Craig Austin is the co-founder and Chief Technology Officer of EMX, formerly known as EverMarkets. He spent over 12 years at Microsoft & AQR Capital Management ($226B hedge fund), and led an asset allocation research engineering team at AQR. Craig also holds a B.S. degree in Computer Science from Carnegie Mellon University.
In this blog post, Craig shares his unique and personal insights about the evolution of the company he's been building with co-founders Jim Bai and Eric Rogstad, and what's next for the EMX team.
The idea that would become EMX was born in Summer 2017. Friends for 10+ years, Jim Bai, Eric Rogstad and I began discussing ways to revolutionize the derivatives space by injecting new ideas and new technology into a somewhat stagnant — but massive — industry. Decentralization using blockchain tech was just becoming realistic and it seemed the derivatives industry, with only a few large players (each making billions of dollars) was ripe for disintermediation. Fees were high, and access for non-US traders and those without a million-dollar bankroll was near-impossible.
A professor from the University of Chicago, Eric Budish, had published “The High-Frequency Trading Arms Race: Frequent Batch Auctions as a Market Design Response” with new ideas to combat the scourge of predatory high frequency trading.
The group pondered- What if we could create a new derivatives exchange, open to any trader around the world, enabling access to global markets — all while leveling the playing field between high-frequency traders (HFTs) and the little guys.
Plus, it could be easy-to-use and sleek to look at, to appeal to the newly fervent crypto trading community springing to life around the world. Though, this wasn’t to be a new crypto exchange for crypto traders only, but a new exchange for all traders - retail and institutional. The opportunity was huge.
The incumbents in the crypto derivative space were enjoying massive volumes (which would soon grow even higher) and confusingly were only offering their users a few basic contracts to trade. Accusations of market manipulation, even manipulation perpetrated by the exchanges themselves, were pervasive. Trading, in the non-US markets at least, was mostly anonymous. The thesis that EverMarkets (now EMX) was founded on — and guides us to this day — is that the crypto market would get more sophisticated and the traditional markets would become more “crypto-like” — and EMX would be positioned right in the sweet spot.
Some readers may be asking, “Why derivatives?”
Given Jim’s research and trading background at Citigroup and Graham Capital Management, he had seen the ubiquitous popularity of futures and swaps for speculation and hedging on Wall Street trading desks — and he believed it would be hugely powerful to bring those ideas to crypto markets. On the other side, he thought decentralization could provide an alternative to the duopoly of the CME and ICE for institutional traders.
Eric had the deepest crypto ties of the bunch. Back in 2010, as a Microsoft (and soon to be Amazon) engineer, he had purchased Bitcoin for $0.25. He wasn’t so much interested in crypto trading, but rather the technological aspects of blockchain and the implications on industry.
Craig and Jim, college roommates at Carnegie Mellon University in 2004 vs. Craig and Jim in 2018, co-founders of EMX
In August 2017, I had just moved from NYC to Palo Alto, California. Jim and I had been roommates at Carnegie Mellon University where we were both Computer Science majors. I had previously worked with Eric at Microsoft. I began strategizing and building with Jim, Eric, and Mark (another college friend who eventually started his own business), and soon left my job as a quant research engineer and manager at AQR Capital. The EverMarkets journey had begun in-earnest. Jim and myself went on to share co-founding duties, Mark went on to start a market-making firm, and Eric would keep us aware of blockchain technology and crypto developments as a senior engineer and first employee.
Our mission at that time (and it hasn’t changed) was “To bridge cryptocurrency with traditional capital markets by creating one platform to manage a global portfolio - eliminating barriers of geography, technology, or privilege.”
The Path We’ve Travelled
After securing some early funding from friends, family, and connections, EverMarkets was officially launched. We knew we were in for a challenge - but, as is often the case I presume with startups, we underestimated those by about 10x. The technology was new, the regulatory space was ill-defined (we were in the US - and wanted to stay here!), engineers and lawyers were expensive, and the incumbents had billions. We gathered a small but dedicated team and got to work.
The crypto and “ICO” market of 2018 was frothy to say the least. We were often being weighed against our peers by the size of our Telegram channel - which meant things like airdrop coordination took precedence over design discussions. I was dismayed how little it seemed to matter that we had a strong team with a proven track record of execution and a real chance of making an impact on the fintech space.
Regulatory Challenges and Pivot
We had always wanted to allow everyone (including US persons) to trade on the EverMarkets platform and we initially thought we had a good shot at being able to convince fintech-friendly regulators to give us a chance, but the fall of the crypto markets in Q2 2018 meant we could no longer afford paying for US-facing regulatory work. We would take the path of the incumbent crypto exchanges and operate an off-shore exchange targeting a global, non-US audience.
DEX => HEX => CEX
Craig with founding engineer and friend Eric Rogstad, hard at work prototyping
As we moved from the prototype stage to building the first MVP of EverMarkets, we began to realize that trading in real-time on existing blockchain tech was a non-starter, at least with the level of UX quality and speed that we knew customers (retail and institutional) would demand. In February 2018, we investigated a hybrid solution, with trader funds secure on-chain but trading occurring off-chain. We worked really hard to make this system feasible, but in the end realized that the interface between the on-chain and off-chain components meant we weren’t able to fully realize the benefits of either - and the compromise wasn’t something we felt happy releasing to traders.
