Fireside Chat: Crypto Derivatives with Giovanni Vicioso and Joshua Lim

Transcript

[applause] >> The topic of this this fireside chat is around the state of the derivatives market. And specifically, there's been a lot of innovation in this sector in the last couple of months. And and even uh you know, looking at both the institutional side of the equation, which includes CME and all the hedge funds that trade on CME, but also looking at the on-chain side, which is a larger topic for this conference and the Ethereum community at large. Um so, you know, maybe before we start, why don't we introduce ourselves as panelists and and you know, I think we want to have this be more of a free-flowing conversation. So, I'm sure we'll ask each other questions, but do you want to

go and introduce yourself? >> Yeah, absolutely. Thank thank you, Josh. Um and and thank you to the Ether conference for putting this together. You know, I attended the Bitcoin conference earlier this year. And I could share that you know, the energy there and and sort of the spirit wasn't the same as what I what I witnessed here. Um there the talk was a lot about like how do I generate yield on on Bitcoin, but here I see a lot more uh collaboration, a lot more creation. So, really a lot more in terms of showing the the the space what could really be done with cryptocurrencies, specifically Ether.

I'm Giovanni Vicioso, global head of cryptocurrency products for CME Group. Um for those of you unfamiliar with CME Group, we are the world's leading derivatives marketplace. Uh we entered this space in 2016 with the introduction of a reference rate um that ended up being the uh what our futures contract settled to, which we launched in December of 2017. We launched Ether futures in January of 2021 and now list futures and options on futures now covering nine different cryptocurrencies.

>> Thanks. Yeah, and I run uh the trading division of a firm called FalconX, which is a prime brokerage, and we're of course a happy customer of of the CME exchange. Um maybe why don't we start with just a lot of the recent products that you've launched have had more of a sophisticated institutional tilt to accessing crypto markets. And specifically, I'm talking about um the volatility indices, which uh for those of you guys who are less familiar, there are products that reference the price of options, um and you can track that in an index. And so, it's really in traditional markets, especially in S&P uh equity markets, people use this as a

gauge of market fear. It's basically when the index goes up, people want to buy options uh to protect their portfolio. And if it goes down, that means people think uncertainty is reduced, and hence, you know, equity markets go up. They generally have a negative correlation to the price of stocks. Um in crypto, we're starting to see these products emerge. CME has launched uh one of the first regulated products in this category. Do you want to talk about kind of how that came about and who you're targeting with it? >> Yeah, absolutely. I think what we've noticed in this space, there's really been a maturation. Um you're seeing more traditional institutions enter the space. And with that maturation really comes the need for additional tools to help market participants really manage some of that

associated risk. When you look at volatility in general, you know, we look at Bitcoin volatility, we look at ether volatility, it's been relatively low, but when you compare it to other asset classes, it is relatively high. Right? So, with the introduction of our Bitcoin volatility uh futures, um which are 30-day forward-looking uh view of the implied volatility as um implied by our underlying Bitcoin options contracts, so that is really now giving the ability to institutional clients really the ability now to be able to directly trade volatility as opposed to having to trade a series of options and having to Delta hedge that. So we're really being

bringing simplicity, operational simplicity to the marketplace with the introduction of the of this product. >> Yeah, and I think I'll add from our side. It's been a useful tool for us to not take a directional view on the market, but really take a view on how much uncertainty is in the price of Bitcoin, right? Or when when there's an ETH product, it'll be on the price of ETH. A good example would be coming into this summer, a lot of people were actually short options, right? People thought it would be a sort of a calmer environment for the majors and specifically, you know, because there is uh a lot of supply coming through from miners who are selling and also from the digital asset treasuries and things like

that. But now because of this enormous amount of interest around what Michael Saylor would will do with the MSTR holdings, right? That's created a lot of uncertainty and it's created actually a spice in options prices from let's say the 30 implied ball range to some somewhere in the 50s, right? So I think something like that is something a lot of hedge funds will take views on that in traditional markets. They'll take views on the VIX index in equities, but now they have a chance to do the same thing in crypto. >> Yeah, we're super excited to see that happen.

>> Yeah, absolutely. Um so [clears throat] along these lines, I think not just looking at the price of options, but there's also an element of kind of the cost of holding crypto assets. And really it's like a financing rate or in in for Ethereum it'd be the staking rate, right? So um we we've seen a lot of people try to create products and indices that track the staking rate of Ethereum. Is this something you guys are exploring and do you see a lot of demand from hedge funds or other asset managers that are holding ETH to hedge the amount of yield they're getting on their Ethereum?

>> I think it's something that's that's developing, right? Um something that we've noticed with um our ether futures contract, right? Um as I mentioned earlier, we launched Bitcoin futures back in December 2017. We saw 7 years of growth um in terms of volume, where each year we saw successively higher uh volumes. For the first time last year, our Bitcoin futures volume actually decreased in 2025 compared to 2024. What we noticed, however, is a sharp increase in in our ether futures volume. In fact, our ether futures volume last year increased by a factor of three.

