Building an Exchange That Wins With Its Traders: Justin Ma and John Lee on Vest

0:00 Hello, everybody. My name is John Lee. I lead BD Partnerships, Affiliates, and Growth here at Vest. And I have here with me my wonderful boss, Justin. Justin, go ahead and introduce yourself. Hey, guys. My name is Justin. I'm the CEO and co-founder of Vest. Yeah, yeah. So we'll start off with a little bit of background. So as for me, before Vest, I was at CertiK, and then I was at a VC firm. I did a little bit of stint at BNB Chain. And then I got into Vest because actually, the first time that I talked to Justin, I instantly knew this is what I wanted to do. I trade myself. I was using Vest at the time, and it was just a no-brainer for me. Well, what about you, Justin?

0:45 I think my background is a lot more complex than yours. I mean, that's a very simplification, but I think if you look at a lot of founders, my background is very, very different than your typical founder, right? The typical founder is someone that has done work in their industry for a decade plus, and then they become experts on that subject matter. And then they make a company on that industry. Whereas for me, it's been, to be honest, all over the place, right? I previously used to work at a cancer research at the National Cancer Institute and then realized that like, Hey, like there's a lot of just BS happening in that industry and really slow work due to just the way how governments and like FDA approval and all these things work. And then I worked at, uh, as a, um, uh, I don't know if I could say the exact position cause, but, but I, I worked under a U S Senator, um, handling a lot of his constituent, uh, stuff. Um, and then, uh, over time, like started doing more consumer stuff. I created a social company, we grew to a hundred thousand users, ended up selling that company, uh, did something with, um, some really, some really successful people. Uh, and then after a while started trading some of my own capital. And I think through that, um, that's when I really started to realize how rigged a lot of the current systems are. And, um, this is coming from like someone from like a market microstructure perspective, right? So my background is a little bit in HFT and quants. Um, the team that I work with has a lot of experience analyzing market and microstructure, uh, for many, many years, we've been doing a lot of open source research into stuff in the space. And we realized how, uh, predatory a lot of this stuff was not just for the user, but also for the sustainability of the exchange. So, uh, over time we decided to, uh, put our research into good use and start building it into an exchange that could be very friendly towards traders. So it's, it's a really long convoluted story. We can go into a bit more, but, um, yeah, there's just, just a lot.

2:59 No, no, that, that, that's super interesting. So before, I mean, my, my next question is, is what is best, right? But before I get into that, your, your background was like very, very diverse. And then you got to trading and then you mentioned like open source research. Like, is there a place where like the, the viewers or like people can find this or? Yeah. So, so very funny story. Um, like, so I'll give you guys like the whole rundown actually. So, um, after, so I, I sold my first company, nothing to do with trading, nothing to do with crypto or, or fintech. Um, it was just a consumer company. We grew, it was like a, like a dating app, very similar to like Hinge, except, um, everyone's fully anonymous. And the idea was to, uh, match people without, um, focusing too much on their looks. Yeah. Obviously, you know, that, that doesn't really go far. Um, but we'll end up selling that company. And then, and then after we had like quite a bit of capital, uh, we were using that to, to trade like algorithmically and doing some HFT stuff on a lot of these early crypto exchanges. Right. Yeah. Um, and this is like back in the day in 2020, 2021, where, you know, you still had like Drift, um, perpetual protocol, like NFTperp, like all these up and coming perpetual futures exchanges on the crypto side, uh, where they're just like creating a bunch of random stuff. Um, that wasn't really the most sustainable. So, um, a sophisticated actor could come in and use that to make a lot of money. And then over time we started to realize that like, Hey, like, um, as like our alpha starts to slowly decay, uh, we like, like we are witnessing all these problems are, you know, we thought crypto was a future of exchanges and we were realizing how poorly built a lot of these exchanges were. So we started just doing open source research. Um, and we would spend hours and hours, um, each week, just, just, just honestly, like, just, you know, just like, like on our, like lunches, like we would just read academic research papers just for the love of the game, just, just for the love of the game, just for the love of the game. Okay. Um, like the most, uh, like I was, I was like, uh, in college back then. Right. And like, uh, the most like, uh, autistic stuff you could ever do as like a, as a 21, 22 year old, just like, you know, don't go out, like, don't touch grass. You're just sitting at home with your buddies, just reading academic research papers and figuring out how we can, uh, improve the space. Um, and we were just publishing stuff, publishing stuff on this like forum that we created, um, without even like an expectation of where it would go. Uh, we were just doing this for stuff that we thought would be the betterment of the industry. Um, so, uh, yeah. And then, and then over time, funny enough, like a lot of people, um, like, like Jane Street and a lot of, uh, of our investors just started to see our research. And that actually was like the first entrance. Um, like, even though we did that just for the betterment of the space, that was actually how a lot of these, uh, really sophisticated players really started to understand us and get to know us better. So it was a little bit of like a kickstart to the, the like journey and credibility of Vest a little.