In April 2018, we made the decision to pivot and build a fully centralized exchange albeit a crypto-native one (meaning we only dealt with crypto-in and crypto-out). While decentralized technology remained (and still remains) an interest of ours, we were incredibly happy to be able to provide traders with a high-quality user experience that would really elevate the space - and, most importantly, given our finances, be built today.
After the regulatory and technology pivots of Q2 2018, we refunded a few individuals and institutions that had pre-purchased EMX Tokens thinking we would be a decentralized, US-inclusive exchange. This was a tough period for the team, but we had the unwavering support of #Hashed and other strong token partners and a killer group of team members to see us through.
From EverMarkets to EMX
Around this time we got feedback that “EverMarkets” could be difficult to pronounce and spell for a global audience - and EMX.com was available (for a reasonable price), so we made a brand change and looking back, this was a great move. Our brand is clean, sleek, and strong. We became EMX, the EverMarkets eXchange.
Build, Build, Build
At this point sitting in early Q3 2018 we have a regulatory framework in place, a tight-knit core team, a mission we all believe in, and a roadmap to make it come to life. We’re hard at work writing specs, building cloud infrastructure, storyboarding trader scenarios - y’know, the fun part. This is the start of crypto winter, but no matter; I’m happy to have the focus 100% on building product and executing. Sitting in our office in Palo Alto in Summer 2018, it’s time to build.
One of the perks of our Palo Alto office -- being able to WFP (work from the pool!)
Release 1: Compliance
From the beginning, we realized that know-your-customer (KYC) and anti-money laundering (AML) rules and procedures were going to be paramount in this space. In 2018 and even to this day, we’re frustratingly often compared to platforms that do not require traders to verify any aspect of their identity. We’ve never believed this was sustainable and thus one of the first systems we built was our onboarding process with a strong (and mostly automated) KYC / AML process. As we see leaders in the space begin to capitulate to regulators today, our compliance history and processes remain an asset that we’re proud of. In Q4 2018, we ran a stress-test of our onboarding process by launching a referral and rewards program that received thousands of registrations. The first piece of the EMX platform is launched and ready for users around the world!
Release 2: Testnet
Throughout holiday 2018, our team kept building. The idea of “frequent batch auctions” espoused in Prof. Budish’s paper stuck around and remained an excellent way to combat predatory HFT that was becoming more and more prevalent in the space. At this point we were building a high-speed, scalable matching engine; REST and WebSocket APIs; and a clearing house that supports Bitcoin as collateral. In November 2018, we release the EMX Testnet - greatly expanding our community and building excitement for our live release.
EMX Testnet in November 2018
In March 2019, we also bring on two key investors and partners, Bain Capital Ventures and Jaan Tallinn. Salil from BCV and Jaan are incredibly excited to join forces with us to make our mission a reality and “level up” the trading experience for traders around the world.
Release 3: Mainnet
In May 2019, after a period of breakneck-paced development and planning, we’re ready. Everything is in place for live launch. We’ve built a secure crypto clearing house (in partnership with BitGo). We have a Bitcoin future (our first contract) ready to go - and market making support from our internal team to launch it. On May 20th, we open the doors of our first live-money exchange to our friends and family! We slowly let users off the waitlist and then on June 6th, we open to the public. After all the ups and downs that we’d been through, our team powered through and launched a live derivative trading system with a UI / UX that receives near-universal praise. It’s fully crypto-native and all running (smoothly and without major hiccups) for the world to see. We’re incredibly excited.
Throughout June / July 2019, our team’s velocity grew and grew. We released perpetual swaps, variable leverage (to allow traders with different position sizes to trade with different leverage multipliers), and a suite of traditional contracts to pair with our crypto offerings (including a US equity index, gold, and the Euro). Meanwhile, we’re responsive to early user feedback and build new order types and push critical improvements to the web app and API. By the end of July, we have a fully-featured crypto-native trading platform open to the world that provides safe and fair access to global markets (across four asset classes).
The live EMX exchange today
We’re beyond proud. Feedback from our small but dedicated early user community is positive. Retention is strong. Our sole focus becomes growing our audience, optimizing our funnel, and launching the EMX Token.
The Road Ahead
So, here we are. Our entire team is hard at work preparing for the EMX Token launch. We’re implementing spot trading and multi-collateral support to support the launch and we continue to research and list unique new contracts. Meanwhile, we’re designing and building social trading features to solidify a sense of community for EMX traders. We’re dedicated to improving liquidity across our marketplace and we remain on the hunt for partnerships - especially with exchanges and especially with those with a focus outside the US.
As we’ve evolved from EverMarkets to EMX and as we’ve pivoted through a myriad of changes to deliver our product to the world, our mission has never wavered. Today, we’re proud to offer a safe and powerful platform to a worldwide audience enabling access to truly global markets - all crypto-native with a fair auction-based market structure, just as we envisioned in 2017. The EMX team is not slowing down and we’re elated to have our community and EMX Token partners along for the ride.
The EMX Tokens or any rights to acquire EMX Tokens are only available outside of the United States and to non-U.S. Persons, and are not available to persons with whom, or in jurisdictions where, transactions involving digital assets are prohibited or in any manner restricted by applicable laws or regulations.