The Future of Crypto Derivatives

Transcript

hi everyone good morning good afternoon and good evening to all of you who are joining for today's tv virtual series where we have the pleasure to co-host this event with cme group one of our newest members here at the crypto valley association and we are going to talk today about the crypto derivatives in the future in particular of the crypto derivatives uh it's a very exciting topic and um as i was preparing with the panelists and with tim who's going to give us a presentation uh to this session it just occurred to me that there is not enough information what we can find about the topic and as i look at the ftx global

volume monitor i find that the 24 hours derivatives volume is 180 billion and to be precise 130 or 183 billion and um well i'm curious what tim is going to share in his presentation uh with us maybe a little intro i'm on the board of the crypto valley association and in my full-time role i work for ledger enterprise solutions and this webinar is going to be consisting of two parts the first part is a presentation by tim who is a managing partner of equity product at cme group and in the

second part of the presentation we will transition to a panel where i'm joined by some of the leading companies in the global crypto derivatives ecosystem so with that team i hand it over to you and please introduce yourself and the topic um of your presentation great thank you and thanks for everyone for joining today i'm looking forward to today's conversation and my name is tim mccourt i'm global head of equity index and alternative investment products at the cme group and what my team looks after globally is the equity index benchmark so i think s p 500 nasdaq dow nikkei ftse 100 etc we also look after alternative investment products which at

cme group reclassified cryptocurrency as an alternative alongside some more commodity indices as well as our water futures products and really that's because it provides when we started looking at this back in 2015 2016. uh one crypto at the time was believed to provide non-correlated returns to the other six major investment asset classes and our solution at cme which we'll talk about in a few minutes is also index based so very complementary to some of the other products that my team looks after so really excited to see the growth that we've had since launching the futures contracts in 2017 and now i'm just going to share my screen just to give a brief recap as what we've seen in the futures development or the futures market development since

uh 2016-2017 when simi was got involved so when we look at the the evolution of cryptocurrency products at cme group it's really happened on two different fronts one is on kind of the index and the reference rate side and the other is more the tradable product side so our first foray into cryptocurrency was back in 2016 where we launched the bitcoin reference rate or the brr with our partners crypto facilities now known as cf benchmarks limited and that was really in response to a clearly articulated customer uh problem or need of the marketplace where the market wanted to understand in a

trusted and transparent manner what is the us dollar value of bitcoin at a given point in time so we introduced the real-time index as well as the once-a-day reference rate based on bitcoin us dollar fiat transactions in the spot or the digital market and that's what served as the the basis for the underlying after we introduced the reference rate in the indices there was continued demand for customers on how to access the cryptocurrency market specifically the bitcoin market at the time how to hedge some of their emerging needs with respect to digital asset accumulation in bitcoin and we launched the bitcoin futures in 2000 december of 2017 and that was an exciting time for the exchange and it's really been a very successful product for a listed and

regulated futures offering since its debut in 2017. in 2018 we introduced a ether dollar version of the reference rate also with our partner cf benchmarks and then from there we've kind of continued to focus on the bitcoin and ether ecosystems where we've introduced the bitcoin options in 2020 and then this year we introduced ether futures back in q1 and most recently micro bitcoin futures in may of this year just again a lot of this is based on customer feedback where ether has been an exciting space for the market and with respect to bitcoin's recent run-up in price or continues to say in these price levels the original contract was just too large for some market pistons to trade and we introduced the micro bitcoin which is one tenth of one

bitcoin or 150 at the size of the original contract we launched in 2017. i did want to spend a minute just explaining the reference rates it's something that is very important to us in terms of the ecosystem around bitcoin and ether futures the underlying reference rates are the bitcoin reference rate and the ether dollar reference rate and it's important to note that we launched uh in 2016 the bitcoin in 2018 the ether and since then they both are now regulated benchmarks under eu bmr and so now we have a regulated futures offering on top of a regulated index or a regulated benchmark and that's important because when we look at things like structure product issuance otc product creation etps etns

etfs etc you can now really expanding the ecosystem in which institutional players can develop products and most importantly hedge them with a product based on the same index so that's something that we continue to develop and push on the index front as well as a tradable product it's a fully transparent index it's designed to be resistant manipulate resistant to manipulation and designed around iasco principles and it's really important to us in particular my team had seen me that the index maintains a point of convergence with the underlying market so we actually have that's why it's so important that it's based on spot transactions of bitcoin and ether versus

us dollar fiat and we have very strict inclusion criteria and the five constituent exchanges at present our bitstamp pitbit coinbase gemini and kraken which those represent a very large swath of the bitcoin dollar or ether dollar trading across the globe in the underlying spot market for those of you that not necessarily as familiar with the futures just wanted some of the spot versus fuji's comparison is that our futures are financially settled at cme group so we're only moving the us dollar value against that underlying reference rate price movement so therefore you're not holding the digital asset you don't need a wallet uh you don't need a custody solution in place in terms of the way it works it works the same way a futurist contract already flows through your

broker account or your fcm your clearing member it works the same way in terms of an s p 500 future for example in terms of how a bitcoin future is traded it's a regulated market there are potential tax efficiencies for those in the us uh there's central it's centrally cleared meaning we mitigate the counterparty credit risk and it's also something that's relatively easy to go short since it's financially settled it doesn't require you locating or securing the physical or digital asset in advance prior to selling in the spot market so there's a lot of benefits over the spot market for the especially for the institutional or the more sophisticated active individual trading community and that was a lot of the feedback that we

