Episode #10: Domination Finance

Listen to our latest episode featuring Domination Finance and learn how market share itself becomes a tradable on-chain instrument.

In this episode, Nertila from Trading Strategy discusses with Michal from Domination Finance. Domination Finance is a perp DEX built to make dominance — any asset's share of its market — directly tradable, and describes itself as the world's first and only DEX for dominance trading. Its latest version, live on mainnet since May, runs on a proprietary dominance oracle plus a USDC counterparty vault that earns 50% of fees along with trader losses and liquidated collateral, with funding rates and open interest caps used to keep directional risk off LPs.

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Transcript:

Welcome to TradingStrategy.ai, the podcast where you can learn more about the essentials of DeFi trading in the new world. This is your go-to show for automated trading strategies and market insights. Welcome to the conversation — this is your host, Nertila.

Nertila : Hello, everyone. Welcome to today's podcast at TradingStrategy.ai. Today we have a new guest. His name is Michal, and his venture is Domination Finance. I'm very glad to have you in our conversation today, Michal. Welcome again.

Michal: Hi, Nertila. Thank you for having me.

Nertila: Great. I'd like to get started with the first question for this conversation: what is your background, and why are you working in crypto?

Michal: So crypto has pretty much been the only industry I've been focused on full-time ever since graduating from university. My first step into the industry was while I was in university, about halfway through, and it was the summer of 2017. Obviously that was really exciting, and I had a friend — who is now my co-founder — show me Bitcoin and Ethereum.

Michal: And obviously, as someone who was interested in tech — I was studying information systems — it was something that instantly captivated my attention. At the time it was the ICO boom and prices were going up a lot. So one of the aspects was obviously the financial appeal, but the tech captivated me as well: for Bitcoin, it was the concept of immutable money, and for Ethereum, the concept of a programmable computer for the internet, where you could build a lot of these projects that were taking that direction with the ICO boom and their own tokens.

Michal: So I got involved then, stayed passively involved through the end of my time in university, and then I worked at Exodus Wallet for about a year right after graduating. Then, in the middle of COVID, I stepped away and ended up bootstrapping the early days of what became Domination Finance. So crypto has really been all I've known, and I've been involved full-time since mid-2019.

Nertila: Let's talk about your current venture. You mentioned Domination Finance. Can you give me some more insight into what exactly you're working on with your co-founders?

Michal: So the name, we hope, does a really good job of branding what we're doing. Domination Finance is making dominance trading possible. For the people who are maybe not as trading-native, dominance is a very simple concept, and if you're in crypto you've probably seen it in the form of Bitcoin dominance.

Michal: Dominance measures the market share of any asset, or even any project in its sector. So when we were looking at what to build out, this is something that took an interesting angle, especially seeing how crypto has developed. Bitcoin dominance is the world's most popular dominance metric — not just within crypto, but even in traditional finance.

Michal: People don't explicitly trade dominance in the way that they look at and chart, you know, Bitcoin dominance and Tether dominance in crypto. But this concept of being able to trade market share is something people do all the time, whether they know it or not. So for example, if you're long only Bitcoin in crypto, that means you think Bitcoin is going to outperform all other altcoins, or a basket of altcoins, because otherwise you would hold those other assets if you thought they would outpace Bitcoin's growth.

Michal: So by holding only Bitcoin in crypto, you're almost inherently long Bitcoin dominance. And the really cool thing here is that this concept can be applied to other markets. So let's take the US stock market, for example. If you choose to hold Nvidia instead of buying the S&P 500, you're long Nvidia's dominance of the S&P 500, because you think Nvidia will outperform the S&P 500.

Michal: This is something that people already do. Some of them do it directly, some of them do it indirectly. Our goal as a brand, as Domination Finance, is to make dominance trading mainstream and just another tool in the trader's toolkit. This is something that is already charted, referenced, and analyzed. We're making it tradable.

Nertila: Do you guys have a vault incorporated into Domination Finance?

