Report”, the transaction volume of the digital asset derivatives market in Q3 2020 will reach US$2.7 trillion.
2. In 2016, BitMEX launched a currency-based perpetual contract. The currency-based perpetual contract has no expiry date and is anchored in the spot market through a fee rate mechanism. At a time when digital asset trading risk events frequently occurred, currency-based perpetual contracts won the favor of many users.
3. Digital asset practitioners continue to optimize and improve the structural framework of currency-based perpetual contracts, and increase mechanisms such as stepped margins to ensure the security of contract transactions and enhance the user experience of currency-based perpetual contracts.
4. TokenInsight data shows that the daily trading volume of currency-based perpetual contracts reached 26.6 billion US dollars on November 27, a record high. Currency-based perpetual contracts accounted for 49.3% of the market share of perpetual contracts.
5. Since September 2020, the top three exchanges with cumulative trading volume of currency-based perpetual contracts are: Huobi, BitMEX, and Bybit. Binance launched the BTC currency-standard perpetual contract for less than 4 months, and its weekly trading volume ranked fifth in the market.
6. The bearish reverse contract has a price convexity. When investors buy a reverse perpetual contract to short, they will get a certain amount of income protection.
7. Comparing the transaction fees of the sample exchanges, BitMEX and Bybit have a negative commission rate for pending orders, which is extremely friendly. The trading platform is willing to give liquidity providers some compensation. Binance’s order-taking fee rate is the best, only 0.040%.
8. The currency-based perpetual contract still uses digital assets such as BTC and ETH as the main targets. The exchange still has a lot of room for improvement in user protection and product innovation.
9. The digital asset trading platform will continue to innovate products, and derivatives will become the main growth point of the trading platform.
1.1 Traditional contract market
In Europe, futures contracts appeared in the Netherlands in the 17th century. During the climax of the Dutch tulip mania in 1636, the famous tulip futures appeared in the Dutch trading market. In the East, the earliest futures market appeared in Japan during the Edo Shogunate period. Due to the rice prices at that time, it had a significant impact on economic and military activities. Rice merchants often decide on the sale of stocked rice based on the production of rice and the market’s expectations of rice. In 1697, Dojima, Osaka established the Dojima Yonesha Club. Traders everywhere use silver to trade forward contracts based on rice [1].
[1] Refer to Wikipedia for related information.
Modern futures trading evolved from forward trading. The first modern futures exchange was established in Chicago, USA in 1864. The firm established a commodity trading model based on standard futures contracts in 1865. Later, with the gradual enrichment of systems such as margin and contract mutual netting, futures contract trading has become the most common way of international commodity trading.
Traditional market contract operation mechanism
In the modern futures system, the exchange launched standardized futures contracts with commodities as the target. The exchange ensures the smooth progress of commodity trading through automated mechanisms such as continuous quotation and order-driven. Different types of market participants on the exchange offer prices for commodities. A steady stream of quotation orders maintains the liquidity of the commodity market. Large-scale commercial manufacturing companies and international financial institutions continue to intensively trade futures contracts in the secondary market, making each month’s futures contracts have a continuous quotation curve to ensure the market’s reasonable pricing of forward commodities.
CFTC main commodity open positions, source: CFTC; statistics date December 1, 2020
1.2 Digital asset contract market
Digital assets have experienced more than ten years of development, and digital assets represented by BTC have become the value consensus of investors around the world. The digital asset spot market has become more mature, and the contract market has emerged.
In 2013, OKCoin launched a BTC delivery contract. Users can conduct two-way trading of digital asset contracts before the contract expires. Then BitMEX launched a perpetual contract in 2016. Perpetual contracts have no expiration date, which saves users the need to move positions when they expire. In December 2017, the Chicago Mercantile Exchange launched BTC futures contracts for institutional investors. In September 2019, Bakket launched a physically deliverable BTC futures contract, which was cleared at the US Clearing House. This marks the recognition of digital assets by traditional financial institutions.
