Crypto Derivatives in 2023 and Beyond

Transcript

okay let's start this let's give this a go welcome everyone to the crypto derivatives session which we have the pleasure to co-organize with CME Group thank you so much payal and the team at CME for being a partner in organizing this event for the second time so much has changed since we organized the last one a bit over one and a half years ago we will unpack that and we will dive into it we also have the pleasure of having Jean-Marie from coin shares with us who also was present in the last discussion the last session as well as we have Nicola Straight From New York from B to C2 and we have Dominic straight from Zurich from uh signal

I haven't introduced myself my name is Emily Laurent and I have the pleasure to be the president of the crypto Valley Association and in my full-time role I worked for Talos the premier trading infrastructure provider and payal why don't you introduce yourself I would love if all of you introduce yourself and um I just shared a bit how your company is involved with crypto derivatives oh wonderful thank you so much Emmy and thank you for having me and so excited to be part of um this really interesting discussion uh so yeah my name is paell uh my role is director of equity index

and cryptocurrency products here at CME Group and what that really entails is creating new and Innovative products around key Equity indices so things like the S P 500 the NASDAQ the Russell Dao and as well um as in current cryptocurrencies like Bitcoin and ether so CME is the world's largest and most diverse derivatives exchange we go back about 180 years but our involvement in the crypto space actually began back in 2016 uh when our clients were asking about crypto and they had an increase in Need for risk management

um for efficient mark kits and price Discovery and so really since 2016 we've been um very involved in the space bringing both reference rates for Bitcoin ether and other cryptocurrencies to Market as well as Bitcoin and ether Futures and options as well foreign I think you're on mute thank you I I added to paella's point that I haven't realized it has been over 180 years that CMA group has been around uh quite remarkable and Nicola would you

like to go next sure thanks um so Nicola white I'm the CEO of b2c2 really excited to be here today it's a it's a topic I I think comes up more and more which is exciting for me because I think it means that the industry is really progressing in you know the types of products that are available and and clients can get access to so b2c2 is a true principal liquidity provider that means that when you trade with us you're putting your cap or we're putting our Capital to work um and we're really creating liquidity we trade everything from spot crypto to options to lending products to cfds and ndfs and we our client base is

institutional so we don't face retail directly uh with you know creating liquidity and using our Capital to create liquidity we put a robust risk management framework around that I think it's pretty topical in light of some of the events that have happened recently um so maybe we'll we'll go into a little bit of that throughout the panel as well thanks so much and uh Nicola since when are you guys around when we've been around since 2015. so um you know I would say on the earlier side of companies in the crypto space super eight years and going strong thank you Jean-Marie I'm Germany I'm the CEO and co-founder

of Queen shares since we're talking date of birth uh coin share has been around since 2013 uh in crypto so I was working with Sandra who created the world of the steering committee for the CME to create this product I was working with Max which was a founder of b2c2 as well so we kind of like seen a lot of things in crypto over the years cone share is like Europe largest as a digital asset investment firm we have already two business right now which is our asset management business not Capital Market business athlete margin business managed around seven billion dollars into Picos that has markets more around 3.5 right now and our Capital Market is you know also like b2c to a principal Capital

Market business we don't have clients which is thread for our own money and for our own purposes and obviously using CME product obviously we're using v2c to go to liquidity provider as well and we are uh you know keep trading and keep building our businesses in this lovely environment we are in thank you so much Dominic yes thanks Amy for for having me uh on as well I'm Dominic I'm the head of trading at Signum we can claim 180 years and we've been around since 2018 got the banking license in 2019 as the world's first regulated bank offering really digital asset oriented offering

um and yeah now at the moment we're active in in services around custody trading obviously uh both spotted derivatives but we're also offering a lending um lending business a lending offering and various other services such as tokenization and and so on and yeah Swiss based here out of Zurich and we have a Singapore presence and uh presence in a couple of other locations as well that we will maybe also talk about later a bit more thank you very much then let's dive in thank you for the intros one more time so uh I alluded to this uh payal and Jean-Marie that since we had our last uh webinar on crypto derivatives back in

2021 a lot has changed there are some pretty obvious changes but there are also some not so obvious changes for uh for the people listening in here would you like to allude to some of the changes which which are these uh well yeah I mean a lot has changed in the last month or the last quarter uh let alone since our last webinar together um and I actually when I think about it um and I think about the last year I think that that last year has has really highlighted some real structural flaws um in the crypto Market you know we saw the collapse of Terra Luna and it's stablecoin um USD we saw the bankruptcy

of three arrows Capital Voyager Celsius uh blockfi FTX um and so the market has come a long way since since that and you know despite the crises um of confidence in the US that we're seeing now and actually globally um Bitcoin now has has gone back up to 30 000 at the highest level since what June 22. um and we're starting to see uh that that sentiment of um the Central Bank um slowing their their pace of interest rate hikes um coming through and and meaning you know that risk on appetite is back and

