Derivatives Market of Exchanges: Daily Trading Volume Exceeds 20 Billion, Leveraged ETFs Become New Growth Point

Cryptocurrency financial derivatives are the long-term "weapons" in the trading arena. In addition to futures, leveraged ETFs have surpassed spot trading by 21% in daily trading volume, becoming a new growth point.

Exchanges have always been at the forefront of innovation. Since 2019, new products and gameplay like IEOs, futures contracts, perpetual contracts, leverage, options, ETFs, and coin management have emerged endlessly, injecting vitality into the market and providing important momentum for the innovative development of the blockchain industry.

Compared to many products that are not sustainable as operational tools, cryptocurrency financial derivatives are effective "weapons" in the trading arena. As trading volume continues to rise, it gradually erodes the market share of spot markets, witnessing the continuous innovation in the cryptocurrency trading market, gradually moving towards maturity.

PAData has analyzed the product trading situation of the five exchanges with the largest futures trading volume in the market and the two exchanges that were the first to innovate and launch leveraged ETFs, observing the current performance of derivative trading and gaining insight into the logic of product changes in the cryptocurrency trading market.

The Traditional Financial Shadow in the Crypto World

As the cryptocurrency market is a newcomer compared to the traditional financial market, regulatory authorities refer to many regulatory provisions related to financial assets and financial risks in the traditional financial industry when formulating regulatory rules. "For example, most of the licenses in the digital currency industry are breakthroughs within the traditional licensing framework, forming specific regulatory licenses applicable to the digital currency industry," said an entrepreneur in the cryptocurrency field with a traditional financial background to PANews. From this perspective, regulatory policies will drive the cryptocurrency market closer to traditional finance.

Not only are regulatory policies similar, but in recent years, the role allocation of participants in the cryptocurrency market has also shown more and more shadows of traditional finance. In addition to exchanges that currently dominate the majority of the trading market share, professional brokerages, custodians, lending platforms, dark pools, and other professional roles have also "entered the stage."

However, product design is where the cryptocurrency market borrows the most from traditional finance. Cryptocurrency exchanges have taken various gameplay such as IPOs, futures, ETFs, options, and more from the traditional financial field. Taking ETFs as an example, MXC has launched leveraged ETFs for cryptocurrencies by drawing on traditional financial ETF products. This is a trading product that tracks a certain multiple of the daily asset return of a given underlying asset. For example, if the asset price rises by 1%, the net asset value of a 3x leveraged ETF product will rise or fall by 3%. Investing in leveraged ETFs is similar in nature to leveraged futures funds. Currently, MXC has introduced 3x long or short leveraged ETFs for mainstream assets such as BTC, ETH, BSV, BNB, and more.

In addition, IEOs, ILOs, perpetual contracts, and other derivatives are also improvements of traditional financial products. Are these improved derivatives suitable for the cryptocurrency industry's environment? How is the actual trading situation?

Differentiated Competitive Landscape of Exchanges

Currently, derivatives in the cryptocurrency market are mainly futures contracts, including delivery contracts, perpetual contracts, and a small number of options contracts. In addition, as emerging products, ETFs (with 1x leverage) and leveraged ETFs have also captured a certain market share. According to PAData's selection of 10 exchanges with higher derivative trading volumes based on CoinGekco's rankings, their actual derivative trading situations were observed.

According to the statistics, 8 out of the 10 exchanges have introduced perpetual contracts, with FTX offering the most perpetual contracts among derivative exchanges, totaling 30, followed by Gate.io and Binance offering 23 and 18 respectively. Seven exchanges have introduced delivery contracts, with OKEx offering a total of 135 delivery contracts, more than twice the number of delivery contracts offered by FTX, which introduced 60 delivery contracts. In addition, Kraken and Huobi DM have also introduced a relatively large number of delivery contracts.

As an emerging product, only two exchanges are currently involved in leveraged ETFs, but in terms of the number of products, leveraged ETFs have already surpassed perpetual contracts. Among them, FTX has introduced 111 leveraged ETF trading pairs, while MXC has introduced 30 leveraged ETFs since December last year. Known for its "quick listing," it can be expected that MXC will soon launch more leveraged ETF products in the future.

From the distribution of derivative products of various exchanges, it can be seen that a differentiated competitive landscape has already formed among exchanges in the derivative market. For example, OKEX dominates the delivery contract market, while Huobi focuses on delivery contracts, Binance specializes in perpetual contracts, and MXC is making efforts in leveraged ETFs.

Daily Futures Trading Volume Surpasses 20 Billion

According to CoinGekco's static data as of February 12th, OKEx, Huobi, BitMEX, Binance, and Deribit are the top 5 exchanges with the highest total open interest in 24-hour futures contracts. Among them, OKEx has the highest total open interest of 1.846 billion USD, while Huobi DM and BitMEX have also exceeded the 1 billion USD mark, with these three exchanges dominating the majority of the futures market. Binance and the derivatives exchange Deribit have a combined daily total open interest of approximately 400 million USD, significantly lower than the top tier.

The total open interest in futures contracts is a sign of the activity level and liquidity of the futures market, with another indicator being the daily trading volume. According to statistics, the 24-hour nominal trading volume of 25 exchanges has exceeded 27.533 billion USD. OKEx, Huobi, BitMEX, Binance, and Deribit account for 73% of the total 24-hour nominal trading volume in USD, showing a significant "80-20 rule."

The statistics on the total open interest and nominal trading volume in the past 24 hours include leverage, but even with an average high leverage level of 10 times, the futures trading volume of some exchanges has already reached a level comparable to the spot market. The popularity of derivative trading is evident.

