Doug Colkitt is an ex-high frequency trader, ex-MEV bot searcher, and founder of the decentralized exchange CrocSwap. In this episode, we talk about all three.  We begin with high frequency trading, where Doug walks us through the differences between maker and taker strategies, why queue position is so critical for makers, and why volatility is a high frequency trader’s best friend. We then discuss Ethereum-based MEV strategies.  Doug explains what MEV is, how the architecture of the Ethereum block chain allows it to exist, and a high level topology of the different types of MEV strategies that exist.  He also explains how the game theory behind MEV changed dramatically with the launch of Flashbots. Finally, we talk about his new decentralized exchange CrocSwap and its primary innovations, including dynamic fee levels, identification of toxic flow, and vaults that enable KYC. I hope you enjoy my conversation with Doug Colkitt.

My guest today is Doug Colkitt. Doug has spent his career searching for and trading inefficient markets, first at Citadel’s high-frequency trading group, then for himself, and then as an operator building CrocSwap - a decentralized exchange or DEX designed to bring modern functionality to crypto markets, which is closer to what large traders have come to expect from a modern electronic market like the NASDAQ.  My interest in market infrastructure has continued to grow since my great conversation with FTX founder Sam Bankman-Fried. So my conversation with Doug covers the evolution of market and trading infrastructure. We unpack the trading stack as it exists today, dive into DeFi’s innovations, and explore the new category of single contract DEXs that Doug is creating. After learning so much from Doug about how markets function and how crypto markets should function, I became an investor in his new business via my venture capital firm Positive Sum. Please enjoy this great conversation with Doug Colkitt. For the full show notes, transcript, and links to the best content to learn more, check out the episode page here. -----Invest Like the Best is a property of Colossus, LLC. For more episodes of Invest Like the Best, visit joincolossus.com/episodes.  Past guests include Tobi Lutke, Kevin Systrom, Mike Krieger, John Collison, Kat Cole, Marc Andreessen, Matthew Ball, Bill Gurley, Anu Hariharan, Ben Thompson, and many more. Stay up to date on all our podcasts by signing up to Colossus Weekly, our quick dive every Sunday highlighting the top business and investing concepts from our podcasts and the best of what we read that week. Sign up here. Follow us on Twitter: @patrick_oshag | @JoinColossus Show Notes[00:03:31] - [First question] - Doug’s career and history working with markets[00:08:55] - Defining what a trading stack is [00:13:41] - How HFT firms are such reliable money-making models[00:16:27] - What’s at the cutting edge of traditional markets that provides an edge[00:18:45] - The mechanical parts of infrastructure involved in building an exchange[00:21:00] - Classes of data that matter for operating an exchange[00:22:11] - Capacity and what good returns are as an HFT firm[00:28:45] - Overview of the mechanics of an AMM[00:31:53] - Earning a yield as a liquidity provider[00:33:59] - Other ways to think about AMMs and liquidity providers[00:36:42] - Key players in the AMM space and the evolution of them[00:41:20] - How asset holders can approach DEX tools and be liquidity providers[00:42:55] - The function of an exchange’s native token[00:45:25] - Token distribution and how to earn them without buying them[00:48:31] - How you receive payment for providing liquidity[00:51:31] - What CrocSwap will do and what a single contract DEX unlocks[00:57:36] - How CrocSwap is able to do this when other exchanges can’t[00:59:27] - What single contracts will improve for users [01:00:43] - The impact CrocSwap will have for all participants writ large[01:02:28] - Whether or not CrocSwap will cultivate an ecosystem[01:03:30] - What’s next for CrocSwap in the near future[01:04:58] - The promise of DeFi and the future of blockchain technology[01:07:04] - Whether or not DeFi is a threat to centralized exchanges[01:09:52] - Defining what MEV is and why it’s important for DeFi[01:13:04] - Missing pieces in the DeFi world and how we can address them[01:15:24] - The kindest thing anyone has ever done for him

Eugene Chen, co-founder of Ellipsis Labs, and Doug Colkitt, co-founder of Crocodile Labs, discuss the evolving world of onchain trading and DEX designs, exploring factors like gas costs, latency, and modular "hooks". They debate the advantages of taking DEX components offchain and discuss the end game of DEX design.