Latest / CRYPTO 101 / Ep. 672 Crypto Futures Unleashed: Inside Coinbase Derivatives with Boris Ilyevsky

Transcript

Ep. 672 Crypto Futures Unleashed: Inside Coinbase Derivatives with Boris Ilyevsky · CRYPTO 101

0:08
[SPEAKER_00]: All right, everybody.
0:09
[SPEAKER_00]: Welcome back to another action packed high caliber episode of the crypto one on one podcast.
0:14
[SPEAKER_00]: I am so excited for this episode.
0:16
[SPEAKER_00]: This is a big moment for those of us who have been following crypto for for any amount of time, you know, perps in America.
0:25
[SPEAKER_00]: derivatives on crypto in America.
0:28
[SPEAKER_00]: This is going to be a thing of beauty.
0:30
[SPEAKER_00]: We are bringing on Boris Ilyevsky who is the CEO of Coinbase derivatives exchange as well as the head of US markets there.
0:40
[SPEAKER_00]: Boris, how are you doing today and are you you sharing in the same level of excitement as I am?
0:44
[SPEAKER_01]: I absolutely am.
0:45
[SPEAKER_01]: Thanks for having me on, Bryce.
0:47
[SPEAKER_01]: I feel great.
0:48
[SPEAKER_01]: Good to be.
0:48
[SPEAKER_00]: Yeah, cool.
0:49
[SPEAKER_00]: No, so this is super monumental.
0:51
[SPEAKER_00]: And we're going to dive into to what you guys are building, but give us a high level on, you know, crypto meeting the moment.
0:59
[SPEAKER_00]: We just had, you know, over the weekend, a great
1:02
[SPEAKER_00]: You know, report from, you know, the SEC, the head of the SEC, talking about the new crypto policy, we're going to bring all markets on chain.
1:11
[SPEAKER_00]: We want to have Americans have the same access as everybody, no more offshore, bring it onshore, where are we at set the stage?
1:20
[SPEAKER_01]: So we're pretty excited to hear all of that stuff as well.
1:22
[SPEAKER_01]: And we've been working with the CFTC for the last couple of years to expand our US regulated futures franchise.
1:30
[SPEAKER_01]: Now, we started a couple of years ago,
1:33
[SPEAKER_01]: with regular monthly cash settled futures on Bitcoin, Ethereum, XRP, Solana came a little bit later as the new administration came in at some of those legacy issues were resolved, but we list a whole bunch of altcoin futures.
1:47
[SPEAKER_01]: And we've been working with them very collaborative, even in the prior administration to bring US style perpetual futures, but equally importantly to bring
1:58
[SPEAKER_01]: So this year has been a year of huge launches.
2:01
[SPEAKER_01]: We're super excited.
2:02
[SPEAKER_01]: The volumes we're seeing the uptake in retail interest in in the onboarding that that our affiliates are seeing and just the activity pick up tremendously.
2:13
[SPEAKER_01]: And we have all of the best liquidity providers, market makers.
2:18
[SPEAKER_01]: We're bringing together and outreaching to other third party brokers, not just Coinbase clients.
2:24
[SPEAKER_01]: and we're just open for business and we're seeing fantastic volumes over the last couple of months.
2:29
[SPEAKER_00]: I love it.
2:30
[SPEAKER_00]: How did we get here?
2:31
[SPEAKER_00]: It's kind of if we go back in time to call it, twenty-eighteen.
2:36
[SPEAKER_00]: You know, there was no options market on crypto where it was all offshore on Deribit and, you know, fast forward, twenty-twenty-twenty-twenty-twenty-five, you know, options on Ibit, you know, Ibit-twenty-twenty-twice.
2:48
[SPEAKER_00]: Like, just the market structure has come a long way for products and derivatives and so
2:53
[SPEAKER_00]: You know, Coinbase acquired, then, dare a bit for three billion dollars.
2:57
[SPEAKER_00]: Recently, we could talk about that maybe after, but, you know, how did we get in such a mess where America was completely annexed?
3:05
[SPEAKER_00]: And now, who or what flipped the switch?
3:08
[SPEAKER_00]: I mean, maybe it was just President Trump's mandates and crypto in America.
3:11
[SPEAKER_00]: Let's do it.
3:12
[SPEAKER_00]: Find out how.
