Derivatives trading volume in mature financial markets usually accounts for more than 80%, while cryptocurrency derivatives market share is less than half, and there is huge room for development.
Written by: Lin Buren, at HashKey Capital Research
Reviewer: Zou Chuanwei, Chief Economist of Wanxiang Blockchain, PlatON
This paper focuses on encryption money market derivatives were introduced and sort out its current development. Among them, leveraged trading has been gradually replaced by other derivatives; perpetual contracts have rapidly developed into the current mainstream derivatives; option contracts are still in their infancy due to liquidity reasons; leveraged tokens continue to innovate but trading platforms are limited.
Future currency derivatives exchange encryption need to be addressed and overcome many technical difficulties and users of funds security problems, regulatory policy to be introduced so that more standardized derivatives to protect the interests of users as soon as possible. Currently encryption currency derivatives market is still in its early stages of development, but a huge space for future development.
Since Bitcoin birth date, the entire encryption currency market has experienced 10 years of evolution and development. General view, encryption currency as a variety of products in a new type of financial assets compared to traditional industries (such as securities, commodities, foreign exchange, etc.) with high volatility, accompanied by high risk. With the gradual improvement of encryption currency spot market and mature, user demand for encryption currency trading has been limited to simple spot trading, the major encryption currency exchange gradually introduced various types of derivatives products.
The following will mainly introduce the situation of traditional financial derivatives to elucidate the introduction, function and role of derivatives in the cryptocurrency market, and comb the current development status of derivatives in the cryptocurrency market, as well as the future development of derivatives in the cryptocurrency market Summary of trends.
Traditional financial derivatives
Financial derivatives is a collective term for a special category of financial instruments bought and sold. This class of derivatives depend on changes in the value of its underlying financial assets. Such as assets (commodities, stocks or bonds), interest rates, exchange rates, or various indexes (stock index, consumer price index, and weather index). These factors will determine the performance of a derived rate of return and payback time, the performance of the product in the form of goods as the main contract has been signed between the parties (buyer and seller) and within the specified time to perform in accordance with contractual requirements.
Derivative type
Forward contracts and futures contracts
Forward contracts and futures contracts are trading the two sides agreed at a specific time in the future, at a certain price sale and purchase transactions in the form of a specific quantity and quality of assets. Futures contracts are standardized futures contracts established on the expiration date and the sale of assets of the type, quantity, quality made uniform regulations. Forward contracts are contracts based on the special needs of buyers and sellers from the buyers and sellers voluntarily signed an OTC transaction. Therefore, the liquidity of futures trading is high, and the liquidity of forward trading is low.
Encryption contracts traded in the currency market that is evolved from these two contracts, the special nature of this type of encryption monetary assets, encryption currency exchange contracts for traditional products made innovation and spawned a unique encryption Money Market The following will focus on the perpetual contract .
Swap contract
A swap contract is a contract signed by both parties to exchange certain assets at a certain period in the future. More precisely, the swap contract is signed between the parties within a certain period in the future they think mutual exchange contracts have equal economic value of cash flows.
Swap contracts are generally mainly used for foreign exchange transactions between banks and companies to hedge or arbitrage between import and export commodities, so they are not suitable for the cryptocurrency market.
Option contract
An option contract is a transaction of buying and selling rights. Option contracts stipulate the right to buy or sell a specific type and quantity of native assets at a specific time and at a specific price. According to the wishes option buyer can be divided into options call options and put options. Option contracts provide investors with a broader range of investment options and adapt to the needs of investors for more diverse investment motives and interests. Generally speaking, they are used as a hedging method to reduce risks for investors.
Encryption is currently in the money market in the major exchanges have been gradually introduced options contracts, options contracts with its trading logic within the traditional financial industry is almost the same.
Derivatives transaction subject
Assets in the traditional financial market are relatively diversified, and the trading targets of derivatives are stocks, interest rates, exchange rates, commodities, indexes, etc. Encryption money market is mainly in the token price of the underlying asset, individual exchange derivative products will be the subject of innovation will include some sector index, volatility index. With the growth of the cryptocurrency market, the subject matter has a tendency to gradually increase.
