Stephen: This is your host Stephen Sargeant of the Around The Coin podcast. An amazing episode today with Dmitry Tolok, the co-founder and head of business development of Primex Labs. Primex focuses mostly on non custodial prime brokerage protocol. So they're basically facilitating leveraged trading for traders in that instance without using derivatives.

Very interesting topic. We go into traditional lending. We talk a little bit about decentralized lending and the movement forward to decentralized exchanges. But we also talk about things like KYC, AML and compliance. And what are some of the partnerships they're doing, including security elements with companies like Halborn. This is a great episode to kind of wet your feet, to wet your taste buds into what's going to be happening in the space of decentralized and leveraged trading.

Enjoy the show.

Stephen: This is Stephen Srgeant, host of the Around The Coin podcast. We have Dmitry Tolok, co-founder and head of business development at Primex Labs. Dmitry, tell us a little bit about yourself and what you and the team are doing at Primex Labs.

Dmitry: Yeah, great to be here. Hello, Stephen. Yeah my name is Dmitry.

I'm one of the co-founders at Primex Finance. We are a liquidity protocol that Allows traders to use lender liquidity for leveraged trading across multiple aggregated DEXs. So, we basically as a protocol provide a variety of services for those who want to amplify their return across DeFi. So this is what we're doing. Fully decentralized, non custodial.

Stephen: First it was blockchains, right? You worked a little bit with other blockchains. Cosmos and Polkadot. Tell us about your first experience, maybe with cryptocurrency or blockchain, and what was your experience like working with those blockchain ecosystems? Those are some of the biggest blockchain ecosystems from a transaction volume standpoint.

Dmitry: Yeah, definitely. So, before pivoting went into Primex two years ago, a bit more than two years ago, actually it was in 2021. We've been operating as a dev shop pretty much. So we actually helped, we've been helping Ecosystems blockchain to their core development in the past. My other co-founder, he's.

I'm a cryptographer, so a really technical guy. And we actually worked on some really challenging projects before. So mostly layer one. So we've been developing the blockchains, not really the applications that time, but we've been always bullish on DeFi and we've been following DAXs and what's happening in the lending space in DeFi.

That was the reason why we actually came up with that idea of building Primex. So that's that's the history behind it. And after building a few projects for, for, for blockchains and a few apps as well they've been sort of already organizing that DeFi sort of unit inside a company. And that actually formed that first force to actually build Primex.

So that's, that's, that's how, how it started.

Stephen: That's interesting. So we just had, we just recorded an episode with Alex Pruden who is one of the founders of Aleo and, you know, they were working on a Privacy Layer 1 blockchain. Is there a reason why you didn't start a layer one blockchain? Because one of his issues with things like Ethereum is that it does everything.

So it's hard when you want to focus on one function because it does everything. It's not really meant for one function. Whereas you're creating something that is really focused for leveraged and derivative trading. Is there a reason why you didn't create a layer one? And I usually don't ask this question.

I'm usually asking why bother creating a layer one when there's so many successful experiences. Creating a layer 2. But in this instance, I would love to know, since you've already been working with building on blockchains or building with other blockchain ecosystems on the L1 side, is there a reason why you and your team didn't decide to create your own?

Dmitry: Oh, well, that's a really, really good one. I would say that I was really passionate about DeFi, so it was my I think but the other co-founders as well, we were, you know, really passionate about what's, what's happening in DeFi in general, and we saw really huge potential in it and we still see it.

And we think that DeFi is basically the pillar of you know, of the application of blockchain in general. So this is, this was the main reason I think, and we're really excited about this idea about building something for under collateralized lending and set of services financial services that can be.

Accessible by everyone in a fully decentralized way without, without dealing with intermediaries. So that's, that, that was, that was the I'd say the, the, the biggest question for us, and but we haven't really thought about building our own level one for sure. So we've been just focused on building a DeFi application, which is called Primex Finance.

Stephen: Awesome. I would have also accepted that you prefer sleep. Because I think anyone building a layer one blockchain probably hasn't slept in the last probably three years. Yeah,

Dmitry: I mean, it's extremely challenging. I'm actually in touch with a few L1s, of course myself. So we, we are personally connected with some folks.

It's really challenging. I mean, building a project in, in, in, in blockchain is, in Web3 it's, it's of course, always challenging, but building an L1 solution, new one, it's just something else.

Stephen: Yeah, it's a totally different beast. It's got a resource that you talked about.

Stephen: Your non custodial brokerage services decentralized.