were getting in the run-up and the design phase so that's something that the background of the product the genesis meeting customer demand i do just want to spend a few minutes updating folks on how it's gone the last few years and when we look at bitcoin futures and options the adb this year and this is the 5x multiplier contract with the original btc contract the adb is a little over ten thousand per day so it's a little over 50 000 bitcoin equivalent per day that's trading in cme and the average open interest which are the contracts held in open position at end of every trading day is averaging about eight you know almost 9 000 contracts per day only getting almost 45 000 equivalent bitcoin what's also is when we look at the

growth and you can see here the adv is growing or the average daily volume the open interest is still elevated versus 2020 but has come down from the peak that we saw at the end of 2020 with that that that run up to the 60 000 handle for bitcoin but the number of accounts is only 9 000 unique accounts have traded the product since it's first launching and we currently have an average of almost 80 large open interest folders show who are holding the contract and those are the holders who are holding at least 20 bitcoin futures contracts or more or sorry 25 big point futures contracts or more so that's the equivalent of 125 bitcoin or more they're holding in futures positions so you can see that's a really good gauge for institutional adoption

in the marketplace bitcoin options which we also launched a little while ago doing well still a little bit of work to do on the bitcoin options options markets tend to take a little bit longer to develop and our options that see me are options on the future but you know trading just about 50 000 contracts since launch and then one thing i will say is interesting about the options is about 12 of the trading is coming from outside the us and about 20 of that volume and options comes before the u.s market opens when we look at micro bitcoin this is again in response to a clearly articulated customer problem or demand in the marketplace and that was at a 5x multiplier our bitcoin futures contract became a 250 or a 300 000 us dollar

notional contract and that was too large for some participants and they wanted a smaller more precise right size contract which we launched in may of this year and it's off to a great start almost two million contracts have traded in micro bitcoin since first launching the record was back in may of 90 almost 95 000 contracts and the average daily volume is about 20 000 micro bitcoin futures and about 21 000 contracts being held overnight on a nightly basis and similar within 87 large open interest holders in this contract it's being widely used widely circulated and really is a complement to some of the other bitcoin trading that's happening in the marketplace ether we also launched back in february

it was our second token but our effectively third cryptocurrency product at cme after big point options and it's great with nearly 500 000 futures contract trading since launch that's almost 25 million equivalent ether because this has a 50x multiplier on our ether futures contract and we're trading on average about 53 to 5400 contracts this month here in september so this is a great start to a contract that's only a few months old you know only about in months seven of the contract and off to a really good start and much quicker adoption i would say than bitcoin futures where the large open interest holders have averaged about 40 or or 40 or above since april with a record week just

earlier this month at 51 and it's achieving these milestones in terms of adv open interest and large open interest holder much more quickly than bitcoin or btc did back in 2017-2018 so i think that speaks to one the genuine interest or maybe a unique interest in ether as a cryptocurrency but also people are used to it now they're trading futures at cme so adding the second token into their futures trading portfolio a little bit easier than some of those first steps for them when they got involved in bitcoin one of the things we're actually introducing on monday on september 27th is basis trade at index close on cryptocurrency futures so it's called btic and what that does is that'll

allows the market to trade the base test between the futures contract and the underlying reference rate in futures form it's a standalone order book and what that does is it provides access to the spot market that once a day fixing price on the brr or the ether us dollar reference rate but you get all the benefits of futures uh with respect to margin offsets capital efficiencies and the other thing i'll say this is important for structured product providers who want to obtain that benchmark like i was saying earlier this is the interplay between the index and the tradable product ecosystem they can base structure products on the reference rate or on the future use futures to obtain that same print that their navs or end-of-day marks are going to be used which is effectively the 4 pm london

time observation rate and now it's also a standalone way to trade the basis itself we know the basis trading cryptocurrency is a very active trade by the community and this is something where you can actually trade that basis with a relationship between the underlying digital market and the futures market throughout the day as a standalone contract uh so with that there's some contact information for from my team and things of that nature we'll be sending this out i believe afterwards or posting it somehow so you also will see some additional information around uh contract specs contact details etc but hopefully that sets the stage for some of the evolution that we've seen at the regulated futures contracts at cme group and certainly very pleased with the progress we've made to date

and very excited for what uh what the future holds for here thank you so much today and this has been very insightful and definitely did set the stage uh we do have time for one question which uh which i will go ahead and read out loud alex is asking were you launch options on micro btc that's a great question it's something that we're currently engaging the community in the marketplace on and it's something that we've heard similar to the feedback we had around the original btc contract which our options on futures are based on is that's a little bit large right especially when you look at some of the way options are traded uh you know and especially some of the

way that platforms or clearing members are providing risk limits or allocation options on the 5x multiplier is uh is a hurdle is a barrier that we're looking to address so currently validating with some market the marketplace does a micro size option make sense and really the question we're evaluating with the marketplace is it in addition to the btc options is it a replacement of so really just trying to figure out should we have two options market one option market so validating that uh so i say stay tuned and anybody has any feedback you just reach out to myself or the team and we'll certainly uh include your thoughts and feedback as we're looking to validate this with the marketplace fabulous thank you very much so then we can now transition over to the second

part of this uh cva virtual session and uh i invite all of you to join the panel with me i see that we are complete everyone is here and the first question is to everyone really and uh i would like to kind of ask you to introduce yourself and also to share how the company you represent today is involved in crypto derivatives um diana would you like to start please sure thanks everyone for joining thank you emmy and the crypto valley association for inviting me here today great to be here i'm dynabig ceo of valor leading a team out of zug so we are proud inhabitants of the crypto valley

