The theories behind a crypto cycle all add up to some number crunching
Crypto AM meets James West, CEO Globe Derivative Exchange…
James West is a man who likes numbers, preferably lots of them. His PhD is in Biostatistics and, at one stage, he was also an ergodic theory researcher.
For reference this is the definition of ergodic mathematics: relating to or denoting systems or processes with the property that, given sufficient time, they include or impinge on all points in a given space and can be represented statistically by a reasonably large selection of points.
I rest my case.
Although West explains ergodic dynamic systems using doughnuts because doughnuts are more interesting than regular planes as fundamentally there’s a hole in a doughnut. When asked if it mattered if it was cream filled or chocolate covered the answer was no, neither made a difference, although usually the math department preferred chocolate filled.
For a time, West was also an entrepreneur in residence which was much more than just about numbers. He was employed by a VC to come up with business ideas in an incubator-like environment with 100 other like minded people.
“It was like being in college, only being paid for it,” he suggests.
While coming from relative financial impecuniosity he was too impatient to fill out the necessary paperwork to secure educational grants, when comparing the effort required in filling in tedious paperwork when he could be studying. When he heard about Bitcoin he twigged pretty quickly but was too busy with his PhD to pay it too much attention. It wasn’t until he joined a hedge fund that it came into sharp relief.
“When you work for a hedge fund it’s your job to make money for your clients and by default for yourself. But I was also investigating the the role that Bitcoin could play in protecting and hedging the world against malevolent governments.”
For West, despite or possibly because of the number-love, he also engaged deeply in the philosophy behind Bitcoin and decentralized finance.
“I don’t think enough people look at the possibility of hedging against the government and to reverse the reprehensible wealth transfer of the last 100 years. Especially in the last ten to 15 years, it’s as though wealth has been siphoned away from the young and poor to the rich and older generation.”
In practical terms West looks at home ownership in London close to where he and his family are based. He points to the abysmal rate of homeowners for young people – the worst ratio in the last 100 years.
West served four years at Grove hedge fund, the final three as head of quant. Interestingly when asked about aligning his social values with the corporate values of his employers, he makes an observation that most of his contemporaries came from equally modest backgrounds and were very hungry to escape said modest backgrounds.
“It gave me a sense of agency when looking at the world.”
His current project, Globe Derivative Exchange, evolved from his role as a market maker. In fact, he reckons that every crypto futures exchange began life as a market maker, notably FTX and BitMEX who indeed were and still are.
Fundamentally, as a futures exchange, Globe allows people to exchange risk.
“We watch the big trends on what is happening in global markets, crypto, spot markets and even the alt coins, which all are gaining liquidity from the futures markets. It’s by far the best place to speculate and also there is much greater price discovery in general in spot markets. So rather than having these really long mega bull runoffs and apocalyptic zero crashes – a bit like at the time of writing – the ability to short sell injects liquidity into the markets.”
Globe, like other future exchanges, has a very broad customer base. Currently, there are approximately 130,000 traders using Globe. Some are big institutional clients with specialised crypto side teams running deals or perhaps small teams of quants who want to run their own kind of systematic strategies. And there are many small day traders from all around the world.
It is difficult to name Globe’s main competitors as this changes year on year, but West feels that Binance would be the biggest with FTX coming in as number two. This moveable feast is connected to the cyclical nature of exchanges. In these cycles, albeit only a decade on, new participants with better features emerge as the founders of older exchanges tend to become rich, lazy and retire. It’s a natural succession.
Which begged the question – what makes Globe unique and whether West would get rich, flabby and leave or would he stay?
West is adamant that he and his team are still very hungry. “We’re the market leader in terms of performance. We are also the industry leader in transparency and integrity of market data.”
Globe was the first exchange to naturally offer traditional market makers access to its platform. It has fixed API and pioneered many new products with more planned in the pipeline.
“We are also technically different and are the most ambitious product ever built in Rust – and that delivers high productivity, high performance results.”
Building Globe after his stint in the hedge fund allowed West to approach this project as someone who was hungry but not broke, who had seen the abysmal services offered by exchanges and the abuses perpetrated by teams motivated by money, not innovation.
“Those teams had stopped innovating and that is where I saw the opportunity.”
Globe was launched in April 2022. For a long time before that, West says they were a market maker. “It takes a year to build an exchange and we got venture capital and started building, iterating each week and building something better, to the point where we are today.”
West calls Globe a last-generation infrastructure and in addition to the 130,000 active users, is trading between $50 to $100 million daily. Core to the stability of Globe is that West and his team built the exchange – in Rust and over a year.
“Many exchanges white label the platform, but we built it pretty much from scratch. I probably spent a lot of my time engineering, maybe a third of original code base – which is long gone now – and now I spend more time doing strategy and managing people.”
What next for West and Globe? Again, it comes down to numbers. He points to a culture in crypto where people do one thing and then retire which takes about seven years to complete.
“We’re about halfway through that cycle by my calculations. Then there are a lot of things I care about and will use about 10% of current revenue to fund more research and development.”
And other things too. Not surprising for a man of numbers, West is interested in longevity, and one of the things that can help is proper nutrition in the womb, possibly the biggest pointer to future brain power, health and even influencing the gender pay gap at adulthood.
And despite the looming recession and possible crypto winter, West is buoyant in his long-term views. In fact, he’s hiring the best talent currently being let go by other exchanges. There is a difference between a person who in hungry and one who works for money – and it’s always better to work for the former.