Paradigm Labs, a decentralized financial (DeFi) project supported by Polychain Capital, Dragonfly Capital and Chapter One Ventures, is about to shut down.
In an article Tuesday, Paradigm Labs CEO Liam Kovatch said the decision was made because of a lack of understanding of how well the product fits the market and lack of funding.
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"After nearly two years of active research and development, our team has made a decision: Without the significant product market fit and limited resources to pursue urgent opportunities, the kind of successful development we envision for Paradigm Labs is not possible."
The company was founded in 2018, and in the same year it raised seed rounds of funds to develop a liquidity aggregation agreement for a decentralized exchange (DEX).
However, after nearly a year of research, the team at Paradigm Labs found that its product Kosu was unable to adapt to the rapidly changing market structure of DEX. At the same time, the team's investment in Kosu also caused it to hesitate when moving to the second product, Zaidan. Zaidan is a quote system built on the DEX project 0x.
Although promising, according to the company, the launch of the Zaidan agreement was costly, and Paradigm Labs was unable to secure new funding to continue such efforts. As the company ends, ZRX's staking pool will also be closed. ZRX was originally established to fund Zaidan's operations.
On March 16, this staking pool will stop collecting payments from the 0x protocol, and the team advises users to remove or redistribute their stake.
The following is the article published by Liam Kovatch:
Unfortunately, I want to tell the community that Paradigm Labs is about to close. After nearly two years of active research and development, our team has made a decision: Without significant product market fit and limited resources to pursue urgent opportunities, the kind of successful development we envision for Paradigm Labs is impossible of. Out of respect for all our stakeholders, we evaluated the situation as quickly as we thought responsible and decided to close the company. In the past two years, we have been very grateful for the support of investors and the broader community. Although this is not the result we want, we are proud of the progress we have made and the technology we have developed.
It should be noted that this decision will affect the 0x staking ecosystem as Zaidan's War Chest (ZRX staking pool # 6) will no longer charge the agreement fee after March 16. Users should reassign their ZRX to other staking pools. More information on this detail is contained in the War Chest section of Zaidan below.
Why didn't Paradigm Labs succeed?
There are many reasons why we have failed to open up a viable ecology in the DEX market. This is caused by factors that are within and outside our control. We have spent some time reflecting on the path we have taken and hope to take this opportunity to highlight some of the challenges we face that ultimately force us to make this difficult decision.
Since we came up with this concept in early 2018, Paradigm Labs has been focusing on building liquidity solutions for DeFi. During this period, the pattern of DEX has changed dramatically. We have seen major developments, such as the launch of Uniswap, the establishment of a decentralized financial movement, and so on. Although exciting and positive for the entire community, these developments have led to incredible instability in the field of DEX and are challenging for the direction of an organization like ours. Many of our early efforts and investments in the Kosu project were eliminated by the broader development of the DEX market structure. Zaidan is our unmanaged RFQ (Quotation) system. The idea was born later in the company's development, when we did not have enough resources to fully develop Zaidan. Overall, we think we did it a little too early.
Hesitant to transition
As mentioned earlier, most of our early efforts and resources were focused on the Kosu project. In the first half of 2019, we began to doubt the feasibility of this project in the DEX ecosystem. The reasons behind this include the growing popularity of Uniswap and the early operation of 0x mesh. Kosu's unique trade-offs seem to be insufficient to force the product market to adapt to this increasingly crowded liquidity protocol / network ecosystem. When we started to realize this, we had come up with Zaidan, but due to our investment in this project, we were very hesitant to leave Kosu completely. In retrospect, this hesitation was a mistake. We should have accepted the limitations of the Kosu project and focused all our efforts on the Zaidan project earlier.
Limitations of capital resources
The growth of liquid consumption from decentralized platforms is slow but stable. Smart purchase order routing in the DEX ecosystem is a relatively new development that makes unmanaged liquidity consumption easier to achieve. Overall, the demand for DEX is growing and evolving. The same applies to the supply side (through 0x market making, Uniswap, etc.), although the limitations of capital requirements are still particularly large. In designing Zaidan, we were able to overcome many of the structural disadvantages faced by market makers on the existing DEX platform, but were still limited by the high capital requirements to support unmanaged RFQ systems. As the principal of each transaction, Zaidan traders must have a balance in their hot wallet of at least the same size as the largest order they offer. In addition, the transfer between exchanges and hot wallets is slow, so risk management has also led to increased capital requirements. So far, Paradigm Labs has developed a rather complex unmanaged RFQ system. Unfortunately, we are unable to obtain the funds needed to support the real-time trading system and therefore cannot service the transaction.
The challenges highlighted above do not necessarily include every issue we face when we are doing Paradigm Labs, and we expect that our understanding of this result will change as we continue to review the past two years. We want to be honest with these points, provide answers to those who are curious about the situation, and provide experience for those who may encounter similar situations.
Zaidan's War Chest staking pool and trading system
Zaidan's War Chest is a ZRX staking pool. During the normal operation of the Zaidan trading system, Paradigm Labs needs to pay the protocol fee to the 0x system, and this staking pool can bring certain benefits. We became the first mainnet staking pool listed by 0x, and it was great to see how this pool performed in the top three (pledged and charged by ZRX). At its peak, Zaidan's War Chest had pledged ZRX worth nearly $ 1 million.
Since launching in late November, Paradigm Labs has been funding our own staking pool through internal trading operations to maximize the benefits of all stakers. As we gradually stop the operation of Paradigm Labs, such funding will cease. Therefore, we strongly recommend that all users of War Chest pledged funds in Zaidan transfer their funds or agents to a new pool before March 16.
Starting today, we have permanently closed the Zaidan trading system beta and portal.
I still have questions to ask, how can I contact you?
We will shut down our Discord server on April 1, 2020. Until then, Discord can be used as a public forum for questions and help. In addition, we plan to continue to monitor emails at firstname.lastname@example.org. If you have any questions or requests after April 1, please email us. We will do our best to respond quickly. We also intend to host our media, Twitter and GitHub accounts indefinitely, which will be closed and effectively archived. After March 16, 2020, these accounts will no longer be updated.
For the remainder of March, the team's top priority was to ensure that the project and company ended smoothly. This includes active communication with the affected people and the business operations necessary for the legal dissolution of the company. Members of our team will look for new opportunities inside and outside the cryptocurrency space. If your project is hiring engineers and operations with Ethereum and blockchain experience, please contact us.