Derivative transactions represented by futures contracts are becoming a new battleground for trading platforms.
According to Babbitt's incomplete statistics, nearly 40 contract transactions have been opened in the existing cryptocurrency trading platform. Except for BitMEX, BFX.NU and OKEX, most trading platforms choose to enter the game after 2018. Just over halfway through 2019, the number of trading platforms for the new online contract business has reached more than 20, exceeding the sum of the past five years.
- Viewpoint | By the end of 2020, encrypted derivatives or 20 times the size of the spot market
- How does the derivatives market fight on the platform of the 5-year-old exchange?
Those who have not launched the contract trading business are also eager to try, and exchanges such as Binance, CoinEx and FCoin have already been tested.
Not long ago, KuCoin, a popular overseas overseas, announced that its self-developed digital currency derivatives trading platform KuMEX was officially launched, and the first batch of open bitcoin perpetual contract XBTUSDM, the maximum choice of 20 times leverage.
The contract trade war is on the verge of a hit.
In the face of the old-fashioned powerhouses such as BitMEX, the strength rookies such as OKEX and Huobi Global, and the players who are highly anticipated by Binance, is KuCoin ready to respond? Babbitt recently interviewed KuCoin founder and CEO Michael Gan , let us see how KuMEX opens its way to the fast-rising digital currency derivatives market.
Babbitt: As early as a few years ago, the volume of global futures exchanges or derivatives exchanges in traditional financial markets was already 17 times that of spot transactions. So, what is the current cryptocurrency derivatives market compared to the spot market volume? What is the future market space?
At present, the cryptocurrency derivatives market is only about half the size of the legal currency transaction + currency trading market, and the monopoly phenomenon is very obvious. Globally, the vast majority of transactions are concentrated in the BitMEX family. As cryptocurrencies such as Bitcoin are gradually accepted by the mainstream market, especially for institutional investors, contract products will become an important part of the investor's portfolio because of their own leverage and short-selling risk. I think that the cryptocurrency contract market in the past year or two is expected to exceed the spot market. In the long run, it is at least 10 times the size of the spot market .
Babbitt: Before 2018, among the top 10 exchanges, only BitMex and OKEx opened futures trading. After the second half of 2018, Huobi Global, Gate, Bibox, MXC, etc. have launched online contract trading business. In addition, FCoin, Binance and other exchanges are in preparation. In your opinion, why is the derivatives business suddenly hot after the end of 2018? What are the considerations for KuCoin's contract business at this time?
In addition to the broad prospects of this market, another important reason is that the market has gradually turned bears since the beginning of the year. The spot market has gradually shrunk as the currency price has fallen, losing the money-making effect. The contract products have been leveraged and short-selled. Users create more revenue.
We actually started the contract product project very early, because KuCoin's vision is to be a national exchange. For this reason, we hope to give users the most abundant trading options. This month, we have launched the legal currency OTC and the contract KuMEX, which have formed a better ecological closed loop with the spot.
When polishing the contract products, there were two choices at the time. One was to buy a contract product framework from the market, and to take back the minor repairs and change them. You can go online with a layer of skin. At present, many exchanges do this. The advantage of this choice is that it is fast and helps to quickly seize the market. Another option is to develop independently, build the underlying framework from scratch, and write api documents. The speed is definitely slow, but we consider that the risk of contract products is huge, a small bug may be It causes great losses to users. Independent research and development can ensure that we understand every detail of the product and minimize the risk. For this reason, we insist on using more time to polish the products. The online time has also been pushed from April and May. It is July. After the launch on July 8, we received a lot of positive feedback from users. We believe that it is necessary to make the foundations clear when selecting key strategies. This is responsible for the users and for each member of the team.
Babbitt: There is a view that due to the high-frequency trading nature of the contract, it can contribute much higher commission income to the platform than the spot transaction. Is the original intention of KuCoin's online contract platform also here?
In order to survive, the exchange must have its own internal hematopoietic capacity in addition to relying on external financing. At present, the handling fee is still one of the most important sources of income for the exchange. I think it is important to make money because money can guarantee the continued operation of our platform, but it is never the original intention of us to do one thing.
For example, KuMEX, we will spend more energy on the product polishing, I hope that he is a fair and professional contract platform, and will not allow users to suffer additional losses due to "pin" and "plugging the network cable". We believe that if the product is ready, it will naturally be recognized by the user and earn money. This is the correct way of thinking. Rather than developing a product, I think about how to get more money from the user's pocket, which is counterproductive. Babbitt: KuMEX is a perpetual contract, not a delivery contract. Why? How to look at the development trend of the two?
At the product level, perpetual contracts are technically more complex than delivery contracts, but globally, perpetual contracts in cryptocurrency derivatives are more popular than delivery contracts. Compared with the delivery contract, the perpetual contract has the characteristics of no adjustment, and the price is closer to the spot, which is more suitable for risk hedging. These two contracts complement each other and can meet the needs of some users.
Babbitt: In the face of homogenization competition in the derivatives market, how does KuCoin and these many exchanges open up?