Where did you see a niche in the lending industry? Because I know, you know, a few years back, lending tree was the big thing disrupting the industry, right? Peer to peer lending and borrowing low default rates. Everyone was shocked by this. Now you're taking this a step forward and saying, Hey, we're going to even take this to a decentralized place.

Can you tell me a little bit about what Primex Labs is doing and where you saw that niche where you're like, Hey, nobody's really servicing this market. We definitely want to dive in here.

Dmitry: Oh, definitely. One of the key issues in DeFi in general, in lending, I would say space is that you still have to lock, in most cases, you still have to lock more value than you borrow.

And so you basically have to put significant significant amount of capital as collateral to be able to use those, those services. So, and that's, that's All right,

Stephen: I want to stop you there. Why is that? Is it because of the fluctuation of the prices of cryptocurrency that you have to put in more than you're going to borrow?

Dmitry: It's because, yeah, it's because lenders in that specific. Implementation that is currently being the biggest one. The lenders do not have shouldn't have financial risks. Right, so they only have, of course, technical risks, protocol risks, but of course, those who borrow need to overcollectorize their positions for lenders to essentially get their money back.

And there is a huge area for disruption in, in lending in general. It can be, I, I, I'm happy to talk about this this in more detail, but the Primex was to essentially enable undercollectorized lending. And by that I mean that. Our goal was to provide a wide variety of possibilities for borrowers, including traders.

To essentially lock less value than they can borrow for specific operations across DeFi. It was previously and still is possible with flash loans, but it's a completely different thing. So flash loan is quite limited in terms of its application in real life, to be frank. So, our, our goal was to build more sophisticated and more sophisticated sort of protocol for a variety of different.

Use cases, lending use cases, I would say, and we started with margin trading.

Stephen: And so just so I can have a better understanding for the audience, when you say like, you know, you're trying to, you know, not make them over collateralize when they're lending, is that similar to the traditional financial where, you know, you might put up a collateral, but it's nowhere near the amount that the bank's going to lend you, but the bank is going to take that little 20, 30 percent risk for a high interest rate that they would receive?

Is that kind of a, an accurate metaphor or am I missing something?

Dmitry: Well, yeah. So in our In our case, on Primex, basically what we're trying to do is replicate that experience of maybe TreadFi in some way with that big difference that there is no single intermediary or risk evaluation component that is involved into some into issuing the loans, right?

So that's, that's that's where we have, where we see the biggest disruption. So in our case, all the logic, how those loans are taken, for example, for, for margin trading across the axis. It's all part of smart contracts. It's all parameters. It's all, it's all of course based on some specific parameters, which assets can be, can be for example, borrowed at what rate and stuff.

But this is, this is where we basically utilize smart contracts in order to get trade off and of centralized intermediaries. But the logic is pretty much the same. Yes. So basically you can imagine a set of services across DeFi, like liquid staking, lending protocols. DEXs, like Margin Trading on DEXs, LP on DEXs, those are all liquidity use cases where you can, where you can get return by locking your, by, by putting your liquidity to work your money to work, right?

So our, our goal is to make to create more opportunities for for those sophisticated borrowers or traders to amplify their return. And for example, automate. A position closing, when they see that, when the return is not high enough, for example, and they still have to pay some amount for using that liquidity.

There is a big room for disruption in that area for improvements, and that's what we're doing. Exactly.

Stephen: And I was gonna add, that was gonna kind of lead to my next question. When you talked about Decentralizes, I know, I think it's BitMEX anyway they're kind of like the derivative of crypto platform.

Yeah. What, how do you differ from them? Like, why would someone come to you versus going to a BitMEX, let's

Dmitry: say? Yeah, definitely. So, in our first implementation, in the first use case, it is currently that is already live, actually launched a few weeks ago first first launch on Polygon and then Arbitrum.

And one week ago, we launched on the Ethereum mainnet. Currently on Primex, you can only trade, so it's only, it, it, it, it only supports directional trading on DEXs. We aggregate DEXs, we aggregate those liquidity pools. So we wrote all the swaps. And to, to essentially get the optimal price and we add that lender liquidity on top for seamless borrowing and margin fading, and also lots of different automations, such as different kinds of limits, orders, and position management.

That's, that's what we do. That's, that's how the protocol. Works already, and those pretty much are the benefits that traders can get from it. And the key difference here is that we do not utilize any additional sort of asset class, which is, we don't, we don't use derivatives. And that's the key difference.

That's, that's how we differentiate from, from, from GMX, let's say, or, or other great protocols like DYDX, but they are different. There you trade derivatives. In our case, you trade spot. So you basically trade. Real liquidity that is present on DEXs. And this is one of the key differences. If we talk more about if we compare it with BitMEX, of course we should also consider the aspect of, of custodian.