5:53 That's really cool. So, so all of this leads into Vest, right? So, so like for the viewers at home who doesn't know what Vest is, well then what is Vest? Yeah. So, um, I think that's a great question. So Vest is at a fundamental level, two, two things. Um, the first is we're a decentralized perpetual futures exchange. Yeah. So what that means, um, cause I know that's a lot of words. Uh, what that means is, um, instead of Vest being hosted on servers that are owned by the company, uh, Vest is hosted by, uh, the blockchain, right? Um, effectively what that means is like, instead of trusting like the company to be fully honest and transparent and, uh, like operate these, uh, the servers and the code with full integrity, uh, you can just trust, um, people all over the world that kind of run and power the blockchain to, uh, like for the exchange to, to be fully credibly honest and, and transparent to its users. Um, so like a good example of, of how that looks today, um, especially cause we have a lot of prop trading users is for example, you can see the payouts, right? Um, you can see exactly how many payouts go out and you can see, um, you know, how much of our reserves come in to, to, to fund these payouts. Um, so that's one. Um, so we're, we're a decentralized perpetual futures exchange. Um, we're a perps exchange that's run on the blockchain. And then the second thing, um, which a lot of our users these days really, really love is, um, our, our funded account model. Yeah. Right. So Vest is a, uh, really hot and up and coming funded accounts, um, or prop, uh, model that has just really gathered a lot of attention and growth these days. And I think the fundamental difference about us and other prop firms is that, um, we designed it in a way that is, uh, really, really for the trader. I can go a little bit about that, but, um, please do.

7:46 Yeah. Yeah. Yeah. So, so I think like at the, at the highest level, right. Or to be honest, like, why don't I take a step back? Cause like the way how I see it is like, um, we're very, very different than other prop firms. Uh, and that's not because like, you know, like we saw other prop firms and we were like, Oh, like we don't think they do it correctly. It's actually the complete opposite. Um, we saw it. Uh, we, we actually never really, um, took a lot of analysis from the current prop firm industry. Uh, we just did it. What we thought would be like a complete blank slate, what we thought would be the best way to serve these customers. I think like a good way to explain it would be like, let's say we had a goal of trying to get someone from like point A to point B. Right. Um, if you ask people back in like, I don't know, like the, uh, when did the car come out? Like, like the 1800s or the 1900s, yeah. You ask people back then, like, Hey, like, uh, like how do you, how do you get from point A to point B faster? They would say, Oh, I want a faster or a bigger, stronger horse. Right. Um, and I think that's a very like same thing for Vest where it's like, uh, instead of kind of looking at what the existing industry had, um, we designed everything from the ground principle, like from, from, from, from what, like what we thought was truly best for the trader. So we built quite a bit of things up from scratch. Um, number one is like we built the exchange, um, which has natural price discovery. And then we also built the prop firm on top. And what ultimately this allows us to create is this way that truly is beneficial to the user. Cause as you guys may know, the way how prop models work is, uh, it's a B-book model, right? So it creates this conflict of interest between, uh, the, the trader and the prop firm, because the traders make money from the prop firm's capital. So whenever traders make money, the prop firm loses money. Um, and that creates a lot of these like weird complex rules that, um, you know, I think one is like really hard to understand, but two really hard to trade against, um, on Vest, like you have some of the most simplest rules and you can even customize it to just make it even more simple. Um, so on Vest, like you only have two rules, which is to try to hit your, you know, profit target without hitting your, uh, max drawdown or daily loss. Yeah. Um, and, and yeah, like I, so I think like Vest is, uh, like, like it's funny because the way how we've designed it this way has really trickled down to like second, third, and like fourth order effects, which is ultimately the most simplest prop firm in the, in the world.