Derivatives trading venue
Derivatives trading floor is divided into two types of exchange-traded and OTC. Floor trading is also called exchange trading, which refers to the way that all supply and demand parties concentrate on the exchange for bidding transactions. This mode of trading to close by the Exchange to trading participants margin, is also responsible for clearing and assume responsibility for performance guarantees, traders focus on trading all increased liquidity. Futures contracts and some standardized option contracts belong to this type of trading. Derivatives trading in the cryptocurrency market is mainly in this way. Exchanges can ensure liquidity and provide users with convenient and fast trading needs.
OTC, also known as counter trading, refers directly to become parties to the transaction counterparty transactions. This transaction method can design different products according to the different needs of each participant, which can meet the different transaction needs of users and each contract is unique. Step by mutual settlement transaction is responsible for, for a higher credit rating of the user’s requirements.
This is a complex derivative financial instruments, investments can bring different means and end users. The combination of derivatives and cryptocurrencies increases the threshold for users to use. For inexperienced lay investors, derivatives will be more difficult to manage and operate.
Introduction to cryptocurrency derivatives
At present, the mainstream derivatives in the cryptocurrency market include: leveraged trading, futures contracts, option contracts and leveraged tokens . Among them, some cryptocurrency exchanges do not classify leveraged trading and leveraged tokens as one of the derivatives, but these two trading methods that are different from spot transactions do bring diversified operations to users and can reach the derivatives market. Achievable effect. Therefore, this article classifies it as one of the derivatives.
Leveraged trading
Leveraged trading is a use of funds provided by a third-party asset transactions approach. Compared with regular spot transactions, leveraged transactions can allow users to obtain more funds, amplify the results of transactions, and enable users to obtain greater profits in profitable transactions.
In traditional financial markets, leveraged transactions are generally referred to as margin trading, borrowed funds are generally provided by stock brokers. However, in the cryptocurrency market, borrowed funds are usually provided by other users on the exchange. Funding provider by assets earn interest into the transaction so the user through the leverage of borrowed assets to pay the interest on the lever, as the intermediary from the exchange for a fee and by the deployment of assets.
Leverage can be used for open positions long and short trading. Longs can borrow stablecoins to buy cryptocurrencies, reflecting the user’s expectations for asset price increases; while shorts borrow cryptocurrencies to immediately sell and buy back the corresponding currency after the market drops, reflecting the opposite of longs. When using leveraged trading to open a long or short position, the trader’s assets will serve as collateral for the borrowed funds.
At present, the leverage multiples provided by mainstream exchanges are 2-10 times . The so-called leverage refers to the ratio of borrowed funds to margin. For example, to open a 5 times leverage ratio to trade 50,000 US dollars, users need to pledge 10,000 US dollars in margin. When the user of Open direction opposite to the market trend and lower market volatility of the situation, the user’s total assets are below the margin account leverage minimum margin requirement, the exchange will force users to sell mortgage assets to be liquidated.
It is to leverage the advantages of open positions in multiple currencies by less leveraged investment costs, leading to higher returns for investors. Compared with spot trading, which can only buy and do long, leveraged trading provides investors with short-selling opportunities and can make profits when the market is down. But when the user makes a wrong judgment on the market direction, leveraged trading will also bring serious losses to the user. High-power leverage to borrow means that minor fluctuations in the market price of the security deposit may also make users lose all light.
Since the warehouse explosion risk leveraged transactions, individual Exchange provides users with a full warehouse by warehouse lever and lever function. Cross position leverage is a leveraged transaction that supports all trading pairs in the account, and the assets in the account are mutually guaranteed and shared. Once liquidation occurs, all assets under the account will be liquidated. Margin leverage means that each trading pair in each account has an independent position, and the risks of each margin account do not affect each other. Once a liquidation occurs, it will not affect the rest of the account.