Digital asset contract launch time, source: tokeninsight.com
According to whether the contract has an expiry date, we can divide digital asset futures contracts into delivery contracts and perpetual contracts. With the gradual maturity of products, the scale of the digital asset contract market continues to expand. At present, the digital asset derivatives market has formed a market structure dominated by perpetual contracts. According to TokenInsight’s “2020Q3 Digital Asset Derivative Exchange Industry Research Report”, in 2020, the Q3 digital asset derivatives market will have a transaction volume of 2.7 trillion US dollars, of which perpetual contracts account for 80.01%.
20Q3 Perpetual Contract and Delivery Contract Volume Comparison, Source: tokeninsight.com
Changes in trading volume of digital asset derivatives market in 19Q2-20Q3, source: tokeninsight.com
2.1 Currency-based perpetual contract
Perpetual contracts can be divided into currency-based perpetual contracts and U-based perpetual contracts based on the reference targets for pricing settlement. This article mainly studies and analyzes currency-based perpetual contracts.
Currency-based contracts: Currency-based perpetual contracts are divided into inverse contracts (Inverse Futures) and dual currency contracts (Quanto Futures).
Inverse Futures: The margin and profit and loss of inverse contracts are calculated in the base currency. For example, the BTCUSD perpetual contract launched by Binance, the margin and profit and loss of the contract are calculated using BTC. In the ETHUSD perpetual contract launched by Huobi, the margin and profit and loss of the contract are calculated using ETH. For reverse contracts, the user’s profit or loss is determined by the change in the number of digital assets corresponding to the contract.
Quanto Futures: The margin and profit and loss of a dual-currency contract are calculated in a currency other than the base currency and the quote currency. The dual currency contract anchors the contract with a fixed multiplier. For example, ETHUSDT, assuming the fixed multiplier is 0.0001/USDT, when the ETHUSD price exchange rate rises by 1USDT, the user will earn or lose 0.0001 BTC.
U-standard contract (Linear Futures): U-standard perpetual contract margin and profit and loss are calculated by the quote currency. For example, the BTCUSDT perpetual contract launched by Binance, the contract uses USDT to quote BTC, and the calculation of margin and profit and loss uses USDT. The user’s profit and loss is determined by the price of the digital asset corresponding to the contract.
Comparison of currency-based and U-based BTC perpetual contracts, source: tokeninsight.com
[2] Dual currency contract: select BTC as the settlement asset of ETHUSD as an example.
2.2 The design mechanism of currency-based perpetual contracts
In the traditional commodity market, spot and futures prices can be anchored through the mode of spread delivery or physical delivery. Currency-based perpetual contracts do not have an expiration date, so currency-based perpetual contracts will not be delivered on the expiry date like delivery contracts. The currency-based perpetual contract uses the funding rate mechanism to anchor the contract price and the spot price index to ensure the fair response of the currency-based perpetual contract to the market price of digital assets. The currency-based perpetual contract calculates unrealized profit and loss and liquidation price by marking the price to avoid unnecessary losses to users due to temporary market shocks.
Spot price index: Perpetual contracts are derivative products based on digital assets, and their pricing needs to refer to the spot market of the corresponding digital assets. In product design, the exchange introduced a spot price index to fairly reflect the spot market. Take the currency-based perpetual contract launched by Binance as an example. The trading markets referenced by Binance’s spot price index include: Huobi, Bitterex, HitBTC, Gate.io, Bitmax, Poloniex, FTX, MXC.
Funding rate: The currency-based perpetual contract adopts a capital cost mechanism to anchor the market price of the perpetual contract to the spot price. Taking OKEx as an example, the funding rate of a perpetual contract consists of two parts: interest rate level and premium level. For example, when the contract is excessively premium, the funding rate is positive, and the multiple parties need to pay the funding rate to the short party. This mechanism will prompt the multiple parties to close their positions, thereby prompting the price to return to a reasonable level.
