The Growth in Crypto Options - TOKEN2049 London 2022

hi my name is Chantelle Bradford I cover um institutional sales at darabet we are a crypto derivatives exchange um focusing on options we specialize in options uh we're sort of the sixth seventh biggest crypto Exchange in terms of derivatives however we are well probably six now not seventh um but we are now indisputably the number one in options we've got a 94 market share of options open interest and we're a lot more niched in our peers so we only offer a few different coins so we have BTC eth and Solana so we've got Futures perpetuals and options and those contracts and we've also got 16 um 16 usdc linked perpetuals the planners going forward we will be launching more more options next year however we want to focus on cross-colateral at the moment so it'll be a q1 aim for next year I joined a March from the London Stock Exchange group I was at Curve Global which was the interest it was the derivatives arm of the stock exchange and um I think at the moment um so we basically got just to say with that 80 of our flow comes from institutions 20 is from retail so we're very institutionally focused we're co-located and ld4 we're one of the two crypto exchangers that's in there at the moment we offer multi-class we've got portfolio margining so you can offset your futures from your options and we've got a number of other tools that make us very institutionally focused um terms of our track record we've got a track record of protecting clients assets um so we actually had a hack last week and 100 of the losses was was um paid out of client funds um it was exactly the same when we lost money to three arrows in June last year so we have a very good track record of protecting assets um usually at company expense uh we've got less than 100 staff so we try and stay very lean and we're basically going to focus on options and trying to be best at the options going forward so before I start I just wanted to touch a little bit on what's happened recently um in terms of all the kind of being pretty scary we actually got hacked last week quite a lot of um The Exchange have recently been hacked um we were hacked for 28 million uh it all went on from our hot wallet so 90 99 of client assets that are in our um Cold Storage one percent in the hot wallet and essentially we got um Somebody went in and drained it within minutes so we are working to try and make sure that this never happens again um main focus is is kind of protecting this and 100 of this was paid out of um uh company funds so going forward um given what's happened in the last couple of days with the Alameda and FTX it's pretty scary with the lending um I think going forward exchanges are going to have to be a lot more open about credit lines that they're giving to customers um we mentioned back in June that we've tightened OUR Credit Control policies regulation definitely needs to come so definitely need to get regulated particularly when client assets are at risk which was obviously the case here there's a fair in the Market at the moment I think a lot of people have been sort of meeting that assets to safe havens we've been seeing people sort of taking money out but also we've had a lot of inflows as well so it's been interesting and quite um quite encouraging to see this as well so Dara but it's definitely a truster partner and people are comfortable with us um we've got no we just put an announcement about five minutes ago we've got no exposure to FTX at Alameda we don't have a trading desk so we don't trade with um with client funds and we are also working on getting a proof of proof of assets like a couple of the other exchanges so I think going forward we need to make sure that we've got this so but if they're a bit background so we were um formed in 2016 our founder John was an options Trader in Amsterdam essentially um he wanted to create a crypto exchange I think he thought it was too late to do Sports they thought he needed to find a niche which is why he decided to do options he went around to all the options traders in Amsterdam and basically said you know do you guys want to trade options as far as too early nobody was interested nobody wanted to trade it so he launched a Perpetual contract made money doing that essentially back then it was um as long as you didn't have outages it's very easy to gain market share so managed to gain market share doing that on Tech so that's what was always very good and then two years later some of the um market makers that he went to initially came back and said they're ready to trade so they got people quoting um X IMC X October basically went and set up their own funds um so we started to get sort of better prices um open interest started to grow the spreads got better and then essentially sort of more institutional monies that are coming into the space digital asset funds started being set up and then now the landscape is changing even more in a lot of traditional players are now getting involved and want to start trading um trading too so we're seeing kind of the landscape very very different and it's really exciting um terms of customer development as mentioned earlier you know initially it was very much sort of like spinos from IMC and October then it went into um more kind of crypto native funds now there's a lot of traditional hedge funds that are entering the space either setting up sort of separate digital asset desks or um I think in some cases basically they're worried about people leaving a lot of people have left and basically set up their own funds they want to keep good people so maybe if they don't fully believe in the upside they might want to have a desk just to see what's going on or basically to stop people from leaving and if it works I guess they'll start to allocate more assets to that um I think um now with sort of traditional Finance coming into it it's getting more exciting the kind of the the market is getting better and we now have uh 11 million open interests on our books which is pretty good BTC has always been um higher than sorry 11 billion um so b2c has always been higher in terms of the open interest but eth uh in I think it was in July it overtook for the first time so essentially with the East merge coming up um ended up um overtaking b2c for the first time which was very exciting so it just shows there is a chance for other currencies to overtake BTC um in terms of The Wider micro landscape and competition up until now we we basically haven't had any competition um there are we've got 94 there are a few other exchanges we've got say two or three percent each um but essentially nothing's really taken off but now with um now kind of in the last I guess six months uh two big in uh exchanges have have launched the options so I'm not going to say who they are by name but one one launched in March this year and one launched in June um so I think I think that the industry is going to get a lot more exciting there's also some kind of native firms that have set up they're paying people to try and get liquidity they're also offering Equity I think that it will be harder for them because I think it takes a lot of time to build up trust particularly in the industry and what's sort of been happening since June what happened in the last couple of days um however I think we are very excited about the competition uh I don't think we're going to keep our market share forever essentially um competition's good we want it to come the market gets bigger I think they're doing a really good job of trying to educate people you know the options are such a tiny part of the market it's like one two percent of the whole crypto industry in traditional Finance