#citizencosmos

  • Episode link: https://www.citizencosmos.space/microtick

  • Episode name: Mark Jackson, options, cooperative price discovery & fair arbitrage

Transcript of the Episode:

[00:00:00] Citizen Cosmos: Hi, everyone! Welcome to another episode of Citizen Cosmos. We have Mark with us today, the founder of Microtick. Hi, welcome to the show.

[00:00:29] Mark: Hi, thank you for having me!

[00:00:32] Citizen Cosmos: Yes, thank you for coming. It wasn't that easy to find you from what I heard from my team, they said you weren't very public, but maybe we can talk about that as well if you want. First, I'll let you introduce yourself in your own words. Tell us who you are, what you do, and anything else you want.

[00:00:48] Mark: Sure. My name is Mark Jackson. I founded Microtick back in 2003. It was originally a for-profit company. This was before Bitcoin, blockchain technology, and after a series of events. We were trying to figure out ways of bringing forth a new type of financial product at the time: a short-term option contract. These option contracts have fixed explorations and fixed strikes, and that's the way they are standardized. And the challenge is to bring liquidity to all the various issues. And as you deal with shorter and shorter timeframes, your choices for standardizations multiply because, with shorter timeframes, you might have expirations of 5 minutes, 10 minutes, or 15 minutes. I'm exaggerating, of course, but you can see that providing liquidity for all of the different issues can become a challenge. And so what Microtick was involved with at the time was pioneering a new way to standardize options using relative strikes and explorations. In other words, as the option contract triggers, the expiration is set at a fixed duration from when the option starts at all times. And the challenge you receive or come across when you're trying to standardize in that manner is what is the correct price at a given time. And so the second challenge that we had to solve was how do you get the right price? And so, I figured out a way to use the option contract prices to derive the current price so that we didn't have to import it from a different exchange and, therefore, create a self-contained market. We thought it was pretty innovative. It may not have been, we don't know, but we did talk to several exchanges in the United States and the 2003 to 2005 timeframe. We got feedback: “Hey, that sounds pretty cool.” But at the time, we were not interested in partnering with a small company like that. There were many discussions when you were talking about a massive entity as a small business. There are a lot of challenges there. And so the project got tabled for a while. We then moved on, and during that timeframe, Bitcoin came along. I was very interested in technology back in those days. I was at the Miami Bitcoin conference, where Ethereum was introduced, and Vitalic introduced that in Miami in 2014. And I got very interested in Ethereum. And so we started working with Ethereum. I had a set of smart contracts that we developed back then, and it had to work operationally on Testnet. I realized with crypto that we were going to do the same thing because with short-term options, you're, you're, you're talking about a lot of transactions. The network just couldn't handle it. There was no layer to use at the time. So it was a challenging set of problems you're facing when technology evolves as fast as your development.

[00:03:52] Citizen Cosmos: Quick question there. Something like payment channels couldn't work?

[00:03:55] Mark: Potentially. I mean, we looked at various options, and we didn't have a team that could fully investigate all our different options. So what we did was a high-level overview of what the challenges were. This was back in 2017, probably that time, and we arrived at Cosmos because it was fairly advanced technology compared to some of the other solutions we saw. We did a pivot and a second pivot and developed a set of smart contract rules. We developed a blockchain node that has the rules embedded into the code. And we did that, which brought forth the Microtick chain in its current form. I made a short question into a long answer, but I hope that gives you some background and let you know where we stand.

[00:04:48] Citizen Cosmos: It does, that's for sure. I have a lot of questions, but I'm going to try and go easy before I ask some questions about you, your history, how you got here yourself, and how you got to start that company. When we go into the Microtick website, it says it's cooperative price discovery. Now let's break that down. Imagine that somebody doesn't understand a word in that. I guess, for a lot of people, sometimes myself, it could confuse me. What is the essence of your own comments about the cooperative price discovery?

