“If you’d asked people in the late 1800’s what they wanted, they’d have wanted a faster horse and buggy. They didn’t know they wanted a car.”
IDEX co-founder and CEO Alex Wearn is partial to the Warthog. Driving around in Master Chief’s weaponized vehicle brings back fond memories of playing “way too much” Halo during his college days.
Wearn explains that the Warthog is analogous to the upcoming version of IDEX… it overcomes barriers and blasts the competition. But he doesn’t have much time to play video games these days, as he’s fully committed to the launch of a new version of the IDEX decentralized exchange (DEX).
Wearn has a soft spot for the Tesla Cybertruck, too. With its “gas-free” mode of transport, he feels the innovative machine resonates strongly with the character of the platform he and his brother Phil continue to build together: a fast and affordable DEX that will soon offer gas-free trading.
Tinkering with the possibilities
Raised in North Carolina, the Wearn brothers looked up to their father, an audiophile and electrical engineer who loved working with sound systems and electronics. He had a major influence on the way Wearn approaches problems, he says. “I saw him tinkering around the house, which piqued my curiosity about structured systems thinking.”
As a student, Wearn was fascinated with the intermingling of physics and calculus. He marveled at the connections, how derivatives could be determined in calculus as well as modeled in the physical world. “The way those two worked together… that scratched that intellectual itch.”
Fascinated with mathematics and the natural world, Wearn delved into the medical research field, studying the HIV virus. This held his interest for a short period of time, but he soon recognized it wasn’t suited to his interests and talents. The amount of time and effort expended within one tiny segment of a highly specialized field for months, gathering data to write a 50-page paper about the complicated and tedious process, was not rewarding. “I realized that, one; I need much more interaction with people, and two; I want much more instantaneous feedback on my work. The timelines under which you were operating, it just wasn’t satisfying for me from a day-to-day work-life perspective.”
“If you want the exact opposite, join crypto! There’s never a dull moment.”
The exact opposite
It didn’t happen immediately. Wearn jumped into an Economics-Chemistry double major and found work at a marketing analytics startup. The IBM-acquired company used econometric models to help clients figure out pricing and promotion strategies. The tech component of the job appealed to Wearn, a field in which he felt he thrived. He moved into product management roles; first with the startup, later with Adobe, and eventually with Amazon. Earning an MBA in design and innovation with a second degree in product and process design, Wearn discovered that understanding how to build for customer needs is different from just asking customers what they want. Like the horse and buggy, they may simply not know.
Between business school and joining Amazon, Alex joined his brother Phil Wearn to work on a project, taking their first crack at the crypto egg with a startup dubbed Decentralized Capital. The concept of a fiat-backed stablecoin was still relatively novel at the time, with Tether boasting a tiny market cap (at least by today’s standards) of around $200,000 while operating solely on the relatively slow Omni layer of the Bitcoin protocol.
The Wearn brothers felt an Ethereum solution could offer faster settlement solutions with smart contract capabilities. “I think we were right on the thesis, but we were a little bit early. The applications didn’t materialize and we didn’t have that tie-in that Tether had to Bitfinex and the ability to make that fiat arbitrage across platforms.”
Wearn believes it was the first “wrapped Bitcoin” product, but it failed to gain much traction. “We got a little over one Bitcoin that someone used,” he chuckles. Unfortunately, the harshly competitive environment was just too much for the fledgling company. Ultimately, it failed when it ran out of personal funding from the brothers.
It was frustrating that it didn’t take off, he admits. He had committed many hours to the project during school as well as for nine months working full-time in an effort to get it off the ground. Still, Wearn feels that, in the end, the experience was for the best. Through the crypto startup experience, he and his brother discovered DevCon 2, where they made strong connections in the industry that carry through to this day. It was just a matter of finding the right niche; one that played to their strengths.
Following this setback, Wearn went back to a “real job” at Amazon for about a year while working nights and weekends building IDEX, a decentralized Ethereum-based smart contract exchange which launched in the fall of 2017.
Wearn soon left his job at Amazon to jump into IDEX full-time. He recalls his brief stay at Amazon with admiration for the company. “They really do have this culture of continually trying new things, being willing to fail if those new things don’t work, and not punishing people who tried something that didn’t work out. Because of that, I have immense respect for what Amazon has done and will continue to do.”
He still carries an optimistic attitude with him from this series of successes and failures:
“There’s so much opportunity for experimentation and innovation. Find something that works to your strengths and jump in.”
The rise and fall and rise of Bitcoin
The Wearn brothers caught the crypto bug together after reading a 2011 Wired article about Bitcoin. It examined the heady days of $30 Bitcoin and the following collapse into two dollar oblivion. The brothers each bought a little Bitcoin when the price was around five or six dollars — “only enough to make it interesting.”
The novel currency was intriguing because it was so counterintuitive to what Wearn had learned about economic theory in school. The concept of a non-sovereign, independent, fixed supply currency that isn’t tied to any specific jurisdiction or government was in many ways a shocking rebuke to the prevailing narrative on the subject.
“A lot of what you’re taught in economic monetary theory is the need for the ability to control, match supply and demand, set and control interest rates, a lot of the things that the Federal Reserve does with their monetary policy. That was an easy way to dismiss the value of Bitcoin early on, saying that it lacked those underlying features that all modern currencies have. Over time, you come to realize that’s the most interesting part about it.”