valor is an issuer of exchange-traded products tracking digital assets um so we launched our first product last december and in the nine months since then we've grown to a range of five atps and over 200 million dollars in aum so it's it's been fantastic growth i'm looking forward to discussing that more here today thanks so much you have been doubling every uh the past two months you are eum so kudos on that and maybe jean-marie would you like to go ahead and introduce yourself sorry the unmute button wasn't working

so my name is jean-marie monitor i'm the ceo of coinshare coinshare is europe's largest and longest-standing digital asset firm we're managing around six billion dollars of crypto asset and crypto stock equities in a very simple form our business can be decomposed in three business units uh the first one being an asset management platform which are managing around 4.5 billion dollars of assets and a crypto platform which is a joint venture of invesco the world's third largest etf provider which is managing a billion health in crypto stock and then balance of that is something called a capital market infrastructure which is basically very having a symbiotic link with our asset

management platform uh providing liquidity um for all our product but also product like the one team is running on the cme so we're very active on all these markets and finally we have a principal investment practice which is run by a lovely person called milton the mirror which is in short of all our external uh investment uh as a proprietary uh investment portfolio thank you very much and i think we have a lot of connecting points with like all the people who work with cme obviously uh and we were you know and funny enough diana uh company was linked to some extent was a founder to crunch here

before so it's a it's a pleasure to be fabulous it's a pleasure to have you jean-marie and uh over to you luca bitcoin swiss i am a pleasure to be on as well from my side it's pleasure to be introduced lucas on wittenberg i'm working in the isp department that bitcoin swiss so we're the client segment solution where we're looking at the largest clients and looking at tailored solutions how we tackle their demands in the best possible way bitcoin swiss is one of the largest financial intermediaries in europe that covers crypto financial intermediary services we will later on dive in i think most of us we already were in contact we were founded

in 2013 so at the very very early stage basically with the crypto valley and made it here in zuk and are by now close to 300 employees soon and looking forward to tackle our services a little bit in more detail today thank you for the intros you guys already know tim so now we can go to the the first question which is uh for you diana you recently launched the solana etp added this to your range of products and coin shares also added recently the physically bagged physically bagged etps on both bitcoin and also ethereum uh on the euro next and um i'm just curious

how do you how do you see the offering evolve what is really differentiating your firm from the competitors diana would you like to go first sure thank you yes so we launched our silent atp less than a week ago um so we're really proud of that and it was fantastic to see how the team could respond so rapidly to the demand that we were seeing in the market um and it's great to be the first to to offer a solana etp in the nordics in terms of expanding our offering right now we're very much focused on product innovation so we'll be continuing to expand our suite of single digital asset trackers

but then also looking beyond that to new product types so we're building out indices we're looking at non-linear products we are working on some some new exciting partnerships one of which we we announced with um the product in our pipeline working with arcane crypto so we'll be creating an atp there based on the arcane fund and other new types of strategies so so it's really about that type of product innovation for us right now um in terms of differentiation um at valley we're very much investor-centric so that's really at the heart of our ethos is to make

access to to exposure to this new exciting asset class of digital assets as accessible as possible and to create products that are as fair and transparent as possible so so that's really how we are looking at designing all of our products and what we do and it's really the ethos behind why we launched our first products um bitcoin and ethereum with zero management fees not only does that provide to investors the most fair tracking of these products the the most transparency and their access to to these assets but it was also a signal to the market

of actually the the maturity of the crypto market now because when we look at comparable products on the market still with with very high fees that signals to the market that there is still a certain immaturity or difficulties around it whereas actually from having worked in crypto now since 2013 it's just been fantastic to see how much the the market has matured and how the infrastructure is is now there and making it more and more accessible and and the capabilities to work with it um even easier every day so we are really proud to to be able to bring those efficiencies to the end

investors yeah i think well i can echo a lot of what diana is saying to a wide extent you know it's very important to keep bringing innovation but more importantly innovation of transparency and trust um and you know um you know it's true that i was the first people to bring a zero fees product which was part of an innovation and i can only send kudos to you on butterstrom at the time for being such a visionary because it was a big risk to do that on ngm at the time and that works very well so congratulations for them for that now you know we very keen to see more innovation we're working to bring more

innovation you know launching solana is a great milestone launching stacking products asset with taking capacity is a great uh added value another question is like who is paying back the staking so far nobody in the market is paying back the staking so who is keeping the sticking or who is not stacking is a real open question that's come with tax issues that's come with plenty of all the string attached and i think the real next step is to be able to deliver people value and like real value and not to just charge zero but to charge less than zero so when is the next etp is coming with i'll give you five percent back and that's quite very exciting for me to start you know i'm sure it's somewhere in the book between one of the

issuer as we speak and i hope it's going to be on the market very soon yeah let's uh let's do um another session like this in six months and then we can we can just look back and see if that product is normally yeah i already will great so thank you so much for the answers here um luca and tim uh so luca if you could share a bit about the offering of bitcoin swiss you guys have been around since 2013 as well pioneering crypto finance and and yeah also curious that what is in the demand of your clients what type of products do they wish to have and team we already learned about your

offering by the offering of cma group in the presentation um i'm curious that uh that yeah you have been saying in the prep call that crypto is an outline outlier versus other products and um what crypto derivatives are being added next i mean you just revealed that on the 27th a new product is going to be launched but beyond that um what what is in the plans i will start quickly if let's find him i hope that's okay so um overall as i mentioned also tackling the points from diana and jean-marie i think definitely etp's listed products also

congratulations on the zero fee percent total expense ratio product out there we have quite a different client group different demand and i think that also comes from the legacy as we have several clients that stick to us since 2013 2014 2015 and we have couple of the crypto natives and we know the slogan how it's called don't trust verify and hence still some things never changed the most important thing as we all tackled before is definitely transparency to have to look through that they can check everything and with us we have the natives that want the physical underlying themselves directly and have the cryptocurrency with us so what we saw in the services i mean we