10:23 I got you. So, I mean, that, that was a lot, right? So, and don't cut this part out. Shout out to my guys at home, Wiz and Matty, right? Uh, Vest prop firm, uh, out there for future traders. But in your opinion, Justin, so if you were a prop trader yourself, right, coming from traditional prop firms, why would you want to trade on Vest versus let's say any traditional? Yeah. So I think the abstract, like, um, kind of philosophical answer, or like maybe you might even call it ethical answers that Vest is probably the only prop firm out there that has its intentions aligned with the trader. Like at Vest, we're not designed such that when a trader wins, like we lose, uh, we actually win alongside the trader. Right. So I think, uh, because of that, like we, we actually want our traders to win and this ultimately trickles down to like second, third, fourth order effects. Whereas like, for example, one in three traders on Vest receive a payout. Um, in normal prop firms, that's like, that's like, it's like six times the industry average. Yeah. To be honest, I think on normal prop firms, like only like four or 5% people ever receive a payout in their entire lifetime. Um, and we've only been out for, uh, like we've had this influx of growth for about like a few weeks. Right. So I think that number will continue to grow. Um, the second thing is, as I said before, the, the simple rules, right? So Vest has some of the most simplest rules in the industry. And the reason why I think this is really important is because, um, we're also introducing the perpetual future, uh, to prop, right? So if you want to get people to understand the perpetual future, uh, you can't add all these like complex rules, like, uh, consistency, like, um, uh, you know, like, like, you know, like a trailing drawdown, like all this, you know, and then like weird payout stuff, right? You kind of want to make it as close to its raw primitive form as much as possible, which is a perpetual future. So the less rules you add on top of it, uh, in my opinion, the easier people will understand. Yeah. Yeah. Yeah. Okay. So thank you for sharing all of that, by the way.

12:28 So without getting too technical and boring, you know, all the viewers at home, uh, I mean, I'm sure a lot of people have seen the growth of Vest and the popularity of Vest lately. So, because I want to circle back on what you said earlier in that Vest is not just a prop firm. We're, we're an exchange, right? I've been here with the team like over two years, right? It's been a long time. We've, we've pivoted like a million times, right? So maybe like, like walk everybody through like how we got to where we are. Yeah. So, um, I can go back to like the dark ages, man. It's like, so if you go to research.vest.xyz, you'll see a paper called ZK risk that, um, me and some of the co-founders, my, my best buddies from college, uh, published. Um, the whole point of ZK risk, um, was inspired from all of the blowups that happen in the crypto industry.

13:18 So stuff like, um, not just FTX on the exchange level, but stuff like Celsius and these other firms on the lending level. Right. Um, the, the original, like our original goal, like, and, and we got, it wasn't just us that got fucked by a lot of these blowups. Right. It was also a lot of like, we were like all these people around us. Right. And I'm not talking about like, you know, like the average, like crypto bro. It's like, Oh, like they have like six, seven figs and like some exchange. I'm talking about families, right. Um, families, people where, you know, back at that time, there, there were people that, um, maybe, you know, not to the, like the wise decision, but, but they put a lot of money invested into these exchanges. So our goal back then was to try to create a exchange that could, uh, cryptographically and mathematically prove solvency, not just within like a given time, but also, uh, within like a set amount of time. So like within 24 hours, right.