Because in PrimeX, you don't, you are not a custodian, right? So you just connect your WebStreetWallet and you start using it. And that's it. So as simple as that. So we do not, there is no entity, no organization that holds your balance. Nothing like this, so that's the key difference if you compare it to BitMEX.

Of course it's slower compared to BitMEX because in BitMEX or other centralized platforms yeah, it's, it's sort of, they, they are, of course faster in terms of, for example, trade execution, but in our case, you, you trade spot on decentralized markets and, yeah, so that, that these are the key differences.

Speaking about the differences in the user flow. Of course, with all that beauty of defi and composability, we basically support a wide variety of different assets. So you can trade, for example altcoin to altcoin with leverage because usually when you trade on, on centralized exchanges or some the platforms, you basically stick to to stablecoin as a medium to trade something, right?

So now in our case, you, you can, you can trade. Random Token to, to, to another Random Token. It's very

Stephen: limited on centralized exchanges. It's kind of why people want to go to some of these, you know, foreign exchanges to get access to assets like Sushi Token or, you know, whatever token. You're giving them that exposure and that leverage, whereas maybe a centralized exchange will give them the hard part. But not the exposure and

Stephen: I'm listening right now and I'm working in TradFi. You're mentioning assets and you know, the first thing that comes to my mind as well, real world asset tokenization, RWA, and they're like, Hey, we got a ton of assets that we'd like to swap, switch, leverage. Can you talk about how you maybe position yourself in that market or maybe for the future?

How do you see yourself servicing this emerging asset, this real world asset tokenization? That we're seeing with things like real estate and boring stuff like bonds. You probably see it a little bit differently or a little bit more exciting in your world.

Dmitry: Yeah, definitely. We actually are following what's happening.

It's not that much yet, but we already see some protocols in the space that do provide access to some RWAs already that you can trade. There is also a few options protocols where you can trade options. But in the context of Primex, if we imagine that something is eventually tokenized.

Let's say as a simple, I don't know, ERC 20 token some commodity, for example, or something else. It definitely can be used as a collateral and it can be traded and it can be traded as leverage. And for trading those RWAs, we already have the full. Working infrastructure in place. Of course, there are a few, there is a few aspects that we still have to consider, such as AML, KYC.

We are still DEX dependent because we are deploying on top of decentralized exchanges and we need AML and KYC, KYB liquidity there. And we should do that KVB checks on our on our end as well. Perhaps there will be some EVM ecosystem, EVM Ethereum based ecosystem was where all the liquidity is already, already MLs.

We still, we see some projects like this. So we are just following what's happening, but for us, it's quite easy to deploy as a protocol on new chain, on a new ecosystem. And connect with existing DEXs, and when those RWAs are in place, we're happy to be there and basically provide all that beauty of of leverage and limit orders for those, for trading those RWAs.

Yep.

Stephen: I love it. When you say KYC, AML, I'm a compliance guy. That's what, that's what I know. That's my background blockchain investigations but you talked about those words because there's a regulatory system that forces a lot of these liquidity providers from centralized sources that they have to go through these checks.

They have to go through these processes and procedures.

Stephen: What about in the U.S., right? We saw that the U.S. Regulatory landscape, and some other countries as well, have been really strict when it comes to leveraged financial products. Traditional leveraged products. And now you're kind of entering DEXs and DeFi into the conversation.

How can you provide a level of consumer protection, which seems to be the focus for most regulatory authorities? That level of consumer protection that people aren't going to lose their house you know, because they're betting on some you know, hype coin or meme coin that's just come out. How do you protect people or can you protect people or is this more so for sophisticated traders?

Dmitry: It's not, in our case, Primex is not for sophisticated traders only. We still have that beauty of being a DeFi protocol. So you can consider protocols like Uniswap. You can compare us to Uniswap, let's say, where you can swap pretty much anything to anything. Of course you can lose money if you, if you buy a token that's It goes down 90 percent overnight.

That's something that we, of course, cannot really protect the users from. But speaking about the institutional adoption and if we have some AML liquidity, so it's, it's an industry sort of, it's the question to all DeFi protocols, right? So given that we do not provide derivatives, we are not.