And that that that is significant because that is now showing now that the marketplace is really um moving beyond uh Bitcoin, right? Certainly what we saw with the passage of the Genius Act last year, we started seeing ether, Solana as well. So these um platforms that allow um for you know, the settlement of stablecoins, for example. So we really started seeing a lot more interest develop um on on ether. Um we're also seeing now more uh notional volume traded on ether uh compared to Bitcoin, where this year about 40% or ether futures volume represents about 40% of of Bitcoin uh

futures volume. If we go back to 2024, that ratio was less than than than 20%. We're also seeing open interest. Open interest is an indication, say, of of what institutions are um confidence, say, in the market. Um it's a sign, say, of of of products that are being created, structured products um that that um that that are created, as as well as entities looking to hedge um, forward, um, volatility. Right? So, we've also also seen growth in terms of ether, um, open interest, where open interest now is running about, on a notional term, about 45% of of of Bitcoins. So, really seeing a lot more demand, and I think that's really a function for what, um,

the Ethereum Foundation has has done, um, some of the upgrades that we've seen on the network, um, certainly moving from, uh, proof of work to proof of stake, um, and and having things like like staking yield. Um, so, we're really seeing institutions, um, ad- adapt to, um, ether in particular. >> Yeah, um, to your point about just the broader adoption of Ethereum futures and the growth in open interest, I think from our perspective as a trading firm, the more tooling we have around all coins, and, you know, you've you've also added things like Stellar and Ripple and Solana, um, it creates more opportunities for hedge funds to express a differential view between assets and

crypto, and we've already, I think the previous panel kind of mentioned this, there's a lot of dispersion right now across crypto assets. And that's created almost like a uh ideal situation for token picking funds, um, liquid funds. Now, granted, there's a lot fewer liquid funds now than there were, you know, last cycle, but, um, a lot of these, um, portfolio managers are very active now putting long short positions, and they can really do it more effectively because there's a liquid market on CME in a regulated format on these, um, on these instruments or on these, uh, tokens.

>> No, 100% right, and you know, with the introduction of spot ETFs back in 2024, you started seeing a lot of the traditional hedge funds come come into the marketplace, and a lot of those hedge funds really came in, um, really to put on the basis trade or that differential between where a futures trades relative to the underlying market. So, we saw a lot of that activity in 2024, um, some in early 2025, but really we started seeing basis decline and you know, when you look at basis across both Bitcoin and and ether, it's probably now sub 5% or something something like that. So, it's not as as an attractive trade anymore. So, you would think maybe that

participants then are are only chasing say that relative value play and then they they leave the marketplace. But like I mentioned before, we're seeing increases in volume, we're seeing increases in open interest. So, that's now really sig- signaling to the point that you made that that there's more now allocation, more growth in the space and and I think that's also the testament of of what CME has brought to the marketplace in terms of of having a reliable, trusted marketplace that that it that has brought these cryptocurrency futures and options to market. >> Yeah, I think the decline in yields, basis yields in particular, um it is highly correlated with spot price action, right? I think we've seen um generally crypto is not the hot

sector anymore, you know, obviously it's AI. But um what is interesting is that the appetite for yield hasn't diminished, right? There's still a lot of capital and dollars in our industry that are looking for productive use and it's going into other areas outside of specifically uh the basis trade like some people are using the options market to generate yield by overriding, right? Or um maybe to going a little bit further down the risk spectrum and deploying directly on chain for um farming opportunities and things like that on chain. So, I mean on this topic of just the the kind of coexistence of DeFi and traditional markets and you know, a lot of people call out the sort

of the convergence narrative, which is to say a lot of these markets marketplaces will eventually have the same set of products, have the same collateral access, you know, maybe even the same set of users. Um how how do you see CME futures coexisting or CME products generally coexisting with things like hyperliquid and, you know, now that the CFTC has softened their stance, you're seeing a lot more centralized exchanges like Coinbase and Kolsch and others list perpetual products? >> Yeah, I I think I think when you look at the space, I I don't know that it's a winner-take-all marketplace. I I I think it's it's a marketplace where there's going to be coexistence. Um maybe more hybrid type models, right? Um but

certainly when you look at some of these newer uh protocols, platforms, they're still relatively new, right? Um and for the most part, really untested in terms of what if there's an issue in in in in in the code, you know, if if something goes wrong, you know, who do I call, right? It's it's it's all code-driven, right? So, I think when you're looking at attracting that traditional institutional player, you know, the larger hedge funds, you know, the the non, say, crypto crypto-focused ones. Um when you're looking at attracting banks, for example, I I think we're probably still a ways away before some of those um larger institutions adapt to something like like like a hyperliquid, right?

>> Yeah, I I completely agree and I think it's commendable that a lot of the traditional market players have really moved to adopt the conventions of on-chain markets and I know recently CME has moved to a 24/7 model. Um I guess first question is, why do you hate traders now that we can't get any sleep at night uh anymore? And I guess the second question is like, how how do you see is this sort of an appeal more towards um crypto-native players or is there actual demand now from macro hedge funds and and the like who want to trade on weekends.