14:08 I can explain, um, that, but like, that's a whole nother can of worms. So we started off as this, um, as like building an exchange that could guarantee solvency and it could guarantee that it would not blow up by dynamically pricing trades against its users. Yeah. Um, and then, um, you know, over time, like we realized that like, uh, at the end of the day, like it's, it's not, it's, it's our job to build what's safe towards the customer. Um, but then it's also our job to build it in a way that the customer will actually like it. Right. So if we build an exchange that could guarantee solvency, but at the end of the day, like it charges like, you know, like 10 times more fees. Yeah. Right. That's not something that, uh, traders might actually like. Right. So, so that, that's, that's what we we've started and that's what like we eventually learned where it's like, okay, like we understand how important it is to build something that is sustainable and very well intentional and well intentioned designed for the trader. Uh, but we also have to package it in a way that, that people like, um, and then over time, like our, our thesis with crypto is that, uh, like the blockchain technology is, is absolutely great. I like blockchain as a technology to guarantee, uh, trustlessness, transparency, um, all this different kinds of stuff is actually great, but, uh, create an exchange for people can trade, you know, magic internet coins, uh, to be honest is, is not the, not, not, not the best thing for, for traders.

15:33 Right. So, um, over time, like we really wanted to push this, uh, gap towards, um, letting more people trade traditional products, um, that might actually have real utility or, or, or real, real, real value. Um, so, uh, that that's when we decided to, um, really, uh, bring, um, perpetual futures to the equity side. Right. Um, and this is something that we've always wanted to do for a very, very, very long time. So, so one of my partners, uh, used to lead, uh, trading teams at Optiver, right. And those of you guys who don't know, Optiver is one of the largest options, uh, market makers, um, for, for the, for us stocks and indices. So, um, like we've witnessed how, you know, the option is the most popular derivative in terms of notional contracts traded within the U S for U S stocks. And we've quite literally like witnessed how much a retail is losing from, uh, just trading options. Right. Cause if you think about it, options were primarily used for, uh, hedging risk, but, um, within the U S there's not many forms of, uh, leverage that retail users have access to. So they end up using just, you know, zero-DTE options as, as their way to trade with leverage. And you end up just blowing up and losing a crap ton of money.

16:52 Um, so, so, so we've always known how, how big of a problem, the, the leverage retail trading space was within the U S and not just within the U S, but you know, globally, um, you have stuff like CFDs where they're a lot more simple to use in options, but, uh, most CFDs, in fact, I don't know a single CFD that's fully A-book, right? Like most CFD products are B-book where you're trading against the, the firm. So you're trading against this casino and they want you to lose. So they end up banning you if you'll make too much money. Yeah. So, so we, we've, we've always recognized that there is a, a growing problem to be able to offer a very friendly and intuitive and not just, you know, friendly and intuitive, but a, a, a business and a, and a platform that is truly, truly for the trader. Um, and not just in terms of like the rules and, and how it ultimately turns, turns out into its form factor, but really just the way how it's, it's fundamentally designed. Yeah. Right.

17:46 Um, and, and I think a lot of things kind of like click together where we were just like, okay, um, if, if we can go out and we can introduce the perpetual future to, uh, traders all around the globe and, and to get them to try to use this product instead of, you know, CFDs where there's a huge conflict of interest or options where it's just really, really hard to understand. And, you know, to be honest, let's be real. Like it's, it's not many people truly like not many people can, can price and understand the math of, of options, uh, to its deepest level. Um, nor do, nor do I think you should, to be honest, cause that's, that's really complicated for just normal trading. Um, so we put two and two together and that's when we realized, um, Hey, like if we could introduce this to the retail market and to, to, to, to get them to trade with this, what we believe is ultimately more friendly asset class. Um, it could, it could really, really help a lot of traders out there.