3:12
[SPEAKER_00]: Like, paint is the picture.
3:14
[SPEAKER_01]: I mean, I think that's been a huge, huge part of it, although I bit, and I bit options, they've been around now for a while and even before the current.
3:22
[SPEAKER_01]: administration.
3:22
[SPEAKER_01]: Now that's near and dear to my heart because my career started in US equity options over twenty five years ago at this point.
3:30
[SPEAKER_01]: But I think it's just a progression of time in the growing acceptance of crypto.
3:35
[SPEAKER_01]: I think the launch of spot Bitcoin and then Ethereum ETFs had a huge impact on what ended up happening in the derivatives market.
3:43
[SPEAKER_01]: Just the amount of adoption, the exposure that that allowed to the masses, not just the crypto natives, not just
3:50
[SPEAKER_01]: Coinbase clients and others, but just made crypto ubiquitous.
3:54
[SPEAKER_01]: And those ETFs are some of the most successfully ETFs that have ever launched in the U.S.
3:58
[SPEAKER_01]: equity markets.
3:59
[SPEAKER_01]: And I think they just opened up the floodgates to additional innovation.
4:03
[SPEAKER_01]: Now I got to Coinbase with a team from a company called Fairx.
4:08
[SPEAKER_01]: And that was founded about five years ago.
4:10
[SPEAKER_01]: We all joined here about three and a half years ago with a mission to bring regulated crypto derivatives to the U.S.
4:17
[SPEAKER_01]: now.
4:18
[SPEAKER_01]: want to give some credit to, of course, the CME, the big US futures exchange that's been around.
4:23
[SPEAKER_01]: They've been out there with Bitcoin futures for quite some time, but we've taken it so many steps further over the last couple years.
4:29
[SPEAKER_01]: And frankly, a lot of it has been trying to fit the perpetual style futures model of the concept of twenty four seven trading that's been catching a lot of steam in traditional.
4:42
[SPEAKER_01]: U.S.
4:42
[SPEAKER_01]: equities markets and bringing it to the U.S.
4:45
[SPEAKER_01]: futures regulated space.
4:46
[SPEAKER_01]: And it's been a lot of work, a lot of collaboration from partners of ours, including our friends at Noodle Clear, the clearinghouse that we use, big market making firms like Virtu and and jump in others and FCMs like A.B.
4:59
[SPEAKER_01]: and Amro and Wedbush a lot of traditional finance firms that have really helped us get to where we are today.
5:05
[SPEAKER_01]: And we're hoping to continue to innovate and bring that forward.
5:08
[SPEAKER_00]: Absolutely.
5:09
[SPEAKER_00]: And, you know, it's great, great color.
5:12
[SPEAKER_00]: And it's something that I've been thinking about a lot is, you know, if you are an institution, if you're a managing, you know, millions or billions of dollars, you kind of have been able to get leverage some way on the market for your clients through structured credit products, private equity, like a bunch of different ways.
5:28
[SPEAKER_00]: But really the main story here, I think at least, is retails access now to leverage on Bitcoin.
5:35
[SPEAKER_00]: easily safely, securely, and hopefully altcoins, which I'll want to get into with you and see if there's, how do we pair the two in our mind with potentially the regulations coming down with clarity and bifurcating the mark between CFTC versus SEC, but I want you to riff a little bit on just this retail moment for crypto leverage.
5:55
[SPEAKER_01]: So yeah, I'm glad you brought that up because I should have also said, was that one of the innovations that we brought to the market, which in many ways is very simple one.
6:04
[SPEAKER_01]: But we took the US traditional future space, which has always been designed for large institutions as you point out.
6:12
[SPEAKER_01]: Contracts have had very large, notional volumes.
6:15
[SPEAKER_01]: I think the incumbent exchanges for both traditional future products and even crypto products have always sort of been geared towards very large players.
6:25
[SPEAKER_01]: flagship Bitcoin contract at the CME has an optional value of a half a million dollars.
6:31
[SPEAKER_01]: So what we did is we sized our futures products for the retail market.
6:36
[SPEAKER_01]: Now, unfortunately, we couldn't do what is quite prevalent offshore, which is that you don't necessarily have contract sizes.
6:44
[SPEAKER_01]: You can just sort of trade in USDC or US dollar terms and say, you know what?