Marked price: In order to improve the stability of users’ transactions in the contract market and reduce the impact of abnormal fluctuations in individual markets on the perpetual contract positions. Use the marked price to calculate the user’s profit and loss to avoid unnecessary losses to the customer.
Margin: In contract transactions, traders need to deposit certain assets on the platform account in a certain proportion according to the contract price as a guarantee for the performance of the contract in order to participate in the contract transaction. Margin is divided into initial margin and maintenance margin.
Initial margin: The initial margin depends on the user’s choice of leverage. Without considering the transaction costs, the initial margin rate is determined by the user’s adjusted leverage. That is: initial margin ratio = 1/leverage multiple.
Maintenance margin: The minimum margin rate required for users to maintain the current position, so the initial margin will be higher than the maintenance margin. Taking Binance as an example, when the margin rate is less than or equal to the user’s current required maintenance margin rate + liquidation fee rate, liquidation is triggered.
2.3 The price convexity of the currency-based reverse perpetual contract
For currency-based reverse perpetual contracts, the margin and profit and loss of the contract are settled in the base currency instead of the quote currency. Compared with the U-standard perpetual contract with linear return, the investor’s return curve of the currency-standard reverse perpetual contract has certain non-linear characteristics. For this nonlinear feature, we can derive it through a certain mathematical relationship.
The calculation method of the income of the reverse contract:
U-standard perpetual contract revenue calculation method:
When users use currency-based reverse perpetual contracts to trade, because the face value of the contract is marked in U.S. dollars, the contract profit and loss are settled by digital assets. So the rate of return needs to be calculated by the inverse of the buying and selling price. Therefore, the yield curve of the currency-standard reverse perpetual contract has nonlinear characteristics.
Reverse perpetual contract yield curve [3], source: tokeninsight.com; BTC income
[3] The yield curve chart shows the profit and loss of the reverse contract at different market prices after opening a position of $9,200.
When calculating income through BTC, the bearish coin-standard reverse contract has positive convexity. Therefore, when investors are short on digital assets, if they choose to use reverse contracts to operate, then as the price of digital assets drops, because the convexity is positive, when the price drops, investors’ income will accelerate and enlarge. If the price of digital assets rises and benefits from a positively convex yield curve, investors’ loss speed will slow down.
What is convexity?
Convexity, also known as Gamma in financial derivatives, is an important measure of the value of the underlying assets of derivatives. Convexity is the degree of change in the price range of derivatives caused by changes in the asset price of the indicator.
Explanation of perpetual contract formula parameters:
PNL: Profit and loss; Contracts: number of contracts; Multiplier: contract multiplier; EntryPrice: opening price; ExitPrice: closing price
3.1 Coin-based perpetual contract trading platform
In May 2016, BitMEX launched the XBT/USD currency-standard perpetual contract, each contract worth 1USD of BTC. Currency-based perpetual contracts use digital assets as the settlement currency. The contract is linked to the spot market through the funding rate mechanism. Perpetual contracts use a reasonable marked price as the liquidation price to avoid asset losses to users caused by market fluctuations. At a time when digital asset trading risk events frequently occurred, currency-based perpetual contracts won the favor of many users.
“Coin-based perpetual contracts are favored by users, and exchanges have deployed
Since 2016, the currency-based perpetual contract trading market has continued to experience rapid growth. Exchanges such as OKEx, Bybit and Binance have launched currency-based perpetual contract products. With the continuous improvement of product mechanisms, currency-based perpetual contracts have become an important part of the digital asset derivatives market.
Starting from Q3 of 2020, the digital asset market will start. TokenInsight data shows that the daily trading volume of currency-based perpetual contracts reached 26.6 billion U.S. dollars on November 27, a record high, accounting for 49.3% of the contract market share. In the rapid changes in the market, currency-based perpetual contracts rely on mature product design and become a reliable investment choice for investors.
