DeFi
DeFi Developers Behind Crypto Exchange Phoenix Close $20M Series A Round
Ellipsis Labs today announced $20 million in Series A funding, led by Paradigm with the participation of Electric Capital.
The company’s first product, a decentralized exchange called Phoenix, went live in February 2023 and its public user interface was launched last August. The funding will accelerate its efforts to “create a new financial ecosystem offering competitive financial products on top of high-speed blockchains,” the company said in a statement, while merging. ChallengeMarket accessibility and transparency, with the efficiency of traditional markets.
A decentralized exchange is a peer-to-peer marketplace where crypto traders transact directly, without their funds passing through an intermediary custodian, but currently lack the liquidity to compete with centralized competitors, like Coinbase, Binance Or Kraken.
Phoenix is the fifth largest decentralized exchange, ranked by trading volume over the past 24 hours, according to data from DefiLlama, with hundreds of millions of dollars in daily trading volume. The exchange’s on-chain limit order book allows market makers to compete on liquidity quality, the company said in a statement.
After meeting in college, Ellipsis Labs co-founders Eugene Chen and Jarry Xiao pursued careers in high-frequency trading. They launched Phoenix after spotting a problem in DeFi that they wanted to solve: protocols, which guarantee on-chain liquidity at all times, cannot compete with centralized exchanges in terms of depth and spread.
“We believe there is a way to create DeFi products that are comparable to, or even significantly better than, those that exist on centralized sites,” Chen said.
Phoenix’s main goal has not been to offer external incentives (additional tokens) to market makers to provide liquidity: opportunities on the exchange are what should attract them, Chen told Fortune.
“Most of the time, if you deposit money with an automated market maker (AMM), you will end up losing money. And so the way these AMMs are able to attract liquidity is often through incentives to make them profitable,” Chen said. But it is not a sustainable system, he stressed, because it requires a constant influx of outside capital to make the system work. Proving that the systems exchange is self-sufficient is “the most important thing” the company is focused on, Chen said.
The raise, closed earlier this year, is used to grow the engineering team and continue innovation of on-chain financial primitives, he added.
The team decided to build the exchange on top of Solana because of active liquidity requirements, Chen said: “The blockchain has to run very, very fast, so it has to have very high throughput and the fees have to be very weak. » This is because every time a liquidity provider places or cancels a limit order, it takes over the blockchain gas fees.
“We have known and respected Eugene and Jarry for several years, and we are excited to officially partner with some of the most ambitious and principled builders in DeFi,” said Matt Huang, co-founder and managing partner of Paradigm, to Fortune in a statement. .