6:48
[SPEAKER_01]: I'd like to trade two hundred dollars worth a thousand dollars worth.
6:53
[SPEAKER_01]: In the U.S.
6:53
[SPEAKER_01]: because of the existing infrastructure, you can have to stick to contract notionals based on multipliers.
6:59
[SPEAKER_01]: So what we did is we launched what we called our nanobitcoin futures and our nanotheraim futures, which were sized at one hundredth of a bit coin in size and one tenth of an eighth.
7:11
[SPEAKER_01]: So even now with the with the higher asset values,
7:15
[SPEAKER_01]: our Bitcoin contract, the one that trades most actively, is about twelve hundred dollars.
7:22
[SPEAKER_01]: And with leverage, it really made it accessible to much smaller retail clients who can really size the amount of trade, exposure they want to have, the amount of risk they want to be able to have.
7:34
[SPEAKER_01]: And I think that's really open the market up for retail investors in the US, not only for traditional futures players on the retail side, but also
7:45
[SPEAKER_01]: hopefully sort of onshore any retail investors who felt that they needed to whether it's by VPN or some other means sign on to non-US exchanges and we basically provide a CFTC regulated you know completely legal it's kind of a funny thing to have to say that way to access our futures products and and it's been amazing and then in terms of alt coin futures we were the first US futures exchange to list
8:13
[SPEAKER_01]: not only lightcoin, Bitcoin cash, but also those futures, stellar futures.
8:18
[SPEAKER_01]: We list over twenty products at this point.
8:20
[SPEAKER_01]: And what we do is we keep going down the line based on market cap, price history.
8:27
[SPEAKER_01]: We do have certain limitations.
8:30
[SPEAKER_01]: We want to list the next fifty, the next one hundred products.
8:34
[SPEAKER_01]: But between working with our partners, with the regulators, we have to be a little bit more, you know, judicious in how we effectively qualify
8:42
[SPEAKER_01]: new products for listing.
8:44
[SPEAKER_00]: Yeah, very interesting.
8:45
[SPEAKER_00]: That was, yeah, going to be one of my questions actually that I had was about sort of the listing process for for these products and it sounds like there's a few things and it's almost like what a private wealth advisor might look for in an ETF that they're going to solicit to their clients or whatever.
9:01
[SPEAKER_00]: It's like a
9:01
[SPEAKER_00]: It's got to have a lot of volume, it's got to have a sufficient mark cap at liquidity, no scams, good quality stuff, and you've got to prove that over time.
9:10
[SPEAKER_00]: There's got to be a little bit of a lindi effect, and that's why I talked about some of these coins that have existed and have had good long reputations.
9:18
[SPEAKER_00]: They might actually have some resurgence because
9:21
[SPEAKER_00]: of their their reputation and their stability and sometimes these these hot new things they they come on the market and they they go they suck in a lot of liquidity from traders very quickly but then the long-term sustainable flows are kind of excluded from from those newer things but I do want to oh yeah go for it I was just going to say that we're always on the lookout for the next assets to list we we look at together with our clearinghouse partner and together with our futures commission merchant partners the clearing firms
9:50
[SPEAKER_01]: that support liquidity providers.
9:52
[SPEAKER_01]: And we look at things like, has the coin been around for a certain period of time?
9:58
[SPEAKER_01]: Is there enough spot volume, literally daily turnover?
10:04
[SPEAKER_01]: What is the distribution of ownership?
10:06
[SPEAKER_01]: Is it sufficiently distributed?
10:08
[SPEAKER_01]: Is there any kind of concentration risk that our clearing members would potentially care about?
10:15
[SPEAKER_01]: And then once we, you know, I think with time,
10:19
[SPEAKER_01]: and with appreciation that we've seen in asset prices, eventually more and more crypto assets will qualify.
10:27
[SPEAKER_01]: We're definitely anxious to expand our products week.
10:30
[SPEAKER_00]: Yeah, and that's awesome to hear.
10:32
[SPEAKER_00]: And that's what, for my purview, the market once, as somebody who's very, very involved.
10:38
[SPEAKER_00]: But I want to go back to this concept of bringing capital back on shore, which is a huge part of the current administration.
10:45
[SPEAKER_00]: Therefore, the current narrative, the current capital structure of flows, money's coming back on shore for crypto companies, period.
10:54
[SPEAKER_00]: How do we quantify that?