>> Yeah, look um I I I like my weekends, too, right? But but I think the truth of the matter is that that this is where the industry is going, right? And and for us, it's really about providing our client base, both institutional as well as as individual traders, just providing them with that ability to always manage our risk. You know, when you look at the cryptocurrency marketplace, as we all know, it's already a 24/7 marketplace. News happens um over the weekend. So, with the introduction of 24/7, we're just making sure that our clients can manage risk on whatever time, whatever day uh they they need to do so. And the natural starting point with that was was was cryptocurrencies. Like I mentioned, it's it's already a 24/7 marketplace.

And we saw like um you know, it's it's it's our second weekend, right? Um this past weekend um we saw um a nice uh pick-up in terms of volumes. I think we have we traded over 300 million or so um over the weekend. We saw a lot of um uh hedging activity, particularly with volatility increasing for both Bitcoin um and Ether. Um and seeing more participants um come come into the marketplace. So, super excited to say with with that introduction. >> Yeah, that's that's great. Um and and obviously this is like important for traders like uh our firm because we are always looking for opportunities between traditional markets and on-chain markets. And this really closes the gap

and allows us to kind of um well, literally the CME gap, which a lot of people >> there. >> a lot of people used to use as an indicator. Um but it also closes the gap between kind of um arbitrage opportunities and a lot actually opens up more opportunities to trade on weekends between markets. Um One Yeah, go ahead. >> No, and and and we're also seeing um like a good mix of participants in the marketplace, right? So, you know, we've got your liquidity providers there, you've got institutional participants there, but we're also seeing a a lot of retail activity on our micro contracts when you know, you look at the split of of volume, the majority of the volume is actually on on those smaller size contracts. So, we're seeing a lot of

retail participation in that you know, over the weekend as well. >> Yeah, that's great. Uh with the advent of 24/7 markets, the next corollary is obviously I want to be able to collateralize these contracts that I'm trading on the weekend, right? Especially if there's a large move, I need to be able to move collateral on and off exchange. Um or I need to rebalance let's say from a Binance account to a CME account, if you can imagine. Uh what um what's the future path look like on that front?

>> Yeah, and that that that's a great question. You know, at the moment we're we're treating the weekend the way that we treat um say holiday, meaning that there aren't any settlements on weekends. So, we're open for trading, um but settlements occur on on on the next business day, right? Um but but but to your point Joshua, right? I I think that we have to consider you know, how do we help our market participants move value in case that they do need to post additional collateral over a weekend if if if if something does happen. So, we do have a partnership with Google Cloud Universal Ledger um as as well as um Bank Bank of Montreal. Um so, together you know, we're working on creating sort of like a a tokenized cash solution, right? And really offering market

participants that ability um for those um banks that um settle with with with allowing them the the ability to move value across that network over the weekend. And we're hoping that that's a solution that that could be live uh sometime later this summer. >> Um yeah, that's that's all very encouraging and obviously it's only beneficial to the firms like uh us and others in the space that are actively moving stable coins all the time on chain. Um >> [clears throat] >> A question for you just regarding the uh diversity or the universe of assets that you're considering adding, right? I

think on our side we've seen a lot of interest in privacy narratives and I think even in some of the talks in this conference there have been a focus on the privacy roadmap around Ethereum. I think we're seeing you know there's obviously been a lot of volatility on Zcash in recent days. What do you think is the scope and how easy is it to expand the list of things you can trade on CME beyond you know the maybe what is it six or seven assets that that are available today? And I think both from a sort of privacy and complexity perspective of adding new assets that are not just proof of work tokens that are simple but

other considerations like the maybe the securities law aspects of certain tokens like hyper liquid tokens and things like that. >> Yeah, so so for us first and foremost it's having that regulatory clarity, right? You know as I mentioned earlier we launched Bitcoin 2017, Ether 2021. It took us almost another four years to launch Solana and XRP and then this year we've launched five additional cryptocurrencies. A lot of that is now because there is a greater regulatory comfort but in addition say to these futures and options and futures that we list we also have a family of now more than 30 different reference rates and real time indices.

You know I mentioned covering the 30 or so different coins and tokens. So that gives us really a foundation to work with in terms of perhaps additional cryptocurrency contracts or futures contracts that we launch. Beyond say that regulatory clarity, we also need to see that that that customer demand, right? So as as we see customer interest in a particular coin and say that that coin passes a regulatory mustard, we are more than happy say to to list that additional coin. The other area where we're seeing a lot of interest now is around cryptocurrency indices. So it's that idea of not having to pick a particular coin, but really

allowing the marketplace that ability to get exposure to the cryptocurrency space. We recently launched our futures on the Nasdaq CME crypto index, which at the moment consists of eight underlying different cryptocurrencies. >> Love that. A lot of product innovation from your side and obviously we're we're happy to be partners of the exchange and you know, we hope to see it keep growing in upcoming years. So >> Super excited and thank you. >> Yeah, thanks for having this conversation and thank you guys.