The exchange launches the timetable for currency-based perpetual contracts, source: tokeninsight.com
Contract volume comparison, source: tokeninsight.com; statistics date: November 27, 2020
“The trading volume of currency-based contracts is growing rapidly, and the exchange head effect appears
Starting from September 2020, in less than 3 months, the price of BTC has risen by 90%, and digital assets ushered in an explosion. While the trading volume of currency-based perpetual contracts surged, the exchange head effect began to appear. TokenInsight’s data shows that the cumulative trading volume of BTC currency-standard perpetual contracts are concentrated in: Huobi, Bybit, BitMEX, BitForex [4], Binance.
[4] BitForex does not open API trading, and the trading volume of perpetual contracts is the data returned by the exchange.
BTC currency-standard perpetual contract trading volume, source: tokeninsight.com; statistics date: December 15, 2020
Trading volume of currency-based contracts, source: tokeninsight.com; date of statistics: December 14, 2020
On August 10, 2020, Binance launched the BTC currency-standard perpetual contract. The trading volume has increased by 20 times in 4 months, from a weekly turnover of US$400 million to US$8 billion. Currently, Binance’s BTC currency-standard perpetual contract trading volume ranks fifth in the market.
Binance BTC currency standard perpetual contract weekly trading volume, source: tokeninsight.com
As the trading volume increased, the open interest of the BTC currency-standard perpetual contract increased accordingly. TokenInsight’s data shows that the open interest of BTC-based perpetual contracts rose from USD 1.2 billion in September to USD 2.4 billion in December, a growth rate of 100%. The top exchanges by volume are: Bybit, BitMEX, Huobi, OKEx, Deribit. The open interest market share of the BTC currency-standard contract of the top 5 exchanges is more than 70%.
Open interest in currency-based perpetual contracts, source: tokeninsight.com; date of statistics: December 14, 2020
Open interest in currency-based contracts, source: tokeninsight.com; date of statistics: December 14, 2020
Against the backdrop of the hot derivatives market, Binance’s BTC currency-standard perpetual contract open interest has risen rapidly. In November 2020, the open interest exceeded US$1 billion. Currently, Binance’s BTC currency-standard perpetual contract open interest remains in the US$1.5 billion range, ranking seventh in the market.
Open interest of Binance BTC currency-standard perpetual contract, source: tokeninsight.com
3.2 Coin-based perpetual contract products
After five years of market testing, currency-based perpetual contracts have become mature digital asset derivatives. The currency-standard perpetual contract has formed an infrastructure that uses the spot index price as a reference benchmark and anchors the contract price to the spot price through the funding rate mechanism. In order to improve user experience and ensure transaction security, various trading platforms on the market have carried out various innovations in perpetual contract products. The currency-based perpetual contract product designs of various exchanges are different, and the main differences are concentrated in the price index composition, leverage multiples, and margin mechanism.
Comparison of exchange currency-based perpetual contract product elements, source: tokeninsight.com
The currency-based perpetual contract products launched by the trading platform continue the design framework of BitMEX’s funding rate mechanism and spot price index. Most of the exchanges use the basic interest rate and premium index to determine the funding rate. In terms of price indices, Binance, Bybit, and BitMEX use a volume-weighted method to calculate spot price indices.
What are full positions and partial positions?
Whole position margin: all the balance transferred by the investor into the contract account can be used as collateral assets. Margin by position: The margin required by the investor when opening a position is used as the fixed margin for the contract.
The currency-based perpetual contract market has gradually taken shape, and the product design framework is basically determined. Digital asset exchanges provide effective and safe trading services, which are essential for investors. We selected trading activity, risk control mechanism, and user trading experience to compare and analyze the current trading volume of the exchanges in the market in three dimensions. The analysis results are as follows.
