A New Era in Crypto Futures: Insights from VALR COO, Gianluca Sacco
This post is an adaptation of an interview originally published on Hackernoon.
In this interview, we sit down with Gianluca Sacco, to discuss the innovative strides VALR is making in the cryptocurrency space. Gianluca shares insights into VALR's groundbreaking futures trading incentive program, the "VALR Grand Slam," and elaborates on how his diverse background has shaped his approach to leadership and innovation at VALR. Join us as we explore these topics and more, gaining a deeper understanding of VALR's commitment to security, customer support, and its pioneering business model.
Ishan Pandey: Hi, Gianluca Sacco. Welcome to our 'Behind the Startup' series! Could you share some insights into your background and the journey behind VALR?
Gianluca Sacco: Great to be joining you, Ishan! VALR was founded in 2018 to provide a high quality crypto exchange to a niche market of South Africa, where arbitrage opportunities were truly massive at the time. We’re talking about tradeable dislocations in price of up to 30% from global markets. That told us everything we needed to know about both the demand to trade crypto in that country and the lack of quality infrastructure to support taking advantage of such opportunities.
Fast forward a few years and today VALR is a global crypto exchange serving a rapidly growing customer base around the world and is backed by several influential investors including; Pantera, Coinbase Ventures and the venture arm of Fidelity, Avon Ventures. What has really supported our growth so far is our focus on serving each of our customers with care, while building a kick-ass product that speaks for itself. We’ve done very little marketing in our history and most of our growth has been organic.
I serve as COO of VALR and I’ve spent all my brain power on crypto since 2017 when I first really started to dig into what this technology could mean for the world. Since falling down the rabbit hole I’ve spent time working on community research with Messari and my own personal research. I joined VALR as one of the first employees in 2019. I started to build out our support function, but these days I spend most of my effort on designing our leverage trading engine and advanced exchange alongside keeping our operations flowing.
Ishan Pandey: VALR recently announced it is launching a futures trading incentive program in May featuring a prize pool of up to 60 million USDT - the largest prize pool of its kind in crypto history. Can you elaborate on this competition?
Gianluca Sacco: We’re really excited to be showcasing our futures trading engine by launching the VALR Grand Slam, which gives our customers the opportunity to participate and compete for a significant prize pool that is paid out monthly based on overall trade volume. We’ve been working hard on our advanced exchange UX and hope that a wider set of advanced traders are going to love what we’ve built here.
We’ve always wanted to reward users who choose to trade on VALR by sharing the value that we generate with them. Since launch, we’ve paid a negative fee on maker trades, thereby paying market participants who are providing liquidity to our order books. The Grand Slam is similar in that we’ll be sharing a significant portion of our revenue based on how much futures trading happens on the exchange each month. It’s totally free to enter and we really hope this will highlight the quality of our futures trading engine to a wider audience.
VALR offers cross margin trading across both futures and spot markets. Our perpetual futures contracts are mostly settled in USDT, but traders have the flexibility to gain futures exposure using their preferred form of collateral, whether they prefer to hold USDT, USDC, BTC, ETH or other forms of eligible collateral as spot balances.
Our system is built to be flexible, allow isolation of margin through subaccounts and make it really easy to trade with confidence. Even swapping collateral while holding positions is possible on VALR.
Ishan Pandeey: Given your background in finance and consulting, how do you leverage your experience to drive operational excellence and growth at VALR?
Gianluca Sacco: Funnily enough I think it’s specifically my experience outside of finance and technology that has helped me the most. In my early career I worked in manufacturing and I learned a lot there about how to run a lean product-focused business well.
Dealing with building physical products out of raw materials as fast as possible and at the lowest cost presents many hard problems. Many similar problems seem to replicate in different ways when building software. It’s been really helpful to tear down the problems we have to deal with into their smallest components, to question every assumed requirement when designing products and attempt to cut down complexity wherever we can, as if we were building cutting-edge machinery on a tight timeline.
I like to think of VALR as an endeavor to build machinery to drive financial services that work for the 21st century.
Ishan Pandey: How does VALR differentiate itself from other crypto exchanges, especially in terms of user experience, customer support, and the range of services offered?
Gianluca Sacco: First, we really care about building this business the right way, we don’t take shortcuts that expose VALR and our users to unacceptable risk. We do not take it for granted that we are custodians of our customers' money, we feel that responsibility deeply and I think that is a differentiator in an industry where there have been players who have focused on growth or revenue at the expense of protection of users' funds.
Second, we’ve focused our lean, but highly competent team’s attention on building the products that really matter, and we think we’ve done that well. For those looking for an exchange to trade on, VALR serves a wide customer base and offers both simple market order type trading at the click of a button across over 90 markets as well as more sophisticated spot, spot margin and futures order books.