10:55
[SPEAKER_00]: Is there any level of quantifying for derivatives like how much is out there that is not trading on Coinbase exchange that might soon?
11:07
[SPEAKER_01]: For sure.
11:08
[SPEAKER_01]: And I think that the easiest way to compare.
11:13
[SPEAKER_01]: And this is something as you might imagine.
11:15
[SPEAKER_01]: We look at very closely also because we also operate a non-US purpose exchange.
11:24
[SPEAKER_01]: that is growing quite a bit recently.
11:27
[SPEAKER_01]: As you mentioned before, we recently acquired, we haven't yet closed, but we've acquired the premier crypto options exchange.
11:36
[SPEAKER_01]: And so what we look at is the amount of notional that's created out there by, of course, exchanges like Binance and Bybit and OKX.
11:45
[SPEAKER_01]: We look at the total universe of crypto futures volumes in the US, which frankly primarily created at CME.
11:52
[SPEAKER_01]: and Coinbase.
11:53
[SPEAKER_01]: And as we see our market share, not only of the US market grow, which has reached some records over the last few weeks, as we see our open interest grow, it's one way for us to measure the hopefully not just the shift of activity and capital from offshore to the United States, but even just the growth of the overall pie, because I don't believe we're just seeing traders that are saying great, I can now trade perpetual,
12:22
[SPEAKER_01]: futures in the U.S.
12:23
[SPEAKER_01]: I think we're seeing brand new participants who didn't quite understand or feel comfortable with traditionally designed monthly futures contracts and also weren't necessarily out there on the VPN trying to access offshore exchanges.
12:40
[SPEAKER_01]: So I think that combination is one of the reasons why we've seen so much uptake and the expansion of the number of users that have tried our product and we're trying to meet
12:50
[SPEAKER_01]: that demand right now.
12:51
[SPEAKER_01]: We've just listed the Bitcoin and Ethereum perpetual style futures.
12:55
[SPEAKER_01]: We've just announced we're launching Solana and XRP perpetual style futures in just about a week and a half and we're hoping to continue expanding that suite.
13:06
[SPEAKER_00]: Yeah, and I think, you know, you mentioned Fairx was the name of the company I believe was that acquired by Coinbase, right?
13:13
[SPEAKER_00]: That's correct.
13:13
[SPEAKER_00]: So, you know, I think even just having the success of Coinbase and that name brand and now it's an S&P five hundred company and you always see Brian Armstrong all over the world, you know, in such a positive light.
13:26
[SPEAKER_00]: And so now we've got
13:28
[SPEAKER_00]: no longer, you know, an offshore crypto derivatives market.
13:32
[SPEAKER_00]: It's on shore and it's really thriving.
13:35
[SPEAKER_00]: These perpetual futures are very interesting.
13:37
[SPEAKER_00]: But I also want to talk about options because options are another way that everybody else has been able to get access to leverage on the crypto market, except retail Americans.
13:47
[SPEAKER_00]: And that's a big piece of the pie.
13:49
[SPEAKER_00]: And not even just retail Americans, but on shore, you know, funds that don't want to set up offshore structures or, you know, work around
13:57
[SPEAKER_01]: the the the the bands or whatever so yeah so happy to talk about that and obviously I bit options have been quite successful the distribution advantage there is is definitely real because of our I think sometimes odd bifurcated regulatory structure there's a lot more securities accounts in the U.S.
14:21
[SPEAKER_01]: and that companies like Schwab and Fidelity and Robert Hood and others and there's not as many
14:27
[SPEAKER_01]: futures accounts.
14:28
[SPEAKER_01]: Having said that, options on futures are definitely in our roadmap.
14:34
[SPEAKER_01]: That's something that we're hoping to do potentially as soon as next year.
14:37
[SPEAKER_01]: I think we've been very, very focused on sort of the core aspects of our business.
14:42
[SPEAKER_01]: Twenty four seven has been a huge multi-year effort.
14:45
[SPEAKER_01]: Bring perpetual futures was the next one.
14:47
[SPEAKER_01]: I think options are hugely exciting frontier.
14:51
[SPEAKER_01]: We've obviously entering into that business with Derbitt.
14:54
[SPEAKER_01]: Although I think for the near term,
14:56
[SPEAKER_01]: That will remain a non-US business.