Michal: Yeah, absolutely. We just launched our most recent version at the beginning of May, which is a very full-fledged on-chain perp DEX, similar to what you'll see with the likes of Avantis, Ostium, Gains Network, et cetera. Given the dominance indices we're curating, we actually have our own oracle, which curates and publishes all of these on-chain.

Michal: We kind of had two directions to take with liquidity. One is to onboard market makers into something that's never been traded — hint: that is very, very difficult to do. The other is to launch with a counterparty vault. So yes, that's where our vault comes in. It works very similarly to your traditional counterparty or vAMM perp DEX.

Michal: You have a USDC pool that anybody can deposit into. Traders use USDC as collateral, and the vault earns 50% of the fees, as well as trader losses and all liquidated collateral.

Nertila: What does your day-to-day job look like at Domination Finance?

Michal: Yeah, so that is a really interesting question, because we're actually a very small team of four. When you're that size, you're almost wearing all the hats all the time, whether you want to or not, just because you need to. I kind of play a bridge role within our team, so I'm not explicitly a developer, but I am quite technical.

Michal: So on the product front, it's a lot of prioritization, product direction, reviewing engineering plans, creating specs for implementation, UI feedback, and UI/UX testing on the app. And then, outward-facing, I also manage all of our external-facing socials, so building up a presence there. I write all of our blog content, and my co-founder and I predominantly take the lead on all outreach and BD.

Michal: So what does that look like? That looks like integration partners, potential vault LPs, individual traders, trading communities, trading groups, onboarding programmatic traders, and then looping in our developers for white-glove integration. So it's quite literally all across the board, and everybody on our team, our group of four, is focused on getting dominance trading as popular as possible.

Michal: So when you're a team of four, doing as much as we have and having as robust a product as we do have, everybody wears all the hats, and people have their specified domains that they specialize in. So it's really exciting, because every day is different. If there's a new feature rolling out, that's obviously focused on engaging with the community.

Michal: If we're mainly focused on development mode, that takes a more technical focus of scoping out the product. And the biggest thing we're always focused on from a macro perspective is onboarding traders and trading communities to popularize the concept of dominance trading.

Nertila: You mentioned Domination Finance has a unique angle on the product you're offering. I want to know if you have any risk management system in place.

Michal: Yeah, absolutely. So that actually ties a lot into the vault we have. Given dominance is something that has never been traded before, it brings very interesting problems to anticipate as the builders, right, in our shoes. For example, for traders: you may have heard of funding rate arbitrage opportunities as a way to try a new platform, or a lot of the time to farm perp DEXs, because if you're long Bitcoin on one platform, you could be short Bitcoin on another platform, and then you just take the funding rate difference.

Michal: Given we're the only place to trade dominance, that kind of opportunity doesn't exist, which means it almost introduces a very directional skew in the system, meaning that any trader trading is taking a long or short position on a certain dominance. The same thing goes for the vault. Given we don't have market makers — because this is something that's not traded and we couldn't onboard them onto an order book — the vault that we have is effectively the counterparty.

Michal: As I mentioned earlier, one of the ways it earns fees is trader losses, but one of the ways that the vault could actually depreciate or lose value is if traders win outright. So this creates a very interesting middle ground for us, because obviously when you're building a product, you want to have a product that traders can learn to trade and trade profitably — otherwise they won't come back if they just lose all their money.

Michal: And on the other side, we want a product where risk-off LPs can put in USDC and receive a competitive yield while being the counterparty, which obviously carries more risk than lending your stables on Aave, for example. So some of the levers we use to balance this risk are funding rates based on open interest.

Michal: That means that, given we don't have a spot index, our funding rates work a little differently to your traditional exchange. On a traditional centralized exchange, your funding is determined by the difference between the perpetual futures contract price and the actual index price of the spot asset.

Michal: Dominance is entirely synthetic, so our funding rate works to balance the books. What does that mean? That means if there's $1 million of long interest on Bitcoin dominance and $500,000 of short interest on Bitcoin dominance, longs will pay shorts to balance the books. That way, there's no directional risk, or limited directional risk, to the LPs.