18:38 Okay. It's funny that you mentioned that, right? So, so the team is from Optiver and then like you've done a lot of, you know, high frequency trading, like research yourself, a lot of, you know, on, on sort of your own reading and then your own blog posts that you posted online. Yeah. And recently from, you know, it was like some of the latest, you know, popularity that Vest has gotten. Yeah. They, they've surfaced the point about, you know, us being backed by Jane Street. Right. And then just now you mentioned that Jane Street noticed you for the, for the research that you put out. So tell me a bit more about that. Yeah. So, um, it wasn't just Jane Street, but, um, it was also a lot of other, uh, really well-known people in the space. Like who, um, like, like what, what firm if you, uh, uh, I'd rather not because, um, I, yeah, yeah. Um, but, but, but, but a lot of our backers, a lot of our backers, um, to be honest, that was a very, um, like a really big moment for us because, you know, just imagine a bunch of like college kids. Yeah. Uh, just like in like some like dark basement, like not like, you know, like we were, I think we were junior or senior year at that time. Um, and you know, junior or senior year, you're supposed to go out, you're supposed, I mean, you're supposed to go out party. Um, yeah, we went to, um, you know, like, like University of Pennsylvania, which, uh, at least like amongst the Ivies is kind of like a party school. Yeah. So, um, yeah, so, so, so we were doing like the complete opposite of, of what any normal 21, 22 year old kid should do. Um, and we were literally just, uh, finding ways to, um, create a sustainable exchange that could guarantee liquidity for, um, a lot of these crypto assets that are super volatile and would end up causing a lot of bad debt that would end up blowing up the exchange. But we were looking for ways to kind of like just create this in a way. And then, um, you know, one thing led to another, you know, we were peer reviewing with some of our friends at Jump Trading. Um, they, uh, they, they brought some friends along at some other firms. One of them was Jane Street. And then the guy who reviewed at Jane Street, um, really looked at the stuff that we were doing and they said, uh, this is the most innovative thing that we've seen this entire year. Yeah. And, um, you know, at the time, like we were still considering building on exchange, but, uh, we, we, you know, when you build an exchange, there's still a lot of stuff that needs to get put into it, right? Like the marketing, the, the compliance, um, all these different kinds of things, but just off of that idea alone, where you could build an exchange that was truly safe for the users, uh, that gave us a lot of just like, oh, like validation, validation, validation, because, um, uh, you know, in, in the crypto industry, there's a lot of, uh, people that, um, like, uh, there's a lot of just like overly done technical stuff that doesn't really get anywhere.

21:25 Right. Um, I think, you know, there's, there's a reason for that because you want to just like, you know, pump the VC bags and just get like a super high valuation. But, um, like we were very, very uncertain about like, you know, like maybe people want to just build, like people, people don't want this, right. Yeah. Um, people just want an exchange that they can gamble and, you know, they can, they can risk, um, the exchange blowing up. But, but when, when Jane Street came in and said, you know, really validate a lot of our work, um, and it wasn't just them, but it was a lot of people that we just really respect in the industry. Uh, that gave us a lot of validation and the comfort to be like, yeah, like, uh, what we're doing, um, is what is ultimately good for the industry. Um, and they gave us some funding and, um, you know, we went from like a couple of broke college kids that were just eating like Chipotle every day to, um, I mean, we were still like being like super conservative on cash. So instead of Chipotle, we were eating a Qdoba, right. So like a few dollars more for, for lunch meal. Um, okay. I mean, you, you say we like a couple of times, right. Is this like, are you, are you talking about your co-founders? Like, like what do you mean by we? Well, well, I think when that story I'm talking about, um, I was talking about my, my, my co-founders. So I have two co-founders, um, Max and Rick. Yeah. They're, they're my two best friends. Yeah. Okay. So, yeah. Um, so you guys are like junior, senior year at college, right. At UPenn. Yeah. Just not going out, just at home reading, literally, literally like just reading research paper, doing research. Yeah. And then like these Jump Trading guys, Jane Street guys, like, like, like extremely sophisticated market participants validated your work. And that's what, you know, basically kickstarted this. Yeah. And it's super funny.

