Building a Crypto Options Ecosystem - TOKEN2049 Dubai 2024

hi good afternoon um and thank you for staying this long for the people that are not leaving yet uh my name is Luke stas I'm Dutch I'm the CEO of derit uh and derit is based here in uh Dubai since a few months and before that we were based in Panama and originally we were founded in the nland the n is home to options as some of you might know so there's a lot of options firms and a lot of spin-off firms uh trading as a market maker and and platforms like us originating there as well so we've been around for quite a while um 2016 we were one of the earlier ones and we focused on options one no one else did um and markets really started growing in 2018 2019 so that took quite a while uh nowadays we are the biggest we have 85% of the market uh and essentially there there's no one else that has a decent market share the rest all have 1 2% uh which includes biners okx Etc uh including D5 spaces all the the big protocols all together have 15% we have the rest so just some numbers uh all staggering numbers um 80% of this is institutional so retail is a few thousand people and then we have a few thousand corpor making up for 80% of the business so it's really let's say traditional firms all the big names that you might know Galaxy brev Howard Etc trade in crypto and they would trade on our platform so that's us so slightly different than most of the people here in the ecosystem because typically all of this is targeted retail and we are the opposite we have a complex product if you log into our system you see a thousand products you see different expiries you see different strikes you see Greeks Deltas gamas Vegas stuff you've never heard of um which either you love and and you fall in love with it because it's like an amazing product or you're overwhelmed and uh you'll never come back so that's that's our difficulty uh offering a product that's rather complex but you can't simplify it so it's it's it's simply uh rather complex and it's there to stay so how many people actually know what options are so that the terms what I explain it a little bit okay let's say half let me run through quickly so options are different than perpetuals different than uh Futures options are in each product that allows to Target so opt for example an option is uh an option to buy a call option to buy crypto let's say Bitcoin at $50,000 uh with a certain expiry date so let's say the end of June so that means that there's a strike a price level above which you are profitable so if price today is let's say 60 that product would be worth approximately $10,000 convert it into crypto that would be one uh let's say5 of of a BTC in terms of value if the if BTC Rises and grows to let's say $100,000 the p&l would be $50,000 which is half a Bitcoin at expiry so you can Target using prices but you can also Target using expiries so you can you can buy products that expire in June in September in December if you think because of the election because of the Haring because of whatever event you believe in the market is going to act or react um options are perfect instruments uh to buy or sell because because of the haling you might think that let's say in 3 months time a certain uh thing might happen the M the market will rally and for you to benefit uh optimally from this rally you can either buy Spot which is uh heavy in terms of capital or you buy options which is much cheaper however if the the expected event doesn't happen your product expires worthless if the market crashes before that happens so let's say $60,000 we move to $40,000 and then to $100,000 you won't get liquidated so key the key differences with most of the derivatives out there is that Port markets typically liquidate clients so there's a margin if you're out of margin we liquidate you for options you have a right to do something at a certain moment in time so if you buy an option whatever happens in the meantime is irrelevant at the measurement moment we look at what happened to your product did it go up did it go down and how much is your p&l and that's the moment it matters so you won't get liquidated in meantime but if at that moment it didn't happen it's worthless so lower Capital outline more precision and so you can say a $50,000 strike a $60,000 strike a $100,000 strike of course the 100,000 level is further away so the chances that that will happen are uh smaller than something expiring at $60,000 because we're already trading above $60,000 so the premium for $100,000 option will be smaller than the premium for a $660,000 option then if the markets are moving rapidly volatility um the premium gets higher because the likelihood of some event to happen is more likely if the market uh moves a lot than if the market moves a little bit because it's never going to reach $100,000 so high volatility means High option prices leverage of course you it's a low Capital Outlet so you you can get bigger upside hedging you you can look at this like a fire insurance if you think your house might B burn down you buy a fire insurance if it doesn't happen you you're fine you're happy because your house is still there the same applies to portfolio of Bitcoin let's say you have 10 Bitcoin you're afraid of the Haring you're afraid of the elections you want to protect your portfolio you buy put options if the market goes down your Bitcoin uh loses value but the put options gain value so on a net basis you're flat a lot of large funds large asset managers portfolio managers hatch funds use options to hatch because