The Growth of Crypto Derivatives
In the past 18 months the cryptocurrency industry has seen an explosion in demand for cryptocurrency derivative products. Derivatives currently account for 50% of global crypto volume. FTX is the next exchange to try and cash in on this newfound demand. But is it worthy of your Bitcoin deposit? Here’s our FTX Exchange Review.
The Origins of FTX
FTX was founded by Sam Bankman-Fried and Gary Wang. Sam started out his career as a quantitative trader at Jane Street, a secretive quantitative trading firm on Wall Street. He then took this expertise in quantitative trading to the cryptocurrency realm in late 2017. Co-founding Alameda Research with Gary Wong. Alameda Research is a quantitative trading firm that accounts for almost 5% of global volume. Read our previous article on Alameda Research where we delve deeper into what they do and connotations it brings for the crypto industry as a whole.
Though both Alameda Research and FTX share the same co-founders they are distinct and separate companies. FTX is incorporated in Antigua and Barbuda. While Alameda is based out of Hong Kong. Both are regions with lax regulatory law when it comes to crypto. It is currently unclear what the relationship between the two companies is and how there may be a conflict of interest between the two. The FTX website simply states that “FTX was incubated by Alameda Research, a top cryptocurrency liquidity provider”. Founder Sam has gone on record in an interview with Venture Coinist stating that there is no conflict between the two.
The FTX product itself is just an agnostic risk and matching systemInterview with Venture Coinist
The motivation for creating FTX itself was that the team at Alameda were tired of seeing such shoddy and poorly functioning exchanges and set out to correct that. The infamous broken matching engines, and horrific margin call systems to name two of many.
The exchange as a whole is a joy to use. Everything works as intended. Placing orders is simple and straight forward, Interacting with the API is clean and there is an ample amount of liquidity which is to be expected considering Alameda Research is providing liquidity to the exchange.
FTX also bring a whole host of new and interesting derivative products. They have perpetual spot contracts on coins no other platforms have. Coins like LEO, BSV, BNB, USDT, and ALGO. They also have your run of the mill contracts which are to be expected like BTC, ETH, LTC, XRP, and TRX perpetual swaps and futures. FTX also has spot markets for both Bitcoin and its own token FTT. All of the above products allowing up to an industry leading 101x leverage. Enough to bankrupt you 101 times over. Though we don’t advise you do that.
Perhaps the two most innovative products FTX brings to the table are its Indices and leveraged tokens. FTX has created 3 indices thus far. Its altcoin index, its midcap index, and yes believe it or not a shitcoin index. The altcoin index gives exposure to 9 high marketcap altcoins, the midcap index gives exposure to 24 medium sized coins, while the shitcoin index gives exposure to 58 low market cap coins. These indices are incredibly useful for traders. They allow traders to express a bull or bear opinion on the altcoin market as a whole. These indices are great from a risk management point of view as well. Due to your risk being spread across a basket of coins rather than purely being overexposed to one or two.
FTX’s leveraged tokens are exactly what they say on the tin. They are leveraged ERC-20 tokens. They provide a clean, automated way for users to get leverage. With leveraged tokens, you don’t need to micromanage your collateral or risk. All risk management is done in the background without you having to worry. Currently there are 45 tokens available on FTX. For every asset there are 3 tokens. A hedge token of the asset which is a 1x short token, a bull token which is leveraged 3x to the upside, and a bear token which is leveraged 3x to the down side. The concept of leveraged tokens is intriguing and it will be interesting to see how traders use them.
FTX is also partnered with stable coin providers. USDCoin, TrustUSD, and PAXOS. These stable coins can be deposited on exchange and used as margin for your positions. The in-house FTT token can also be used as margin if you so wish.
In conclusion, FTX is not trying to revolutionize the world of derivatives via cryptocurrency, but rather revolutionize the world of cryptocurrency derivatives by bringing it up to traditional derivative standards. I hope to see the continued success of FTX along the lines that it currently is as the acronym implies as a ForTradersExchange.
As a footnote to this exchange review there is a small message on the bottom of their about page. “FTX, together with Alameda Research, has pledged to donate a substantial fraction of its earnings to the world’s most effective charities.” We typically associate the world of finance with greed. It is nice to see a cryptocurrency company take a step back from that and try and improve the world as a whole.