[00:05:26] Mark: It's a good question. It's something that is not bantered around in the financial markets typically. I mean, usually, you have a marketplace. That's a bid-ask order book or something like an automated market. And people take different positions, either going higher or lower, based on what they see as their outlooks for the market. That's a form of price discovery. It's a competitive price discovery because someone else has an opposing interest in the opposite direction in every position you take. And the price goes up and down based on. If market participants share the same outlook, the price will sometimes go up rapidly in the form of a pump or a dump. If it goes in the opposite direction and price discovery, price results in an unstable market over short timeframes. You get these trendy transforming either pumps or dumps in various directions. And then they correct. And so it leads to a lot of volatility. In terms of cooperative price discovery, we see a different way to solve the problem of participants agreeing on a price. What I mean by that is blockchain is decentralized. It allows multiple people to participate from all various jurisdictions and wherever they happen to be. And we know one of the problems in blockchain technology is importing prices onto the chain. One thing we wanted to do with Microtick is because we were able to take these price assertions and import them onto the marketplace, then leverage them out in the ways that a lot of these Oracles that you see have been developed work. We're doing the same thing. But the difference with Microtick is that you can hedge that price. You can take a position because they're making assertions that get traded out as market options over a short time frame. And so, you end up with a form of price discovery that is cooperative because you have that averaging effect. It allows participants to jump onto a market and gives a voice in the market to people who don't necessarily want to take a position in either going up or down. It's a voice in the market for people asserting that the price is what it currently is. And so we think that the two markets, side by side if you have a competitive model that can be hedged against a cooperative averaging market, might tend to average out some of the volatility over short timeframes, which benefits everybody. I think because these pumps well, except for the people profiting off of pumping and dumping, maybe some of the high-frequency tradings would tend to in a little bit less opportunity. Still, for the most part, it's just a different form of importing prices that we think will result in a much less volatile process.

[00:08:16] Citizen Cosmos: Of course, this is less space for price manipulation, as far as I understand. But let's break it down even more. We hear the words, price manipulation, and if you're a trader, you more or less understand if you're technical, but how would you explain it in your words? I had this question before somebody asked me. What is price manipulation? Sometimes, especially on the blockchain and it's hard a little bit to answer sometimes. How would you, in your own words, explain how it physically works on a stock market that Microtick can prevent?

[00:08:46] Mark: Obviously, there are probably lots of forms of price manipulation. I may not be familiar with all of them but typically, what you'll see is market-makers flashing large buys or sells just outside of the competitive market and kind of signaling that they have a high volume of interest in a specific direction, which then causes other participants to see that large wall set up and think that the price is going to soon move in a particular order. Therefore they take a position, and the market goes in the other direction. Surprise. That's what I think of when I think of price manipulation on a traditional order book. The way that my critique would be in that type of situation. It is working with price assertions that can be, traded in either direction. So it forces the market maker to take a position in the center of the price, and the orders that can get sold first are on the outside of that kind of bell curve of charges that we set up. You can't flash an order outside the market without being the most competitive order on the market. So you will get traded first as opposed to a traditional order, but those orders that get flashed on the outside bids and ask never get sold and taken off before the market reaches them. So that's what we mean by helping out with price manipulation. And that's explicitly referring to order books.

[00:10:13] Citizen Cosmos: I will return to my critique. I will. And I want to come back as well to some of the economics. But before that, I do want to understand a little bit more about you. There isn't much information on the Internet about you. You had quite an extensive career in quite different companies. lt was ShapeShift, HP, Thunderbird gaming. And you also had many patterns in gaming and trading systematics. I would love to hear about that. How did you get from what looks like quite a successful career in the everyday world to starting in Microtick, Ethereum, and Cosmos?