3.3 Activity of currency-based perpetual contract transactions
Trading depth is also called handicap depth, which reflects the intensity of the exchange’s pending orders and is a commonly used indicator to consider the activity of exchange transactions. The exchange’s good market depth can free investors from trading slippage problems and facilitate traders to execute transactions at reasonable prices. For institutional traders and quantitative trading teams, good market depth is the key to ensuring profitability. In extreme market conditions, the better trading depth of the trading platform is a necessary condition to ensure that orders are matched and traded in a timely and effective manner. Refer to TokenIsight data and sort by 2‰ market depth. The top 5 exchanges for BTC currency-standard perpetual contract market depth are: Bybit, BTCMEX, BitMEX, Binance, Huobi. Sorted by 1‰ handicap depth, the top 5 exchanges with BTC currency-standard perpetual contract handicap depth are: Bybit, BTCMEX, Phemex, Binance, Huobi. For quantitative traders, intensive handicap depth is the key to ensuring the profit of the strategy. In the more detailed 5‱ handicap volume statistics, the top five exchanges with BTC currency-standard perpetual contract handicap depth are: Bybit, BTCMEX, Phemex, Binance, Huobi. Under different market statistics, Bybit’s trading depth ranks first.
What is handicap depth?
Handicap depth refers to the intensity of pending orders on the trading platform. Handicap depth can represent, to a certain extent, the ability of the trading platform to withstand large transactions without significant price fluctuations. It is usually expressed by the amount of pending orders within a certain range of transaction prices.
BTC currency standard perpetual contract liquidity comparison, source: various exchanges; tokeninsight.com; statistical date at 17:00, December 22, 2020
The degree of trading activity is also related to the trading volume, slippage, and open interest of the trading pair. In order to compare the trading activity of different trading platforms more comprehensively, we select the liquidity score index of TokenInsight to compare the trading activity of BTC currency-standard perpetual contracts of different trading platforms. TokenInsight’s exchange liquidity score index is obtained by calculating the depth and slippage data of the designated trading pairs of the exchange, and combining the trading volume and open interest of the trading pairs. The liquidity score can more comprehensively show the trading activity of the main trading pairs on different exchanges. According to TokenInsight’s liquidity calculation rules, the top five exchanges with BTC-based perpetual contract liquidity scores are: Bybit, BitMEX, Huobi, Phemex, Binance.
BTC currency standard perpetual contract liquidity score, source: various exchanges; tokeninsight.com; statistics date December 14, 2020
By comparing the exchange’s TokenInsight liquidity score and market depth, we found that Bybit has the best trading activity, with a liquidity score close to 100, and the market depth is the best. Under the 2‰ market depth, Bybit’s BTC currency-standard perpetual contract can reach a market order volume of 11.36 million US dollars. With a market depth of 5‱, Bybit’s market order volume can still reach $3.95 million. Bybit can better meet the trading needs of quantitative investment teams. BitMEX, Binance, Huobi, and OKEx exchanges have 2‰ market orders around 5 million U.S. dollars, and 5‱ market depths have orders above 1 million U.S. dollars. The trading activity of BitMEX, Binance, Huobi, and OKEx is sufficient to meet the investment needs of ordinary users.
3.4 Risk control mechanism of currency-based perpetual contract
The high leverage mechanism of currency-based perpetual contracts will bring high volatility risks to users’ investments. All exchanges have introduced corresponding risk control mechanisms to protect user safety. The current risk mechanism generally adopted in the market: use the marked price to calculate the user’s closing line to avoid unnecessary market fluctuations on the user, and include the capital cost in the risk protection fund to compensate traders for unnecessary future encounters loss. At the same time, major exchanges are constantly improving their risk control mechanisms. The specific mechanisms are shown in the table below.