still offer brokerage custody staking collateralized loans but of course on the demand side we saw a lot of demand also from larger clients from the crypto corporates as well on the staking front with the staking products they need a viable solution especially also for cryptocurrencies that do have a lock-up period right when you're staking and you need a certain period until you can lock up the funds and there of course is double interesting the incentive that we use cryptocurrencies as a collateral against which you can borrow but we're also accepting staked cryptocurrencies as collateral against which you can borrow which becomes especially interesting with staking cryptocurrencies that do have a lock-up period for instance

and i think on the staking front as well as on the collateralized lending business we saw some interesting development over the last 12 to 24 months especially from our side thanks so much yeah i think you know certainly an interesting question when we look at the the development of the the u.s regulated futures market for cryptocurrencies it's certainly something that i think has come a long way right since when we first started in 2016 2017 but it's still a heavily regulated ecosystem that we're operating under so a lot of our product development at cme group where our futures contract are cftc regulated so it's you know it's the commodity futures

trading commission is we're still need that regulatory certainty around some of the underlying assets and tokens before we can move forward in the product development cycle and what i mean by that is when we look at bitcoin had the cfcc letter in 2015 stating that bitcoin is a commodity both the cpc needs to see in insignificant but not necessarily in the same type of written format as that bitcoin letter have said ether is a commodity or it's not a security so it gives us certainty to bring a cftc regulated futures product to market if things are securities though there are also frameworks in the us to bring securities futures products to market and we can certainly explore that but we kind of need that clarity at the onset to know which route we're pursuing with

additional development in terms of moving kind of down the cap table so to speak into some of the other digital assets but when we look at bitcoin and ether they are you know providing an element of uncorrelated return to uh certain institutional clients portfolios but there's also real hedging needs that have evolved over time with respect to hedging accumulated digital positions or if you're running a mining operation or staking operations or financing or letting you know as the market and the ecosystem continue to develop that's something that has continued to evolve the needs within bitcoin and ether and that's certainly keeping us busy and that's why we have uh micro bitcoin which is a smaller more precise way it helps in terms of making it more

manageable but there's still a need for the 5x btc contract especially when you're looking at serving as the possible creation unit to etps or using to hedge some of the mutual funds that have come online it's a more institutional friendly contract for investment allocation or us dollar kind of equitization for lack of a better word in terms of the investment management and asset management community uh so i think we'll still focus like we talked a little bit about micro bitcoin options we're certainly looking around some of the other products in the ether you know micro ether ether options still validating all these ideas engaging with customers but like today we'll lean on customer input to see where we should focus next but i would say until there's a bit more regulatory certainty around what some of the how some of the assets are going to

be characterized we'll probably stick to bitcoin and ether on the tradable product fund and then continue to work with our partner around additional reference rates which are a little bit less constrained from a regulatory front in terms of being able to introduce new pricing and reference rate products but on the tradable side we'll have to wait for a little bit more regulatory clarity thanks so much and then i was making a question here from stefan muller which is directed to you tim um are you going to launch physically settled futures that's a great question it's never you know from our perspective it's not an either or question between the financially settled contract that we have at cme and the physically settled future as well there's certainly demand

for both i think one we've seen the demand manifest for the financial settled in terms of growing volume and growing oi and we still engage with the community around the physically settled future there are just unique challenges for some of the marketplace in the ecosystem and handling that that the idea of custodying the physical asset managing delivery you know we are looking at things in terms of is that a solution we can bring to market uh so something that i would say not in in the immediate term but something we're continuing to evaluate and i think there's certainly room for both uh we just need to focus right now on getting as many institutions and the ecosystem adopted into the financial contract and i think as the collective familiarity especially in the u.s based institutions with the digital asset and custody it'll

make introducing a physic a regulated physical product that can have the same type of adoption as the financial a little bit easier fantastic thank you so much for that tim um the next question is uh from me to all of you just real quick i guess many in the audience are wondering that who are your clients what type of clients you service and if you could elaborate on this uh in in the lengths of two three sentences that would be of great help uh diana you want to start and then we can go over jean-marie and um jean-marie next luca and tim yeah so so quick answer from me we don't actually have our own clients so our

products are bought and sold through the members of the stock exchanges which they're listed on so they're accessed through banks or brokers what i can say is that certainly there is a lot of retail demand sophisticated retail demand and increasingly what's really exciting especially in the last couple of years is increasing amounts of institutional demand and certainly seeing that as something that will only continue particularly as there's more and more products that are that become available or starting to be available now that can meet the specific risk and hedging requirements of institutionals as well i'm going to echo what dyna is saying

because we have similar products so you know the same principle we say i get a bit more granularity and which can i can share um when we started these products in 2015 was probably five million dollar dollars of aum um and it was 99 percent 99.99 retail um and probably located five miles around stockholm center plaza that was very very localized and you fast track to 2021 and to today i think we have you know identified you know there is a you know you can't identify to the bottom and see everything but we probably have 100 000 clients in sweden

and in europe it's much more than that but that's what we can see and then in term of i was saying client mix is probably really spread between stockholm and milan with a strong concentration on the germanic arc so you know austria germany uh netherland and belgium are kind of a key region and that's quite uh changing and then in the kind of like composition that's demography until the composition of the client mix is slightly changing while it's progressively changing from a pure retail to a sophisticated retail to a part where you get a strong institutional base as well so you probably see today a book which is composed of i say

