After FTX's collapse, cryptocurrency exchanges are now looking at derivatives.‍

Cryptocurrency exchanges are scrambling to fill the void left by FTX, which used to be one of the biggest derivative instruments for digital assets, while the cash market sees declining volume and liquidity.

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Other exchanges now have an opportunity to capture market share or break into a market that is currently controlled by Binance, the largest crypto exchange in the world, as a result of FTX's death. Some exchanges had shown interest in buying FTX's US derivatives platform, while others simply wish to establish entirely new derivatives exchanges. In the wake of several crypto lenders, like Genesis Global Holdco LLC, failing, traders are seeking for alternate ways to leverage their investments.

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In particular for regulated businesses, there is a glaring gap in the market for cryptocurrency derivatives, according to Tarun Chitra, partner at cryptocurrency venture fund Robot Ventures. Several businesses have appeared on both the centralized and decentralized sides to fill this void, as we have seen.

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Derivatives platforms are one of the only places left where traders, especially institutional trading desks, may lever up their transactions in cryptocurrency because lenders like Genesis and Voyager Digital Inc. have filed for bankruptcy. Because derivatives give institutions the chance to trade long-short, express their opinion, and hedge their portfolio, David Martin, head of institution coverage at technology platform prime brokerage FalconX, claims that they prefer these products over spot trading.

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Since January 2022, derivatives have accounted for more than 60% of all trading volumes across cryptocurrency exchanges, including spot trading, according to statistics gathered by Trade Algo

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The cash-settled futures contracts also shield hedge funds, who frequently trade on US-based platforms like CME Group Inc., from more complex crypto-specific issues like custody.

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Even after Binance, for instance, announced that it was lowering the maximum leverage a user can use to trade futures and options to 20 times from 100 times, some offshore derivatives exchanges continue to provide a maximum leverage of 100 times for specific cryptocurrencies. 

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In an interview, Antonio Juliano, the CEO and founder of distributed exchange dYdX, said that the disruption in the cryptocurrency market "opens up quite a few possibilities in the market since both FTX's literal share of the market not existing at all any more, and also one‘s brand as an individual who was building unique ideas in the space now clearly being the case."

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The FTX collapse in November directly benefited dYdX and its competitors like GMX, who also experienced an increase in trading volume.

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Exchanges like Blockchain.com and Gemini are interested in purchasing FTX-owned LedgerX, which is registered as a derivatives exchange with the US Commodities Futures Trading Commission, now that FTX is no longer around. As this is going on, Wintermute, one of the biggest cryptocurrency market makers, recently declared that it is "seriously" thinking about starting a derivatives exchange for high frequency traders. Moreover, ex-executives of Jefferies Financial Group Inc. have just created a new cryptocurrency exchange that will eventually add derivatives. All of this is taking place as an investigation into Binance's Australian derivatives business is ongoing.

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Exchanges like Blockchain.com and Gemini are interested in purchasing FTX-owned LedgerX, which is registered as a derivatives exchange with the US Commodities Futures Trading Commission, now that FTX is no longer around.

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As this is going on, Wintermute, one of the biggest cryptocurrency market makers, recently declared that it is "seriously" thinking about starting a derivatives exchange for high frequency traders. Moreover, ex-executives of Jefferies Financial Group Inc. have just created a new cryptocurrency exchange that will eventually add derivatives. All of this is taking place as an investigation into Binance's Australian derivatives business is ongoing.

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With derivatives, traders can profit from market volatility while controlling risk in volatile market conditions. According to Luuk Strijers, the chief commercial officer at derivative markets exchange Deribit, which recently announced its plan to introduce futures contracts to facilitate Bitcoin volatility trading, more investors are seeking market exposure, especially in derivatives amid the price volatility. Deribit has just announced this plan.

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Our volume declines during sideways market conditions, according to Strijers. "Yet, markets can move both up and down. People frequently employ alternatives in those situations, which is obviously to our advantage.

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