Compared to the existing contract platform, KuMEX has the following advantages:
1. More Fair : We introduced a more fair index price computer system to better avoid the “pin” problem. KuMEX's bitcoin spot index price tracked six Coinbase Pro, Bitstamp, Kraken, Gemini, Liquid and Bittrex. The exchange's bitcoin spot price is more rigorous than most exchanges tracking only three to five, avoiding the "pins" because of insufficient trading depth, or the price fluctuations of one or two spot exchanges causing users' contracts. Was expelled. In contrast, OKEx currently anchors five exchanges (and one is its own spot exchange), with four coins anchored and three BitMEX. The plunge in bitcoin on May 17 this year led to the expiration of many contracts on BitMEX, because the spot price of bitcoin, one of the three exchanges, fell sharply. This can also reflect that if more exchanges are introduced, the fluctuation of the index price can be better controlled. 2. More reasonable bottom mechanism : KuMEX adopts the dual mechanism of benchmarking BitMEX insurance fund + automatic lightening. KuMEX's insurance fund is fully open and transparent and will be posted on the platform on a daily basis. This fund ensures that investors who are forced to close their positions will not lose money that exceeds their position margin. When the insurance fund is insufficient, many contract platforms adopt a socialized allocation mechanism, and the automatic lightening (ADL) adopted by KuMEX can effectively avoid the inflexibility of social distribution and the unfriendly to low-risk traders. 3. Lower threshold : The minimum amount of each contract of OKex and Firecoin is 100 US dollars. In order to let more ordinary investors become familiar with and participate in contract investment, KuMEX has greatly reduced the investment threshold, and the amount of each contract is only 1 dollar, more flexible and changeable. 4. National Fees : KuMEX will charge a negative fee for all Owners (Maker), the commission rate is -0.025%, and each player can earn a fixed fee, encouraging users to provide liquidity to the platform through pending orders. And earn a certain amount of handling fee as an incentive. Firecoin and OKex also have Maker negative fees, but for most ordinary users, there is still a formal fee. Only users who have reached a certain vip level can enjoy the negative handling fee. The Maker rebate provided by KuMEX is currently the highest among the mainstream exchanges. Babbitt: How many users are on the KuCoin platform? How many users can be converted to contract users? What are these user portraits?
KuCoin currently has 5 million global users in more than 100 countries and regions. Among them, we have more users in North America, Europe, Russia, Southeast Asia, South Korea and other places. Our internal goal is to convert at least 10% into contract users, because users can log in to KuMEX directly using the KuCoin account, and at the same time transfer KuCoin assets to KuMEX through internal transfer, everything is very smooth and convenient.
Babbitt: At present, the trading platform contract system has problems such as pin insertion, directed explosion, downtime, and data opacity. What are the countermeasures for KuMEX?
Our positioning for KuMEX is fair and professional, so we will ensure fairness and transparency through mechanisms such as index price mechanism, insurance fund and automatic lightening. The problem of downtime, I can hardly guarantee that it will not happen at all. After all, the technical strength is as strong as Ali. It is difficult to ensure that Taobao does not take the opportunity when it is double 11, but we will have better traffic monitoring mechanism and timely expansion. To ensure the user experience, in the recent wave of bitcoin market, I learned that many mainstream exchanges have experienced the phenomenon of accessing Caton, unable to log in or even crash, but KuCoin has done dynamic expansion in a timely manner, so it is not subject to influences. As for the directional explosion, this is not a question of technology but a value. Friends who are familiar with KuCoin know that one point that KuCoin has always insisted on is “do not be evil”, so we will never do the short-sighted behavior of directional bursting. .
Babbitt: What is KuMEX doing in terms of compliance?
On the contract side, we have a professional team that will oversee the compliance of KuCoin and KuMEX. We, as well as the employers behind us, IDG and Jingwei are very concerned about compliance. We believe this is one of the long-term competitiveness of the exchange. We have made positive progress in Europe and Australia, and we are actively cooperating with relevant departments in Japan and Hong Kong.
Babbitt: KuMEX promises to include 50% of the net fee for platform fees in KCS to encourage the release of gold to KCS users. KCS's current price has fallen to the bottom. Can this significantly increase the price of KCS?
With the recovery of KuMEX and KuCoin trading volume, KCS price will definitely respond. At the same time, we will also introduce KCS incentive reform in the third quarter of this year, giving KCS more rights. In addition, KCS is also used externally except BNB. One of the most comprehensive platform coins for scenario construction, we have a lot of KCS eco partners around the world, you can use KCS to get loans through ETHLend, real-time transfer of KCS through ADAMANT Messenger, purchase game props with KCS in PlayGame, and CoinPayments Cooperation, allowing 2.4 million merchants worldwide to accept KCS payments and more. These efforts will gradually increase the price of KCS. From a historical high point, KCS may still be in a relatively low position, but at the current price, we are also ranked 50-60 in CMC, and from the beginning to the present, KCS It has risen by about 400%, and our goal this year is to try to get KCS into the top 30 of the CMC.
Babbitt: Some people think that the development of cryptocurrency derivatives can greatly promote the entry of institutional users, and even the opportunity to lead the next round of bull market. What do you think?
The development of derivatives will have a positive effect, but as a die-hard powder of blockchain technology, I think that it can promote the long-term development of the industry, or the release of killer applications or the introduction of major state supervision.