Sam Bankman-Fried, the FTX CEO, recently stated that crypto derivatives are crucial for the purposes of enhancing the efficiency and liquidity of the markets. Sam is FTX’s chief executive regarding cryptocurrency derivatives, and so he believes that these derivatives are, despite the opinions of many, necessary if we are to improve the digital markets’ efficiency and effectiveness.
Yesterday, the cryptocurrency billionaire had said that more often than not, cryptocurrency derivatives tend to be ‘misunderstood’, after which he claimed that many critics and naysayers do not realize the critical role that the derivatives have in bolstering the aforementioned efficiency and liquidity. He, therefore, wants to set the record straight and tell everyone why he believes that crypto derivatives are absolutely vital.
What are crypto derivatives?
In layman’s terms, derivatives may be defined as financial contracts which derive value from any given underlying asset as well as a benchmark. Cryptocurrency derivatives, therefore, appear as perpetual swaps, options, and futures, and over time these have successfully managed to attract a substantial amount of popularity.
Sam thinks that a lot of people often ‘misunderstand’ what crypto derivatives are and what the importance of these derivatives actually is, and so he stated that if we were to observe things closely, then we would see that derivatives-based trading tends to have more volume as compared to that of traditional crypto spot trading. He added that this is true for every single asset class worldwide.
Furthermore, apart from talking about efficiency and liquidity, Sam also wanted to highlight the fact that certain products might provide more flexibility to traders who may desire additional exposure to cryptocurrency assets. This is possible thanks to the investors being allowed to access all of the leading markets without the need to tackle the obstacles linked with the custody of digital assets.
The risks of crypto derivatives
It is true that Sam believes crypto derivatives are indeed important, but this is not to say that he doesn’t acknowledge the existence of risks. He says that those investors who may use excessive leverage may result in increased volatility which can then expose the traders to liquidations. In fact, just this past March, Bitcoin (BTC) worth $500 million had been liquidated in just an hour.
Last month, Sam himself had greatly decreased the leverage that was available to investors on FTX, with the leverage dropping from 101x to 20x. Around the time that this was happening, Sam had claimed that he wanted to encourage traders to act ‘responsibly’.