In general, the warehouse-by-warehouse leverage function has a stronger awareness of risk control for users’ overall positions, and can isolate the risks of different assets from each other, but users need to always pay attention to the margins of different loan assets. Full functionality is leveraged positions in favor of a single asset risk management, warehouse explosion case compared to centralized shared by bin margin in terms of better cushioning single currency, but extreme market of an asset it may cause all The positions are closed.
Futures contract
As an earlier derivative product launched in the cryptocurrency market, futures contracts are also the derivatives with the highest trading volume at present. Encryption money market futures contracts are divided into two types: delivery contracts and sustainable contracts.
Introduction to Delivery Contract
The delivery contract is an encrypted asset derivative product. Users can determine the rise and fall, choose to buy long or sell short contracts to obtain the benefits of digital asset prices. Delivery contracts mainstream encryption currency exchange general use post delivery model, will exchange all outstanding contracts to close out orders when the contract expires, only a few exchange currency contracts Bakkt other support encryption physical delivery.
At present, the delivery time of delivery contracts in the cryptocurrency market is mostly divided into “current week, next week, and quarter “, and a certain multiple of leverage can be added. The Stock Exchange of mainstream support up to 125 times leverage, volatility in market prices, higher warehouse explosion risk.
Introduction to Perpetual Contract
Sustainable contract is an innovative derivatives contracts similar to the contract and delivery. But not sustainable contract delivery date, you can always hold.
In traditional financial futures contracts, one party participating in the contract often needs to hold a contract subject matter (mainly commodities, such as wheat, gold, copper, etc.), and holding the subject matter will increase the contract’s holdings in practice. There are costs, resulting in a larger price gap between the contract market and the spot market. In order to ensure long-term sustainability of convergence between the contract price and the spot price of the underlying, fundamental exchange rate will use the funds the way.
Funding rate refers to the settlement of funds between all longs and shorts in the perpetual contract market, which is settled every 8 hours. The funding rate determines the payer and receiver; if the rate is positive, the long pays the funds to the short; if it is negative, the short pays the funds to the long. You can think of this as a fee for the trader to hold a contract position, or a refund. This mechanism can balance the needs of buyers and sellers sustainable contracts, the contract price and sustainable underlying asset price remained the same.
Currency Exchange, nearly all mainstream encryption support sustainable contracts, leverage up to 125 times, and sustainable contracts also present its most popular derivatives.
The difference between delivery contract and perpetual contract
- Simple operation and sustainable contracts, delivery and need not be considered for positions in other steps can provide almost the same experience with the use of cash. For investors, reducing the professional investment threshold. If the delivery contract is automatically delivered by the system when it expires, a delivery fee must be paid. Compared with a perpetual contract, it is necessary to always pay attention to the delivery time.
- Sustainable contract delivery time does not exist, there are delivery contract “for the week, second week, quarter,” and other specific delivery time. Sustainable long-term investors can hold contracts to obtain a higher return on investment, but it should be noted that there will be funds rate settlement every eight hours, if the funds hold contracts direction payers, then the assets will result in a slight loss. Due to the rules of the fund rate, large contract traders generally close their positions before the fund rate settlement time to avoid fund wear, and more professional quantitative investors will use the long-short ratio and market conditions to open positions to become the fund rate The beneficiary.
- Sustainable contract prices and spot market prices remain high anchors, and delivery contract prices deviate from the larger. Due to the funding rate mechanism of perpetual contracts, the contract mark price is always close to the spot price. The farther the delivery contract is from the delivery time, the higher the deviation between its price and the spot price. When the delivery time is approaching, the volatility is often greater due to the increase in the closing transaction volume, which is prone to ” pin ” phenomenon (pin refers to a certain cryptocurrency) Due to market manipulation and other reasons, the price of the contract quickly rose or fell at a certain point in time, and then quickly returned to the normal price. Although the price has not changed, a large number of positions have been liquidated.).
Forward contract and reverse contract
Encryption currency market, also known as forward contracts and stable currency contracts, namely the use of stable currency (USDT) to act as a security deposit contract. The agreement also called reverse currency-based contracts, is to use the currency to make the corresponding margin contract on the transaction.
