A new crypto derivatives exchange is launching with a variety of financial products, which its CEO hopes will draw large proprietary trading shops deeper into the market.
CoinFLEX, a spin-out of U.K. crypto exchange Coinfloor, announced its Tether futures product late Sunday evening. This will allow traders to essentially hedge their holdings of USDT or make a bet on the future price of the stable coin.
It’s a product that traders in Asia have been clamoring for, according to Mark Lamb, chief executive officer of the Hong Kong-based firm. He also said it could be a big money maker for the newly launched subsidiary, which previously operated under the name CoinfloorEx, and which is set to start trading in February.
“Tether is popular because it is very liquid,” Lamb told The Block. “You can go to a spot exchange and deposit tether and buy a number of cryptos, but the only downside of Tether is that it is quite volatile and because of those issues people really have a need to hedge their exposure.”
Making up 70% of the stablecoin market, there’s no doubting Tether is king. Still, it has come under scrutiny for its refusal to produce an audit showing its coins are backed fully by the US dollar. Cameron Winklevoss has said, however, that an audit of a stablecoin is not possible.
Physically delivered crypto futures
As part of the announcement, the firm also said it would be the first to offer physically delivered futures derivatives in bitcoin, bitcoin cash, and ethereum.
That would put the firm up against CME Group and Cboe Global Markets, which both offer bitcoin futures trading in the U.S. Still, CoinFLEX’s futures will be physically delivered, which means a trader would receive a payment in crypto at the end of a contract, not cash. Firm clients will also have the opportunity to trade those futures with up to 20x leverage, like BitMEX, another crypto trading platform known for its leverage contracts.
Lamb is positive the physically delivered futures will drive traders to the platform since it’s unique in the market.
To be sure, ErisX and Bakkt, the crypto trading platform by Intercontinental Exchange, are both working on physically delivered futures for bitcoin, though their launch dates remain uncertain. Crypto traders have been calling for these type of futures for bitcoin since the beginning of last year.
Physically delivered bitcoin futures could also better facilitate a basis trade, a type of arbitrage that profits on discrepancies between futures and its underlying spot asset, according to Lamb. “If you are doing this through cash settled futures you don’t know how much you are going to make because you don’t know where the difference between futures and spot is going to be at expiry,” Lamb said. That’s because a trader gets paid an actual bitcoin as opposed to cash based off an index, which in theory could be subject to manipulation.
Richard Gorelick, the head of market structure at DRW, which operates crypto trading firm Cumberland, addressed his concerns about cash settled futures to the CFTC. “We continue to have concerns that the way these futures contracts are pegged to these cash markets — which are less transparent — could result in dislocations in the future,” he said.
As for CoinFLEX, the firm is backed by Roger Ver, the man behind bitcoin spin-off bitcoin cash, as well as Mike Komaransky, B2C2, and Alameda Research.
It is also being backed by Trading Technologies, the Chicago-based firm known for its futures trading platform.
“This is the first time TT has been an investor in an exchange,” Michael Unetich, Vice President of cryptocurrencies at TT, said. “As a shareholder, we believe we will add significant value to what CoinFLEX is doing by providing immediate distribution to professional traders…along with a highly usable front-end interface for traders of all types.”
CoinFLEX will be incorporated in Seychelles, similarly to rival BitMEX.