Doug Colkitt - The Evolution of Markets

**Patrick O'Shaughnessy** (0:00)
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Hello and welcome everyone. I'm Patrick O'Shaughnessy and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, stories and strategies that will help you better invest both your time and your money. Invest Like the Best is part of the Colossus family of podcasts and you can access all our podcasts including edited transcripts, show notes and other resources to keep learning at joincolossus.com.

**SPEAKER_2** (2:10)
Patrick O'Shaughnessy is the CEO of O'Shaughnessy Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaughnessy Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.
Clients of O'Shaughnessy Asset Management may maintain positions in the securities discussed in this podcast.

**Patrick O'Shaughnessy** (2:33)
My guest today is Doug Colkitt. Doug has spent his career searching for and trading in efficient 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.
So Doug, this is gonna be a really unique episode. You've been one of the people that's taught me most about the world of market infrastructure and how important it is to functioning markets, but also how interesting it is to traders, investment strategies, crypto, which we're gonna spend a lot of time on. I think because you've had a really unique personal history, it's probably the right place to start with just a thumbnail sketch of the major stops of your career up through this point, because I wanna lay out for the audience why you're the right person to talk about the evolution of markets and why this kind of emerging space is so interesting.

**Doug Colkitt** (4:06)
Studied computer science and finance in school, and then out of school, I started working for a hedge fund Citadel. Most people heard of them.

**Patrick O'Shaughnessy** (4:16)
Stealer of constitutions.

**Doug Colkitt** (4:20)
Maybe not the most popular nowadays, but definitely some of the smartest people out there, so I was really lucky to start my career there and learn from some of the best people in the industry. It was actually around 2008 when the financial crisis, everything was going to hell, including most of Citadel, but the one group there that was consistently making money, making a ton of money was the HFT Group. So it was kind of the space everyone wanted to be in, especially around that time. So I joined the HFT Group there, initially working on what they call alpha signals, which is statistical modeling to predict where the market's going over the short term. It was at Citadel for a few years and then left right around the flash crash. I decided just to go out on my own and see if I could build the whole stack myself. And originally I was trading at the CME, trading the index futures and the bond futures for a while. That was pretty competitive. I kind of decided, okay, that's the most competitive area. Let me see if I can get a toehold there and then if I can trade that, I can trade anywhere.