Traditional financial market derivatives are generally for the use of cash forward contract that is settled, while the reverse is encrypted contract currency market innovation, the use of encryption currency (BTC, ETH, etc.) become open positions in derivatives collateral, pole large increases the demand for encryption money in the secondary market, and promote market liquidity.
The solution to wear warehouse
Wearing warehouse means that the user contract warehouse explosion due to the liquidity of its strong position and can not be flat, that market is no rival can only match this order. Generally speaking, in this case, the exchange will take over the user’s remaining positions, and this will cause the exchange to receive losses. Mainstream exchange (eg currency security, fire coin, OKEx, etc.) will be set up risk guarantee funds, risk guarantee fund designed to compensate for additional costs due to the user contract margin is lower than the loss of assets 0 sometimes caused strong level of non-bankruptcy payment users will Was injected into the risk protection fund. The main purpose of the risk protection fund is to reduce the possibility that users cannot be liquidated.
When the risk guarantee fund cannot take over the positions of cabin users, there are currently two mainstream solutions in cryptocurrency exchanges.
- Wear warehouse apportionment . In the settlement of profit and loss on the delivery day, the exchange will aggregate and count the loss of the liquidation caused by the liquidation orders of all contracts, and allocate it according to all the profits of all profitable users.
- Automatically reduce positions . The exchange will close the position according to user priority. The priority ranking is calculated based on the user’s profit and leverage. Generally, the more profit, the user with the higher leverage will be liquidated first. The above two schemes achieve the system’s breakeven by reducing the profit part of the profitable side of the contract. The spreading allocation mechanism will allocate all profitable users, and the automatic lightening is aimed at the most profitable users.
Currency Exchange encryption is generally more delivery contracts at the line of different delivery time, to meet the needs of most users, but it will also make the diversion of funds, resulting in individual delivery contracts illiquid. The liquidity of perpetual contracts is better and the order depth is almost close to that of spot, so the phenomenon of short positions mostly occurs in delivery contracts.
Option contract
Currently encryption options contracts in the currency market is mainly divided into two types, one T-offer options contract Deribit exchange-based, while the other is safe to launch currency options contracts based on innovative encryption currency market.
T-quote options
T-offer encryption options contracts currency market with traditional financial markets options contracts are almost the same, are European-style options can be exercised only at maturity. The exchange acts as a securities broker and provides users with a T-type quotation table, which contains transaction information such as the subject of an option contract, expiration date, exercise price, and buying and selling prices. Users can act as option buyers or option sellers.
Figure 1: Deribit option T-type quote table
Simple version of new options
The second category currency options products are safe, Gate.io such as Exchange launched the new version of the easy option (also known as short-term options). Compared with the complex T-type quotation table of traditional options, this type of option product simplifies the trading process to enhance the trading experience. Users only need to select the expiration time of the option and the purchase quantity to purchase an option. The exercise price when placing an order is provided by the exchange in real time. According to the product characteristics of different exchanges, it can be divided into two types: European options and American options. Compared with traditional options, their expiration time range is shorter, ranging from 5 minutes to 1 day . The user can only play an option contract game with the exchange as an option buyer. This type of simple version of the new option has the following characteristics:
- High liquidity . Generally speaking, standard option contracts have multiple options for expiration and exercise prices, and have two choices for buyers and sellers. A diversified product structure will also diversify the liquidity of each option contract. The seller of the simple version of the new option is an exchange, which can provide liquidity at any time, so users don’t have to worry about the situation that there is no counterparty due to lack of liquidity.
- The operation is simple and easy to use, and it is more user-friendly for novice users. Option is essentially a complex derivative. In-depth understanding of option contracts requires the grasp of the more complex nonlinear relationship between the five Greek letters, and the learning cost and threshold are high. The simple version of the new option has become a very simple derivative tool after being packaged by the exchange, which can be understood as the user’s expected guess of the short-term price of cryptocurrency assets.
