← Markets Outlook
Loading summary
Transcript26 lines
- [00:00]
Laurent Poirot
We have to acknowledge that Asia is the center of the growth in the digital asset space. So it's quite natural to see Singapore basically pushing a new limit by bringing its listed per on a traditional exchange.
- [00:21]
Figure Representative
Break the cycle of exploitation. Break down the barriers to truth. Break into the next generation of privacy. Break free. Free to scroll without being monetized. Free from censorship. Free freedom without fear. We deserve more when it comes to privacy. Experience the next generation of blockchain that is private and inclusive by design. Break free with midnight visit midnight.networkbreak-free looking for the best way to unlock your crypto's liquidity? Whether you're funding a major purchase like a down payment on a home, investing in new opportunities or even buying more Bitcoin Figure makes it straightforward and transparent. Take out a crypto backed loan in the Figure app today.
- [00:57]
Andy Baer
I'm delighted to be joined by Laurent Poirot and head of strategy for derivatives at SGX Group. Laurent, it's great to see you.
- [01:05]
Laurent Poirot
Great for having me, Andy, thank you very much.
- [01:07]
Andy Baer
We had a case of the Mondays in the markets in Asia this morning where things started to weaken a little bit. The prevailing sentiment in at least the crypto markets had been that we had found a bottom here in New York. It was a case of the Sunday scaries. What was your reaction to how the markets opened on Monday morning in Asia?
- [01:26]
Laurent Poirot
Well, we used to see such price action during the weekends and now I would say things are normalizing. We had Black Fridays filling, we had week opening on Mondays. So maybe it's a sign that this market is becoming more institutional and it's still actually very sensitive to news. So market is trying to find a bottom, I guess a lot of attention to positioning, liquidation and positive signals. So. So I would say market is used to some form of volatility as well. Obviously. Also I would say post Thanksgiving liquidity may not be as strong as during normal market conditions. So we need to let things a little bit settling.
- [02:06]
Andy Baer
Many people may benefit from an overview of how SGX works. Its kind of reach into the domestic Singapore market and into the region is a little bit different from the way futures exchanges work in the United States and Europe. Maybe kind of zoom out across asset classes and you know, what are SGX's strong points and what kind of customers does it serve.
- [02:31]
Laurent Poirot
So SGX is positioned as a multi asset exchange. We have obviously securities market, but from a derivative point of view we are truly global as well as actually multi asset. So we have leadership position into the equities in regards of giving Access to markets that are still difficult to connect with such as China, India. But we are also giving access to very liquid market Nikkei because we started 40 years ago. We are also actually very strong in the commodities thanks with iron ore contract and in the currency. We have also some strong leadership in regards of dollar cns, dollar rupee, basically all large markets with some difficulty to access and this is basically the problem to try to solve for.
- [03:24]
Andy Baer
You recently made a big announcement and I think probably many market observers had wondered when SGX would enter into the digital asset marketplace. Let's share with the audience what that announcement was like and what you recently launched.
- [03:39]
Laurent Poirot
So last Monday we launched the first perpetual on BTC and eth. That's basically, basically on the back of an announcement we made in March in the US during FIA Poker. So we have finally delivered this well expected contract in Asia. I guess that was actually a missing part in the derivative landscape for Bitcoin and Ethereum. The launch has been well supported by the market. Maybe it was a positive signal that also we were sending to the community. And we have seen positive messages and support across the spectrum from native to trade five players to clearing members who have made the effort to be there on day one, as well as asset managers who are watching what we are providing because for them it might be a new tool actually to make use to start adopting the new asset class.
- [04:31]
Andy Baer
So perpetual futures and for viewers who aren't familiar, these are futures contracts that don't have an expiration date, that have settlement events periodically but have the benefit of not having to be rolled. They can be just held indefinitely. A crypto native special, probably a product class that was introduced to the rest of the world, at least broadly by crypto and widely widely used by retail and institutional traders in the crypto native space. It's not easy and I think with your regulatory structure with the MAS in Singapore, it could not have been easy to kind of leapfrog directly into perpetuals. Tell me what that process was like and at what point did the MAS start to try to understand what you were doing and begin to provide support?