so over the course of that last year the last quarter um even though there's been turbulence in the broader crypto Market I think one of the things that has increased is the understanding and the appreciation of um crypto derivatives and in particular you know our CME crypto Futures and options and I think there's probably a couple of reasons for that um and so you know I think the first thing is is that flight to Quality so clients definitely want to be involved in this space but they want to be involved in a way that offers them um regulation that they have guard rails and they have proven products and we're

really seeing that a lot of those investment decisions are centering around risk management so where participants are maybe hesitant to trade on some of the unregulated platforms we're sometimes benefiting from from that flow and from that we're seeing more liquidity we're seeing more market makers in our markets and we're seeing very tight markets so in fact um growth and um in in volume and open interest across our entire crypto Suite um over q1 of this year has exceeded more than three billion uh dollars traded in in Daily volumes so you know that's huge we're seeing a lot of volume

and I think the other thing is that investment management managers asset managers they're all now getting more comfortable with the volatility of crypto and the the returns that it generates and so that conversation since we last had the webinar and that conversation with clients has changed um from like what where clients were initially asking what is bitcoin what is crypto um that conversation is now okay we need to get into crypto how much should I allocate and when it comes to allocation the sticking point was sometimes that they weren't able to access

um the spot markets or the unregulated platforms and so between CME offering you know our cash settles futures um and the likes of uh you know the b2c2 and coin shares that offer the different components in the market that ability to access I think has been has has improved greatly and so you know with with the our um contract it's US dollar uh settled contract uh on an index on a regulated platform so if we just unpack that very quickly by a US dollar settled contract that means that clients don't have exposure to the underlying assets

um they have price exposure but they don't necessarily need to handle things like the wallet they don't have to deal with custodians or deal with security concerns like insurance and so it makes access easy and and does away with some of those barriers to entry um and yeah I talked very briefly about you know having those guard rails and by that I mean you know I from that hundred and year 180 year experience that we have with all different asset classes whether it's the volatility in oil or wheat we're able to test some of these mechanisms

um across different asset classes so we have things like Dynamic circuit breakers in place that prevent the market moving too fast or too quickly we have position limits that protect customers against concentration issues and prevent some of those snowballing issues that we might have seen in other markets um and we settle our Futures Contract uh to an index so there isn't any vulnerability on a price or any over-reliance on on one spot Exchange and so you know when we put all of these things together and I think as we move forward the idea of um yeah the segregated funds um will really be uh will really be

appreciated by investors um and you know from from our perspective and our platform because we're cftc regulated trading venue um and our Clearinghouse becomes the buyer to every seller there are no clawbacks there's no Auto liquidations and so you know we we feel that customers and clients are more um willing to trade in in the overall crypto uh ecosystem uh and actually as we see liquidations um happening on on those unregulated platforms we see spikes in our volumes that correspond to that so you know when we started um Bitcoin uh Futures back in

2017 we were doing a thousand contracts a day we're now doing you know over ten thousand contracts easily um and on on some days we're doing volumes of about 40 40 million so um yeah it's all of those things that are coming together I feel that is is really advancing the um the crypto ecosystem and and that's so exciting to see brilliant thanks so much for unpacking this uh do you have anything to add John Marie well it was a very comprehensive uh resume of the situation so I'm going to try to keep it very short uh FTX to

start with that kind of was a key worshiper in the deck massive change of dynamic and concentration between different Marketplace different Marketplace sorry um what we saw as well is like a different type of client profile you know is that becoming a norm a control agreement becoming a norm so professionalism in the standard of Frameworks which are put in place are are coming together and changing that uh just to come back on CME volume exploding volume means nothing we can have a lot of volume with virtual Market participants what is much more interesting is a number of large participants on CME which is at the end of Q4 or q1 around 400 Market

participant or large Market participant which is like more than 40 contract I think uh in their account so that's kind of very interesting metric which is changing the profile of the amount of participants in this market and showing that the market is maturing uh we're still we're still lacking a number of good fcm uh of quality fcm to manage a margin properly and the person margin which are at the right level and the margin are still very high which are still taking people away but that's improving so hopefully uh everything is going in the direction of more transparency more liquidity and and better products and let's stop there super thank you very much

um we got a really comprehensive answer here and and also um uh Jean-Marie highlighted uh on a few points which you think that they're the most uh relevant when it comes to change and because in the audience I realize not everyone lives and breeds crypto derivatives like the four of you uh maybe let's take a step back a bit and uh Nikola I think you can answer this really well and Dom if you want to take this as well that what are the various reasons why people use crypto derivatives yeah sure so I'll start out with maybe a way in which I wish people use derivatives more uh or we're starting to see people use derivatives more which is