they have long-term views but they're not necessarily certain about the Haring effect they're not necessarily certain about the ETF effect so to manage this exposure for the coming three months they buy some options but long run they don't because they are they're committed to what's going to happen next event positioning um Haring elections Etc so when markets are boring um not a lot of volatility will happen so volatility will Decline and markets won't be that exciting from from a therapid perspective from an options perspective but if the ETF gets announced or it or gets rejected the Haring is coming the elections are coming people are getting excited and some people believe in a certain story line and other people say no it's a buy the new sell uh sell the rumor buy the news story everyone has different views causing the markets to be more volatile and moving causing more options to be traded so the left chart um and if you if you look at data from 2016 is going to look worse that's that's the evolution of options so we started out really really small tiny a few million dollars a day in turnover we're looking at billion dollars a day but if you look at a billion dollars of day in turnover so in um in March we traded our best month ever which was 142 billion in turnover out of that 2/3 was options so that's a few billion dollars a day in options turnover but all of that turnover is only 2 3% of the overall market so derivatives are massive and if you look at derivative markets globally in the US in in Korea India Japan whatever where there derivative markets are popular historically you'll see that a big chunk of the volumes is options in the US options is bigger than spot options is approximately equal to Futures in the crypto space is still small even though we think we are big relatively speaking we're still small but growing you see that Trend so if you if you believe in that storyline the market will mature eventually family offices hedge funds and whatever every will come this number will grow it will grow 50 to 100 times to be in line with those traditional markets and in order to get there we're doing a lot of things um ISO certification sock 2 a lot of things that certify a business that you wouldn't care about but that enables us to onboard institutional flow which is key for us where we have a v Vara license we we haven't activated it yet in a few months time we'll start operating under this Dubai regulatory uh regime which allows us to tr spot and derivatives here in Dubai all of these check boxes audited financials system penetration testing etc etc etc puts us more in line with with nesda C urix Etc more in line with traditional markets and More in enables us more to be the recipient of flow so once these large firms these large hedge funds these billion dollar asset managers start trading crypto they will look around and they can choose either traditional markets or hopefully us there shouldn't be any other choice because because all the other markets wouldn't have the same qualifications that those are our Ambitions we should be the alternative of choice accepting crypto colal so if you look at big Global markets trading derivatives is like platforms like CME urix Etc they don't accept crypto colal so if you have one BTC you have 100 BTC and you go to C me and say can I use this as collateral for my trading they will tell you to get lost they only accept dollars and for us it's the opposite we will accept dollars we will accept treasuries Market funds but we also accept BC eth Solana whatever you have uh yielding stable coins usdc usdt etc etc etc so if you if you embrace the ecosystem and you have all of that stuff in your portfolio and you want to leverage that you want to get yield generated you want to buy options you want to sell options you want to trade using Futures Etc we are the go-to platform of choice so this is the left is us so I disc a few of these items we're more like uh a tri a typical crypto sorry typical traditional exchange with extras and we try to expand these extras so from a latency perspective from an engine perspective how fast can we update orders you can imagine that if you are a platform trading spot let's say one coin and there's 10 market makers quoting if the market moves 10 market makers will send one new bit and one new offer and if they if it happens quickly they'll send whatever 10 times as many 100 times as many but that's about it a 100 messages a thousand messages and then the order book is updated and everyone's has priced again if an options Market has to adjust or has to reflect Market moves there's let's say 25 30 market makers quoting a thousand instrument all sending a thousand new bits a thousand new ass that's thousands of updates per second so from a engine perspective you're looking at a totally different Market setup we're not cloud-based we have dedicated Hardware we have service in London we have uh multiple servers the best stuff money can buy faster than our servers they're not available our clients plug in cables uh to make sure that they have the lowest latency connection to make sure that they can cope with different Market circumstances if the market crashes which as you know happens often they need to be able to update all of these thousands instruments for that reason we have stuff like multicast is like the fastest data protocol out there no one else has it we have Market maker protection so we we pull orders for on behalf of market makers should certain circumstances happen M quotes etc etc etc so