[00:10:50] Mark: Yeah, you've done your research. I try to keep my public profile low. I'm not a personality type that participates much in social media or things like that. Career-wise I've been in a variety of positions. I have an extensive coding background. My education was in electrical engineering. So I've got some electrical background engineering and antenna design background, but I never used that in the real world. It was all software. I've done quite as you said. I've got a few patents. I've done some innovative work in a variety of fields. What led me to this particular opportunity was just my interest in trading. I've always been interested in how markets work and how you can improve them. And that was even before blockchain technology came along.

[00:11:46] Citizen Cosmos: What led you to it? Was it just curiosity or something else?

[00:12:03] Mark: Well, specifically, electrical engineering has described a field of study called signals and systems with linear time and variant systems. High, And then you start diving into how you can make these systems work in the analog and digital time domains. And my interest was always in the computing side of things, precisely in discreet, linear time and variant systems. And that are things like digital filters and stuff you might build using computer technology. So I was working with that kind of stuff. And as a grad student, I never completed grad school, but that's what I was working on. And then, some of the things I worked on with my career was also in the same area and was just a natural evolution as you get into markets. And then, with blockchain technology, blocks come at infrequent intervals, sometimes because they're probabilistic in their finality. So it leads to a specific set of problems that you can imagine. It kind of attracted my interest, given my background. So that's what led me down that path. And that's where I'm at right now.

[00:13:12] Citizen Cosmos: When did you start? When did you start working with the software? I imagine 25, 30 years ago?

[00:13:18] Mark: Oh yeah. A little bit of background. I'm in my early fifties. So I'm an older guy. I'm not your typical age group for a lot of this technology. I've noticed that when I was at ShapeShift, I was probably one of the older guys there, but that's a good thing.

[00:13:31] Citizen Cosmos: I had Willy on a while ago. When you asked how his day was, was he telling people he was having the best day ever?

[00:13:36] Mark: Famous quote!

[00:13:37] Citizen Cosmos: He's fantastic. I liked him a lot. He surprised me with this “I'm having the greatest day ever.” And I was like, what? Then he said he’s been saying that for five years. Sorry to cut you out there. By the way, I've been in blockchain for a while, and I've seen quite a few guys about your age.

[00:14:30] Mark: Yeah, I'm exaggerating. Of course, older guys can be interested in blockchain technology. To answer your question about when I started coding, my first program was written using punch cards on a mainframe. My mother was enrolled in a class in college, and I was a young kid. I was probably eight or nine years old, and she taught me how to do it in Fortran. I made a program that calculated the number of inches from the Earth to the Sun.

[00:14:44] Citizen Cosmos: I would love to use punch cards. I never did.

[00:14:50] Mark: That was the only one I ever did. We're at the tail end of that era, but I did a punch card program at one point and then moved on to Apple, to programming. When the Apple 2 was famous, I did some assembly language programming. I taught myself assembly language when I was 12.

[00:15:04] Citizen Cosmos: Wow.

[00:15:05] Mark: that kind of gives you some background. I'm a self-learner, and all the stuff I did was concerning code.

[00:15:12] Citizen Cosmos: Excluding the punch cards, what was the first machine you started to code on then. Do you remember?

[00:15:17] Mark: That was the main frame we used at the university at the time. But the first computer we ever owned was an Apple 2 clone. It was a Franklin. And that's where I started programming using those floppy disks. I have to boot up every time and have the OSTP load, then drop down into the monitor and begin again. We would hand-compile our assembly language programs into bites. And then, I would sit there and type these programs in hexadecimal. Tracking down the bugs was super tricky. But at the same time, it was educational because you really start to understand what is underneath the hood and on this, and translating that directly into what we're doing with smart contracts. The EVM is kind of at that same level. So understanding and knowing how virtual machines operate in the way byte code works and things like that is directly relevant to many things that people still work on in today's technology. So I think I'm happy that I had to go through all that trouble at a young age.

[00:16:29] Citizen Cosmos: It makes a lot of sense, in my opinion. I don't remember what book it was, but the author explained the coding starting from mathematics. He said we use the decimal system because we have ten fingers. If it were a dolphin, he would use 2. And if you teach a kid any other method, apart from the decimal, they will immediately know them as adults. They will learn to count on all of them. So I can imagine that knowing what's under the hood makes you understand much better what's on the application level and what's not at the application level.