hedging right when all of the events over the last year were going on I can't tell you how many people came up and was like my portfolio's down 30 what should I do well when your portfolio is down 30 there's not a lot you can do um because you've you're already down 30 but I I would employ people that are sitting on large treasury balances or you know have just an outright net long in crypto to think about trading options and buying downside protection uh it's just good risk management and I think it's something that you know there hasn't been that like broad availability of options until I would say over the last couple of years and and so excited to see that start to come out more we're seeing a lot of our clients trade it

more uh the other reason I would say that we're seeing people trade a lot of crypto derivatives over the last year which pile touched on uh briefly is the it's just the fact that they don't have to deal with the complexities of the blockchain right if you look at traditional Finance clients especially some of the largest ones they have Legacy technology they don't know how to handle like even think about settling on the blockchain wallet infrastructure custodians and so cash shuttle derivatives really can give them access to the space it allows them to dip their toe in and also it's something that their risk management teams are really familiar with right so the concept of an ndf or a cfd is not new to the traditional Finance space right so if

you go to your risk manager and you say I want to trade crypto cfds well they know how to model that they know how to think about the risk on that and so I would say those are are kind of two of the biggest growth areas we've seen over the last year or so thanks so much don't do you have anything to add yeah I mean I guess you could probably split the market in a number of different dimensions right you could look at institutional versus retail you could look at who's trading options versus perps Etc um but I guess at Signum if we if we zoom in a bit on on our client base and we look at what we primarily see I'd say it's probably two different kinds of clients that we're that we're serving

most and I think the first one is what Nikola just touched upon it's kind of the Hatcher's right so crypto natives uh project foundations Founders investment funds that have quite a significant exposure either in their native token or in the majors as a result of maybe an Ico or um any kind of activity that led to BTC or Reef exposure and um and there we're seeing a lot of this kind of covered call oriented uh flow uh that that a lot of them are just trying to catch their exposure um and and lock in some yield on on that right and and I think there and and I can really Echo with both Nikola and

Pyle said before I think we look at this very much also as a kind of a synthetic token if you will the derivative right because it also allows us and in many ways you have with these Special Projects you have you have maybe a token that is not liquid enough to have a an absolutely kind of super liquid Market that allows you to hatch that exposure very efficiently so um that when the spot Market is not there I think derivative and and um and especially also for us going by uh a vast array of kind of market makers allows us um to really hedge that exposure for the clients in a way that the blockchain never has to be touched in a way that you know you can get around

um some of the AML topics some of the the risk topics some of the custody support uh topics that you would would have to to kind of tackle when you talk about touching the token itself right so for us it's really synthetic uh token exposure I think that's the sort of the first client group that we're seeing this these hatchers and then the second one or more the the speculators so mostly individuals um which probably to be honest a lot of them could replicate their strategy on on an exchange um but the reason they they come to us is more to diversify counterparty risk um one of the benefits of Swiss banking law is that we can hold all our clients crypto assets off balance sheet so any

collateral that you uh deposit with us for the purpose of a derivatives contract is completely um of our balance sheet and hence not exposed to to our risk to our default risk and I think that's something that especially the more sophisticated individual investors are are starting to look for obviously also in the aftermath of what we've seen in the last couple of months in the market thank you very much um I feel like it's a good opportunity now to zoom a bit out and uh and give the listeners a better understanding of this four relevant companies uh relevant when it comes to advancing the the evolution of digital assets so it would

be interesting maybe for for some people to understand who trade your markets who are typically your clients and I would also like to encourage the audience to feel free to drop questions in the chat we will we will take a few um after two more questions so uh yeah you want to go first oh yeah fantastic yeah thank you um so yeah over the past um well four or five years we've uh We've continued to expand our product Suite to help um institutions and sophisticated crypto uh Traders manage their Risk by by trying to give them more Choice more Precision more accuracy

um and actually we've tried to bring over the course of 2022 one new product uh to Market every month um so yeah just a flavor of some of the things that that we have uh we have our standard institutional size contract for Bitcoin which has a five uh contract multiplier and for ether a 50 multiplier and so those contracts really have a notional value of around 100 to 150 000 and very suitable for institutionals um who are in this space and then you know we have also our micro offering and really that was to help fine-tune those institutional Holdings

um or for the actively or or retail participation so you know after covid um and we saw a real uptake in in uh retail interest um just as people were at home or they had more uh time or funds to to get involved in the space so those micro contracts uh have a 0.1 multiplier so one tenth of a Bitcoin or ether and so for ether you're talking about a a 200 contract so yeah really nice and small and as Nicola alluded to um it's nice to have these contracts in Market that help people to just dip their toes in or um you know for for

maybe a hedge fund to test some strategies um out using those those small contracts um and then we've we've really been tinkering with our options contracts as well to provide that downside protection that has been so useful over the past year or so and so we've brought to Market both monthly contracts and weekly option contracts as well so people can really use those to to manage that that risk um and you know in in terms of who's trading right it's it's all different personas coming together and different reasons why people are trading so we have Banks we have prop desks we have Hedges coming in we've got firms that

