Investing in Satflow

We’re excited to share that we’ve led the seed round in Satflow, a new pro trading DEX on Bitcoin.

Why Bitcoin and Why Now?

At Variant, we have been tracking the Bitcoin ecosystem for years. Over the past 12 months, we noticed three key undercurrents emerge that are at the early stages of catalyzing a new wave of developer experimentation and user interest within the ecosystem:

1. Development of new asset formats. After years of community resistance to building on Bitcoin’s base layer, the Overton window seems to have shifted. For the first time, we have tokenization directly on Bitcoin. The launches of the Ordinals, BRC20s, and Runes standards represent important progress markers toward increasing the amount of productive, fee-generating activity on Bitcoin. Each new token standard has improved the experience of trading tokens (e.g. Runes are the newest and most fungible of the three standards and make it possible to trade more discrete dollar amounts). We believe that experimentation with new asset standards on Bitcoin will continue to grow from here.

2. Significant efforts toward making Bitcoin and its ecosystem more programmable. The Bitcoin ecosystem contains nearly $900B of latent capital. [1] To date, limitations in Bitcoin’s scripting language were thought to be a core barrier to building expressive applications around that capital. But we’ve started to see meaningful new attempts to extend Bitcoin’s utility. A core protocol upgrade called OP_CAT is in the works and should enhance the ability to build applications directly on the L1. More broadly, at least a dozen Bitcoin smart contract layers (colloquially known as “Bitcoin L2s”) have raised venture funding. The combined efforts are gradually transforming Bitcoin into a strong and attractive developer platform.

3. Institutional adoption and excitement, driven largely by the launch of Bitcoin Spot ETPs. Since launching in January, the ETPs have attracted over $70B of new investment capital. [2] Studies have shown that ownership of assets can lead consumers to feel stronger interest in and allegiance toward those companies when making purchase decisions. [3] We believe owning Bitcoin may have a similar effect: as more users start to hold Bitcoin in their investment accounts, curiosity about what else one can do with Bitcoin will grow. Over time, this should lead to more interest and more new users interacting directly onchain.

The net effect of these tailwinds is more resources, more developer mindshare, and more user attention geared toward the Bitcoin ecosystem in the last 12 months than at any other time we can recall in its 15-year history.

The Opportunity for a Dedicated Pro Trader DEX

As the Bitcoin ecosystem has grown, so too has the diversity of users. In particular, there is now a flourishing community of professional traders transacting directly on Bitcoin. Yet product innovation for this cohort has lagged, especially when compared to professional tooling and exchanges in other ecosystems. That is, until Satflow.

Every trade in the Bitcoin ecosystem has three core stakeholders: the buyer, the seller, and miners. 

• Miners want to generate as much fee revenue as possible. 

• Sellers want competitive bids and fast fills. 

• Buyers want reliable execution, a large inventory, and deep liquidity.

Today, many DEXes tend to focus on just one or two of the stakeholders. Satflow built a DEX that considers all three – and the result is a best-in-class trading experience, particularly for professionals and market makers. 

Underpinning Satflow’s system is an innovation called Memflow. Memflow is a piece of infrastructure that collates and displays real-time mempool data to buyers on the Satflow interface. It also helps categorize transactions and provide a reliable data stream of key events onchain, from new mints to major trades to inscription creation. 

Prior to Memflow, both buyers and sellers would have to wait a minimum of 10 minutes (the length of time for a Bitcoin block to confirm) to find out the price at which the asset sold. Even for the most dedicated of Bitcoin traders, this delay made the experience far inferior to trading on chains like Ethereum or Solana. Memflow solves this and does so in a way that services every stakeholder. With access to high-fidelity mempool data, traders on both sides of the order book can transact with assets in the pool that have not yet confirmed. Buyers can see inventory update instantaneously and adjust their positions accordingly. Sellers have more visibility into the set of buyers and the price at which their assets will sell. And miners benefit from the increased fee revenue generated by a more active market.

Satflow founders Robert, Alex, and Anatolie were well-prepared to embrace the opportunity for a dedicated pro trader DEX. The three got their starts in the Bitcoin ecosystem as early experimenters with Ordinals – both as collection creators and active traders. This gave them first-hand insight into the challenges that existed with incumbent infrastructure, well-earned distribution and respect (among both traders and developers), and a deep loyalty to the broader Bitcoin ecosystem. 

For the past six months, their DEX has been in private beta. They carefully curated access to over 250 traders in Bitcoin, fine-tuning many of the features to deliver the best onchain trading experience. Today it goes live to the public. Check it out here. 

Disclaimer: This post is for general information purposes only. It does not constitute investment advice or a recommendation or solicitation to buy or sell any investment and should not be used in the evaluation of the merits of making any investment decision. It should not be relied upon for accounting, legal or tax advice or investment recommendations. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by Variant. While taken from sources believed to be reliable, Variant has not independently verified such information. Variant makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. This post reflects the current opinions of the authors and is not made on behalf of Variant or its Clients and does not necessarily reflect the opinions of Variant, its General Partners, its affiliates, advisors or individuals associated with Variant. The opinions reflected herein are subject to change without being updated.