it's like 35 times that so it's huge so essentially there's like a massive massive chance for us to um to grow and um and kind of develop that market and although maybe we kind of have less market share and we have a sort of smaller size of the pie the pie gets bigger so we have more of the pie so we're very much sort of looking forward to everybody joining and creating opportunities like Arbitrage strategies and essentially to grow because there's so many things you do you can do with options and you know you can be speculative you can use it for hedging you can trade the volatility um so essentially I think as the traditional players come in we'll see this more and more so what makes people trade options so since March this year we've doubled our number of contracts we've traded so considering we're coming from a very small base it's been growing massively and you know for us for options Traders volatility is really good so essentially yesterday obviously terrible for the industry but we had one of our best days so much trading going on back in June when when when the crisis happened again we had some of our best days so it's you know options Traders like volatility and it's it's good for us again the youth merge and the advance of the youth merge everybody was training a lot and um and I'll run to that again like a lot going on people kind of taking different bets on what was going to happen um so in June we had a lot of accounts opening there are a lot of blow-ups I think in the industry also people left and set up their own funds they saw an opportunity um so that was exciting and then also you've got institutions to uh you know use in the bear Market they're basically using options to protect against the downside so essentially you know you're seeing people coming in like that and then finally you've just got normal companies like custodians or um even miners who are essentially just it's so volatile so they'll get their revenue from b2c or eth and it's so volatile and they just want to get some more sort of standardized steady revenues and so they'll hedge their revenue exposure so that they can kind of pay their staff and pay their bills and not worry about the volatility of the currencies um so changes over the last 12 months as I alluded a few earlier there's been quite a lot of change in terms of the people that are trading on derabet um from the initial market makers to the um crypto hedge funds and now to sort of the asset managers and the hedge funds um traditional hedge funds uh I think the banks aren't going to come until it gets regulated the asset managers aren't going to come into this regulated they're putting a little bit you know they're connecting they're onboarding but they're not putting a huge amount of assets and I think that that that will change as sort of the custody element trade starts to take a bigger um starts to play a bigger part because at the moment a lot of Traders don't mind keeping their assets under but like if you're a market maker or a prop firm it's very expensive to be with a custodian but if it's sort of asset managers or Banks they're definitely going to want a third party trust their custodian um so a lot of the market makers and props that actually used to trade at the stock exchange they're now trading on dare a bit um you know again a lot of them are testing they've got a lot of work to do to make sure they feel happy with it um but they're coming and they're starting to trade more and I think the next year or the next few years is going to be really interesting to see what happens because it is a really tiny Market um another thing that I've noticed is uh due diligence questionnaires um they're all for some of you guys are sending them to us now in the old days you know we would onboard you guys you go through our kyc it was a very simple process now our kyc is a lot stricter we ask a lot more information than we used to because essentially what we're trying to do is self-regulate in advance of getting regulated we want to get regulated um but now you guys are also on boarding us you're sending these questionnaires asking ridiculous questions a lot of them don't make any sense they're completely not applicable to crypto but it's starting to get better so I feel that you know in the next sort of few months I think the questions will hopefully become more standardized I won't have to answer sort of three different types of questions and moving forward you know we're getting processes in place uh we're getting all the documents and you know we're employing you know a lot of crypto exchanges are employing traditional Finance compliance people to help with this and just to make sure that we've got all the processes because it will help people to get more comfortable with what we're doing doing to get people trading more and especially with what's going on at the moment just make people feel secure and and add to that trust uh finally um another thing is as Paradigm I don't know if you guys know who Paradigm are but they're a RFQ um block trading platform they're a partner deraba and we've grown together I don't think we would be where we are now without Paradigm they wouldn't be where they were without us um but essentially they um they you know people can trade in sizes people can trade with counterparts without revealing who they are um and so Paradigm used to be about 10 of our flow a year ago and now it's about 35 which just shows you know that much bigger institutions are starting to trade and I think it will probably continue to do developing and especially as they are competitors they're entering the space Also competitors that are trying to compete with Paradigm and traditional Brokers coming in too so future expectations firstly regulation is going to come it's really important we need to get regulated particularly with us with what's happened over the last couple of days uh we've got a regulatory road map so we are now we've got a sort of short-term medium term and long-term plan for what we're going to do um we've got a kind of extra traditional Finance compliance guy that's organizing it Banks won't enter it as regulator the asset managers won't start trading and scale until we get regulated I think also there'll be a great use of custodians we're integrated with copper we're integrating with far blocks that should be live in a couple of a couple of weeks and I think that we'll have more people that we're integrating with as more traditional guys enter the space another thing is point Breakers um there are no traditional Prime brokers in the space um I think you know that that there are prime Brokers but they don't do what what the prime Breakers do in traditional Finance so there's a couple of people who are trying to enter the space and and solve that problem at the moment you have to have a lot of collateral on the exchange it's hugely capital and efficient and essentially if if we can get this Prime broking working essentially they can they can do the credit lines um they can have have all of the assets with them and therefore you can get Capital efficiencies and margin offsets um across all the different exchanges uh so finally just to reiterate the options Market is Tiny it is it's two percent of kind of The Wider crypto market so crypto is still tiny there's two percent of the crypto Market in traditional Finance it's so so much bigger as I said earlier so in U.S Equity markets um options are like 35 times that so if it goes in the same way as traditional Finance we're expecting you know it it's a grow accidentally in the next couple of years and it's really exciting and it's exciting that competitors are entering the space thank you very much