maybe have accumulated um long positions in the spot Market as um as Nicola alluded to to try and manage that risk or hedge that that downside what a really interesting use case is is actually miners or companies that accept Bitcoin for payment for example who would be long crypto they could use maybe a two-year term structure in Bitcoin Futures to figure out how much they should be investing in um capital expenditure or new servers and how much to hedge against price movement so the miner could could very easily calculate how much uh return he's

he's generating um from Mining and how much you know the price volatility and how much he can reserve for for capital expenditure and so it's becoming this really nice Melting Pot of all of these different personas and clients and use cases and I think it's exactly that that makes the market more efficient um and you know as as we kind of step forward we've seen the um interrelatedness of both the spot and the Futures Market um and that's by you know the the etns and ETFs that have come to market the various funds cfds um the perpetuals so you have again you

know all of these different access points um and I think it's it's that that brings tighter markets um and it's really a growth on growth story and so I'm I'm really excited about how the market continues to evolve and actually how we continue to involve evolve and bring new client new products to Market to to help these clients thanks so much quayal Nicola would you like to go next to or typically your clients I mean they they kind of span you know the gamut from I always think about who gets in first right so professional trading firms hedge funds kind of get into a space first

um and then you'll have you know treasurers and asset managers that'll follow next and then finally you'll have Banks and I think you know the one thing outside of what I will say maybe the CME banks have been really reluctant to get into the space I mean the CME has the benefit of you know having a 180 year history and banks are very familiar with you know the risk profile but um uh but look the sentiment is is tough for banks right now I think for them to get involved in any kind of meaningful way so I'd say they're really the holdout in terms of uh in in terms of you know the the last remaining kind of class of clients that we're waiting to see get into the space thanks so much

Dominic who wants to go next uh so on the asset management side I think you know what it is the crypto Market is going to build upside down you know traditionally you see a a top-down approach where institution allocates first and eventually it permeate to retail and the crypto Market it started all the way around started with retail or with consumer and eventually find its way up to the institutional market and so coin share traditional client days in Europe uh was based I would say between Stockholm and Milan and they were mainly retail and over the years we have seen this kind of sophistication

uh increased in the profile of our clientele to become to the small and medium asset management company family office and to some degree even large large family of things and larger supplementary company um so that's quite different than what you would expect to see in all the market and that was a typical specificity of the cryptocurrency market for Capital Market business you know we don't really have clients who have come to parties this counterparties are scattered around the world but you know we are pretty much every single Chicago firm has come to party which show kind of the the journey which has been achieved over the years and how we went from a very niche market where you know back in 2013

I'll come to bottom of the future side where the company called 796 in Shanghai and today we have like every single Market maker in the world which is offering market and kind of two-way Market understand so it's a very very Diversified market today and very interesting is that company still around 739 Shanghai your business long time ago uh the I think they disappear in 2014 one star from okx started okay so it's kind of applied for the long long time gone I see thank you very much you can also do betting on football game as well so

those kind of a multi type of business they were like let's not bring football into this conversation not not yet Dominic um yeah I mean not all that much to add we have a similar profile um here I think there's the clients that we do have the clients that I would like to see more and the clients that we would leave to to others and if we look at the ones that we we do have um it's what I mentioned before right the hatchers the speculators um we focus on an Institutional client base um so the ones that we would leave to others are clearly the retail space that's not our primary focus um and at Signum and then there's the

clients that I wish to see more and I think there I can really second what has been said as well I mean the banks and I would obviously we're also a bank but I would still consider us in a slightly different bucket than some of the banks that are really just touching crypto right now um and and I would love to see them obviously getting more involved I think there are a lot of opportunities for example in the structure product space where a lot of them are already active uh today and and I mean at the end of the day a derivative on crypto is not all that much different from a derivative on on FX so we can they're definitely synergies that can be leveraged there love to see them more but I think it's we have to be realistic it's going to take a bit more time there

as well yeah we can't really complain much in Switzerland when it comes to turn off yes adoption of banks which is which is nice you guys might be this you guys might be the standout globally yeah I think um by now and there's not that many banks left that are crypto friendly uh outside of the US yes indeed yes okay we have to really um good or nice interesting questions in the chat uh and um we can take live I name Mary's question basically she's asking CME and others do you see or

provide colors or straddles on crypto assets at the moment uh yeah so we um from the various um option strategies that we have um it's completely down to to the individual um to to put those um strategies together um we see a whole gamut of of different um strategies uh come to Market so you know everything as you as you mentioned from colors to straddles to butterflies um so yeah it's it's it's kind of that building block approach we have um the weeklies the monthlies um with Futures we we list Futures all

