A Perp Venue Asked Her to Trade Her Own Benchmark. She Said No

**Steven Ehrlich** (0:00)
And I want to go a little bit deeper, because I know, and you've talked about how you've been courted by many of the, without naming names, many of the major DEXs and PERP issuers or PERP marketplaces to sort of license your index to them, similar to what the S&P 500 did, etc. And I'm sure that it's interesting, potentially appealing to you, but you did mention how you were also asked a few, they made a few requests of you that you found very unusual and dare I say concerning. So I'd love for you to just kind of walk us through a couple of those experiences.

**Carmen Li** (0:46)
Yes. So again, I'm extremely new to the PERP market. So it was great to receive that kind of enthusiasm from Perpetuity Marketplaces. So I almost say everybody, almost everybody reached out, I'll have conversations. So my question to them is always, hey, love to explore, tell me what should I do? What kind of product that will be interesting enough for your audiences? What kind of relationship are you looking for? A few things, at least all to me from traditional, again, market participant point of view from capital markets is, one of the things that's so bizarre is you ask me, hey, Carmen, aside from licensing indices, will you consider become market maker of your own indices?
I thought they were joking, because clearly there's a huge conflict of interest by me treating my own indices that completely rolled the neutrality from an index provider point of view. By them asking, I thought they were completely joking, and I realized they were not joking. Then I was like, you do realize a big conflict of interest. Are you doing that with any other indices? They were like, yeah, we do have other indices as well. I said, did anyone said no, because by design, they're not supposed to do so.
It was fascinating to me. That was even a discussion to begin with. That is not something I will feel comfortable as a trader. To trade a product, I know the index provider also can trade on products.

**Steven Ehrlich** (2:23)
Maybe just to explain a little bit more. Again, we have a sophisticated audience here, and they're quote unquote bilingual in terms of crypto and tradify. But maybe just give one or two examples for people who perhaps may not understand the significance of you market making on your own index. What are the risks?

**Carmen Li** (2:47)
How do I explain this?
It's almost when I tell my daughter, hey, you can go play if I decided that my work can be done by 4 PM. And then I'm the only person who decided if I could work by 4 PM or 5 PM, then her ability to play or not completely rely on my preferences. So for example, if I have a open interest of a position on my own indices, that's long, it'd be really hard. It's the natural incentive for me to set up my indices at a higher price. Because I will benefit from this particular position versus others, right? Such a conflict of interest and everybody can say, hey, wait, the trading side is different than my index set up on price side. But it doesn't matter, your incentive as a company to maximize your P&L, there's a huge conflict of interest. You can't give the power of deciding some of the prices to the provider while you're trading at the same time.

**Steven Ehrlich** (3:54)
Yeah. I appreciate that.

**Carmen Li** (3:58)
It wasn't even a question, right?

**Steven Ehrlich** (3:59)
Yeah.
It really is. I mean, clearly, it's in your interest for your next to keep going up and up and up. And as you're looking to potentially license to some of these per offerings, and many of which, I think the vast majority of which are, quote unquote, unregulated and probably geo-fenced around offering or servicing US clients. At the same point, I know that there's, I think there's some ETF issuers that are potentially looking to launch products based on your futures contracts at CME. And I could only imagine the SEC and CFTC having some real big questions about the fairness of those products if, like theoretically, you have the ability to manipulate the price of your index that everything is based off of.

**Carmen Li** (4:48)
So it's incredibly important for us to make sure that our neutrality stands, right? As we're going through external audit on our own Silicon Data through our SQL compliance third party lens, right? We have very strict internal trading policies, right? Not only you cannot trade my indices, obviously, but you have disclosed your other positions, right? For example, you loan the media, right? That can be a potential conflict of interest. Everything is taken extremely seriously as Silicon Data, as index provider. As we said, everything in our world, the skill is just unparalleled compared to other parts as a class. That's number one. Number two is, I think it's interesting when I talk to the perpetuity market issuers and market participants, another thing I was bringing up is, how do you make sure the index, obviously, they have their choices, right? How do you make sure it's not be manipulated? It's very important, right? How do you pick up partners?