Issuing derivatives, which is regulated. So in that regard, we still think that we have some advantage because we do not create a new assets. We do not create a derivative. And you can think of us as, as a unis swapping compound combined, for example, or unis, SOP and AVI compliance. I'm not sure if other or unis swap are bans in the U.S. Simply because they, they do not provide, access to leverage through derivatives. So I would say that those risks associated with any DeFi protocols apply to us, of course, because if we see we, we, of course, we see what's happening with Tornado Cash and all that non AML liquidity, of course. There is some regulation coming to it, so of course we'll be, we'll be, we'll be following what's happening there what's happening there, but it's not about derivatives, it's not about leverage itself, it's more about access to all that functionality DeFi provides, and yes, it can be harmful for non experienced users who do not know really what they trade.

Stephen: That's amazing. I think institutions obviously would prefer that. I think the average user doesn't really care if the liquidity is coming from.

Dmitry: The average user does not really care, but the institutions, of course, they, they do care because they they are operating with their clients clients money.

So of course they have they, they have to care about it. So, yeah, and we understand this. So it's, it's, it's mostly about, you know, AML checks, maybe some industry standards. Maybe it's about some clear regulation, because we still don't have clear regulation in place, not only in the U.S.

Stephen: Tell me more about your risk, because you've talked about platform risk.

I think these are things that people may not understand. Can you tell me a little bit about platform risk, the risk of DeFi hacks or, you know, exploits in your code? And then lastly, does default risk still apply to this, you know, non traditional situation where you're lending, there's lenders and borrowers?

So if you can walk me through some of those risks or any more that you can think of that would be important to note.

Dmitry: Definitely. So speaking about Primex use case specifically, I'm happy to talk about the audits as well, but in our case we don't have LPs. So imagine you have LPs on Uniswap.

LPs always have the list of impermanent loss. And in our case, we don't have LPs, we have lenders. And the key difference is in the number of assets that lenders and LPs provides. As an LP, you always provide to, to, to on Uniswap or forks you, or you always provide two assets. Now, for example, E and I use the C for example, in our case, you provide just one single asset.

It can be used to c so you basically farm yield on top of it. And you are not exposed to impermanent loss, so you just passively earn yield because someone is borrowing your UDC to margin trade on access, like Uniswap. This is how it works in Primex. So in the case of Primex, we do not have financial risks.

We only have, of course, technical risks as any other DeFi protocol, for sure, but there is no financial risk of, of, of loss because you hold something and it can change in price, for example, as as you do it as an LP. So this is, this is the major difference, you know, I would say. Speaking about other security mechanisms and how we protect.

Lender liquidity. I would say that of course we have some limitations with regards to leverage, the maximum leverage that traders can can experience and it's based on some specific assets asset specific parameters previous volatility

Stephen: Oh, so it's different for each asset, how much they can Yeah, it should be That's so interesting.

Is that how it is, like, if you went to an exchange, or do they have a flat, like, hundred times as the amount that you can go, no matter the token, no matter the asset? I feel like they have a flat rate, right?

Dmitry: On exchange, yeah, on exchanges, on the routers exchanges, yeah, centralized lines or decentralized lines.

is different because the nature of, of, of, of such derivatives platforms is different because you have two sides of the market. You have funding rates and basically an exchange is always a zero sum game. Right. If you look at like, derivatives platform, you can see, I mean, protocol, this, this implies one without saying specific names, but if you look at it, in most cases, you, you have some LPs and you have traders.

And if traders win, LPs lose and vice versa. And in, in the longterm of course LPs usually win. So they get interested because traders lose in the longterm more than LPs. And it's a zero sum, it's a zero sum game. In our case lenders do not care. What directions trader trades because they basically earn yield by providing their liquidity to the pool where it's, it's being borrowed by traders.

So, we are not a zero sum protocol. We add additional liquidity on top. That's, that's, it's another major difference compared to those, to those protocols. And yeah, so, but of course it has its limitations. We cannot provide one. 100x, 100, I don't know, 25x leverage that is already available on centralized exchanges, simply because the mechanisms are different.

Stephen: What if I'm a trader, I borrow funds from one of these lenders, they're getting their yield, but I lose all my, you know, I'm a reckless trader, don't know what I'm doing, I lose all my crypto. What happens in that instance?

Dmitry: Imagine you have 1, 000 USDC. As a capital you want to trade with, you can borrow 4, 000 USDC more.

So it's essentially a 5, 000 USDC position. And with that entire amount, you make the first swap to essentially enter the position. And if your position goes down 20%, minus fees, of course, small fees you get liquidated. So the use case is the same as you have it in a centralized exchange, pretty much.

So you basically risk with that amount of money. That you are ready to lose, that you are using as a deposit in our case, right? Because you have to deposit something to borrow something else. And yeah, that's essentially how it works. So you basically control your risks as a trader. You can see What's at stake when you enter the market, when you start trading, really similar use case.