[00:17:10] Mark: I agree with that.

[00:17:13] Citizen Cosmos: When did you first encounter blockchain technology?

[00:17:18] Mark: I think I encountered it in 2012 but didn't bend on it. I got interested when it started to become programmable at the time when Bitcoin was just starting to get its capabilities. I was also looking at some other technology. I forget what it was even called.

[00:17:50] Citizen Cosmos: Did you buy into the tokens, or did you not participate in the trading?

[00:18:06] Mark: I participated in the Ethereum crowd sale. So that was a good thing? On the other hand, if Microtick was implemented on a theory, it might need to have some coins to pay for gas. So I wanted to have some for sure.

[00:18:24] Citizen Cosmos: And talking about implementations and Ethereum, I did have more questions. Now that you mentioned the project, I understand it’s moving from Tendermint to Ethereum, right?

[00:18:40] Mark: Well, we have not decided on a layer for the chain as it moves forward. What we're trying to do is to move away from the chain. The project lacks the resources to run and maintain Tendermint and Cosmos SDK for a week. The SDK is excellent. It makes it easy to develop your rules. You must ensure that your chain is always on the reasonably recent tip of the development chain because incompatibilities and things like that could be introduced. There are many requirements for maintenance and chain maintenance. That we just don't have. The project has not evolved to that point yet. So we felt it would be the best and most beneficial to the project to pivot it away from having to maintain our chain and move towards something that might be a little bit more self-contained while we're still trying to get adoption. And at the same time, we have token holders, and we realized that. So many people have invested in the project, and we want to be fair to them. And so we came up with a way to hopefully do that still but adequately allow us to allocate some tokens for fundraising. That's the one thing Microtick has never done: raise funds for the project. It's been bootstrapped from day one and then volunteer up to this point. And at some point, maybe it would make sense to move on and create something a bit more formal to support the development. A lot of that depends on proving out the concept, proving out the code. I think we've done that with the current chain, and although it never got a lot of adoption, I think I'm pretty comfortable that the idea can work, whereas before, I wasn't. I think we've accomplished something, but it is time for a pivot because we need to make sure that we are realistic about the resources we can invest in maintaining.

[00:20:39] Citizen Cosmos: This is an honest answer and makes a lot of sense, in my opinion. I have been launching projects before, so I know how much money they eat. Does Microtick have a community pool currently, or does it not?

[00:20:54] Mark: It does. Yeah, there's a community pool. Unfortunately, the token, along with every other token, seems to through quite a bit of selling pressure over the last 6 to 12 months.

[00:21:06] Citizen Cosmos: Percentage-wise, what's the amount of the funds in the community pool? That could be used as a bonding curve and raise fines. Why on Ethereum?

[00:21:20] Mark: Microtick is going away. The project will become DiscoveryDEX. The communities voted on that. And so we've got a logo set up and a website starting to be set up. We've got a Discord channel that's going to be public soon. There have been many people helping out with that, which I greatly appreciate. Thanks, guys. What we're going to do is one of the things that we want to do since you brought up automated market-making Microtick. We learned how it currently works that market makers must come up with their price assertions. They also have to come up with some sort of an idea of what is a fair price for volatility in that is what the option premium is because when you specify a premium, you're saying, “I am pricing the current market volatility at this price over this time duration.” And that's how you come up with your price assertion. And the problem with that is nobody understands that, or at least very few people understand it. It makes it much harder to bring people into the market when they have to understand these esoteric concepts. So we're trying to do Microtick version two to move the premium pricing part away from market-makers competing into a liquidity pool approach. That's more of an automated market maker type approach where the premium moves up or down based on whether people are buying or selling tip on the market. Market makers will no longer have to come up with their tips. They just contribute liquidity into a pool and then contribute their assertions. Everything else would work the same when trades get moved from the liquidity pool into the collateral pool. The current protocol works like this: when the transaction happens, the individual market maker that's backing the business has all the risk of price movement over that timeframe. Instead of creating the automated market maker, we're going to make a collateral pool where that risk is democratized among everybody involved in the trade. You no longer have a chance against a specific trade over a specific time duration. Still, you're involved in a collateral pool where if a bad trade happens, it's shared among everybody, but at the same time, profit is also shared between parties. And so it's just a way of creating a way to offset some of that risk encountered with my particulars.