Leveraged ETFs with Nearly 2000% Maximum Returns

While futures trading is booming, futures are not very friendly to investors. Investors need to master a certain level of practical skills, and once liquidated, the losses can be quite severe. For example, on the evening of February 13th, when BTC dropped from around 10,200 USD to around 10,100 USD, according to Contract Emperor statistics, a total of 13,400 traders were liquidated within 24 hours, with a total liquidation amount of 82.31 million USD within one hour. Futures have become a "harvesting tool."

The high operational threshold and high risk of cryptocurrency investment have always been important factors hindering the "mainstreaming" of cryptocurrencies. In order to find new increments, exchanges have been exploring "two lows and one high" products that have low operational thresholds, low risks, and high returns since last year. This is the intrinsic logic and driving force behind the development of cryptocurrency derivatives. For example, the leveraged ETFs launched by MXC comply with this trend. Investors can buy leveraged ETFs on MXC like regular spot trading without paying margin, without the risk of forced liquidation, and can also gain compound returns. MXC also allocates 100% of the transaction fee income to the monthly repurchase and destruction plan of MX, forming a positive investment feedback within the exchange's product system.

Currently, there are only two exchanges that have launched leveraged ETF products in the market. According to CoinGekco's statistics, the 24-hour estimated trading volume in USD of the two exchanges is close to 4 million USD. The single-day estimated trading volume of the 30 leveraged ETF products listed on MXC since December is approximately 3.7843 million USD, while the 111 leveraged ETF products listed on FTX have an estimated daily trading volume of around 3.9346 million USD.

The average daily trading volume of the top 10 leveraged ETF trading pairs on MXC is around 320,500 USD, with the highest daily trading volume being the 3x long BSV leveraged ETF at 529,300 USD. The average daily trading volume of the top 10 leveraged ETF trading pairs on FTX is around 173,900 USD, with the highest daily trading volume being the 3x long BTC leveraged ETF at 326,500 USD. Excluding the impact of product quantity, the average daily estimated trading volume of a single leveraged ETF product on MXC is higher.

It can be observed that the trading volume of 3x long leveraged ETFs is much higher than that of 3x short leveraged ETFs, with all top 10 trading pairs on MXC being 3x long pairs, and 9 out of the top 10 trading pairs on FTX being 3x long pairs. It is evident that the current market sentiment is predominantly bullish.

Furthermore, the top 10 trading pairs with the highest trading volume on MXC mainly consist of reduced production coins and platform coins, which is more in line with the current mainstream capital flow. This reflects the optimal application scenario of leveraged ETFs, where in a one-sided or trending market, the performance and advantages of leveraged ETFs will be very evident, and investors often achieve returns higher than the leverage multiple.

According to statistics, the highest average return of the top 10 leveraged ETF trading pairs on MXC is 611.14%, the lowest average return is -25.8%, and the current average return is 428.96%. Among them, the highest return of the USV3L/USDT 3x long BSV trading pair reached 1998.60%.

However, the returns of FTX's leveraged ETFs are much lower, with the highest average return among the top 10 trading pairs being 141.94%, the lowest average return being -90.07%, and the current average return being -2.98%. The highest return is from the 3x short BSV trading pair, with a return of approximately 591.38%.

There is a huge difference in the returns of leveraged ETF products between the two exchanges, which is influenced not only by the difference in currencies but also by factors such as the risk control system and team configuration of the exchanges. According to public data disclosed by MXC, MXC's leveraged ETFs are managed by the platform or platform-approved fund managers, with the platform publicly disclosing the net asset value in real-time to maintain high transparency and manage risks.

Imaginative Potential of Tracked Assets in Leveraged ETFs

According to statistics, the average daily estimated trading volume of all leveraged ETF trading pairs on the two exchanges is approximately 21% of the daily spot trading volume[2]. MXC is around 22.44%, while FTX[3] is around 19.96%. Although leveraged ETFs have not been around for long, their market share is already significant.

Currently, the assets tracked by leveraged ETFs on both exchanges are still single cryptocurrencies. However, in the traditional financial field, the assets tracked by ETFs already include stock indices, style indices, sector indices, commodity indices, currencies, commodities, and more. In the future, the innovation of leveraged ETFs in the cryptocurrency market can include indexes and currency combinations as asset targets.

Currently, competition between exchanges is fierce, and in this situation, exchanges not only compete in products, services, and marketing but also in speed, especially in product innovation and iteration speed. For example, compared to FTX, MXC was quicker to list the currently more popular investment targets, reduced production coins, and platform coins. Furthermore, in the current competitive landscape, the "first come, first served" approach may become the market norm, such as OKEx's dominance in the futures field and MXC's advantage in leveraged ETFs.

Data Explanation:

[1] The highest returns here refer to the instantaneous returns from the opening price to the highest price at the daily level, the lowest returns refer to the instantaneous returns from the opening price to the lowest price at the daily level, and the current returns refer to the instantaneous returns from the opening price to the closing price on February 12th. The return statistics are for reference only and do not constitute investment advice.

[2] Although FTX is a derivatives exchange, according to CoinGekco's statistics, ETFs, leveraged ETFs, and other trading pairs (non-futures contracts) are counted as spot trading, so here the "spot" statistics refer to the non-futures trading pairs in CoinGekco.

[3] The statistics for FTX's leveraged ETFs exclude 1x leveraged trading pairs.

This article is from our partner PANews

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