Even if you look at at the current implementation of Primex at its first version, you will see that even the UX is pretty pretty similar to what you see on a centralized exchange, but it's fully DeFi. It's fully decentralized, which is interesting.

Stephen: That is, yeah. One of the biggest dots that, you know, we hear with DeFi, Web3, even conversations we have with people in Web3 is.

Basically, people don't care about decentralization from a user standpoint until decentralization provides something that a user can't get now, which is user experience. They still say, how clunky, Web3. This is something I think your team is passionate about. Can you describe what, what are the UX problems when it comes to DeFi, Web3?

I've seen some of these platforms. They look very similar to a traditional order book, but there's just definitely some clunkiness. What are the problems and maybe how does Primex approach solving those problems?

Dmitry: Well, first we still lack a bit of education. If you look at and, and we still You can use a really technical language when communicating with the user base.

So if you look at I'm, I'm saying same, same, same implies to Primex, of course. If you look at different websites of protocols and you just start reading about them. And if you don't know nothing about crypto, it will probably be difficult for you to understand. So that's, that's one of the first problems that should be tackled by, by industry players on different levels.

We still have an early community. That is already quite technical. We still have some OGs in the space, right? Who are in this space for, for a few years. They're already OGs, but it's still really young and small market. And the first thing that we should think about is education and simplifying the language.

Of course, some great things. That's, for example, Vitalik is talking about, like, account abstraction. They're still yet to come and they will simplify how, how people interact, the, the process of interaction with DeFi protocols, for sure.

Dmitry: So we still have to, to to deal with some technical challenges to to, to, to simplify the process, but we already should think about how we could.

Communicate it better. Communicate the benefits better. There is still a big, big question about big, big, big challenge for a lot of people in terms of using Webster wallets. People do not really know how to use Webster wallets yet. Not many of them know.

Some of the industry, Leaders like Uniswap, you can look at their, for example, FAQ and how they explain things, what is the recovery phrase or something else.

I think they are one of the best, or maybe the best in the industry about. In communicating those, you know, technical things in a really simple way. And if you use Uniswap, it's pretty easy to use, right? They have Fiat on ramp and, and, and different perks.

Stephen: They have to be, they want the most amount of users.

So in order to get the most amount of users, you're going to have to break it down to every single person. How to use their services.

Dmitry: Of course. And protocols, smaller protocols like us. Should follow it for sure. And we're already working and we have some FAQ in place that explains how the protocol works in simple terms.

And how people can connect their wallets, how they can use hardware wallets when interacting with our app, with our application. So there's a lot of small things we're working on.

And of course, speaking about the interfaces for us, it was important to provide an opportunity. For those who want to buy crypto and start trading and also provides just one click experience.

So for trading on Primex, you just simply need to connect your wallet and that's it. You're ready. That's, that was the idea.

Stephen: Interesting. Do you think that, you know, leverage trading, is this still a very niche part of the industry? You know, a newcomer to the industry, they want to buy an NFT fairly easy.

They can even use their credit card now. Is like leverage trading still for kind of like the degenerates and day traders of the industry? Or do you see that being expanded to more, you know, after the boring trades that some people are making, they want a little bit more. They think they understand the market.

They need a little bit more leverage. What are your thoughts? Because you've been in this space since 2021, which was, you know, the bull market of all bull markets to be quite frank.

Dmitry: It's a niche for sure. It's a niche. It's growing because in DeFi, especially on small markets there is a lot of inefficiencies and there is some number of people who, or even organizations already own Who are joining DeFi to trade those inefficiencies.

So there is, there is already a user base, but it's still, still small and it's growing and we expect that that user base will, will grow quite significantly in the next five to seven years.

Stephen: Is your approach for institutions or, you know, your average recreational individual user?

Dmitry: That's a tough one because we just launched, so we do have some, some first traction.

But given the DeFi protocol we of course will be having a bit of both because we are accessible to, to everyone. There is a small there, there is already some number of institutions interested in being lenders. And traders, but there is also a consumer public user base with small deposits and, and those who want to trade random tokens with leverage.

So a bit of both, I would say. And those are completely different processes in terms of the acquisition of those services on the market. Yeah, for sure.

Stephen: You know, on your website, you mentioned AI, machine learning, artificial intelligence. How does that vastly improve some of the products and services that you're coming out with?

And how does that play into that user experience?

Dmitry: Definitely. So, the application of AI, NML in blockchain, I believe personally, that's my humble opinion, but I believe that it will change. the industry drastically in the next few years. And by that, I mean that you of course make. The capital usage way more efficient when you have, for example, credit scoring that is decentralized.