20 retail like pure play retail 20 pure play institutional and when i say institution i'm talking like big names not like the small names like the big asset management company which you see in the newspaper uh and then the in between like the 60 is goes from i would say sophisticated investors accredited investors which would be also team client and eligible for future contracts uh to qib and kind of you know large family office and small asset manager thank you so much so on our side i think also looking at the perspective of hatcher's speculators

and arbitragers we're mainly covering the hatchers and the speculators of course from the segment types of the clients and we're basically covering both so i think we're still on the hybrid model on bitcoin swiss so the retail clients are using our online platform and the large corporates and institutional clients are being served still personally for tailored solutions which are still needed on this thing like looking at the fit of certain solutions on a staking offering on taking various cryptocurrencies as collaterals and as already mentioned by previously the hedging demand of the large crypto corporates or the large institutional clients on a treasury and their strive for yield is definitely there and we

also see a demand increasing there from our side as well oh yeah and certainly the customers we're seeing in the futures market see me are certainly mirroring a lot of the other investable asset classes where we have uh you know your kind of commercial end users who are more natively involved in crypto whether they're mining or accepting crypto as payment we also have proprietary trading firms that are helping with that price discovery process as well as hedging some of the digital positions they've accumulated now we have institutions like asset managers mutual funds we know there's lots of etf filings in the u.s we also have banks so it's really a nice kind of representation this point a few years on of the totality of all the clients and then we have the active individual

retail community at cme group who's also involved in the contract but i think the one thing that's different than other contracts at cme is the international participation when we look at bitcoin futures about 50 between 45 to 50 percent of that flow is coming from outside the u.s in terms of country of origin as well as time of day so about 50 by by the clock is happening before the u.s equity markets open and about 50 of the flow is originating in a country outside the u.s which is a pretty high water mark compared to some other contracts at the exchange and i think speaks to not only the institutional and wide appeal of demand across all customer segments but also across all customers across the entirety of the

globe is something that we're really seeing in crypto which is certainly exciting thanks to all of you to to give a bit more color on this and let's talk markets um now uh and uh more specifically stefan and defy and jean-marie when we when we probed you said that you want to talk a bit about uh is there a current battle brewing between cfi and defy and um basically what is your assessment of the market right now and how might this translate into your future products um if you want to take this first jm and then diana and um and whoever wants to add to this so uh

we are big d5 believer i could share we have an internal competition for the best farmer and the best harvester of yield you know milton and i are quite exec at the moment so we need to find someone to to fight with us on on that one to be able to win on the competition um but like realistically what's happening is the the amount of evolution which is happening in 25 is just mind-boggling uh it's completely open source so you can fork that at the speed of light and recreate the new version overnight and just add a new feature and add something which was missing in the previous iteration and change your name from pancake swap to sushi swap to psychiswell and that's how you get all this protocol coming in all

direction and it creates a lot of question over cyber security code review and so on and so forth but what is also quite as question is like the capacity of evolution and the capacity of creation and district destructive creation as well that is embedded in this process to some extent there is a lot of stuff which are still clunky a lot of stuff which are still not a threat for d5 for c5 effectively because a lot of that needs to be reworked you know there's still problems around mining how do you jump the queue in terms of mining blocks to be able to put your trade before everybody you know that's something team we know very well at cme is like one of the holy grail of

finances like there is a time stamp and the time sense can be reordered well depending how you know the miner you can place yourself differently in the block and the time set means no much so there's plenty of stuff to to be i would say updated in uh indeed in defense solana is trying to address some of the current problem and that's why you get a lot of market making house behind solana and pushing for it because they kind of bring the kind of solution to the problems but at the same time it doesn't mean uh suppose the c5 is out of the market there is a there's a lot of hybrid version which can exist there is

a lot of scaling issues which are also posed by d5 so i don't think this is the end of defy or the end of c5 and the new world c5 i think it's going to be a cohabitation they will serve different nature of market and different evolution let's see so i would echo what jean-marie said certainly we are also very strong believers in defy in fact valor was acquired just this april by defy technologies which is a public company in canada which is aiming to bring public market investors access to this exciting and incredibly fast growing space of decentralized

finance um so so that's very much a big focus for us going forward as well in terms of whether it's it's a battle between centralized and decentralized um i agree that right now it's really about an opportunity for collaboration valor as an entity you know sits at that intersection between both the traditional markets and the digital asset markets there's there's a lot of opportunity there for centralized players for traditional players to actually be able to learn about this new space see where where the growth is happening and i think those who do take the time to to understand the new

technologies and to explore and adapt will certainly be the ones who come out the winners um you know from from one perspective if if they aren't then definitely their top talent will um so we're seeing like there's there's definitely people that that are top talent in these organizations they want to be working on the exciting new spaces they want to be looking towards the future and to where the industry is going and being on top of that so that's actually a fantastic win for our space as we gather more of their top talent we recently announced the appointment of our ceo francis edwards who joins us

from blackrock um so if these institutions don't move we'll certainly happily continue to take their top talent from them yeah i think what's interesting is i don't necessarily think it's it's you know a battle right at this stage i think you're just acting their comments i think they're highly complimentary uh and i think what's interesting is there's hundreds of d5 projects it's certainly an exciting space and that's kind of you know you see these frontiers develop at other points in the history of markets where new technology will come on it enhances the the the total utility that exists in the the risk transfer and liquidity provision i think when you look at some of some of the facets that are uh being championed in the d5 space certainly are

