For those who have been keeping an eye on how cryptocurrencies are progressing in legacy markets, you may recall some of the conversations surrounding when (or if) the SEC would approve a crypto-based exchange-traded fund (ETF). To no surprise, this day has yet to come – and for good reason. Despite all the progress we’ve seen within DeFi in the past year, there’s no denying this industry’s assets remain highly volatile.
To this end, we’re instead seeing companies capitalize on this volatility through the advent of derivatives and futures contracts. In the past few weeks, we’ve seen the launch of products like FutureSwap and Strike Protocol with established players like dYdX offering 10x perpetual leverage on Bitcoin.
Today, we saw institutional investors being offered a way to partake in these type of trades through the release of physically-settled ETH futures on ErisX.
— ErisX_Digital (@ErisX_Digital) May 11, 2020
“ErisX’s physically delivered futures contracts are the next step in building out our intermediary-friendly model for digital assets. Traded at and cleared through our CFTC regulated Designated Contract Market (DCM) and Derivatives Clearing Organization (DCO), our futures contracts trade alongside our spot market on an innovative and unified platform bringing price transparency and collateral efficiency.”
What’s to Know?
The introduction of ErisX’s ETH futures follows the rollout of Bitcoin futures in tandem with spot markets on Bitcoin, Bitcoin Cash, Ether, and Litecoin. Contracts have monthly and quarterly settlement dates and require the holder to either produce the commodity or take delivery from the exchange at maturity.
ErisX uses a central limit order book, providing traders with confidence that they will receive the best market price for an order which is paired with another party that has undergone extensive diligence with minimal counterparty risk and default risk.
Unlike other legacy investment vehicles, this type of future will require investors to get their hands on Ether, either through ErisX or at their own convenience. Regardless, this is an interesting stepping stone in getting larger traders to go beyond trading a derivative of the contract to actually having to acquire it.
How is This DeFi?
Let’s be very clear. This is not DeFi. Futures contracts with physical settlement are simply an indication that legacy markets are taking note of the growing demand for Ether and introducing new trading vehicles to accommodate that demand.
Regardless of whether or not institutional investors have ever heard of DeFi, products like this offer a way to dip their toes into the world of cryptocurrency without having to do a deep dive of setting up a Coinbase account or downloading MetaMask.
The thought is that in time, as more of these traders are exposed to the physical (well digital really) version of Ether, there will be more interest to investigate how it can be used, beyond that of an investment.
If one thing is for certain, we’re slowly seeing more onramps to crypto being established for audiences of all sizes and would like to think this bodes well for the future of Ether and crypto at large.
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Cooper is the Editor of DeFi Rate and an active contributor to leading DeFi media outlets like The Defiant, DeFi Pulse, and Bankless. He works with early-stage teams through Fire Eyes DAO to incubate governance models and grassroots community development. He is an ambassador to Set Protocol and an author of a weekly publication called Token Tuesdays. To stay up with Cooper, follow him on Twitter.