[00:23:57] Citizen Cosmos: So as Microtick moves to whichever layer, it will become more like a service, like a content oracle. Or will it be an application as well of its own?

[00:24:18] Mark: Initially, it will be just the price discovery. One of the interesting things about Microtick is we decouple the price discovery part of markets from the trading part of markets. And to my knowledge, I've not seen that done anywhere else. And it's so it's fairly unique, but I think we've got that kind of a concept working on the current year. It's documented on the website how it will work as we move to the DiscoveryDEX version two. If you can get your price discovery based on option pricing, you can then trade your actual tokens or whatever your asset is using futures. And the two can be hedged against each other in a natural way that allows you to create market prices that can be discovered in an independent set of smart contracts. And then, we can do the futures trading as a separate set of smart contracts that use the Oracle price generated from the first set of smart contracts for the futures price. And what happens when you do that is you come up with a stable price discovery mechanism based on Oracles and averaging that can be hedged against your AMMS that are sitting out there. Suppose we're trading futures on a set of tokens, and then your AMM calls it a unit swap, and you're trading the same tokens. Now you've got offsetting positions that you can do. You can arbitrage between those two markets, but at the same time, you can hedge against your Oracle price. So it's a different way of arriving at the same result, but we think it will be a more stable price discovery process. Having the two markets side by side will benefit both because it's a liquidity engine for both because of the potential for arbitrage. Suppose you have a pump over a short timeframe, and the price DiscoveryDEX price is lagging because it's an average. That will tend to happen naturally just because you have market makers that don't all update their quotes simultaneously. Therefore, your price on the Microtick market is lagging price on the AMM has pumped because all of a sudden, you've had the alignment of everybody buying at the same time, driving the price up. Now there's an arbitrage opportunity between the Microtick price and the AMM price, which will tend to bring selling into that market. It'll bring buying into the Microtick market, bringing the two prices naturally together without the market makers having to quickly jump on it. Update their prices like you would have to with a typical Oracle. And so the fact that you can hedge the price on the Microtick market is an advantage over a traditional Oracle.

[00:27:06] Citizen Cosmos: As far as I understand the plans of Ethereum, technically, Microtick can still have its chain in the future.

[00:27:20] Mark: If we have a standard backing token, and that's the idea of the discovery token, that token can be used as the same backing across multiple chains. Because it's just an average, you can combine the liquidity from multiple chains simply because it's just math. It's not like an order book; combining an order book might be very complicated because you've got to take all the orders. It becomes intractable quickly because all the orders on one chain would have to be combined with all the orders on the other chain. And as you do that, you might get markets or whatever else. So it's a complicated process. But when you're just working with an average, it's two calculations. You can combine the average on one chain with the average on the other to arrive at a combined price.

[00:28:15] Citizen Cosmos: And I imagine by the time the development will come to the point of production, l imagine there will be some proper bridge, and it will allow executing contracts from Ethereum to Cosmos? How long do we have to wait for that?

[00:28:38] Mark: It's hard to say. That would be exciting. I think that's probably the next challenge facing blockchain technology in general because chains will not go away. How do you combine and make it work, no matter which chain you use? How do you offer services that are compatible and interoperable?