- Expiration date short. The expiration date of the simple version of the new option ranges from 5 minutes to 1 day, which is far from the month or even quarter of a traditional option contract. The main users of short-term options are more speculators who make short-term guesses on the rise or fall of the underlying assets, and gambling means more importantly.
- The intrinsic value is not transparent . The short-term options packaged by the exchange will not provide users with important option data such as potential volatility, delta, and trading volume, and users cannot calculate the true intrinsic value of the option. The exchange can sell options at a high premium to obtain high profits. The user’s counterparty exchange has a natural advantage in having a large amount of real-time data on the underlying option. At the same time, the exchange can also use T-quotes in other options exchanges. Table reverse operations to hedge the risk as a seller. As the user’s options exchange counterparties need to withstand higher risk, even if the option price is unreasonable and can not be learned from it.
Leveraged tokens
The lever tokens with tokens is essentially a function of leverage, leverage is intended to provide remuneration underlying assets. Unlike leveraged trading, users do not need any collateral and maintenance margin, nor do they need to worry about the risk of liquidation. Behind every lever tokens corresponds to the subject matter of a basket of positions.
Depending on the product, the real target leverage multiples behind leveraged tokens are different. Leveraged tokens use the exchange’s position adjustment mechanism to increase or decrease the position of underlying assets to maintain the target leverage. From a functional point of view, the role of leveraged tokens is similar to ETFs (Exchange Traded Funds , namely trading open-end index funds) in the traditional financial field.
For example, the leveraged tokens BTCUP and BTCDOWN issued by Binance . BTCUP can realize leverage multiple gains when the price of BTC rises. Conversely, BTCDOWN can achieve leverage gains when the price of BTC falls. The basket of assets corresponding to BTCUP leveraged tokens is 123,456.78 BTCUSDT perpetual contracts. An objective leverage lever token credits will remain between 1.5 to 3 times.
Although leveraged tokens do not require cumbersome operations like ordinary cryptocurrencies, the mechanisms are more complicated and not suitable for novices to participate. There is no case of liquidation of leveraged tokens, but compared with holding spot, long-term holding of leveraged tokens will be affected by daily adjustments and daily management fees, and assets will gradually be subject to fee wear. Therefore, in the short-term unilateral market in leverage tokens will play to their strengths, leverage tokens will automatically use the floating profit to increase underlying asset positions, so that the actual leverage over the original leverage to achieve more revenue.
The role of cryptocurrency derivatives
Since the development of the cryptocurrency market, derivatives have become one of the indispensable financial instruments in the market. The development and innovation of cryptocurrency derivatives have played a role in promoting the entire market, and its main roles are as follows:
Hedging
Hedging refers to the use of derivatives by investors to protect their investment portfolios. Use derivatives to obtain profits to compensate for the loss in the spot market, or take advantage of the appreciation in the spot market to offset losses caused by derivatives, the purpose of reducing risk.
For example, a large number of Bitcoin miners after obtaining mining income fell to worry about the future of Bitcoin prices, so by shorting the currency derivatives encryption mechanism, short of the expected benefits equivalent derivatives, in advance to lock in gains. For institutional investors, the use of options and futures contracts and other derivatives, the reverse operation can play a role in risk hedge fund investment, improving asset risk control awareness.
Speculation
Encryption currency derivatives provides a variety of tools for speculative retail investors who provide high-power leverage of futures contracts allows users to deduct less money, get higher returns. But it accompanied by a higher risk, slight fluctuations in asset prices, leverage means high power to enable users of financial position warehouse explosion.
For most exchanges, cryptocurrency derivatives, especially futures contracts that support high leverage, have become one of the main tools to attract users. Most novice users hundredfold contract Open tantamount to gambling on the exchange, quantitative trading and professional team can take advantage of market fluctuations do speculative trading strategies, such as grid transactions.
