Decentralized finance (DeFi) is one of the hottest and fastest growing areas of crypto. It is estimated that more than 4 million people worldwide have invested in DeFi products, according to data from Dune Analytics. The total value of assets locked up in the DeFi ecosystem is worth over $100 billion today.
The DeFi market is changing rapidly, with companies creating increasingly complex financial products, similar to those that have long taken hold in the world of traditional finance. Uniswap has created a whole new segment in the DeFi space as a crypto-native automated market maker (AMM), and the Compound protocol has done the same for cryptocurrency markets.
Now, Cega, a new protocol founded by former UBS derivatives trader Arisa Toyosaki, is poised to create a new category within DeFi – exotic derivatives. Toyosaki, who also led marketing at Bitcoin.com, told TechCrunch in an interview that many of the strategies available to crypto derivatives traders today are quite risky, a motivating factor behind why she founded Cega, which it claims is the very first DeFi. exotic derivatives protocol.
“When the market moves by 10%, as a user who bets on these products, you sometimes lose your capital. I wanted to think of something that creates that high yield that derivatives and crypto still create, but is also safer, and that’s how I thought of Cega,” Toyosaki said.
Cega’s decentralized app is set to launch in beta later this month on the Solana devnet, though it hopes to expand its offerings to other blockchains and become compatible with the Ethereum Virtual Machine (EVM) ecosystem.” pretty quickly,” Toyosaki said. Its first product is a fixed-coupon note, which Cega says offers investors superior yield, downside protection and compounding returns.
Toyosaki has had her eye on the crypto space since 2016 when she worked at UBS in Hong Kong. She then noticed the growth of the crypto market and considered launching a crypto derivatives platform, but other founders and finance professionals in the space informed her that she was probably too soon. After working in product marketing for a few years, she revisited the idea in 2020 during “DeFi summer,” when decentralized finance started to take off in a big way.
She considered launching a “vanilla” crypto derivatives platform, which would provide simple call or put options with no unusual features, and realized that her real passion was in the exotic derivatives space, structuring more complex and flexible products.
“I think the idea of being able to hold a trading position not just up or down, but on volatility, i.e. how much upside or downside is happening, is so fascinating. You can even border sideways, you can bet on convexity, you can bet on so many different types of views, you can make things so flexible with derivatives, so I always wanted to see how I could contribute to the market growth in crypto and my specialty with derivatives,” Toyosaki said.
Pricing vanilla derivatives is much simpler than exotic derivatives – vanilla derivatives are typically priced using a Black-Scholes formula, which Toyosaki described as a “plug and chug” strategy. Exotic options, on the other hand, cannot be valued using a simple formula.
“We actually have to create multiple mathematical simulations of the distribution of different markets. By doing these stochastic simulations, of 10,000 to 20,000 different scenarios, you are finally able to create the price of the option. And so the amount of mathematical understanding and engineering that is actually required to evaluate exotic options is much more than just an option,” Toysaki said.
The company, founded in 2020, today announced that it has raised a $4.3 million funding round led by Dragonfly Capital Partners, with participation from Pantera Capital, Coinbase Ventures, Alameda Research, Solana Ventures and others. The cycle values Cega at $60 million, Toyosaki told TechCrunch.
Cega started its fundraising process in January this year with a lower target amount, which it was able to secure in just two days, Toyosaki said. The company ended up absorbing more capital than it originally planned and plans to use it to scale quickly this year, including hiring engineers familiar with the Rust programming language used by Solana – a talent pool relatively small today, she added.
The Cega team is made up of four full-time employees, including Toyosaki, all co-founders, and three part-timers. The team includes a quantitative trader with a doctorate in stochastic volatility and traders experienced in pricing exotic options, according to Toyosaki, which she says gives the firm an edge in terms of understanding the bottom line product. full.
While Cega aims to help its users increase their wealth, reducing the risks beginner to intermediate users take in DeFi is also core to its mission, Toyosaki said. She is particularly excited about the opportunity to build a community around Cega and educate people about trading exotic derivatives, she added.
Most of this community engagement takes place on the project’s Discord chat, Cega co-founder and chief marketing officer Winston Zhang told TechCrunch.
“We want space experts to rally around the project and really engage with the project, because there will be many ways for them, as a community, to influence the types of products we launch and to influence the direction we enter,” Zhang said. “We really want the community to be a strong voice, and kind of grow it through word of mouth.”