also exist in the centralized finance as well but depends on the market so if we look at the futures market which is centrally cleared you know we have a lot of the similar concepts of transparency price time priority efficient price discovery mitigating counterparty risk where cme clearing become innovates the trade and we become the buyer to every seller and the seller to every buyer these are things the market wants is certainly the digital asset space but there are facets that have been existed in existence for a long time so then when you look at even some of the irrefutability that exists in some of the d5 space that's certainly something that we offer with respect to once the trades are innovated so i think it's really about how can you make sure you're keeping pace with technological developments and

advancements and find how these things work together to create even more utility for the entirety of the ecosystem and i think that's where a lot of our focus is trying to figure out what does d5 mean to some place you know to a very storied institution like cme outside of just products but you know what do our customers need what does the marketplace need how do we make sure this technology evolves in such a way that it enhances this for everybody and i don't see it as an either or competitive choice uh at present i think obviously these these will continue to develop alongside each other and it's going to be a lot of fun but very curious to see we know what happens you know i mean to your point six months might be very different than where we are today or one year two years three

years et cetera so i think we're very early in this collaborative relationship between c5 and d5 yeah isn't it exciting that you know you can't really plan uh years ahead in thanks so much for all the questions from the audience uh we are getting some really excellent questions i'm going to take this um a bit towards the end and my next question is to look up because uh it would be nice to learn how the past 12 to 18 months has been for for really one of the oldest crypto financial services companies uh from here from two um luca if you could answer that yeah for sure i mean at the very

beginning the last 12 18 months i think i'm speaking for probably most of the ones in the panel as well if crypto markets are going crazy i think the demand side is going crazy as well it's our surplus supply side internally in the offering and therefore the demand of the clients is usually what steers us as well going forward and as mentioned before with the defy and the c5 discussion it's the same thing for us as a centralized party offering a safe way how to interact with d5 in a custodial way the beauty about d5 the speed of innovation and the speed how it develops and innovate things going forward is unluckily the same issue for the regulators to catch up to provide it in a safe regulated manner for the clients in the end space that are actually

interacting with it so on our side we see most of the needs currently of the client be it on the collateralized loan front on collateralizing cryptocurrency portfolios with various underlines and we also see it with some special otc solutions on the staking front and that in combinations with the loans now what we saw majorly of course is definitely the behavior that instead of using the cryptos in a way that we knew it two three years ago the strive for yields that i would say that started in 2018 2019 when the markets were a little bit more sideways oriented that actually kept going even for the last let's call it 18 months and people really need to have a productive asset in the portfolio

which we probably see on some cryptocurrencies going forward and with the other ones the client needs solutions that are offering it to them thanks so much for that luca uh the next question is um directed to uh tim and diana will i will incorporate the question from the audience here because uh uh jn is wondering that how is it sustainable for velour to offer uh zero fees on on the bitcoin and therian products and do you learn that the btc as per traditional finance products um or or yeah how can you allow this and then if you could talk about the geo expansion of velour that which territories are you planning to

service customers where you're not not servicing yet today and tim i would love to hear this also from you um the jail expansion question great thank you thank you for for that so we are able to charge zero management fees on our bitcoin and ethereum products obviously the decision to do that is is a business decision that that we take depending on on how much so how do we generate our revenue we do charge management fees on on our other products we maintain those management fees to always be the lowest in the market for the particular types of products but but we

do have that um then there is some some lending of the underlying so we hedge all of our products one-to-one with the underlying digital asset um and portions of that can be lent for as a revenue generation channel according to to our internal rules and risk management um and then there is also revenue generation from the actual hedging itself so that trading of of the products so there are a number of different revenue channels that that we have developed and continued to develop as we expand our product range to ensure that sustainable and to pass on those savings to the the end investors wherever possible

in terms of geographical expansion currently all of our products are listed on the nordic growth market a stock exchange in sweden and our current focus is really expansion across the rest of europe so we announced this week that our next market will be germany so we're very excited about that starting with frankfurt and then looking to additional european markets as well um as the the types of products that we offer as those markets become more open um our parent company is actually in canada we're also looking internationally canada of course already being uh having been i'm canadian so a little bit of canadian pride here that the first to offer um

digital asset etfs which is fantastic um so they think north america is really exciting um and of course asia great potential market so um current focus on europe but but really looking uh to global ambitions and i think when we look at the the offering at seeing our futures even though we are a u.s futures big you know us-based futures exchange we do have all already global distributions or our electronic plating trading platform called globex so that that statistic i was saying earlier about 50 uh plus or minus of our volumes coming outside the u.s that already speaks to the existing global distribution that we have in terms of the ability to to access the futures exchange in the match

engine at cme when we look at the expansion i would say it's still working with partners particularly as a diana's point around some of the structured products you know getting futures based etf offerings and we have some in canada in brazil there's some in europe so we're always working now i think on that that ecosystem distribution even outside of us being able to trade the future and continuing to support that we view this as a highly interrelated and symbiotic global ecosystem so outside of just the distribution it's really been focusing on adoption within those various geographies across all facets of trading and that liquidity transfer whether it's what can we do to better help uh spot liquidity providers by using futures to hedge some of that spot liquidity

provision structure product uh innovation as well as investment products investment management products so it's really about the the global distribution is not necessarily just about accessing the futures product at cme but how you how can we better support the futures offered by siemia as a cornerstone for other parts of the ecosystem and how we can collectively lend that that regulated offering to the marketplace to continue to see innovations in crypto that we've seen in some of the other asset classes uh over the years the only thing i'll say is certainly there's always local jurisdictions and regulations that have their own rules that certainly uh you know we cannot necessarily control or or influence so i would say our distribution can especially in crypto can run into some of that issues

