A fascinating part of watching cryptocurrency markets evolve has been the lesser discussed reality that the technology often gets ahead of the trading infrastructure. For example, by 2017 Ethereum made decentralized exchanges possible as well as a new breed of coin that anyone could create in minutes called an ERC-20 token.

So-called decentralized exchanges, or DEXes, like Bancor and EtherDelta, allowed traders to buy and sell ERC-20s, as well as Bitcoin and Ether, in a peer-to-peer style, meaning there was no exchange management or operations in the middle. This was not the New York Stock Exchange. Yet prices were all over the place on the various DEXes creating an opportunity to buy high on one and sell low on another instantaneously.  

Into that backdrop Dexterity Capital was created in 2017. Co-founders Michael Safai and Abraham Chaibi first considered raising money through an initial coin offering, or ICO, yet when they examined the secondary market trading for the coins, they found a different opportunity.

“We were looking at these DEXes and were like, ‘wow, there’s real structural problems with these things. There’s kind of free money that’s relatively risk free,’” Safai recently told me. (The U.S. Securities and Exchange Commission in 2018 charged and settled a case against Zachary Coburn, the founder of EtherDelta, for operating as an unregistered securities exchange, with fines of nearly $400,000.)

“It was really fun back then, we did lots of cool things that I just couldn’t believe worked,” he said. The duo started with $30,000 that they turned into around $2 million by 2018. The Seattle-based firm has since expanded into high-frequency trading and other strategies where it places 100,000 to 200,000 trades in a 24-hour period (there are no days in crypto). Last year, Dexterity traded a cumulative $1.2 trillion of crypto.

Abraham Chaibi

Co-founder Chaibi gets a wistful tone in his voice as he talks about the market imbalances of 2017. “It was the dream of an engineer,” he said. “You write code and then you put it out there and there’s some money on the line, so you get the thrill.”

He wrote a smart contract to execute several tasks that wouldn’t go through with a trade if it would lose money. (Buy a coin at exchange A, sell it at exchange B, check if it’s profitable, if not, kill it.) The trickier part of this strategy is that once the arbitrage is broadcast to the Ethereum network others could see the trade and try to have their own version of the bet be the one to make it onto the blockchain.

“When there’s a block with an arb available, it’s you and three other people who are bidding on it,” Chaibi said. “If you’re sophisticated, you’re watching what everyone else is doing and you keep bidding up until the place where it becomes no longer profitable.” That’s due to the cost of transactions on the Ethereum blockchain, known as gas fees, which must be taken into account.

“One way I described this when it was happening was like playing poker where everyone’s cards are up,” Safai said. “You can see everyone’s hand all the time and you still have to find a way to win.”

That relatively free money arb went away in early 2018, and Dexterity moved to expand into high speed trading and an arbitrage strategy based on statistical analysis. Dexterity trades market neutral so that price swings won’t blow it out of the water.

The firm is also among a growing number of large industrial-grade trading shops that have made the decision to embrace crypto’s founding ethos of shared, open technology and community.

“We’d like to be something that’s more of a cornerstone of the ecosystem, something that’s important,” Safai said. “We’re trying to do more things than just be a prop shop.” Making markets, where you buy to sellers and sell to buyers, is mostly an anonymous endeavor, he said, so they’re making an effort to get out in front of the community now to help projects come to market.

“Being a prop shop is awesome,” Safai was quick to add, “but we should do more to be a part of the community and be out there.” A lot of newcomers are coming to crypto, so Dexterity seeks to consult with founders to guide them through the web3 process. Of course, it’s still a for-profit shop. Safai and Chaibi declined to say how much in profit the firm made last year, only that Dexterity was “very profitable.”

“The tagline for crypto in general right now is…there’s a ton of stuff to build,” Chaibi said. No matter if crypto does or doesn’t change the world, the tech behind it makes products better, he said. “Because of crypto there’s now a great alternative to moving money around and all of a sudden banks have to look a that situation and be like, ‘what service are we providing?’”

While Chaibi and Safai talk of 2017 as a golden era they’re not living in the past. And see a lot of room to grow in crypto.

“[Traditional finance] is a space that’s old, it’s been around for a long time,” Safai said. “To a certain extent, people have got knives to each others’ throats. Crypto is not like that.”

“There’s so much green space in the industry we’re not trying to eat each others’ lunch,” he said. Then a short pause, and he added. “Yet.”