Value discovery
In the encryption currency derivatives market, trading volume, and if a large enough user base, the assets underlying the derivatives will have to find the value of action. Derivatives of market prices tend to reflect the user to determine the future trend of the underlying assets, which have some reference value for the future prospects of the spot, even from certain aspects of the goods market appears to predict future prices.
Increase spot trading liquidity
At present most of the mainstream derivatives exchange offers are reversed contracts that require encryption currency assets as a deposit, so users need to derivatives trading handheld certain encryption currency open positions. In the case of violent market volatility, users must continue to buy cryptocurrencies in the spot market to serve as a margin when making up positions. On the other hand, cryptocurrency assets that are profitable through derivatives trading also need to be traded in the spot market to withdraw gold. Therefore, the linkage between the spot market and the derivatives market higher, derivatives trading volume surge will also bring increased liquidity in the spot market.
Current status of cryptocurrency derivatives
market Overview
At present, most of the cryptocurrency exchanges in the market have launched derivatives trading functions, and the market share of derivatives has gradually expanded. According CryptoCompare data, encryption currency derivatives trading volume in July 2020 has reached about 445 billion US dollars, compared to June, an increase of 13.2%; market share in July derivatives accounted for 41% (38% in June) . It can be seen that the share of the cryptocurrency derivatives market is increasing month by month.
Figure 2: Trading volume of spot and derivatives in the cryptocurrency market
In a mature traditional financial markets, trading volume of financial derivatives should occupy more than 80% of the total market, while the encryption currency derivatives market share of only less than half. It shows that the cryptocurrency derivatives market is still in the early stage of development, but the future development space is huge.
Leveraged trading is gradually being replaced
Leveraged trading the currency market launch in encrypted earlier, when as derivative instruments market may be the only short attracted a large number of investors. However, with the introduction of new derivatives such as perpetual contracts, leveraged contracts no longer have advantages.
- First, the leverage needed to borrow money to pay a higher fee. In margin trading, the borrower accumulates the currency borrowing fee in real time, and the fee may be higher when the demand currency is less.
- Leverage fixed and can not be flexibly adjusted. According to the regulations of different cryptocurrency exchanges, the multiples of leveraged trading are generally fixed 3 times, 5 times, or 10 times. Users cannot adjust the leverage multiples at any time, and they are not flexible enough compared to futures contracts.
- Leveraged trading is dependent on the demand side of the supply in the spot market, the users can not borrow money supply is insufficient leverage.
In short, the role of financial leverage amplification gains of the exchange offer there are currently more derivative products to achieve such sustainable contracts. In addition, various limitations and shortcomings in leveraged trading have also been resolved by the design of perpetual contracts. Therefore, with the emergence of more innovative derivatives, leveraged trading is no longer the first choice of mainstream derivatives for users.
Perpetual contracts are developing rapidly
From the perspective of derivative transactions, futures contracts are still the mainstream derivatives of cryptocurrency exchanges. The main reasons are as follows.
- First, futures leverage of up to a hundred times. The cryptocurrency exchange has almost become a casino for speculators, and the wealth effect brought by a hundred times leverage is extremely temptation for speculators;
- Futures contracts easy to understand and simple operation. In particular, the unique perpetual contracts in the cryptocurrency market only require users to judge the direction and select the leverage multiple to open positions. For ordinary users, the threshold is low and does not require too much learning cost;
- Compared to other derivatives, the most liquidity of futures contracts. The more participants provide the better liquidity, the less transaction wear and tear when users are trading.
- The Stock Exchange has introduced contract-based sustainable cottage currency. In addition to mainstream currencies such as BTC and ETH, cryptocurrencies with lower market capitalization such as XRP, EOS, and LTC can also become the targets for users to open futures contracts. Exchanges can gradually launch contracts for small currencies based on market enthusiasm, provide users with short-selling tools, and attract more users. Therefore, futures contracts have almost become a must-have product for cryptocurrency exchanges, and user participation is extremely high.
