Will implementing KYC policies become a concern for Deribit, the giant in Bitcoin options with over 80% market share?

Since the beginning of this year, many traditional financial institutions have been eager to enter the cryptocurrency options market. However, the latest data indicates that the derivatives platform Deribit continues to dominate the market. Its Bitcoin options contracts have significantly higher trading volumes compared to all competitors in the market.

• Deribit continues to lead in Bitcoin options market trading volume
• KYC verification required for withdrawals exceeding 1 BTC within 24 hours

Many institutions have introduced Bitcoin options contracts, including traditional exchanges such as CME Group and Bakkt, which is affiliated with Intercontinental Exchange, as well as cryptocurrency exchanges like OKEx and FTX.

According to Skew, Deribit currently dominates the market share, holding 86% as of February 11th. OKEx, which launched Bitcoin options in December last year, only commands a market share of 8.22%.

FTX, not included in Skew's data, reported a trading volume of 748.8 BTC (approximately 7.6 million USD) within 24 hours, still significantly lower than Deribit's trading volume.

Although Deribit was the first to introduce Bitcoin options contracts, with various renowned institutions now entering the market, its dominance in options trading cannot be guaranteed.

As shown in the graph below, BitMEX, which once led Bitcoin perpetual contract trading, currently only slightly surpasses OKEx. This suggests that Deribit's market share in options contracts may gradually diminish in the future.

KYC Policy Raises Concerns

In January of this year, Deribit announced its relocation from the Netherlands to operate under a subsidiary in Panama to comply with the EU's Fifth Anti-Money Laundering Directive (5AMLD). Additionally, starting from February 10th, users withdrawing more than 1 BTC within 24 hours will be required to undergo KYC verification.

Reports indicate that this move reminds many users of the fate of the well-established exchange Poloniex, which saw a sharp decline in market share after implementing KYC requirements in 2018. According to ABM reports, Poloniex has since been acquired by Tron and will be used to build the Tron ecosystem.

Regarding whether Deribit will suffer business contraction post-KYC similar to Poloniex, Emmanuel Goh, CEO of Skew, stated:

I don't expect much change; this was anticipated. Their user base also consists of professional investors.

Su Zhu, Information Officer at hedge fund Three Arrows Capital and investor in Deribit, also pointed out that most of Deribit's trading volume comes from "institutional traders who have passed KYC verification."

In response to Emmanuel Goh and Su Zhu, Deribit co-founder Marius Jansen emphasized:

The users on Deribit in the past are fundamentally different from those on Poloniex during the altcoin craze. I believe that the majority of futures and options traders on Deribit are more professional and have no concerns about KYC.

Perhaps as co-founder Marius Jansen of Deribit suggested, the unpredictable nature of the cryptocurrency market is one of its main characteristics. Changes in investment environment and project popularity can evolve rapidly, and therefore, judgments based on past history may not be comprehensive. What can be confirmed is Jansen's confidence in Deribit's dominant position within their exchange.

Further Reading

• BitMEX Launches XRP Perpetual Swap Contract as Spot Market Surges
• Cryptocurrency Derivatives Exchange FTX Introduces "Trump Presidential Election Contract," Opens with 24% Increase

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