This is what Threadify has for years, and this is what we still don't really have implemented in in DeFi. And imagine you can have a score in DeFi and you can borrow some money for, I don't know, your day to day use with a small collateral in DeFi. That's great. I mean, that's something that can only be achieved with credit scoring and reputation mechanisms on chain.

And for that, of course, we need to have an infrastructure in place that, yeah, where those ML nodes can be hosted and, and, and stuff like this. But this is one of the potential disruptions that we expect in the industry. In the next few years, there is already a few projects that work that are focusing on supporting that infrastructure.

So we'll come to that point in a few years, I'm sure about it. In, in the context of Primex, we do have some developments related to it. We think it will be rolled out a bit, a bit later, I think in two years, maybe one year and a half. So it's a long term plan, but we have some developments.

We do not really talk about them yet because they're not ready. But we do have some some models that will. Probably applies a protocol. That's, that's, that's pretty exciting.

Stephen: I think credit score for those that aren't technical that are listening to this podcast, credit score is the only word that they picked up on.

They're like, yeah, credit scores make sense. Do you see there being what, oracles that have certain information where they're leveraging traditional credit scores like your Equifax? Or do you see it being more, as you said, reputational, behavioral based, or just previously history based? How many DEXs have you engaged with?

How well have you been trading? Which, a lot of that information is completely transparent. How do you, you know, see this future of credit scores, where there's been so much pushback to the traditional way that credit scores have been done? Biases, systematic racism has been brought into the conversation.

What is your experience with the way the traditional credit score system is working and how you see the future of that?

Dmitry: In, in the traditional finance, I would say that it's pretty, of course, well developed. It still, it still has its limitations and sometimes it fails. Sometimes it fails. We all see that.

So there is a huge number of over leveraged organizations and sometimes it's not, it's not, it's not working, but speaking about DeFi, I would say that a few ways. Scoring can be used, as you mentioned, in our, in our, in the context of PrimeX, of course, we were designing the scoring components based on the history of interaction with the PrimeX protocol, of course.

So that those borrowers who always return their loans they are of course scored better and better over time. And we have that, you know, radial sort of mechanism of scoring them based on their, for example, trades previous trades, how skillful they are. So we have multiple different criteria that's, that is yeah, how to basically.

Evaluate them, but I imagine that there will be a scoring mechanism that is. Pretty much based on interactions with a wide variety of DeFi protocols. If we imagine that there is a few of them that support under collateralized lending at some point so that will be a big database Of course that's what I, what I envision and potentially we might also inherit some, some of the scores from, from Threadify as well.

Of course, why not? That's, that's also possible, especially if, yeah, so there is, there is a huge number of opportunities. So for now at Primex, we're designing the scoring component based on previous interactions with Primex and previous traits. On, on some data that we have primary specific data that is on blockchain.

This is what we have for now.

Stephen: Earlier in the conversation, you mentioned flash loans. Now in prepping for this episode, I, I read a little bit of an article that you wrote with you know, blockchain self named blockchain Gandalf Cure, Finlow, Bates. Which mentions this concept of flash loans. What is a flash loan?

And who are the industry players that are using these types of loans? Give me a scenario of a flash loan and a scenario where somebody is using these flash loans. To

Dmitry: To be frank, it's a bit difficult for me because it's more of a vision type of thing. A flash loan essentially is a loan that can be use within a single transaction block.

So something that you can borrow and return in the same block. It's quite limited because you cannot really take some certain amount of of money and use it for an extended period of time, right? So you should basically return it in the same block, which makes it, makes the time that you, that you have quite limited.

So it can be used for I would say really sophisticated DeFi use cases. I'm pretty sure flush loans are used to manipulate sometimes manipulate something with liquidity, but I, I'm sure that the comparison with flush loans in that article was used to explain that the liquidity can can be used in an underculturized.

Something that you to explain that you can borrow more than you essentially lock. And that's, that's, that's the key objective. That's the key point that was yeah.

Stephen: For many that hear the word flashloans, they usually hear it in the context of a flashloan attack. Can you kind of give a high level view of like, what is the attack you're seeing that seems so manipulative?

Dmitry: That's exactly how it works. Flash flows can be used for sometimes the liquidity pools are not really optimal in terms of the risks. And sometimes they can be manipulated with those. And some, some, some, some liquidity pools are, are not protected this way. So sometimes you can get a lot of, for example, voting power.

For using by using flash loans and that's what we saw in some governance in, in, in, in, in, in governance with some protocols previously to essentially do harmful. Things in DeFi sometimes to steal money and yeah, so, so this has been a flesh worn attack, as I would say it's a broad term, so it can be, it can be flesh worn can be used differently, right?