Figure 3: Trading volume of perpetual contracts and delivery contracts in the cryptocurrency market
According to the chart provided by Coin Metrics , perpetual contracts account for the bulk of the total contract volume due to their unique characteristics. According to data from TokenInsight , the transaction volume of perpetual contracts in the second quarter of 2020 accounted for 75.2% of the total contract transaction volume, compared to only 39.1% in the first quarter of 2020. The increase in this data indicates that the focus of contract traders is shifting from delivery contracts to perpetual contracts, which have become the most important contract product of cryptocurrency exchanges.
Option contract is in its infancy
For option contracts, the cryptocurrency market is still in its infancy, and there are only a handful of exchanges that can provide option contract transactions. According to the data provided by the Skew website, only Deribit, LedgerX, Bakkt, OKEx and CME exchange option trading volume data are currently included, and the total trading volume is very small compared to the futures contract trading volume. The above exchanges are all T-quoted standard options , so the need for liquidity is extremely high.
The prosperity and development of an option market requires a large number of market makers with pricing capabilities to provide it with quotation services and increase liquidity, but the current scale of the entire cryptocurrency market is still insufficient to support the ecological liquidity of the entire option derivatives.
Figure 4: Trading volume of option contracts in the cryptocurrency market
In order to solve the problem of insufficient liquidity of option contracts in the cryptocurrency market, a simple version of a new type of option was born. The advantage of this option contract is that the user’s counterparty is an exchange, so there is no need to worry about poor liquidity, and it is simpler and easier to understand than traditional option operations.
But for professional organizations and quantify hedging transactions are concerned, such a short expiration date is not suitable for long-term hedging instruments. In addition, the intrinsic value of such option contracts after being packaged by the exchange is not transparent, especially for professional investors and large institutions that are extremely sensitive to the price of derivatives.
To sum up, option contracts are in the exploratory stage in the cryptocurrency market, limited by market makers’ liquidity due to low trading volume, and innovative options products still have many problems that require time and the market to verify and improve.
Leveraged tokens continue to innovate but limited trading venues
Leveraged tokens, as an innovative cryptocurrency derivative, have not been launched for a long time, similar to ETFs in traditional financial markets, and their tracking targets are not limited to a single asset. As leveraged tokens require a cumbersome daily position adjustment mechanism, there are currently very few exchanges that can provide leveraged tokens.
Leverage tokens launched from a focus on innovative encryption currency derivatives exchange FTX, in addition to track digital assets underlying foreign currency, FTX also provides tokens to track the performance of the sector, currency volatility encrypted tokens, and even on-line prediction 2020 US presidential election token presidential candidate.
You can see, these products increase the speculation and gambling means. Different assets or objects tracked by leveraged tokens can meet the trading needs of more user groups. The diversification and innovation of leveraged tokens can bring more hot spots to the market. However, the current development time of leveraged tokens is relatively short, and there are fewer exchanges that provide leveraged tokens, which also results in limited users.
Regulatory policy
At the end of 2017, the Chicago Board Options Exchange (CBOE) and the Chicago Mercantile Exchange (CME) launched Bitcoin futures contracts; the same period, LedgerX launched the first American settlement in kind of Bitcoin futures contracts. Bakkt also in 2019 after another on the line bitcoins futures and options contracts, the product is the United States Commodity Futures Trading Commission (CFTC) approved the first Bitcoin options derivatives.
At present, in the cryptocurrency market, only the above four domestic exchanges in the United States have been approved by the regulatory authorities and operate derivatives trading in compliance. In addition, there are very few derivatives exchanges that are compliant and regulated globally. Exchanges with the highest trading volume of cryptocurrency derivatives such as BitMEX and Deribit are not actually compliant exchanges.
For countries with current monetary policy point of view encryption, encryption currency regulation is still in a vague state, most countries still wait and see attitude, no sound legal policy for its standardization. Exchange due to the natural characteristics of the regional block chain technology enables encryption currency derivatives lack of a unified and standardized management system, and the laws of each country are not the same, unified and standardized regulatory policy-making extremely high costs.