particularly if you look at things like the retail front in some jurisdictions uh but that's also something we're closely with our brokers and our clearing members to you very much for both of you and yeah i would have not thought that more than half of your clients are outside of the of the us uh maybe maybe just me who's surprised by that but um great to learn the next question is uh to you jean-marie and would be would be exciting to hear that what is the biggest feature in your opinion uh missing in c5

and um also what is your view on the evergrande lads off what we experienced the past two days and what's the potential impact of that on the crypto derivatives market also if we if we talk c5 and we don't consider cme and c5 we just took crypto c5 please i think the biggest lack is cross margining and cross asset margining which means that you need to margin in your position by trade or by by line of product not by book and portfolio level which creates some

higher capital intensity in terms of how you use utilize your margin code and your margin management and that's something uh you know one of the conscious company x margin is like very keen to solve so there is people working on that already and there is great people and great talent trying to address this problem which is not so simple because you don't have a clearinghouse and you don't have all these uh little tools you have uh in the traditional financial market so it's a it's working progress but hopefully it will be one of the great breakthroughs so as you can start to margin from one exchange to another across product cross portfolio and and see it working in real time will be very interesting uh when you come to evergrande

uh yeah um that you know it feels a little bit like you know it's not it's only uh between 300 and 400 billion dollars of assets you know it's uh it looks a lot it looks a lot of money like this when you look at the qe and the money printing in the u.s or anywhere in the world same time it looks like a drop in the ocean it's not something i think the pvoc or csr will let go down because there is too many exposure to retail in this case so yeah there is a bit of panic uh the panic happened when the main chair ended in in china were closed because of uh mid-autumn festival so the panic happened in hong kong which was much more accessible from other

investors so kind of a bit of a contagion effect but i personally don't think it's going to go down and it's going to be sorted out and they already announced an agreement today with a creditor so i think it's just going to keep improving and you know it just just show you what is happening in china in terms of real estate portfolio and how it was managed in terms of bad practice in the loan book but you know the only effect it has like a lot of people are long crypto and they get margin code on the other side and some of them liquidate the crypto leg to finance the margin code so that's when you see so like a contagion and you kind of have to cut your winner to financial losses so it's

something which is very well known and you know you have that happening a lot in hedge fund world where um when you have a bad year for the biggest hedge fund uh the winning hedge fund gets c outflow because uh the allocators need to refinance the position somewhere else or to reallocate in between so you know it's just you know it's kind of a russian doll to some extent and the whole market is interconnected so nothing surprising thank you very much anyone else would like to add there to send to to this and also the missing feature in d5 or c5 if no then um i would love to transition

to uh the next question which is that or directed to all of you um we could start again with diana and jean-marie luca team that what's the most exciting development to to come relating to our topic of today as in crypto derivatives um what is what makes your blood boil or what is what you're super excited about would be fantastic to hear sure so definitely from valor perspective we're really excited about more traditional exchanges and more geographies being open to these types of so that we are able to continue with the

product innovation and really respond to the actual investor demand that's out there um so that that will come certain to come with time and with education and and openness so excited for that to continue i would say overall with crypto derivatives in general i think that there's still a massive growth opportunity here for the entire market so we saw a lot of innovation originally around futures now looking into options and that's in this sort of the centralized crypto space i think the next thing that that's really exciting in terms of this the scale of the opportunity is first of all for that centralized

options market to to grow out in relative to the scale of traditional markets where we look at spot versus options and the size of those markets and then in the future for you know dexes for for futures and options and then looking at what the opportunities there are in the decentralized space thank you very much diana john maria i'm gonna i'm gonna answer quickly because i get two minutes before i need to go to another call sorry um yeah i'm gonna maybe control contract a little bit diana i'm not so excited about the option market right now in the structure because it feels very very much like

asset you know institutional buying on cme and dumping on the retail and other exchanges uh in terms of market making so not so keen on that and there is pretty much a disaster waiting to happen here but that's my personal take um and then and it's not the photo ceremony by the way it's just like the way the structure is just took clarified it's just there was a structure the market is structures nothing to do with cme or so it just kind of seems to be a one one direction trade um now what i'm really excited about is and it has nothing to do with coin share plan it's more in terms of the direction of travel just like when we start to see derivative on which already happened on a bilateral basis but not in the proper listed way uh on compute and you know the all

promises behind crypto and blockchain is like the capacity to exchange computing power uh and how the compute power market is evolving not only from blockchain perspective but from an ai perspective and so on so there is like a much wider distribution around you know hash rate and and mining power and computing power which start with mining that can be extended to plenty of other utilization of calculation power luca would you like to go next yes sure um from a personal opinion i would actually love to see the structure products market growing overall so the beautiful thing i think the composability about d5 to see it in a

decentralized fashion would actually be to have the freedom to take the various option lags from various pricers and providers some people having the ability to having an x on certain treasury assets on providing better prices being combined with the direct exchange access from everyone in d5 they could then build their own structured products from various people that do the pricing and i think that will be an interesting market going forward and developments dependent of course until the liquidity also has to increase dramatically in the d5 space for options which is just barely starting at the moment but i think especially the features that it's building that you can grab the various option lags from various providers to build your own

structure product that you can then deliver to others in your own way i think that could be an interesting opportunity for many to use i think yeah i would agree i would agree with that i think just kind of adding adding some additional comments that i think what excites me is how you're seeing the attempt to bring traditional product structures or traditional financial business models and offerings into the cryptocurrency ecosystem i think that's certainly true with structural products certainly true you know particularly with etps and you know mutual funds now online in the us and etfs you know maybe sometime soon i think we're gaining some momentum but still hard to predict when that's going to happen but even at the products that we have at cmu where we look you know