For more passive participants, VALR offers staking and lending, which helps our users earn hourly interest on their lazy balances held on VALR. Finally, all our users have access to a full set of governance features and a significant number of subaccounts so that they can isolate trading strategies and give shared access to others or manage their separate holdings more clearly. Subaccounts on VALR are particularly popular, as each subaccount stands entirely separately from others, has unique deposit and receive addresses and is separated entirely for the purpose of liquidation on leveraged trading.
Ishan Pandey: What measures do you take to ensure the security and integrity of its platform, considering the increasing risks associated with cyber threats in the cryptocurrency space?
Gianluca Sacco: VALR has a number of practices that ensure the security of our platform, both internally and externally. One of our co-founders is an experienced security engineer, serves as our chief security officer and has built an experienced in-house security team.
All of our practices internally have a security focus, for example we follow the principle of least privilege when it comes to production access, there is segregation of rights on our sensitive accounts and all of our internal accounts are protected with second-factor authentication.
We engage with external security firms to conduct regular security audits and have an active bug bounty program where anyone can provide input that helps us further protect the exchange.
Ishan Pandey: Can you discuss VALR's business model and how it generates revenue?
Gianluca Sacco: Our exchange provides the technology that correctly matches buyers and sellers at a specific price for an amount of crypto and takes a very small percentage fee when users orders are matched at the same price. The higher the trade volume on the VALR exchange, the higher our revenue, while our cost base remains roughly the same. Crypto exchanges are extremely high operating leverage businesses that can throw out a lot of cash when the flywheel starts spinning and trade volumes grow.
Something I would like to highlight here is that VALR takes no extra fees on liquidation. Our liquidation process is set up in multiple stages that trigger based on an account’s margin fraction (the relationship between net equity and leverage exposure for an account). Bear with me as I illustrate the first stage of our liquidation process.
Where an account falls below a specified maintenance margin fraction, stage 1 liquidation is triggered and the account is placed into “liquidation” mode where no new orders can be placed. The account then automatically attempts to reduce its leverage by placing small orders roughly every 5 seconds that if matched will reduce its leverage in a gradual, non aggressive way.
As the account’s margin fraction again improves to above the maintenance margin fraction, we cease liquidation and the account is once again in the user’s control. Basically all we are hoping to achieve here is to top up the account to above its maintenance level and then return control to the user. There are no added fees over and above our standard trade fee when an account is in stage 1 liquidation and we don’t attempt to completely close out accounts in liquidation where possible.
We prefer this method of liquidation because it is more transparent (all stage 1 liquidation orders occur in the user’s account directly) and fairer (no additional fees and putting as much control as possible in the hands of the user). This is just one example of where we’ve spent a lot of time thinking carefully about how to design our product.
Ishan Pandey: Could you elaborate on your approach to regulatory compliance, especially in light of VALR’s commitment to serving institutional clients?
Gianluca Sacco: VALR has obtained initial approval to operate through Dubai’s Virtual Asset Regulatory Authority, while already holding operating licences in both the EU as a Virtual Asset Service Provider and South Africa as a Crypto Asset Service Provider. Our licences certainly have a positive impact on the perception of institutional clients who can take comfort that there is independent oversight over VALR.
I keep coming back to the belief that we’re still so early in crypto. This is true for the growth of products and protocols in this space and especially true for our understanding of the impact that crypto has and will continue to have on the world. For regulators, this means that the journey is still ongoing to fully understand crypto and put forward helpful regulation that mitigates the risks that are identified. I think many are taking strong strides, the US excluded, and we look forward to providing support and input into regulatory developments in the markets in which we are licensed and welcome.
Ishan Pandey: How do you perceive the role of halving events in shaping Bitcoin's trajectory, and what strategies do you suggest to navigate the market during these periods of heightened volatility?
Gianluca Sacco: I’m bullish, but also a terrible trader so please do not consider this any sort of financial advice. As much as the halving is a known event and should be well understood by now, I don’t believe that many market participants have truly understood the economics of bitcoin. New market participants include our brethren in traditional finance, they are only really starting to pay any sort of real attention to the mechanics of bitcoin now that the spot ETFs have launched and they hold sway over the lion’s share of investable money.
They will see that the most recent halving has been completed without a hitch and blocks continue to be churned out roughly every 10 minutes, as they have always done. Bitcoin now has a provably lower rate of inflation than almost any other asset type in the world. I think it will become better understood by a much larger audience in time that this is a truly scarce asset in a world where the value of fiat currencies is steadily (and suddenly) diminishing.
During these periods of heightened volatility it’s prudent to have a plan in mind for trading the crypto markets. It’s too easy to get distracted and bamboozled by rapid price movement, the way I handle this is by sticking to a specific thesis and setting very specific price targets at which my thesis is either validated or invalidated. This really helps me be specific with how I plan to exit trades profitably, as well as to understand where I need to cut my losses.
It’s true for all forms of investment that there is no cookie cutter approach for anyone, but what is quite obvious is that some exposure to crypto assets, even if simply holding some of the higher market cap assets over many years, has been a winning strategy for those who are patient enough to weather the volatility.