So, yeah, I'm in, in that, in that regard. I would say that we are, of course, trying to protect against FlashFone as well. But that's just a comparison to explain the underculturized nature of Primex in that article,

Stephen: I think.

Stephen: Earlier in the conversation, you were about to touch on, you know, audits and the security of the audits.

Recently, you partnered with our friends here at Halborn. We know them well from the blockchain investigation space. The work they've done with some of our clients of Airdropd, my company with Chainalysis. So can you discuss like what was needed for this audit? Why the audit? We see a lot of DeFi protocols being exposed and vulnerable.

And, you know, a lot of people point the finger at, well, the lack of audits that they did, the lack of pen testing, the lack of, you know, testnet testing that they did. Explain this, the reason why you prioritize maybe security where other maybe DeFi protocols did not.

Dmitry: I would say that audits are definitely the must in the industry.

And I think every protocol should really consider auditing, consider being audited by several companies. Hallborn obviously are great guys, but it's better to have several, several great firms to cover the protocol or maybe even freelancers. There are some great projects, DAOs in this space where you can get your code audited by great individual auditors that's also the possibility. So the thing is that it's important to consider that when you're developing a protocol, you still have some limited sort of vision on its code, especially over time you are, you know, adding, adding the code and it's, it looks, it looks nice and good, but you still have...

Stephen: you can't see the mistakes, it's like editing a podcast, you can't see the words, you see the code, even if it's not there, right? Just because your brain is trained to look at it a certain way.

Dmitry: It's, It's a human nature, so we do, we do make mistakes, and it doesn't matter how good you are as a developer. And those companies that are professional in auditing smart contracts are, are definitely needed in this space.

And there is a lot of I would say security things that we still lack in the industry, such as for example, insurance protocol. There is not so many of them and we need them. That's a huge use case to essentially protect liquidity pools from, from, from the loss of money. And I expect that we'll have some more insurance protocols as well.

So, secure, yeah, audits are, are important. We've been audited by three different companies. It's fairly expensive process, but, it's a must for sure. So that's what I can say.

Stephen: Well, it saves you having, it saves you having to, you know, offer bounties for the 500 million or 200 million or a hundred million that the hacker steal from you.

'cause you don't put in those pro those

Dmitry: protections early on. It's important. It's important for, for, for users different users. It's always important to consider that even after protocol was audited by the know a hundred different auditors, it still can be hacked. Yeah. And there is still some risk.

That exists. And every DeFi user should consider, consider these risks. Of course I think that's an

Stephen: important, that's an important note. Yeah. Yeah. Even with the audits, it's still a transparent code that, you know, hackers are looking at all day, every day. It's not

Dmitry: a guarantee for sure. There's a guarantee.

Yeah. It doesn't guarantee anything. So be careful.

Stephen: Partnerships seem like the backbone of DeFi. I saw on your website, there's been a couple of partnerships with blockchains. Tell me some of the most, you know, exciting partnerships you have, or the most interesting. Something that maybe a listener wouldn't expect you to accompany or see.

Service provider wouldn't expect you to partner with, talk about some of your best partnerships.

Dmitry: Oh, I would say that of course we are in touch with multiple ecosystems. So we have a lot of great things that are, we're discussing now with big ecosystems that are still not yet announced. We are.

Really excited about re recently deploying on Arbitrary we put away plan some interesting things with them as well. So stay tuned. , and I would say, yeah, so there is a few. Partnerships that we still have to announce. Some of them are our clients, I believe, in the future. So stay tuned.

For now, it's mostly about the audits the deployments. We are also expanding our use case by integrations with other protocols and some decentralized exchanges that are interested in integrating our functionality into their interfaces, for example. So we are expanding our use case. You know, by making it available for users of other dApps or even wallets.

So potentially you might see our trading widgets in some wallets that you use, not necessarily in our interface. So there is a few partnerships that we are working on now. I hope

Stephen: our, you know, our internet, our Twitter sleuths can kind of pick up on the words that you're using. Is that the toughest part of your job, as a biz dev person, that you can't really announce everything at one time?

You have to kind of stagger it, one announcement of a blockchain, let it get the hype, maybe a month later announce another blockchain? Is that tricky for you? When you're trying to get more business? But you can't announce everything that's happening because it hasn't been completed yet. Yeah,

Dmitry: sometimes it's challenging because sometimes you get too excited.