next week we're introducing that btec contract that's the ability to trade the basis but when you peel that back a little bit what is actually allowing the marketplace to do is being now be much more precise about some of the the risk parameters or premier that exists in the derivatives market so that b2 contract is now also highly indicative or has high informational value about what is the basis what is the prevailing lending rate what are other people pricing into some of the derivative forward models where you think when we first launched bitcoin features in 2017 we kind of used to say that the futures theoretical price had one like massive error term to kind of capture the unknowns and a lot of it was around insurance premiums or things like that the market was dealing with now that we fine-tuned those there

still are other things being in there is like you now have an implied financing rate for bitcoin and ether futures you can see if there are other kind of more idiosyncratic risks being priced into some of that exponential theoretical value in the structured products whether that's the cost of carry or capex for mining or are there inefficiencies in terms of certain aspects of spot versus or the digital spot versus directors so i think that's just one small example that excites me as as this ecosystem continues to evolve you actually are getting highly uh specific informational variables from a structured product from a risk management which i think will only spur additional innovation on the product fund front additional uh institutional grade products that can then be

synthesized into more mass offerings whether structured products or etps but i think more finely tuning the risk management is something that i'm personally excited about and and excited to see how some of this develops over the coming weeks yeah that is really interesting to to see how the risks can fine-tune and and very cool that everyone here on the webinar heard about uh btick already what officially is going to be launched on the 27th um thanks so much to all of you for the answers i'm going to take two more questions from the audience and then we can wrap this up so um how do you see crypto derivatives currently being used for institutional hedging

versus retail speculation um tim would you like to take this uh sure so i think on the on the institutional hedging uh certainly i think it's probably more closely aligned to some of the traditional use cases people are familiar with you have an accumulated spot position that you need to hedge on a forward basis you want to lock in a price today uh or you need to manage certain things so if you're a miner you may have certain capital expenditures uh that you're looking to to hedge against what you can make that investment and you can protect against some of that uh potential volatility by locking in uh futures you know across the curve where we now go out about two years uh you also have investment managers who are using it as a way to

not only hedge uh their positions in terms of offering structured products and using futures as a price access but even for some fun they're using the digital assets themselves you know it's common that they may need actual just cash flow to maintain their their company and pay their employees and pay rent and things like that and you can use futures to equitize and monetize some of that holding so you're seeing very traditional applications from the institutional hedging community but on the on the retail side of the active individual i think one it's not necessarily all speculation in terms of intraday trading some people are using futures to diversify their portfolio more of an investment thesis because it's easier for them to access uh the futures market than it is in terms of

some of the other digital markets depending on where they are or they want to benefit from the capital efficiencies of their other portfolio but i would say on that front it's largely an access product and it's something that's easy that's offered through their broker it's regulated they're familiar with other steamy products so i think that's that's probably driving some of the the retail community but i would just say it's not necessarily all speculation in the traditional sense they are also being used as an investment product for that community as well thanks so much tim um maybe another one which is from vin and he's saying that seeing a stronger growth in eater futures versus bitcoin futures during the initial phase as in after the launch

why is that why do you see a stronger growth in ether and uh what are possible changes from them now this this is another question so first eater versus bitcoin futures yeah for sure and certainly kind of interested to see diane and luca's perspective where i think it's the benefit of maybe also coming second right in terms of our product offering people were connected they're familiar it works the same way so a lot of the internal approvals that firms had to go through for bitcoin futures uh paid that dividend to ether futures it was an easier internal lift because they already had one kind of on the books uh so to speak i think the second though is when you look at the overall enthusiasm i think around the ethereum network or

ethereum-based projects and then therefore ether has a very different utility or almost personality to it than i think bitcoin there's different questions there's different use cases i think the proliferation of decentralized projects and the applications it just has a very unique use case that is is different than bitcoin and there are different communities so then when you combine some of those facets together just a quicker adoption from an operational perspective but then also its own unique tailwinds that i think have really started to manifest here particularly in 2020 and 2021 for ethereum and ether based products thanks so much then derek asked the question here do you see

crypto derivatives crypto derivatives playing a growing role in traditional fiat investment portfolios going forward i mean i think we all agree like how not but uh if diana you you would like to add something or luca to this if you see this relevant yeah no i think as you say um absolutely i think we we're all here strong believers that this exciting new new asset class is is here to stay um and these products have certainly um a role to to play within a diversified portfolio

of course depending on the the particular strategies risk appetite etc of of individual investors but certainly we only expect to see more and more interest there then luca i see you want to add something i will just very very briefly employ live with diana and i always think if you have multiple financial products that offer you various varieties of payouts i think it's just an additional benefit for the end user so if he has options on the underlying he would like to diversify with he can play more with the ending payoff of his portfolio so i think it can certainly be of the benefit

for the end user definitely so it will be growing as well thanks for that look and uh now like a wrap-up question from me that um who is going to be there at the crypto valley conference 28 29th of october among you hopefully i wish that all of you could be there but uh absolutely yeah we wish i could you know it's still based here uh in our new york office international travel still closes some unique challenges but i wish uh it's gonna be an amazing event i wish i could be there um but best of luck with it for sure

and looking forward to see you there deanna and luca you wanted me to say that that you're also coming right very very far travel until the conference from our spot so i think definitely be there as well okay fantastic then let me put my hands together to all of you diana thank you very much luca thanks thanks so much um tim a big thank you for the entire cme group for helping making this event possible and also to jean-marie from coin shares uh it has been phenomenal having you all and uh cheers to the futures of crypto derivatives and yeah we are just in the most exciting field we could possibly be so i'm looking

forward to to have another session in six or 12 months with you all thank you so much emmy bye for now thank you very much bye bye