Michal: Another risk management lever we have in place is open interest itself. So we don't allow for unlimited longs or shorts on dominance. We need to manage how much open interest exists in the system at any time, to make sure the vault doesn't experience crazy, crazy drawdowns in any given day just because dominance may move very sharply and there were a lot of good traders positioned that way.

Michal: So everything is kind of a balancing act, especially in the type of product we have. But we do have a lot of risk management systems in place to ensure there's as good an experience as possible for both traders and the LPs.

Nertila Macerata: Very interesting. Where do you think the profit and risk will accumulate in the future?

Michal: Yeah, this is a really interesting question, because we've seen profit and risk accumulate, but also be extracted, in very different ways. Going forward, I'm going to be a little biased when I answer this, but I definitely think it's going to the app layer. Over the last couple of years, we've really seen, I would say, pretty big cycles in where profit and risk have accumulated.

Michal: I think starting from maybe around the COVID crash, we definitely saw that first leg driven by Bitcoin. Ironically, Bitcoin dominance performed really, really well from the COVID bottom up into early '21, and I think that was primarily driven by crypto being so small, especially given the huge crash in COVID.

Michal: But also, that was the first time Michael Saylor started buying Bitcoin. So that institutional approval, you know, six years ago, I think drove a lot for Bitcoin. But then we saw that shift quickly into NFTs, Solana, and Ethereum on a risk-return basis in 2021. So that was when everything was running — NFTs, Bored Ape Yacht Club, CryptoPunks went crazy — and then we kind of had another great reset in 2022.

Michal: 2023 and 2024, I think, were predominantly about the resurgence of Solana, given people realized it wasn't directly tied to FTX, and a lot of altcoins kind of ran in early '24. And we kind of saw a huge "rising tide lifts all boats" move when Trump got elected, with crypto and all the promises he made. But to be honest with you, I think especially over the last one and a half to two years, we've really started seeing a huge shift that I think will continue, in the profit accruing to the apps, notably Hyperliquid.

Michal: If you are an application, you inherently generate much more revenue than most of the chains, which valuation-wise doesn't really make sense, because L1s and L2s are significantly overvalued for the amount of revenue they're making compared to a Hyperliquid, compared to a Pump.fun. These applications churn loads of revenue because they have recurring, sticky users and very good value accrual to the token, and for the first time since I've been in crypto, they're finally getting the spotlight they deserve.

Michal: In my opinion, this is pretty fundamental, and I think it took the industry a very long time to come to this realization. But especially from what we've seen in 2026, I think this trend will only continue. The profit is going to accrue to the app layers, which makes sense. I think it's where most things that are consumer- or institutionally-facing, especially with the movement of money, should accrue.

Michal: Capital is being moved, the apps take a huge cut, and the value accrues there via buyback and burn, distributing profits to token holders, et cetera. I think the risk is going to continue to be in a lot of these overvalued infrastructure projects, when people realize, "Wait, this doesn't necessarily need a token."

Michal: Or even other applications, to kind of play devil's advocate: if your application has a token, but it doesn't accrue any of the value from the revenue the project is making, then it doesn't need a token, because you're not sharing with your community. So to summarize it, the profit will continue to accrue to applications that have token value and value accrual to their token holders, and I think the biggest risk will continue to lie in overvalued or unused infrastructure, and in certain projects which never choose to reward their token holders.

Michal: And this is a pretty big shift, I think, for the better. It's going to weed out a lot of projects that have kind of relied on just their token price to survive. But in the long run, I think it's very good for the industry, because it's going to ensure that the projects that do continue to exist are ones that are actually used and have their token holders in mind, so retail isn't left holding a worthless bag.

Nertila: Great insight. What are some of the hard lessons you have learned so far?

Michal: Oh, hard lessons in crypto are a dime a dozen. There's no shortage of those. Most importantly, I think it's being able to structure a product at the right time. We had raised for Domination Finance in '21, which, especially looking at it now, was definitely too early for what we set out to build.