the market is growing and our market share is slightly dropping as you can see so and over time we will slightly lose more so we have 85% and in let's say 2 three years time we hopefully have 70% of a much bigger Market why are we losing because some of the others are activating as well so platforms like binance and etc etc have 100 100 million clients each and if they send 10 emails some of these 100 million people perhaps some of you will trade if you trade more frequently and more actively and you actually like the product you want the best uh liquidity but you actually want to do more strategies you want to buy some calls sell some puts some more advanced strategies some Futures Delta hatching etc etc etc that's when you come to us because we have the most advanced margin engine and we offer uh best-in-class collateral management so these clients these markets activate some people and the market is getting bigger and bigger the market is also growing because new people enter the big traditional firms the hedge funds Etc so the market is growing and we lose slightly as you can see on the right March has been an amazing month uh April uh won't be the same but if you if you believe that the trend will continue and you believe that whatever bit Bitcoin will be 60 70 $100,000 you see the close correlation with that turnover if it trades at $100,000 you can expect massive turnover on the platform as well some numbers uh you can forget about these immediately but these are mind-blowing numbers so we have uh midm March $23 billion in open interest in uh 13 Monch we have 12.7 billion in E open interest so together uh plus the Futures open interest we have around 40 billion in open interest just before the expiry so options expire every day every week every month and the bigger the expiry the bigger the impact and the bigger uh the market activity as well so the quarterly options March June September and December always bigger so half of this stuff expired the March that means that everyone that's hedging needs to unwind the hedges etc etc so these these unwinding moments these expiring moments are really big for us but 40 billion uh out of which one and a half billion is future so we have a lot of uh options you know as for our options Market but for example we're number one in Futures as well so we have 41 42% futures open interest the next one I think is bers or okx has something like 30% we're massive in Futures and the reason for that is that when options Traders uh trade when you buy an option the counterparty will hatch using Futures so they will buy or sell Futures and therefore we have a big uh futur pool so they go hand in hand we're uh decent in perpetuals so like let's say top 10 uh far from uh the top one which is binance but Futures and options that's us and this is our logo do we have one minute so a little bit of interaction or any questions we don't do questions yes so the the question is are we uh willing or considering to expand our product range and including onchain offchain we have expanded recently with altcoin options so we started out with BTC we added uh e we added linear um instruments so usdc usdt and we recently launched maic XP and salana options we've just started out building it and we just launched like a month ago so we have expiries up until a month out once we get more success We'll add two more months we add one more quarter and eventually we hope to have them the same expiries as we have for BC and E which is up until a year out that will take a lot of effort because the market makers don't have the same volumes as they see in BTC and E so we need to push them incentivize them to quote quote tight quote in the weekends even when no one is trading we need to have proper markets because if you buy today you need to be able to sell next week as well so you don't necessarily need to wait until expiry you can also just sell those option positions so we're building that gradually we have three now I think if we can if we can build the ecosystem and we can excite people like you we should have let's say up to 10 and once you have 10 there's always something happening today is salana Rally then it's the salana crest tomorrow it's xrp whatever all all the time some coin will be in the news and if you have the big ones if you have Choice um you have an interesting um uh platform we do this as a centralized venue we don't touch defi the reason why we don't touch defi in a lot of unchanged stuff is that 80% of our business is Institution and what they're terrified of is trading against people they don't know they don't want sanctioned Russians they don't want terrorists they don't want whatever all of that stuff the long list of sanctioned countries the long list of individuals they're terrified that they might have traded against them and then next week next month there will be a headline of a big asset manager which should have the highest of of the highest standards that traded against something they they can't justify and in defi up until now the the the the Gateway is not I think of sufficient quality to make sure that will never happen for us we're also terrified of us persons so we're very strict in onboarding um people from from where wherever in the world except us in the defi space that's more tricky to safeguard because there might be us person trading Defi and if we interact with with that whatever platform protocol we might be at the risk of uh actually servicing us persons which will open us up to to massive fines thank you thank you for your question