Comparison of risk control mechanisms of BTC currency-standard perpetual contracts, source: tokeninsight.com; statistics date: December 5, 2020
[5] BitMEX disclosed that the risk protection fund is the overall reserve of the trading platform, so the amount is relatively large. USDBTC perpetual contract risk protection fund did not disclose separately
Taking Binance as an example, Binance uses FAK (Fill and Kill) for liquidation. In the event of forced liquidation, the orders will be filled as much as possible, and orders that are not filled will be automatically cancelled. In the design of the margin system, Binance adopts a step-by-step margin model for risk control, and sets a higher margin ratio for large positions to avoid impact on market prices when large positions are liquidated.
Use FAK (Fill and Kill) method for liquidation. Orders will be filled as much as possible, and orders that are not filled will be automatically cancelled. Under the Fill or Kill method, all orders are either filled or cancelled.
3.5 User experience of coin-based perpetual contract
TokenInsight analysts compare the user experience of currency-based perpetual contracts on different trading platforms from the three dimensions of rate, data market feedback, and trading experience.
Transaction fees and funding rates
Transaction fee rate: Transaction fee is divided into Maker (pending order) fee and Taker (take order) fee. Maker is an order placed by a trader, waiting for the transaction. Taker refers to an order that is actively traded with a pending order.
Funding rate: Perpetual contracts use the “funding cost mechanism” to anchor the contract price to the spot price. When the funding rate is positive, long positions pay short positions. When the funding rate is negative, shorts pay longs.
Comparison of BTC-based perpetual contract rates on major exchanges, source: various exchanges; tokeninsight.com
Comparison of transaction fees : By comparing the transaction fees of exchanges, we found that BitMEX and Bybit’s pending order fee rates are negative and extremely friendly, and the trading platform is willing to give liquidity providers a certain amount of compensation. Binance’s order-taking fee rate is the best, only 0.040%.
Funding rate comparison: Funding rate refers to the ratio of fees paid by the trading platform to long or short traders based on the price difference between the perpetual contract price and the spot price. Therefore, the fluctuation of the funding rate can reflect the deviation of the platform contract price from the spot price.
Change range of fund rate: According to TokenInsight data, the change range of fund rate of BTC currency-standard contracts of major exchanges in the past 90 days can be observed. Through comparative analysis, we can see that the funding rate of Deribit and Bybit is in the range of -0.068% to 0.300%, and the funding rate has changed significantly. This can reflect that the currency-standard perpetual contract price of the trading platform has experienced large fluctuations from the spot price. The funding rate of Binance, Huobi, BitMEX, and OKEx has been stable in the range of -0.068% to 0.100%, and the price performance of the currency-based perpetual contract is relatively stable, and there is no significant deviation.
Funding fee rate collection time: The frequency of fund fee collection by major exchanges is basically the same, three times a day and once every 8 hours. Only when the trader is holding a long or short position at the time of receipt, will he be charged or paid the corresponding fund fee.
Comparison of BTC currency standard perpetual contract funding rate, source; tokeninsight.com; statistical date December 8, 2020
Currency-based perpetual contract data market
The price volatility of digital assets is much higher than that of traditional financial investment tools, considering that users often use leverage to invest in currency-based perpetual contracts. Therefore, price fluctuations in the perpetual contract market will cause investors’ income to change rapidly. If investors cannot obtain comprehensive market information in a timely and effective manner, and make timely response to directions and positions, it may have an impact on investment income. Therefore, an accurate grasp of market conditions is very important for traders of currency-based perpetual contracts. We compare different trading platforms, and the comparison of the elements of the data market is shown below.
Comparison of currency-based perpetual contract data, source: tokeninsight.com
Through comparative analysis, we can see that each exchange has a relatively complete presentation of the basic market information of digital currencies, and the advanced version of the trading interface has a richer display of high-level market data of digital assets. In the future stage, user experience competition may focus on in-depth market display; specifically, information on the latest blockchain technology research and digital asset industry dynamics may attract users more.
Currency-based perpetual contract trading experience
The mainstream trading methods of currency-based perpetual contracts evolved from delivery contracts and spot trading methods. With the continuous expansion of perpetual contract users, digital asset exchanges continue to innovate products. In order to facilitate investor transactions and improve user experience, the exchange has made many optimizations in the order mechanism, position holding method, and margin mechanism.