the way out so monthly Futures quarterly all the way out um to December 2025 right now so two full years out um so using that that approach um of those different pieces you know um it's really as as far as the imagination can go or or what the the best um allocation of risk is to those strategies so completely thank you so much prayer then I I wrote to JJ Jones that we will take his question live and that's the following the unregulated exchanges binance at by bit have around 40 billion

and 11 billion In Perpetual Futures daily volume respectively how are the regulated providers going to capture that market share in the cost in a cost-effective way or Perpetual futures for cfds uh going to play a part in this uh yeah I mean I can take the the first part of that um so you know on on a daily basis are Bitcoin and ether contract we're trading as I mentioned about 10 000 contracts daily um and if we put that in context we actually have more trading on our platform than the sum of all other Futures markets put together so if we

look at Global Futures open interest or oi at the likes of okx they're a bit binance bitmex Kraken um I'm sure there's others that that's about a billion dollars um one billion dollars um in total so not including the perpetuals whereas our daily oi is about 2 million so that just goes to show the amount of trading that that we have going through the exchange and the amount of trading obviously means more liquidity the easier it is to get in and out of positions and and the price at which you know the most important thing is the the the the the the the tightness of the bid offer

um but maybe I'll I'll pass it over to um Nicola or or others for for the Perpetual side foreign cfds are are it depends on what kind of risk you're looking for if you're looking for you know risks to exchanges risks to bilateral counterparties cleared risk um so you know you really have to client clients and counterparts really need to think about the risk profile that they want first um you know I I think uh it was either Dominic or Jean-Marie that mentioned is does right is does have come a long way to really Define what that risk profile is this past year um you know it's something that in traditional Finance we're very very used

to but in in uh crypto I remember when I started two years ago um like there there was there was no concept of like standard definitions on airdrops and and forks and so uh you know seeing isda really work towards providing standardized definitions and then you know soon to be standardized documentation I think helps Define what the risks are and the rules that you're operating under but um you know I think get really you really have to think through what's the size of my counterparty what risk am I willing to take to them and you know what even jurisdictional risk right I think we've seen that over the past year

year or so with some of the FTX stuff and I think why risk is so important before you make a decision on product is the is it it's not like there are there's you know a wide plethora of options out there so I think really think about risk first that'll narrow down your options if you're going to trade a perp or a cfd um based on what your risk tolerance is and then you can make the you know the appropriate product decision from there you have now a complete panoply of different service providers out there or different solutions and and that's where your risk management framework need to come in place to dictate what works for

who and typically the the traditional customer of a Perpetual contract on on the on bitmex or giving a name uh which is a founder of the Perpetual contract so at least we can get a credit for that um is not uh won't be the same user as a guy who want a CMD on b2c2 or or ndf so it's really kind of a a client a client segmentation and a risk Frameworks invitation more than you know how do you transfer one volume to another and I think has a market material the market participant with framework mature as well and and some of the risks which are ill-perceived right now because people just tend to only look at the surface

risk and know that the worst case scenario and post FTX you know nobody will have thought you can go bankruping on the fraud or an alleged Road sorry uh which make it look like a very different world so uh it would be interesting to see how this kind of dynamic change uh you know a couple of years ago some of these actually were not even am watching so you know the the train is moving and with the train moving uh we're gonna see some uh kind of assets relocation from our product relocation from One Marketplace to another and concentration change as well thank you for any honest words and thanks for the questions uh dear audience keep them coming we will be back to to looking at the chat and

answering news uh let's go further with uh with my D5 question to Jean-Marie genre last year when we had this very same webinar and crypto derivatives you were saying that at coin shares you are fans of D5 big fans of defy and uh defect continues to develop in uh in a incredible uh pace and what's your assessment of the market right now how just political perspective uh we're not just a big fan it's like you know there is an Elegance in D5 which is a bit refreshing when you see that most of the traditional Finance infrastructure are dated from 1970 which is an actual verse

of Euro clear and not so far working ttcc in the US so you know if you see that the whole Market infrastructure are relying on that thing the beauty and elegance of device almost refreshing now like we see with the Ico process in 2017 D5 has over extended itself and we get way too many projects and way too many bad things when your products ship very quickly without security audit and cannot capitalizing on the on the sphere of missing or of clients trying to you know Harvest uh yield everywhere as you can and you know we had a number of exploit uh I would say starting with running uh probably a year ago now uh

until now you know as of last night there was another exploit on on urine through uh prison uh through a prism and bugs so so it's kind of like non-stopping but that's because the market is moving very fast this being said there has been some very very interesting project and very very almost like Landmark uh institution which has been created in D5 if you look at businesses like are they like compound like Finance or even like business what you are facing some of the kind of uh Next Generation player not you know but you know you just need to isolate the noise and just focus on what are the quality projects which are coming out of defy and how they can evolve it and you

know we are not uh stopping to be passionate about that we are in the very very first Innings of the D5 Revolution and what it means you know there is plenty of question around kyc AML how does that satisfy the regulator if you want to scale it to another level uh but as usual uh when you get technology driven Financial Innovation it is not done in a way where the regulatory finished product if this product come in different version and the V1 is always a bit Scrappy and the V12 is always much more advanced so you know it's an evolution process is very darwinian to some degree and um you know as we saw with traditional crypto project we're going to get a lot of evolution there as well