23:05 Cause like, um, we, we roomed with two other people, um, who were like, kind of like the complete opposite of us. Like they're, they're kind of like frat bros. Yeah. Um, so, so there'd be like Friday nights where there'd be like girls at our house and then you're reading the paper. No, no, no. We're literally like, like you're doing math in the, in the corner. Yeah. Like quite literally, quite literally. Um, there, there's many times, um, where like, uh, you know, like people like they, they, they organize a lot of like group trips. Um, and then we were just like, no, like we don't want to go. We just like stay in here and just like, I got to do this math problem, bro. Exactly. Exactly. And like, so like, I want you to try to imagine that time. Cause like, I can't, um, yeah. Cause like literally, literally it wasn't going anywhere. It wasn't like, um, like we had no idea if, if this would turn into ultimate business. It was just pure out of like curiosity and just pure, uh, obsession over trying to solve this problem. Okay. Awesome. So, uh, I mean, I, I think that we've talked a lot of, you know, how, how Vest got to be, you know, where Vest is today, you know, what leads you to this part, like, you know, the team and everything. So I guess we'll end this off with, you know, where is Vest going to be, you know, where, where is Vest going to go? Where, where are we going to take this?

24:13 That's a great question. So, um, our, our mission at the end of the day is to, uh, really invoke our belief and, and, and, and just make our kind of like, just like put our belief into existence that the current, uh, trading platforms out there are not friendly towards retail traders. Um, like whether that's options, CFDs, um, the existing, like even just the way how a lot of these products were built. Right. Um, so at Vest, uh, we're going to continue to try our best to introduce the perpetual future to the, not only, you know, CFD futures and options traders, but to be honest to the rest of the world. Right. Uh, right now we believe that venue is still going to be prop because, you know, prop is really good for limiting your downside. Um, and, you know, trade someone else's capital. Uh, but eventually that will also, you know, like people will eventually just prefer to just start training their own money, right. As they start to understand this product a lot better. So it's going to be our goal to educate the rest of the world to understand perpetual futures through prop, but then, uh, over time, really builds an exchange that, um, is one just interest aligned, uh, both from like a fundamentals, like the way how it's built for also from a UI and UX principles. Yeah. Um, and two, uh, something that many, many retail traders can, can come on, um, and, and, and just trade 24 seven. Another thing that I kind of want to mention is, is also the 24 seven part. Um, I believe that the world is, uh, becoming more and more global. And what I mean by that is an event that happens in China is just as relevant as an event that happens in the U S right. Right. Um, you can think of it like, you know, for example, like Taiwan, 70% of, uh, Taiwan or like TSMC, right? 70% of, uh, TSMC revenue comes from North American companies. So at that point, it's kind of like a North American company. Yeah. But the idea where you can only trade, you know, some stocks at like a certain close period time of the day, uh, even though events all around the world impact this company is a very, very archaic idea. Yeah. Now you can do a quick thought experiment of like, okay, what happens if, uh, people could teleport, uh, from like from the U S to, to China or to like Taiwan. Right. Um, where we, where we still have stuff like local currency, right. Where we still have, um, stuff like, um, you know, like down to even like different stock markets. Right. Um, it's my belief that stock markets will eventually turn 24 seven. Um, and, uh, we as people that are ultimately believing in and building towards the space, uh, we, we believe perpetual futures will lead that charge. And we hope that we can, uh, through this form factor, get people used to trading 24 seven, both from like a timescale, but also with the, the derivatives that we offer them. Awesome. Well, that's all we have for you guys here today. Thank you very much for tuning in. Justin, thank you for having me.