The Crypto Futures Market Is Shifting to Decentralized Trading Ecosystems 

UTC by Kseniia Klichova · 5 min read
The Crypto Futures Market Is Shifting to Decentralized Trading Ecosystems 
Photo: Depositphotos

The global futures market has been on an uptrend in the past few years.

The latest data from the Futures Industry Association (FIA) shows a 32.7% increase in the number of futures contracts traded in 2020. According to the statistics, most of this growth has been fueled by a surge in emerging futures markets; India’s National Stock Exchange and Brazil’s B3 were the leading gainers, increasing the total volumes by 48.1% and 62.5%, respectively.

While futures have been trading in traditional financial markets, this asset class is becoming popular within the crypto industry. Similar to the traditional futures markets, crypto futures derive their value from an underlying asset. The only difference with traditional markets is that crypto futures are pegged to digital assets like Bitcoin and Ether. On the other hand, the former derives value from traditional assets, including commodities, currencies, equities, and indexes.

Though still in its early stages, the crypto futures market has grown exponentially within the past three years. Going by the latest CryptoCompare market report, Bitcoin Futures trading on the Chicago Mercantile Exchange (CME) hit an all-time high in October, recording a total volume of $70.3 billion. The same goes for ETH futures which gained by 13.6% to hit an all-time high of $21 billion.

The Evolution of the Crypto Futures Market

Blockchain technology may have started with Bitcoin as the only cryptocurrency, but the market has evolved to feature over 10,000 crypto assets as of press time. This nascent market now comprises spot and derivative markets, the latter made an official debut in 2017 when the first regulated Bitcoin futures launched in the Chicago Mercantile Exchange (CME) and Chicago Board Options Exchange (CBOE).

Since then, there have been many developments in the crypto futures market, some of which have been welcomed by regulators while others have been brushed off. Today, the CME offers Micro Bitcoin futures representing a tenth of 1 BTC, giving low cap investors exposure to the crypto market. The exchange is also set to launch Ethereum micro futures in December, given the rise in demand for ETH futures.

“Since the launch of [ETH] futures in February, we have seen steady growth in liquidity in these contracts, especially among institutional traders,” noted CME’s group global head of equity index and alternative investment products, Tim McCourt.

“Micro [ETH] futures will offer even more choice and precision in how they trade [ETH] futures in a transparent, regulated and efficient manner at CME Group,” added McCourt.

Meanwhile, the U.S Securities Exchange Commission (SEC) recently approved three Bitcoin futures ETFs; The Proshares Bitcoin Strategy ETF (BITO), The Valkyrie Bitcoin Strategy ETF (BTF) and The VanEck Bitcoin Strategy ETF (XBTF).

With barely two months in existence, these Bitcoin futures ETFs are already breaking records. The Proshares Bitcoin Strategy ETF (trading on the NYSE) has accumulated over $1billion assets under management (AUM), while the Valkyrie Bitcoin Strategy ETF (trading on Nasdaq) enjoys an AUM of over $50 million. The VanEck Bitcoin Strategy ETF (trading on CboE), the most recent approval, closed its first trading day with an AUM of $9.6 million.

Blockchain, a Game-Changer for the Futures Market

Despite the significant milestones in the crypto futures, most activity is currently concentrated on centralized exchanges. This begs the question of blockchain’s value proposition as a decentralized technology; well, the tides are gradually changing with traders moving to decentralized crypto derivative platforms such as SynFutures. This DeFi-focused derivative trading platform is among the pioneer ecosystems to offer a synthetic market for crypto assets.

At the core, SynFutures leverages blockchain to introduce a platform where users can trade crypto futures without going through intermediaries like the CME or CBOE. Instead, the platform implements smart contracts featuring user-generated markets that allow anyone to list a synthetic trading pair.

Crypto derivatives traders can also use the SynFutures Synthetic Automated Market Maker (sAMM) to list and trade an underlying asset while only providing a single digital asset trading pair. Notably, SynFutures supports the conversion of Ethereum-native, cross-chain, off-chain and real-world assets into synthetic assets, allowing users to trade them as crypto derivatives.

While it may take some time before most traders embrace the potential in DeFi derivatives, it is a no-brainer that these assets follow the true fundamentals of a decentralized ecosystem. Crypto derivatives trading platforms like SynFutures and DyDx will soon be giving institutions a run for their money as the paradigm shifts in favour of blockchain-built trading environments.

Closing Thoughts

Cryptocurrency futures have risen the ranks faster than most stakeholders in the industry expected, accounting for over 50% of the total volumes in the crypto market. Going by the rate of institutional money flowing into this market, it is likely that crypto futures will be among the most traded financial instruments in the coming years.

However, the cold reception by authorities, including China’s CCP and the US SEC, calls for a consideration of decentralized ecosystems. DeFi protocols will shape the future of finance by giving users the autonomy of control regardless of their location globally. Even better, anyone will be able to trade instruments such as crypto futures through permissionless protocols.

As far as innovation goes, the crypto market is full of surprises. Nonetheless, the signs on the wall show that DeFi may be the next frontier of modern-day finance. Time will reveal how this plays out!

Kseniia Klichova

Kseniia is the Chief Content Officer of Coinspeaker, holding this position since 2018. Now she is very passionate about cryptocurrencies and everything connected with it, so she tries to ensure that all the content presented on Coinspeaker reaches the reader in an understandable and attractive way. Kseniia is always open to suggestions and comments, so feel free to contact her for any questions regarding her duties.

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