14:59
[SPEAKER_01]: In the US, we're very much looking forward to regulatory clarity.
15:04
[SPEAKER_01]: I think it's getting better and better every single day.
15:07
[SPEAKER_01]: We'll definitely work together with the regulators, both the CFTC and the SEC, depending on which part of Coinbase it touches, to figure out what is the best way to continue to grow our derivatives presence.
15:20
[SPEAKER_01]: I think the one very straightforward thing that we're hoping to accomplish
15:25
[SPEAKER_01]: is options on futures.
15:26
[SPEAKER_01]: Options on futures are not, frankly, a very novel concept.
15:30
[SPEAKER_01]: As our slate of perpetual style futures continues to grow into next year, ultimately, I hope to introduce options on futures.
15:39
[SPEAKER_01]: It's not anything that's happening in the next couple of months, but it's something that's going to happen very soon.
15:44
[SPEAKER_00]: And then just to kind of paint a picture for listeners, is that something that's going to be easily accessible on your Coinbase app?
15:52
[SPEAKER_00]: Or are you going to have to spin up new separate accounts, go through separate qualifications, and so on?
15:57
[SPEAKER_01]: So for options on futures, it should be available for any FCM that allows access to Coinbase derivatives.
16:05
[SPEAKER_01]: So whether you're a Coinbase client and coming in through the Coinbase financial markets, futures commission brokerage,
16:13
[SPEAKER_01]: or if you're coming in through many of our partners like weble and others, as long as they allow access to options on futures, they should be able to give everybody access to options on crypto futures as well.
16:26
[SPEAKER_01]: And it should not be any different set of qualifications than whatever user might have to do and sort of qualify for regular options.
16:35
[SPEAKER_01]: There have been options on futures offered in the US for quite some time for the standard sort of S&P and NASDAQ and
16:41
[SPEAKER_01]: very traditional commodity products and I think that when we start offering those on crypto futures in terms of the options on future structure, I think it'll be a pretty straightforward mechanism.
16:52
[SPEAKER_01]: Interesting.
16:54
[SPEAKER_00]: What has to happen in order for that to kind of happen?
16:57
[SPEAKER_00]: Is there NFA exemptions you guys need?
17:01
[SPEAKER_00]: Are there any big asks that you're looking for from certain commissions in order to expedite this process?
17:09
[SPEAKER_00]: Like, if they're out there listening to crypto one-on-one and trying to get smart on this stuff, you've got the floor.
17:14
[SPEAKER_00]: What are some big asks from the CEO of a coin-based or of his exchange?
17:18
[SPEAKER_01]: So in many ways, it's just me and my team moving as quickly as possible.
17:24
[SPEAKER_01]: I think that the regulators, CFCC in particular, has been quite collaborative.
17:29
[SPEAKER_01]: These are not easy things.
17:32
[SPEAKER_01]: But I think we have a pretty fantastic work in relationship with the staff there.
17:37
[SPEAKER_01]: And we've been sort of hand in hand with them all along the way.
17:42
[SPEAKER_01]: And I think for options on futures, honestly, it's as quickly as we can move.
17:47
[SPEAKER_01]: I believe we'll be able to offer those options on futures.
17:51
[SPEAKER_01]: There's other types of options, obviously options on spot, other potential things that we could do.
17:58
[SPEAKER_01]: Those will require a little bit more regulatory clarity, but I think what we have in mind, ultimately is potentially offering options on our perpetual style futures.
18:10
[SPEAKER_01]: And I think for that, I think we do actually have all the regulatory
18:14
[SPEAKER_01]: clarity that that we need already and we'll continue to work with the regulators but frankly you know it's it's as quickly as we can make it happen we're going to make it happen.
18:27
[SPEAKER_00]: All right, we need more people there working on do you then more more devs more quans.
18:32
[SPEAKER_00]: No, I want to kind of pivot the discussion a little bit to some of the the decentralization ethos of crypto and I saw again Brian Armstrong recently was talking, I don't know if it was on earnings call, I think it was or maybe a podcast about arrow drone and
18:46
[SPEAKER_00]: kind of bringing on decentralized exchanges as part of the engine and the matching engine for just normal trade.
18:55
[SPEAKER_00]: So you're on Coinbase.
18:56
[SPEAKER_00]: You don't know if you're necessarily executing on a centralized matching engine or a decentralized one, you're just getting the best price fastest experience, best settlement and so on and so forth.