Comparison of currency-based perpetual contract trading methods, source: tokeninsight.com
By comparing the trading commission methods of currency-based perpetual contracts on different exchanges, we can see that Binance, OKEx, Huobi and other exchanges are constantly improving related mechanisms and optimizing trading services. Taking Binance as an example, Binance provides users with multiple order options such as limit-price stop-profit and stop-loss, market price stop-profit and stop-loss, and follow-up orders. A variety of order orders can simplify investors’ transaction process and enhance users’ investment experience. In terms of position holding methods, Binance has innovatively introduced a two-way position holding system. One contract can allow holding positions in both long and short directions at the same time, and the position multiples and number of positions in the two directions do not affect each other. The two-way position holding mechanism can provide investors with more hedging options. In addition, in terms of wallet settings, BInance supports users to implement delivery contracts and perpetual contract transactions in one wallet, eliminating the need for users to transfer assets in different wallets when investing in different derivatives.
What is an iceberg commission?
Iceberg entrustment refers to the automatic splitting of large orders into multiple entrustments in order to avoid excessive impact on the market when investors conduct large-scale transactions
What is tracking commission?
Tracking orders allow users to preset orders within a certain percentage of the market price when the market fluctuates. When the market develops in a direction that traders think is advantageous, it can help traders limit losses and protect profits.
4.1 The currency-based perpetual contract needs to be optimized
Most of the product targets are mainstream digital assets: The current currency-based perpetual contract products launched by digital asset exchanges still mainly target mainstream digital assets such as BTC and ETH. As the currency-based perpetual contract market becomes more mature, we look forward to further enriching the product categories of currency-based perpetual contracts to meet users’ investment needs for different digital assets.
Product design mechanism: The currency-based perpetual contract adopts the fund rate mechanism to anchor the contract price and the spot price. If the contract price is higher or lower than the spot price, the long or short side will be punished by interest rate. Compared with the tight price relationship established by spot and delivery contracts through maturity delivery and capital interest rate. The funding rate mechanism of currency-based perpetual contracts may not be able to avoid a significant deviation between the contract price and the spot price in the short term. We expect that digital asset practitioners can further enrich the pricing mechanism of currency-based perpetual contracts and strengthen the essential attributes of perpetual contracts for forward pricing of digital assets.
User protection measures: Currency-based perpetual contract products are similar to highly leveraged digital asset derivatives bound to spot indexes, and are high-risk investment tools. With reference to the traditional financial market, investors must meet the corresponding asset requirements and professional knowledge level before conducting two-way transactions and high-leverage investment activities. At present, the protection mechanism for primary users of digital asset trading platforms is not sufficient, and there is still much room for improvement. For example, the exchange can try to determine the leverage multiples that users can use for investment based on the assessed user’s capital scale and trading years, so as to protect the inexperienced junior users.
Comparison of open interest in currency-based perpetual contracts, source: tokeninsight.com; date of statistics: December 7, 2020
4.2 Future prospects of digital asset derivatives
TokenInsight data shows that since the beginning of the year, the trading volume of currency-based perpetual contracts with BTC and ETH as the target has repeatedly hit new highs. In recent years, digital asset derivatives have gradually enriched. From delivery contracts to perpetual contracts, every industry innovation will bring room for growth. BitMEX has become the leading digital asset contract exchange with currency-based perpetual contract products. Deribit has won the favor of professional investors by relying on professional quotation mechanism and rich option products, and has become the most successful digital asset options trading platform. The product innovation of digital assets will not stop. Multi-variety index derivatives, ETFs, and tiered funds based on digital assets may appear. We are optimistic that the derivatives market will become the main growth point of the digital asset market.
Changes in quarterly transaction scale of digital asset derivatives and spot transactions, source: tokeninsight.com
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