But, you know, we are always careful with what we are saying in public. And actually you get used to it at some point. So it's better, it's better to have something in place rather than, you know, announcing something, something huge, which is not happening for some reason. So, this is that, that is.

Yeah, sometimes it's difficult, but it's fine. And I'm not, I'm not the guy who's working on announcements. So

Stephen: that's probably why you get too excited. They have to give it to somebody else. It doesn't get too many excited.

Stephen: Talk about you've raised funds or Primex Labs has raised funds. Talk about any advice to builders, entrepreneurs.

You know, service providers are listening to this show. You know, did you have any struggle with finding funding or based on your experience of building a business, what were maybe some of the last, you know, we have the last seven minutes of this call. What were some of the struggles or challenges that you had?

And gaining funding or any other aspects

Dmitry: of the business. Yeah, if, if we look at the previous two years and all these things happening like FTX or Terra that was, that was really bad for fundraising previously. So it, of course, depends a lot on the markets and the capital inflows. And of course, VCs.

Think differently in different conditions and valuation. Valuations drop during the bear. So, of course I believe that some, there were times where it was not really developer friendly environment. If you talk about fundraising, it's getting better. It's not, it's still not that, that good as it was.

Two years ago when we were raising, but we expect it will be better now. This year we see some really positive dynamics in this space. And by the way, we'll already be raising another round. I'm pretty sure about it, the private one. So some advice I would say that of course you should always structure as a founder.

I think you should always structure all the materials that you provide provide your investors with. It should be clear. It should be detailed. You should have a really good GTM. Sometimes sometimes it was, you know, some educational process for us as well, because sometimes we were being focused a lot on tech and we were describing, you know, how the protocol would work.

And there are certain VCs that are not that much interested in tech. They're not that enthusiastic as you are because they have hundreds of goals.

Stephen: First million users. Exactly. That's all they care about.

Dmitry: Exactly. So sometime as a, you know, as a passionate founder, you are focus, focusing a lot on how your thing works rather than what it would what, what, what benefits it would provide to you, to the community, how how it should be, how it would be monetized.

So you should think about different things. On the bull bull market, of course it was easier because. Everything was growing and you were just a viable technical use case was even enough to start freezing. But at this specific point traction is important and that's what we're working on.

And there is a few ways how we could improve it. I believe depends, depends on the project, of course. What, what is also important and that's, that's that I would mention I would say you should always build a network of VCs that trust you and it's of course important to, yeah, to have, to have connections in the space and warm introductions.

That's, that's what helps a lot. That's, that's what helps a lot. And yeah, materials, clear pitch. Introductions, yeah and ability to explain sophisticated things in simple terms. That's what I previously I think you

Stephen: did that really, really well. I was going to wait until after the show to say this to you, but I think you've done a really great job.

Usually when we get technical people on the show, or any show, right? It's like, it's hard for them to put everything in a concise three minute answer, right? They have to explain everything and how it works. Overview. I think you do a really great job of that. Thank you. It makes sense why you're kind of heading through this development of the protocol.

Stephen: Where can people find you, Dmitry? You know, I know you guys have a blog on Medium some interesting articles there, but where can people find you? Where do you want to point people to, to absorb, you know, as you say, all that great information that Primex Labs is putting out there? I'm not

Dmitry: really active on socials personally.

I'm also solid around, you know, building relationships and things. I'm also on Primex Discord. I'm always there to, To chat with the community, to explain how the protocol works and things like this. I'm also on Twitter, but I don't really post, unfortunately. I'm not really into it. Maybe in the future I will be somewhat more active.

I'm on Twitter, on Twitter at Dmitry underscore Tolok. And yeah, I think that's it. Pretty much it's, I'm, I'm, I'm, I'm just sitting on, on Primex Discord and that's, that's it. You just, yeah,

Stephen: you have to, it's all these platforms, protocols, it's all about the user base, right? And, and you need them to educate other people and to tell other people about the user base.

It's kind of hard to go on Twitter and say, Hey, look at what we're doing. You lose people under collateralized. I think that's where you probably lose the majority of people on Twitter with using one

Dmitry: term. Oh, yeah. Yeah, feel free to subscribe to Primex underscore official, our official Twitter I'm one of the guys who is involved into the announcements, but I'm not writing them, but still, this is the best place to, to, to, to get updates about Future Building, if you're interested.

That's

Stephen: awesome. We're so excited about the future announcements. We'll definitely keep our viewers and listeners up to date on everything that's happening with Primex Labs. Thanks so much, Dmitry, for joining us on the show today. Thank

Dmitry: you so much for hosting me. Yeah, it was a pleasure. Thank you.

Stephen: Thanks.

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