Derivatives, as a cryptocurrency spot financial instrument, inherently have higher risks, which ordinary investors cannot bear and control. Therefore, the legalization of derivatives exchanges will be the future direction of the entire blockchain industry. Lack of regulatory policy will enable the investors’ interests can not be protected by some evil behavior of small exchanges will lead directly to user funds suffered losses. Although it is extremely difficult to comply with derivatives exchanges, it will improve the security of user assets, give users reasonable legal protection, and promote the rapid development of the derivatives industry in a more formal direction.
Disadvantages
With encryption currency derivatives trading volume increased year by year, users of derivative products for Exchange launched the expectations higher and higher, it is undeniable that the current monetary encryption industry is still in an early stage, but also has many derivatives Disadvantages need to be resolved urgently.
Trading system issues
Due to the high volatility of cryptocurrency assets, it often triggers violent fluctuations in multiple derivatives markets such as leveraged trading and contracts. Exchange trading system capacity is particularly critical, if users can not timely liquidation, Opening and other operations may result in huge financial losses. When severe market conditions occur, it is common to see exchanges downtime. Due to the lack of system technical processing capabilities that can not provide users with timely operation requirements, user assets lose unreasonably.
The current mainstream Derivatives Exchange BitMEX, OKEx, Binance have appeared such as system downtime and Caton and other similar problems, such problems will continue to occur if users spend confidence in the exchange, an adverse development of the derivatives market . The continuous expansion of the cryptocurrency market will bring more user traffic, and the exchange’s system processing capacity and stability will be the first problem to be solved at present.
Evil behavior
At present, the exchanges in the cryptocurrency market are mixed, with small exchanges emerging in endlessly.他们利用模式或者 蝇头小利 吸引新入场的用户进行衍生品交易，随后利用拔网线、「插针」等人工操作 恶意爆仓用户资金 ，更甚者直接跑路无法偿还用户资产。小交易所利润空间有限，因此拥有作恶动机。而这一切都因为目前行业内未有明确的监管措施，用户资金在被交易所持有后无法透明化其具体流向，造成利益损失。
投资门槛低
传统金融证券商对于衍生品功能的开设需要投资人具有一定的资金以及投资经验，而大部分加密货币交易所甚至不需要用户进行KYC 身份认证即可进行衍生品交易。新入场用户对于普通现货交易尚不熟悉，进行复杂的衍生品操作更像是扔硬币猜正反面的豪赌。
加密货币交易所不断进行拉新从用户手中收取大量手续费，却极少为用户考虑 设置投资门槛 以保护新手用户利益。这会使交易所逐渐沦为赌场，不利于衍生品的未来发展。
衍生品风险持续增加
衍生品的作用本应作为投资人进行 对冲 以及 减少风险 的产品，而目前大部分交易所提供的衍生品风险极高，尤其个别交易所的永续合约杠杆倍数可高达125 倍。加密货币资产相比传统证券资产本就拥有 高波动性 ，再加上百倍杠杆的放大效应，用户资金分分钟处于爆仓边缘。
随着交易所的交易处理系统不断升级完善，杠杆倍数也在不断提升。衍生品虽能对冲风险，但交易所提供的衍生产品更像是一种 赌博工具 ，大部分用户为了博取高收益而忽略了衍生品所带来的巨大风险。
to sum up
从加密货币市场的整个发展历程来看，经历了现货交易、杠杆交易、期货合约直到近一年推出的 期权合约 与 杠杆代币 。整个加密货币行业处于非常早期阶段，衍生产品虽然经过交易所的不断打磨已经逐渐完善，但仍具有较多不可控因素。
目前加密货币市场的衍生品几乎都在 场内交易 ，交易所作为连接用户与衍生品的唯一渠道需要解决并攻克诸多技术难点以及用户资金安全问题，同时不断为用户提供丰富、有价值的对冲工具，成为用户信赖且安全稳定的平台。
衍生产品的不断演化以及创新将是整个行业前进的趋势，未来监管政策的落地将帮助衍生品更加 规范化和风险可控 ，为加密货币市场的整体发展带来 持久性的利好 。