Michal: I think crypto has gone through such a fast adoption cycle that it's really important to time a release based on where the macro markets are, but also where user behavior is. So for example, for us as a data company and a perp DEX, we raised for something that is quite niche, which is dominance trading.

Michal: We're creating something completely new, which has a huge reward, but also takes a lot of work. And this was at a time when things like GMX and Hyperliquid didn't even exist. I think for us specifically in the perp DEX landscape, building a general perp DEX until Hyperliquid was hard enough on its own.

Michal: Now that Hyperliquid has kind of taken the throne of perps, you're seeing people start to venture off into trading these interesting things on-chain — for example, equities, RWAs, dominance. But until there was an on-chain exchange that was as prominent as Hyperliquid, it was too early to explore trading anything else that wasn't crypto as a perp on-chain, if that makes sense.

Michal: So I think timing that, and being able to see where you are in the macro cycle but also in the user behavior journey of a crypto user, is very important. And I would say another very, very hard lesson learned is community growth and engagement over time. I think, given the nature of how crypto has been, there are a lot of participants who have either lost a bunch of money and left the industry, or whose attention is so focused on the new thing that it makes it very, very difficult to keep them engaged and retained for the long run, and that is an interesting challenge I think every project in the industry faces.

Nertila: I agree with you. How would you improve the digital asset management ecosystem? What are some of your ideas about that?

Michal: Yeah, I definitely think it starts first and foremost with the institutional angle. Ironically, I'm in favor of a bit of regulation, because especially with what we're seeing with STRC and MicroStrategy and their Bitcoin accumulation, quote unquote, "strategy," it's kind of harmful. You want adoption not to be so forced, and you really want it to be organic, because when you start grassroots, I think that breeds the best community.

Michal: So for example, I think we should definitely list something like a HYPE ETF before a Cardano ETF, and that takes a lot of alignment across the ecosystems, because I think there was a huge trend of, "Okay, I'm entering crypto as an institution, I'm going to buy the top market cap coins" — but we're not going to look at what those top market cap coins actually are.

Michal: I think there is so much value going down the market cap rankings, especially in DeFi, in the forms of Ethena, Pendle, and Syrup — coins that are ranked 80th, 100th, 140th — compared to something like a Cardano or a Bitcoin Cash, which are top 10, top 15 depending on the market moment.

Michal: So the quality sort needs to start there, and I think digital asset management starts with quality selection, and that is something that has been pretty overlooked, but I'm hopeful, and I'm seeing the signs that we're starting to take it in a better direction. But I think it really starts there. You need to focus on quality assets, not just on what currently is a high market cap coin — whether they're used, whether it has value, whether value accrues or not.

Nertila: This is the last question. What is next for you?

Michal: Yeah. So for us, it's actually a really exciting time. As I mentioned a bit earlier, we just launched our new version on mainnet in early May, so we've been out for about five to six weeks. We're live with five dominance pairs, and actually have five more coming soon, hopefully within the next week or two.

Michal: And our goal really is to take this more niche perp area by storm, because dominance is something that is already so referenced and charted by traders and institutions alike for rotation. We just want to see them actually start trading it directly, and expand this concept of trading market share. I think the addressable market for trading dominance is huge.

Michal: People already do it indirectly and directly, and for us, it's about making Domination Finance a mainstay not only in our niche, but in the greater finance community outside of crypto. Because as I mentioned earlier, the potential for this is massive, and it's one of the few things that is native to crypto that isn't explicitly done in traditional finance.

Michal: But Domination Finance is going to make market share tradable, and we're going to do it in a way where everyone knows we were the first to make dominance trading a thing.

Nertila: Exciting times. Okay, thank you so much for all the insight you shared with us. That was quite an interesting conversation. I hope you enjoyed it as much as I did.

Michal: Yeah, absolutely. Thank you for having me on. It was an absolute pleasure.