[00:28:57] Citizen Cosmos: I have some more questions about Microtick. A lot of the time, we have founders and CEOs, and we ask them questions about the projects about the history. You've said where you started, why, and how you ended up in Cosmos. But you also mentioned the lack of funds and like quite a humble way of doing the basic work in a volunteer way and never having to raise funds. What would you advise or not advisable to do or not do?

[00:29:39] Mark: Well, it is what it is. It came together the way it did because of the people involved. Every project will be distinct because you have different people involved in different projects. But in our case, I can't necessarily advise other projects because I don't know what their situations are, but I can say I'm comfortable with where the project is headed. Evolving has been slower because we didn't take the funding approach. I didn't want to take that approach because I didn't necessarily want to approach it as a centralized entity. Initially, we had a for-profit company, and we tried that approach, talking to exchanges, but it didn't work so well. But then you get to blockchain technology. And what happens if you open something like that up? And if you can attract developers and things in a decentralized manner, it's kind of an experiment. Will this result in something that is viable, or will it just fall flat on its face? Due to a lack of resources, the current chain has done well. We'll pick it up and pivot while being fair to the token holders. We've got some ideas to move it, eliminate a lot of the complexity, and see where it goes. I've always said that it's a riskier technology because it wasn't proven when the Microtick chain was first started. We had no idea whether it would be a stable, viable process or whether people would want to use it. And we did some experiments internally, and we got feedback that once people understood it, they thought it was enjoyable. So I think it has potential, but we must figure out how to present it better.

[00:31:40] Citizen Cosmos: I was going to say that even though I'm a token holder, and that's a simple thing to say, I think what you're saying is quite important because I would rather see a project with value. And it's coming in a decentralized way. And sometimes I can see a lot of projects, which started as one, changing towards the worst as they go. So I would instead take the loss. I didn't mean to develop but stay true to its values and cores that initially attracted me to this idea rather than make profits. But in a way that makes you think if it is a fair way to make a profit, the advice I hear from you is to stay true to your ideas.

[00:32:49] Mark: Interestingly, you say that. If we were to go out and try to get all this funding and become a centralized entity with my values, there would be a disconnect, and I think that's a direction I'm interested in. I mean, I've opened up this project. The company Microtick LLC was disbanded at the end of last year, and the patents we had have been abandoned formerly, and we're not paying for any maintenance on those or anything. So this project has opened up, and someone else's wants to come in and may be motivated to lead up a centralized entity like that that would do development. I would love that that would be something that I would contribute. But that's not my personality type. It's not something I'm particularly interested in. At this point, I've done startups before and didn't have much fun with them. So I think you must be true to your values and understand your objectives. And in this case, Microtick has been an experiment from day one, and there have been no guarantees. I've put tons of time into it in resources, but it is what it is. If it succeeds, it will not be just me doing it. It's got to have other people involved. And so I've opened it up, and let's see what happens, I guess.

[00:34:05] Citizen Cosmos: I think that's the right way. This is my personality type as well. I guess we kind of meet each other's values here, but it's unfortunate to see, I know that maybe some people aren't like what I'm saying. Over the years, I've not seen many people in blockchain stay true to their values. I'm not saying that blockchain has to follow the centralization philosophy. Those are two separate things, but it's nice to see that there are still projects and people who stay true to those ideas. And I think it's very important because if we didn't have that, there would be no balance between how the technology is developing. Mark, one last question. What keeps you motivated?

[00:35:26] Mark: I think it's a little bit just like with Microtick, the idea of spending so much time thinking about it. It's hard to put it down. And so I just naturally start thinking the ways of how can we improve that? How can we make the markets better? And since then, it's evolved in how we can improve blockchain technology? And how can we take the lessons we've learned and apply them in slightly different ways to solve problems that maybe other people haven't thought about. So problem-solving is number one, with maybe just a touch of competition and saying it can't be done.

[00:36:02] Citizen Cosmos: That's a great answer! I love it. Thank you for coming. I'm looking forward to seeing how it's going to develop.

[00:36:15] Mark: Sounds good. I hope it was helpful for everybody that's listening!

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