Long Live permission defy that's what I'm hearing here uh Nikola how are you guys thinking Define translating into your products yeah look I I think we uh similar to Jean-Marie like we we love like let's be clear I came from a world where settlement was t plus one t plus two and Technology was Antiquated and you know we now settle the majority of our settlement requests within 15 minutes like that that is just like a pure like application of where we need to get to for the entire financial industry um similar with defy right like it if you look at defy on paper it makes tons

of sense right it would take Finance to the next level but it's had a really rough year to jean-marie's point right like if if you're looking at getting involved in defy and you see the hundreds of millions probably close to a billion now in terms of hacks that have happened over the last year or so uh you know you have to be thinking well is what is my risk here and what's the risk that you know my my funds are also uh subject to an exploit and that's got to cause you to pause and so I think we're really in this like incubation period not only incubation in terms of like how do we make the defy ecosystem safe and secure but also I think you're right you know there is it's hard for me to say to our client

well you know we have this high kyc and AML standard but also we trade in this like D5 space where we don't know who we face right so I think permissioned D5 is definitely something we talk a lot about we actually don't uh don't participate in D5 currently for that reason right and we're we're looking at different projects and Jean-Marie is right there's a ton of information and projects to sift through um in the Deep eyes space but like what are the right projects to to partner with to incubate to make this you know a safer a safer environment for all because you know there's so there's so many applications that can be unlocked if we do defy in the right way

brilliant thanks so much um we we have some really good questions in the audience so so let's uh step on on the gas here and then go ahead with my question and then we take more from the audience so payal and Dominic uh can you share a few data points stats on which which of your products have been the most successful we have been hearing that CME options have been going through the roof um so yeah if you can bring some data to the table and and share here that would be very nice yeah I mean it's um it's all about uh Mike market dynamics right so even yesterday with ethereums

um Shanghai upgrade right that took place last night um where that that was that historic transaction transition uh to a fully functional proof of of stake system that unlocked what 30 billion um worth of ether correspondingly we saw huge spikes in um ether Futures and options helping people manage that position and resulting in that real upsurge of uh of volume and oi um so you know it's it's real Market cases that that the the Futures and options are serving um and the other thing that yeah that was particularly uh evident over the

past month or so is that we're seeing more participants come to our Market as the availability to borrow or to go short crypto dried up so you know right now we're probably at historical low volatility and so after FTX volatility shot up to about 90 percent and and right now we're back down at two-year lows um similar to the back end of 2022 and that number is around 40 so what that represents um is is a huge amount of daily volume uh as I mentioned you know 10 000 contracts of Bitcoin and ether about 40 000 in our micro Suite

um and that represents um you know on on Sundays where we see um challenges in the broader Market space um you know like following the collapse of of FTX or svb uh that shift to CME Group um just in that search of flight to Quality um so you know our best trading day of the year so far was March 13th where we saw um 4.6 billion dollars um in in in trading um I think JM um mentioned the the other stat that we really focus on is um the the number of large open interest

holders and this is a number that the cftc our regulator produces on a weekly basis and that is any holder that holds more than 25 Bitcoin or ether contracts and so you know for Bitcoin that means you're holding about 3.5 million uh dollars worth and so that's only a large institution that will hold such a a big big crypto holding um and so we had a record uh large open interest holding uh in BTC futures of 122 such holders so that really shows you the growth in institutional demand uh for for those contracts um the other thing I you know just just

very quickly uh to mention as we were talking about defy um the the one thing that um you know our futures settle to an index um and we use the same so for Bitcoin it's the Bitcoin reference rate that index and we created the same index or use the same methodology um for a number of uh reference rates so everything from Solano to cardano polka dot Stella um you know in total we launched uh over the past year 25 such uh reference rates and that really speaks to the growth that we're seeing in adjacent markets so whilst we may not have Futures and option contracts on on

anything other than Bitcoin and ether we certainly see that that development of the ecosystem so these rates are um capture defy they capture the metaverse um you know the the layer one the layer twos all the the things that we're so interested about and our clients are interested about um so trying to bring that price transparency through the use of an index and as people you know develop further uh we see that those indices being used in funds or you know other OTC uh activities as well thank you payal Dominic do you have can you share some some

