This episode unveils Cartha (Subnet 35), a decentralized liquidity engine targeting the $7.5 trillion daily Forex market, demonstrating how BitTensor's incentive layer can solve DeFi's cold-start liquidity problem in traditional finance.
Introducing Cartha: A Liquidity Engine for the Forex Market
- The Forex market is the largest in the world, with a daily trading volume of $7.5 trillion, approximately 19 times the size of the entire crypto market.
- The team's familiarity with this market comes from their experience building a decentralized prop firm, giving them unique insight into its massive scale and inherent problems.
- The host frames these national currencies as "memecoins for countries," where their value reflects market sentiment about a nation's future prospects.
The Problem with Traditional Forex Trading
- Urkin, drawing on his 16 years of experience in traditional finance and e-trading, explains the current landscape for retail Forex traders. The primary access point is through CFD (Contract for Difference) brokers, which allow traders to speculate on asset price movements without owning the underlying asset.
- This industry has a historically negative reputation due to early bad actors who operated with a "deposit function without the ability to withdraw profits."
- While regulation has improved, significant issues remain, particularly around counterparty risk. Traders are essentially given an IOU from the broker, with no transparency into the broker's actual collateral or directional exposure.
- Victor highlights the core danger: "When you go back to them, what guarantee do they have to actually fill that trade for you?" This is the same risk that led to the collapse of firms like AIG in 2008, who oversold insurance (credit default swaps) without the capital to cover the underlying risk.
- In contrast, DeFi protocols, built on smart contracts, offer mathematical certainty and transparency, ensuring that settlement is deterministic and counterparty risk is clearly defined.
Cartha's Solution: A Permissionless Perpetual DEX
- The team is building ZeroX Markets, a decentralized exchange (DEX) powered by the Cartha subnet, to solve the problems of access, friction, and transparency in traditional Forex.
- The vision is to create a global, borderless exchange with no barriers, allowing anyone to trade any asset, starting with the most in-demand Forex pairs and precious metals like gold.
- ZeroX Markets will be a Perpetual DEX (Perp DEX), a type of decentralized exchange that allows users to trade with leverage on futures contracts that never expire.
- The platform aims to be accessible to anyone, similar to Uniswap, without direct KYC (Know Your Customer) requirements on the protocol itself.
- The target launch for ZeroX Markets is within 90 days of the episode's release.
The Incentive Mechanism: How Liquidity is Sourced
- ZeroX Markets introduces a novel economic model that leverages the BitTensor network to incentivize liquidity providers (LPs), who are the "miners" on the Cartha subnet.
- Miners provide liquidity by staking USDC into collateral pools, which forms the sell-side liquidity for traders on the DEX.
- In return, these LPs earn a dual yield:
- Protocol Revenue: A share of trading fees and liquidation profits generated by the DEX.
- Subnet Emissions: Cartha's native subnet token (referred to as the "alpha token") is distributed as a reward.
- This "double-dipping" model creates a powerful incentive to provide capital. The protocol also rewards LPs for locking their liquidity for longer periods (up to a year), ensuring stable and predictable liquidity for traders—a feature often missing in other DEXs.
Technical Architecture and User Experience
- Victor explains that ZeroX Markets will initially launch on Base, a popular Ethereum Layer 2 solution, to tap into its deep pool of USDC liquidity and established user base.
- The core mechanics of the DEX will be based on the GMX V2 model, where each trading pair (e.g., EUR/USD) is its own isolated pool collateralized by USDC.
- This architecture simplifies the process for users from other crypto ecosystems. The pitch is straightforward: stake your existing USDC on Base to earn yield from Forex trading fees plus BitTensor subnet tokens.
- Victor notes the strategic importance of this approach: "How do we get more normal people into BitTensor? ... What if you could just stake your USDC that you have on hand and in return you get alpha tokens plus you get some yield?"
- While the initial version may have some BitTensor-native requirements, the long-term goal is to abstract away complexity, making it accessible even to users who have only ever traded memecoins.
Solving the Cold Start Problem with BitTensor
- The conversation highlights how BitTensor's core design provides a unique solution to the "chicken-and-egg" problem of bootstrapping liquidity for a new exchange.
- Traditional DeFi protocols often have to fund their own liquidity pools or offer high token rewards that are purely speculative.
- BitTensor provides an inherent, baseline yield through its TAO emissions, which are distributed to subnets. This creates an immediate, tangible incentive for LPs to provide capital before any trading volume exists.
- This initial liquidity attracts the first traders, whose fees then generate organic yield for the LPs, creating a self-sustaining flywheel. This demonstrates that BitTensor is fundamentally an "incentive orchestration layer," not just an AI-specific network.
Future Integrations and Token Utility
- The team outlines a multi-phased rollout and future plans, including the integration of AI and expanded token utility.
- While the initial launch is not AI-focused, the team sees clear future applications for AI in optimizing liquidity allocation, providing trader assistance tools, and driving market-making logic.
- The Cartha subnet token will have multiple layers of utility:
- Staking: 30% of all protocol fees will be distributed to users who stake the token.
- Governance: A Vote Escrow (VE) model, similar to Curve Finance, will be introduced, allowing token holders to vote on which liquidity pools receive token emissions, creating a secondary market for directing incentives.
- There are also plans to integrate with other projects from the General Tao Ventures ecosystem, such as Subnet 8 (Glitch) and a decentralized prop firm, to create powerful synergies for funding traders and sourcing institutional liquidity.
Conclusion
Cartha's strategy of using BitTensor's incentive layer to bootstrap a Forex perp DEX offers a powerful new model for DeFi. Investors should monitor its liquidity acquisition and tokenomics, as this could become a blueprint for launching capital-intensive protocols on-chain, moving beyond typical AI applications.