19:07
[SPEAKER_00]: Is there any element of that, the DeFi component in the business that you're particularly working on?
19:13
[SPEAKER_01]: So not yet.
19:15
[SPEAKER_01]: And that's
19:17
[SPEAKER_01]: That's one of those things that I think will continue to be something that we strive for to bring decentralization where we're needed, we're desired, we're constantly looking at the competition, what they're doing.
19:32
[SPEAKER_01]: I think that in the near term, it hasn't prevented us from growing the business and we've seen fantastic results with our current model.
19:43
[SPEAKER_01]: But I do think that there will come a time
19:45
[SPEAKER_01]: specifically for crypto derivatives, perpetual style products, where liquidity can be enhanced, participation can be enhanced from certain defy protocols.
19:57
[SPEAKER_01]: I think there will need to be a little bit more regulatory clarity and how clearing works in how these mechanisms function in the current US regulatory regime.
20:11
[SPEAKER_01]: But I would also say that it hasn't been
20:13
[SPEAKER_01]: an impediment.
20:14
[SPEAKER_01]: I think that in terms of giving our clients access to as many new products as possible on the spot side and being able to take advantage of defy particles there, I think that's a huge growth area that Coinbase is extraordinarily focused on.
20:28
[SPEAKER_01]: On the regulated US derivative side, right now, frankly, our biggest goal is to bring crypto as collateral to US futures.
20:38
[SPEAKER_01]: We recently announced
20:40
[SPEAKER_01]: an extension of our clearing partnership with Notal Clear and a goal to bring stablecoins USDC in particular as futures collateral.
20:51
[SPEAKER_01]: And not only will that take advantage of the legislation that just passed with regard to stablecoins,
21:02
[SPEAKER_01]: potentially the upcoming legislation on crypto market structure overall.
21:06
[SPEAKER_01]: But it will help build on what we've done already with twenty four seven futures.
21:11
[SPEAKER_01]: It will continue to expand access to other participants, other clearing firms, other brokers that currently aren't able to take advantage because there's still no way to move fiat over the weekend.
21:23
[SPEAKER_01]: We've done an enormous, you know, amount of we've achieved an enormous amount of progress.
21:29
[SPEAKER_01]: been able to open up trading on Saturdays and Sundays.
21:32
[SPEAKER_01]: For the first time on any US futures exchange in any product, but being able to allow use of stable coins as collateral will introduce more liquidity, more clients, and frankly, more products to that product suite.
21:50
[SPEAKER_00]: about to have a money finally at the speed of life, uh, not closed on the weekends.
21:55
[SPEAKER_00]: It's like, it just, I mean, to me, you know, a millennial.
21:58
[SPEAKER_00]: I'm just like, why are banks closed in the weekends?
22:00
[SPEAKER_00]: Why doesn't the mail go on the weekends?
22:01
[SPEAKER_00]: This is, you know, capitalism solves this.
22:04
[SPEAKER_00]: Let's, you know, let's incentivize this.
22:05
[SPEAKER_01]: And frankly, it's great to see that happen in traditional finances, well, the news about equity trading
22:12
[SPEAKER_01]: going to twenty four by five people starting to talk about uh... weekend trading and and i think people are finally and not just people but financial institutions everybody's finally embracing uh... would crypto is forcing everybody to sort of recognize which is there's no reason to stop uh... on weekends and and people who want to have an opinion uh... you know uh... but their money with her mouth is uh... being able to hedge uh... being able to just transact
22:40
[SPEAKER_01]: should be able to do so, twenty four seven.
22:43
[SPEAKER_00]: Yeah, it is interesting.
22:44
[SPEAKER_00]: This is something that I I didn't really think about until right now, but I listened to a snippet of a podcast with Jamie Diamond.
22:49
[SPEAKER_00]: He was talking about like in the two thousand eight financial crisis like, you know, kind of navigating that and he knew he just had like one weekend or something to like get this deal done.
23:00
[SPEAKER_00]: It was like his birthday weekend and so
23:04
[SPEAKER_00]: He was like, if it wasn't for that weekend, like, you know, the market opens the next day.
23:08
[SPEAKER_00]: And, you know, the fact of the market has these big closing periods actually allow things to get done in the background.
