Why US Derivatives are a Huge Opportunity for Crypto, Explains FTX CEO
- Sam Bankman-Fried’s US branch of FTX recently bought the LedgerX crypto derivatives exchange.
- The FTX boss told Insider why U.S. derivatives are a huge missing piece and an opportunity for crypto.
- It also explains why NFT games and on-chain social media are among the potential big trends in crypto.
- See more stories on the Insider business page.
Despite all the talk about a boom in the crypto derivatives market, US derivatives remain “a huge missing piece of the crypto ecosystem,” according to FTX founder and CEO Sam Bankman-Fried.
For example, a total of $ 160 billion worth of cryptocurrencies traded globally on Wednesday morning, with one-third in spot trading while two-thirds were in derivatives, according to FTX Global Volume Monitor.
The numbers are not specific to crypto. In asset classes such as stocks, commodities and currencies, derivative volumes often outweigh spot volumes. are only traded on the Chicago Mercantile Exchange, according to Bankman-Fried.
So what’s the huge missing piece? In Bankman-Fried’s view, on crypto-native platforms such as Coinbase and FTX, retail traders can access market services and data in the same way that larger high-frequency trading companies can. to do.
“You don’t need to pay $ 100,000 to access market data, you don’t need to pay $ 100,000 more to get a colocation, you don’t need to find a separate broker to switch by, “he told Insider in an interview with SALT NY Conference. “It’s all an integrated open place.”
The problem is, while all of that volume is growing at crypto-native sites, none of them have substantial futures volume or real leverage in the United States, he explained. This is one of the key points that led the American branch of FTX to acquire LedgerX, the premier federally regulated crypto options exchange and clearing organization in the United States.
“There is a small amount of fully secured term funds today on sites like LedgerX, but it’s a huge missing piece of the crypto ecosystem,” he said. “… 15% of the volume of the entire ecosystem should naturally be traded on US licensed crypto futures platforms.”
“An absolutely huge opportunity”
FTX.US isn’t the only crypto exchange looking to fill the missing piece. Coinbase (COIN) said on Wednesday that he had submitted a request with the National Futures Association in the hope of offering derivative products.
Bankman-Fried believes that an increase in the volume of onshore crypto derivatives would be “an absolutely huge opportunity” and “a win-win for regulators and for the industry.” One of the critical reasons is that most crypto derivative exchanges are not currently supervised or regulated by US regulators.
“When you look at anti-wash trading, anti-market manipulation rules, and anti-identity theft rules, these are things the exchanges are up to now,” he said. declared.
Another important factor is the current lack of risk drivers and sufficient insurance funds on crypto trading platforms outside of the United States.
“We have seen hundreds of millions of dollars in customer funds lost in crypto to risk engines who were unable to handle the load they are under, unable to make a margin call at time, ”he explained. “And an event like the one that occurs in a regulated futures exchange in the United States is incredibly rare, you almost never see losses incurred by people because the margin calls could not be made.”
In his view, more of the volume of derivatives coming ashore would not only boost the health and growth of the crypto industry, but also consumer protection. He admits that the process could take some time.
In the short term, Bankman-Fried said his team is working on bitcoin futures, ethereum futures and other cash-settled futures with “reasonable but reasonable leverage over the major ones. cryptocurrencies that are not securities “.
3 ideas for the next big thing in crypto
Although a big proponent of decentralized finance and the Layer One protocol Solana (SOL) Bankman Fried said he was shocked by “the amount of excitement we have seen across the board for NFTs.”
“I can usually predict, at least a little bit, where the trends are going. I didn’t quite get this one,” he said.
While Bankman-Fried describes himself as “not a target audience” for NFT jpegs, he offers some ideas for three potential trends on the horizon.
NFT based games is an area that a lot of people are looking at. The League of Legends player said the skins and moments in games could be NFTs. “There is a ton of excitement on both sides for it. I expect to see things come out there,” he added.
Another trend is the maturation of the US crypto market where the benchmark is whether it is natural for US pension funds, banks, etc. allocate at least 1% of their assets to crypto.
“Almost every fund we talk to is looking for a way to do it,” he said, “but there’s a lot of work to be done on all sides to get to a point where there are systems built with it. which everyone feels comfortable here. and has clarity. “
Finally, an under-explored area is chain social networks, which he says can solve the governance and monopoly issues that have been raised about social media platforms.
“I think a really cool way to approach this is if you have a blockchain layer with social media posts, anyone can kick off a new user experience that builds on those posts,” a- he declared. “So you no longer have user content that relates directly to a business in a way that no other business can publish. “
On-chain social media could also enable cross-network capabilities where users can adhere to different moderation policies and post to various networks or “retweet a Facebook post,” for example.
“This allows a lot more innovation on the user experience front and on the moderation front,” he added. “You can have different sites with different moderation policies, you don’t have to have a set of policies that govern the whole country. “