It’s still early for crypto
More prominent macro-investors and advisors are adding Bitcoin to their portfolio as a macro-hedge against what is happening in monetary policy, Wearn says. He expects that we will continue to see that trend grow as more people start to question everything about money as it operates today. “Getting into cryptocurrency really makes you think about things you had taken for granted before, and start to think about, ‘how do all the mechanics of these actually work?’ once you’re presented with an alternative to the traditional government-backed currency.”
“It’s still early. It may feel like the crypto train has passed you by. I thought that when Bitcoin crashed from $30 back down to two dollars.”
When Ethereum launched, Wearn decided it was time to join the fray as a crypto entrepreneur. “That’s when it really clicked. Bitcoin introduced the concept of digital scarcity. Ethereum brings programmatic functionality on top of that.” His brother, Phil, had previously co-founded a DApp called EtherEX, one of the very first DApps operating as a fully-onchain decentralized exchange. It was built entirely using smart contracts and served as an early foray into crypto development.
The pair gleaned important insights from the project’s early development that were influential in building IDEX. A fully decentralized exchange living strictly on the Ethereum network would never escape issues with latency and costs, causing them to arrive at a novel solution. Alex brought in his product expertise to build a layered hybrid solution that would be more usable, circumventing the constraints of underlying networks.
Early days of the DEX
The early DEX experience was far from ideal. Users would submit trades directly to the blockchain themselves, with multiple trades increasing the potential for the same order to be submitted by a number of parties, resulting in failed trades and wasted gas fees.
IDEX’s key innovation was to bring this trade dispatch process to a centralized tool that operated on a second layer. Users could still identify trades to match against, but would submit their orders to IDEX, which would “stamp” the trade and submit it to the network for settlement. This unique solution gave IDEX the edge over their dominant competitor, EtherDelta. “As many as 20-25% of transactions on EtherDelta were failing at the network level,” Wearn says.
Wearn did his share of hustling in the early days just to get attention for the solution. He would enter Telegram rooms of different projects that had just started trading on EtherDelta. He would explain to them who he was, what IDEX was, and how it was a better trading platform. “You know, point out ‘these are some trade failures that you’re seeing right now on EtherDelta. You should come try trading this on IDEX.’”
He says they saw immediate returns from this simple social media strategy. The share of new asset trading on IDEX compared to EtherDelta flipped within a couple months. “We became a prominent place for new Ethereum assets to be traded.”
“It was just finding where your customers were hanging out and communicating directly with them.” Many were understandably skeptical, at first, Wearn says, but with frequent dialog and a willingness to accept criticism by addressing it honestly and respectfully, the community grew rapidly. It didn’t take long for the response to shift from distrusting wariness to people openly voicing their support for the new trading tool.
Working half-time at Amazon while his brother Phil and two others ran the show (“When we launched, we were three and a half people,”) he says that the challenge to onboard more talent was just one half of the equation.
“One of the biggest challenges was just interacting with the Ethereum network itself.” IDEX settled transactions to the blockchain on behalf of the user, so a huge part of the job required operational understanding and expertise to support the ever-growing number of users and transactions.
Over 400,000 wallets have interacted with IDEX smart contracts, Wearn explains. On peak days the IDEX application has taken up as much as 15% of the Ethereum network capacity. “It’s the most used DApp to date.” Scaling for growing demand is an ongoing concern — not a bad problem to have.
Rather than simply relying on the innovations of layer one solutions, Wearn explains that the IDEX team is finding their own solutions to scaling challenges. Examining different possibilities has led the team to design their own solutions that allow them to scale without relying on any improvements from underlying networks.
The upcoming version of IDEX will enable two major upgrades, Wearn says. Firstly, the team is changing the way transactions will be settled to the underlying network. Currently, these trades are settled one at a time, resulting in potentially slower performance and higher costs. The new version uses a layer-two scaling solution where the cost of settlement does not depend on individual trades, instead using a timed interval with a batch of trades settled together at a fixed cost. “We’re going to be able to take on that settlement cost ourselves and provide our customers with a gas-free trading experience.”
But it’s not just about reducing settlement cost, Wearn says. The new iteration will change the way users trade via DEX, pairing centralized exchange architecture with decentralized custody and settlement. “We’ve paired the performance of top-tier centralized exchanges with this unique layer two custody and settlement solution. It should look and feel like you’re trading on any top-tier centralized exchange but with the unique benefit that custody is always maintained by the smart contract and the end user.”
Wearn is currently focused on bringing IDEX 2.0 to life with thorough testing and feedback. He is busy making sure things are “buttoned up end-to-end.” In addition, he is busily evangelizing to market-makers who are more accustomed to the centralized exchange experience. The new design, he says, focuses on making the IDEX experience as comparable as possible to the traditional CEX experience for market-makers, too. The goal is to make it familiar in order to get market-makers up and running as quickly and easily as possible.
He hopes that the new user and market-maker experience will enable IDEX to take on top-tier centralized exchanges. “Everyone understands the value proposition” he says, and the right combination of features and benefits might finally give DEX solutions the chance to break out from the proverbial sidelines.
In the end, it’s about giving customers what will benefit them most; not just a faster horse and buggy, but an entirely new experience of the journey.