- [05:19]
Laurent Poirot
You are right, perpetual futures are not very common on TradFi. But it's also fair to say that in the crypto native space, the first perpetual has been launched in Asia, right in Hong Kong with Bitmex. We have to acknowledge that Asia is the center of the growth in the digital asset space. So it's quite natural to see Singapore basically pushing a new limit by bringing actually listed perp on a traditional exchange as well so that perpetual contract have been existing on traditional exchange under different formats, often in the FX space you were referring to rolling spot contract, but here basically we didn't try to find new names, quite the opposite. Because we are very much playing the convergence between actually the two ecosystem and having actually a contract that is as close as possible to the most liquid ones in the native space will facilitate actually the convergence of the flow. Right. And the 2 ecosystem basically needs each other to consolidate the role of the asset adoption. So our discussion obviously has been across multiple stakeholders, starting with our regulator. But you know, Singapore has been supportive of the development of digital assets for quite a while. They started actually in 2020, then actually in June they came back with another set of regulation. So there is a vibrant community, a diverse set of players, we understand the asset class and it was on us I would say to do the technical work, make sure that we can manage such a new payoff on our trusted infrastructure in order actually for people to feel comfortable to gain access to the asset class while using a new payoff. But always in an environment that basically they know there will be sound risk management, they know their clearers will be there to help them managing actually their margin as well. So all in all you don't actually create new risk, you just focus on adopting a new asset class.
- [07:50]
Figure Representative
Looking for the best way to unlock your crypto's liquidity figure is exactly what you need. Being the largest non bank mortgage lender in the US with over $19 billion unlocked on their lending platform. Explore their industry low Crypto backed loans at 8.91%, interest rates at 50% LTV. They differentiate themselves by offering decentralized NPC custody which protects your crypto ownership in a segregated wallet. They've also recently launched liquidation protection which protects you from liquidation during large price drops. Whether you're funding a major purchase like a down payment on a home, investing in new opportunities or even buying more bitcoin.
- [08:26]
Laurent Poirot
Thank you.
- [08:26]
Figure Representative
Figure makes it straightforward and transparent. Visit their app or click our link below to take out a crypto backed loan with figure today.
- [08:33]
Andy Baer
So Lauren, let's take a peek under the hood. Maybe you can tell us how the contract works, when the funding events happen, what kind of discussions you had with your clearing partners and your fcms about supporting the contract like this. And then maybe talk a little bit about the benefits that users can receive by using this contract versus a traditional dated future.
- [08:58]
Laurent Poirot
The first point is obviously when you don't have a maturity, you are missing an easy exit point, right? So in the case you need to liquidate the position. How will you manage that liquidation event? And the truth is, when you look at how the native system operates, you've got liquidation every day, right? You have market players who have built a business model around providing the liquidity in the context of liquidation. And sometimes the liquidation can be deep and violent. Some of the time actually they are just normal, but this still happens. So you have basically special skills that have been developed to manage those liquidation event. So this is in regard of managing actually the lack of maturity. And then we also have some controls in regard of the exposure. That means typically, typically we are not turning our exchange into a crypto only exchange. We keep actually the diversity of the assets. So we try to bring actually the benefits of the asset class into the pool of what is already trading in order for our client members to be able to manage all the risk in one go. And if there is price event or liquidity event in one asset class, it doesn't destabilize the whole ecosystem, right? So we still operate with one single clearing fund. And this is very important because that means that we spend quite a bit of time in bringing all our clearing members in agreement when we launch actually this product. And that's why basically the launch is, I would say, pretty positive so far because we have already a community that is behind us. And then came actually the question of the funding rate. So in the native, Obviously standard is 3 times 8 hours. That is actually the type of cycles. Unfortunately we can't match such a cycle yet today. But you can't have it all, right? So we bring actually the trusted infrastructure, we bring the risk management. Unfortunately we had to make a trade off, but we have been working with the market makers, the liquidity providers, and we say, hey, if we come with only once a day funding rate, is it acceptable, is it manageable? And if you think about it, it provides some form of new strategies, right? Because you can enter into a Spotlight, contract over 22 hours and decide if you want to be exposed or not exposed to the funding rate. Right? So what is very key is with the liquidity being built, people have another tool actually to play with in regards of the other funding rate cycle. And if you look at the native space, you can see that not everybody is with three times eight hours, right? Some actually goes by the hour, some wants to go by the minute. So you have already a diversity. So the system basically is just a question of pricing, but this is basically how we start today. And so far it has been working.
