “The whole point of being a part of building on top of ethereum” – Vladimir Novakovski
- The low latency of the trading system is achieved through an optimized sequencer. “The sequencer can be highly optimized… the idea is that because everything that’s done is proved” – Vladimir Novakovski
- The trading system can process 500 million orders a day at a low cost. “We’re processing 500,000,000 orders a day right now and the cost of doing all that are like under 50 k usd” – Vladimir Novakovski
- Verifiability in trading systems is crucial for fairness and efficiency. “If you had something where trades are settled on chain but matching is done off chain in a way that’s not verifiable” – Vladimir Novakovski
- The cost structure of operating an exchange can be lower than centralized exchanges. “Even centralized exchanges probably have a higher cost structure” – Vladimir Novakovski
Institutional interest and market dynamics
- Institutions are drawn to platforms like Lighter for retail market access and liquidity. “Ultimately the institutions go where you know where the retail is too” – Vladimir Novakovski
- The cold start problem is a challenge for integrating real-world assets in crypto. “To get retail you need liquidity and to get liquidity you need the institutions” – Vladimir Novakovski
- Institutional players may prefer DEXs if regulatory frameworks are established. “The players that do have that expertise up to now haven’t been haven’t actively wanted to trade on dexs” – Vladimir Novakovski
- On-chain KYC processes could facilitate institutional trading on DEXs. “Imagine something where you know an institutional player maybe they only wanna be matched with other kyc participants” – Vladimir Novakovski
- The alignment of the technical stack is crucial for trust with traditional finance. “The alignment of the technical stack needs to be there” – Vladimir Novakovski
- Many traditional finance entities prefer Ethereum for secure applications. “If they’re gonna do it they’re gonna wanna build on top of the most secure l one which is a theory” – Vladimir Novakovski
- Price action is a significant focus for investors, more than anticipated. “People pay a lot of more attention to the price action than we would have thought” – Vladimir Novakovski
- The focus on revenue in crypto is important, but growth should also be key. “It’s good that crypto now looks at revenue but I think like you should also look at growth” – Vladimir Novakovski
The future of capital markets and crypto
- All capital markets are likely to come on chain, merging traditional and crypto markets. “It seems very likely that all capital markets are coming on chain” – Vladimir Novakovski
- The merging of traditional finance and crypto is already happening. “The point is like it’s all like things like on chain hedge funds right or like tokenized stocks” – Vladimir Novakovski
- The Ethereum ecosystem should be viewed as a startup with growth potential. “You have to think of it more as a startup… it’s not like a public company that’s existed for twenty years” – Vladimir Novakovski
- In hypothetical acquisitions, acquiring entities would need to buy up all tokens. “The acquiring entity would have to… buy up all the tokens” – Vladimir Novakovski
- Crypto native individuals often overlook the complexities of traditional finance. “Tradfi institutions like they they’re they’re I think a lot of like the crypto native people don’t don’t understand” – Vladimir Novakovski
- Innovating business models can be powerful in changing an industry. “Experimenting with the business model and not just kind of keeping the status quo can be really powerful” – Vladimir Novakovski
- Robinhood’s zero-fee model was initially met with skepticism from investors. “At the time right like when they had this idea of zero fees like no one thought that would work” – Vladimir Novakovski
- Coinbase and Robinhood are exploring DeFi integration with centralized models. “Unlike some other centralized exchanges they they certainly understand the power of defi” – Vladimir Novakovski