stats with us from the house of Signum yes sure I mean we've been offering uh access to to OTC derivatives for our clients since about 21 early 21 um and lately we've just launched that portfolio margin uh set up which I think is quite a nice enhancement for our clients makes a margin much more efficient uh but also on our side that introduces a lot of efficiency gains so we're now shocking portfolio based off of different uh well and and spot moves and and the German margin based off that so um I think that that's a nice introduction at the last um couple of months but I think what's more interesting is if we look a bit forward

and I mean the the market that we are in is mostly the OTC market and I think it's a market that is not very transparent uh to to the to the broader kind of audience overall I think it's something that happens based off of bilateral agreements list agreements and and sort of happens below the surface right and I think for us this is quite an interesting Market because it offers a lot of benefits as a regulator player so first of all you're facing um a counterparty that you can actually uh audit that you can you know request for transparency that you can ask for financial statements and you will get something which is not a given by the way in this market um and you also you can visit them you see they're there and it's a few of these basic things that that really

matter in this market and I think the second part um is capital efficiency SO trading on credit lines and trading on professional marching setups obviously helps us also and to trade more Capital efficient and especially as a regulate the bank where you know for any on balance sheet positions you pay quite High uh risk rates uh that that obviously punishes any type of behavior that is on your balance sheet so being able to trade that efficiently on a credit line um helps us and and I think this OTC market is quite quite interesting because we see a lot of developments in in that space at the moment so we're seeing quite the strong momentum across the kind of board to offer an electronic OTC derivatives offering

um which there are a number of players that move into that space and that coincides nicely with our kind of initiatives for this year as well and we definitely see a movie Nicola mentioned that as well uh towards the harmonization of the legal Frameworks under this stuff and and I mean you guys Nikola are on both of these topics at the very Forefront of the market and then thirdly we're seeing also um you know margin Frameworks getting significantly more efficient and and sophisticated which again helps us so with trading so I think this OTC market is a very interesting one one that maybe there's not that much light being shed on usually um but yeah we're very pleased with these developments and we'll definitely also be able to improve our offering on the back of of these developments

excellent thank you so much um Nikola the next question goes to you you have been giving access to your clients to bilateral liquidity and cleared liquidity where you work together with CME can you elaborate here on what the differences are yeah sure so um you know definitely so if you think about the cleared space right um the ways in which we help provide liquidity in the cleared spaces number one making markets in the order book right so when you are a liquidity provider you're you're often kind of making markets in there and then people can take liquidity from you in the public order book the other way is if we have clients that want to move a large block of risk they typically come to us

they'll ask us to do you know a risk transfer trade or a block trade with them we operate under the cme's rules and we're able to you know instead of them going in and having to think about well how do I execute this how do I put it in the order book are people going to figure out that I'm on a big sell program right is there information leakage they can come to a liquidity provider will will work with them to take down the block and then we'll deal with you know kind of the hedging and the risk management on the back of that and so that can be really helpful when clients get on a large program times like last night with the Shanghai up grade all of those are you know you want to be thoughtful about how you're you're moving your risk and and let's be clear

like the the CME is is an extremely sophisticated uh sophisticated venue uh people will know if you start if you if you do a cell program any people people know that that's happened right it's a public uh uh public order book and they'll see that so if you're moving large risks you want to be really thoughtful about that on the bilateral front you know we do face a lot of our clients bilaterally which means that we take credit risk to them and they take credit risk to us I think the the main thing here is there's there's a couple of benefits for them so flexibility so if they have custom dates that they want to get access to uh you know doing a bilateral trade allows you to customize that and the exposure that

you get the breadth of product I think there was a question in the in the chat around you know well I can only get access to bitcoin and eat uh liquidity well actually if you come to the liquidity provider we do offer quite a few talking my book a little bit we do offer quite a few uh you know derivative products in altcoins um you know we only we offer 31 coins globally so we don't go as as deep as some of the like you know up and coming coins in the market um I'll I'll refrain from using the common term that they're that they're referred to as but uh but I think that you know really breadth of product right because not everything is suitable for an order book so if you're if you're

trading and you know your order book's sitting empty all the time well that's a product you're probably going to want to trade more bilaterally because otherwise you're just advertising to the market exactly what you're doing um and then finally the last thing I would say is that if you want to offer the like so we provide liquidity to a lot of clients who then offer derivative products to their clients and so doing that bilaterally gives you the flexibility that then you can then offer it on to your other to your clients as well thank you and with that uh one more question was answered from uh from the audience so because we have only five more minutes uh then maybe let's focus on uh on Gross uh further but like when it comes to Geographics or we keep on

hearing that crypto derivatives are really popular in Asia um is is uh significant growth there payal but you have been seeing and also Jean-Marie if you want to elaborate uh on Geographic uh geographical growth uh when it comes to crypto derivatives what you have been seeing with coin shares foreign so yeah for all uh USD Bitcoin ether contracts we see global participation um so obviously we are a cftc regulated firm and the majority of our trading is out of the US but actually 40 of that