- [11:42]
Andy Baer
Well, I'm glad You brought up the funding rate. One of the key metrics that people can watch or observers can watch about the crypto markets, especially when there's high retail participation and people who are using crypto native perps for exposure is observing those funding rates and seeing if those perps are trading at a premium or at a discount to what might be a theoretical rate. Do you expect that there will be enough activity and natural users of these perps that there'll be information in your funding rate calculations that might give observers a shot at thinking about where Bitcoin and ether might be going?
- [12:22]
Laurent Poirot
So this is obviously the million dollar question and, and we didn't know how basically the funding rate formation would happen, right? So the first four or five days I would say we had a very sticky funding rate. We could see that intraday we were in line with what was happening in the market. But because a little bit maybe of the novelty of the one day funding rate, ultimately it was still resetting to the usual one. They pay actually per 8 hour, right? So basically 3 BP for one full day. But since actually Monday evening session, so after 4pm Asia we have seen our funding rate starting moving much more aligned with the price action in other native. So that means people start taking position and start basically doing the relative value trade, right? You can't stay at 3bp per day if actually the overall market is flat, right? Is there is this 10% annualized arbitrage that people want to take advantage? Obviously when you launch a new contract you don't know how quickly this mechanism is going to set. And for what we have seen when it took less than five and a half days. Now you can look on Asia.com the funding rate being formed over the 22 hours a day.
- [13:39]
Andy Baer
I presume that your list of eligible collateral that your fcms are going to take are traditional collateral, right? So people trying to look at these relative value trades between the SGX perps and crypto native perps still have to support both positions. But still you think some people are finding pricing or trading opportunities to take advantage of there?
- [14:03]
Laurent Poirot
Yes, you are right. And you know, actually it's a fast moving space, right. And we have seen our client members now starting offering on ramp, off ramp type of solutions as well. So that gives them the opportunity to onboard new clients and be able actually to manage the collateral on their behalf. So while maybe one year ago the fact that actually we are still accepting traditional collateral was maybe a weakness, today it's much, much less. So the market is adapting and you can see that the capital can start flowing.
- [14:39]
Andy Baer
My understanding is the retail participation in futures markets is much broader than it is say here in the United States. Very much a securities broke brokerage culture for retail, with some exceptions, of course. Do you expect to draw in retail users who now can have a domestic regulated perp contract that they can use to express tactical views or to get, you know, kind of institutional price leverage on Bitcoin and ether?
- [15:05]
Laurent Poirot
Our contract is for accredited investors or professional investors only. So no retail retail per se for for the start.
- [15:14]
Andy Baer
And is that something you think might change or. I think probably what a lot of your institutional users would like is natural flow from as wide a universe or as wide a population as possible. Is that on the roadmap or are you going to kind of take a breath here now that you've got, you know, this kind of groundbreaking product off the ground?
- [15:34]
Laurent Poirot
I would say we need to proceed step by step. There are different reasons why retails are restricted to access such a contract today. There are different evolutions that will be happening in Asia and it must start actually more for ETF before derivatives. That could be maybe actually how retail adoption in other countries will be developing. In our case, we already see a strong demand by institutional investors. Right. So this is very much where we want to be today and how actually regulatory environment evolved in order to facilitate aggregation of the assets, making sure that we have all the disclosures so that retail investors actually can be managed like the existing asset class that they can access today. Asia. All in all, I think it was a study that was by consensus coindesk and protocol theory was highlighting that in the region more than 535 million adults are are users of cryptocurrencies already. This is a large population. Right. So this money basically is going to channel through institutional pipes and we will be there to serve the institutions.
- [16:50]
Andy Baer
Fantastic. Laurent, we wish you luck with the contracts. Congratulations on the launch and it's great to see you. Thanks for watching. This is markets outlook with CoinDesk. I'm Andy Baer.