flow comes outside of from from outside of the US um And Trades are submitted submitted it from about 120 different countries uh worldwide and what's really interesting is if 40 as I mentioned of that flow comes from outside of the us and that means that half of the flow actually happens before the US is even open so um you know the Europe and Asia really representing a large share of that and as part of that we we launched a Bitcoin Euro and an ether Euro contract um just to tap into some of that flow that was coming

um out of out of Europe as well um and yeah this is something a little bit different that we see um than in traditional Equity markets where that share of how much is coming from U.S markets versus outside of us or outside of U.S hours um the the the percentage share is nowhere as as equal as we see in crypto markets so you know it just goes to show how Global this Market really is thank you very much um Dom do you have anything to add here you guys have opened an office recently in Abu Dhabi and that means that there

is a lot of demand in the Middle East if we have as we have been hearing um if you have anything to add to this one after that we can go to my last question sure yeah I'll keep it short um I mean Singapore and Switzerland are and and will remain our main hops but I think uh on in in certain jurisdictions we definitely see potential such as for example Abu Dhabi uh Luxembourg as well um and hence have also increased our presence there I think what makes Asia and and the broader Asian region uh interesting alongside Switzerland is definitely that kind of focus on Structured Products that that this both of these hubs already bring with them into traditional or with traditional

underbanks right um and I think that's sort of the next level that crypto derivatives can unlock of course we need a lot of education so um of course there is a lot of you know getting warm with the idea to be done yeah still because I think many investors if they see today you have a 40 day py they get confused rather than interested so I think there we still have a lot of work to do and I think that is one of the reason uh we are we're also expanding our Global presence because we think there's a lot of potential in the market that is already used to and familiar with the concept of Structured Products um and we can definitely expand into that direction there you know

14 I can recall a time when 30 percent wasn't even that uh mind-boggling um thank you so much so my last question which goes to all of you uh what is that development earlier what development are you the most excited about if you can keep it brief I'm thankful for that uh Nicola we want to go first sure I'm happy to um mine's maybe going to be a boring one uh I I'm gonna say like just standard is the documentation we spend so much time especially in derivatives onboarding clients and going back and forth on legals I think it would the the derivatives Market would grow so much

quicker if we could get clients you know into the space in a way where they understand the risks of it and also there's like a standard you know documentation that everyone kind of agrees to and so instead of you know possibly taking weeks or months to go through some is it some you know bespo like bespoke is the documentation you have standardized documentation that everyone's just happy to sign with you know kind of right off the bat fabulous thank you very much foreign Europe Place uh in the world chessboard and how you know the U.S is a bit of a

mess right now in terms of Regulation Europe has been pushing uh quite strongly on Mika the Swiss uh Finland pushing quite well so the Europe at large uh I would say has been doing quite well on that front so there was a declaration from president macron last weekend about the EU sovereignty and how it was important for EU to become and stay independent and how this will translate in crypto and in a world Which is less globalized and more regionalized uh what would be the impact on crypto so that's what I'm looking at thank you very much um three very quick things I think for me uh one is uh the boring one um if I SMS eight so uh regulation

um and you know making sure that uh that regulation is fair um but equally it doesn't swing so far that it stifles Innovation but I think that regulation will give Clarity um in terms of of development and bringing new products to Market uh number two I think uh technology and you know the things that we saw with ethereum the merge the Shanghai upgrade uh Bitcoin halving next year and all of the things that will spark such Market events uh and a need for um for the products that we've all discussed um and I think thirdly it's um economic events right so the FED tightening

um risk appetites um and and the use of derivatives um you know whether that's Futures and options cfds um funds ETFs all of those and how they work together to help people risk manage and put their Capital to the best uh use so I think it's a mixture of those three things that I'm most excited about thank you so much Dominic last but not least yes also boring but maybe different kind of boring um I'm I'm most excited about automation um anything that goes electronic that we can automate that we don't need someone to sit in front of a machine to perform

is exciting for me and I think is the direction we want to go into um so that's definitely our main main focus and then if I think you know in the broader from the perspective the broader Market in my view derivatives adoption is kind of a function of of two factors it's the spot market adoption and investor sophistication right and I'm confident that we will continue to see like a positive development on on both of these fronts we were definitely noticing it um so I'm sure the future is very bright for for crypto derivatives I love the automation answer such a such a VAP through your response thank you so much uh to each of you we have some really good questions in the

audience but I want to be mindful of your time so I encourage the people who um ask the questions to to reach out to the panelists and um One More Time payal Nicola Jean-Marie and Dominic I put my hands together for you on behalf of the CVA thank you so much for this terrific webinar looking forward to the Autumn Edition crypto derivatives 2023. bye for now and I wish you all a good rest of the week thank you thanks