23:14
[SPEAKER_00]: So maybe this is, you know, literally two sides to every coin, I guess.
23:19
[SPEAKER_00]: And for sure, it's both ways for sure.
23:22
[SPEAKER_00]: But I like that the price discovery could happen kind of twenty four seven three sixty five.
23:26
[SPEAKER_01]: There are now, I mean, long weekends right now on Saturday and Sunday.
23:30
[SPEAKER_01]: when there are world events happening and you see crypto moving in terms of US regulated derivatives where the only game in town and we've seen record volumes because of geopolitical events that have happened that have made crypto move because it's the one thing that's currently open but as much as we enjoy that that sort of exclusivity right now and we're trying to capitalize it for sure.
23:54
[SPEAKER_01]: We're also frankly quite
23:57
[SPEAKER_01]: quite happy to see the rest of the industry traditional finance other assets come to twenty four seven because it I think it it's building the case of of crypto underpinning the new financial system
24:08
[SPEAKER_00]: Yeah, and that's exactly kind of one that I wanted to pivot to next was this concept of tokenization.
24:15
[SPEAKER_00]: This is a big word that people are still trying to wrap their minds around and it's been, it's been talked about for a long time, but it finally feels like it's meeting its moment.
24:24
[SPEAKER_00]: Could you kind of take us through this idea of tokenization?
24:27
[SPEAKER_00]: Why is it such a big idea?
24:29
[SPEAKER_00]: And then we'll kind of double click on things that you guys are directly working on or planning for.
24:35
[SPEAKER_01]: Sure, so I can't comment on exactly what we're planning for or working on.
24:41
[SPEAKER_01]: I know I'm so great.
24:43
[SPEAKER_01]: Public company.
24:44
[SPEAKER_01]: I can't say that tokenized equities are priority for us.
24:48
[SPEAKER_01]: Absolutely.
24:49
[SPEAKER_01]: I think that the reason why everybody's excited about tokenized equities is is a combination of being able to trade US equities twenty four seven.
25:01
[SPEAKER_01]: It's the ability to bring
25:03
[SPEAKER_01]: new issuers new companies that may wish to take advantage of blockchain technology for transferability for equity raising and other purposes and it's something that blockchain we think is uniquely capable of improving upon compared to the traditional process by which money is raised and investors are exposed to new opportunities so we think that's a that's a huge opportunity out there to be to be seized and
25:33
[SPEAKER_01]: You know, it's also the usability of equities.
25:38
[SPEAKER_01]: Equities are great things and you can buy them, you can sell them, you can trade them on margin, you can borrow against them.
25:46
[SPEAKER_01]: But they are sort of still stuck in that traditional finance box and be able to take them on chain, be able to use them as collateral
25:58
[SPEAKER_01]: elsewhere to move them around a little bit more freely to see where blockchain can take and goodies.
26:05
[SPEAKER_01]: I think that's a hugely exciting prospect for us and I don't know at this point that I can't necessarily share with you what that might necessarily mean for for equity derivatives or what tokenization specifically might be able to do for for US or non-US
26:26
[SPEAKER_01]: uh... derivatives right now where we're focused on uh... uh... you know cash settled or cash denominated and hopefully at some point uh... you as the seed denominated uh... derivatives uh... and and futures margin and what that can afford uh... but i think on the tokenization topic as a as a whole i think there's a whole future for financial markets that's just waiting out there to be constructed and i think between coinbase and others uh... and all of these statements uh...
26:55
[SPEAKER_01]: and alignment, not only from the SEC birth from the CFTC, they're incredibly encouraging signs that will soon continue to build on, not only the positive messages we're getting from this current administration, but to see that in actual rules being written in experiments being allowed, and we're just excited to see what that brings.
27:17
[SPEAKER_00]: Yeah, I'm very excited.
27:19
[SPEAKER_00]: There's even competitors of yours who are doing something interesting.
27:25
[SPEAKER_00]: I wanted to kind of just get your high level on it, but it's even using derivatives to get exposure to pre IPO companies.
27:35
[SPEAKER_00]: Is this something that
27:38
[SPEAKER_00]: And I think they're doing it through some kind of tokenization method.
27:40
[SPEAKER_00]: I actually don't really know how all that's happening to be honest.
27:44
[SPEAKER_00]: And we don't need to call anybody out specifically because I think there's several characters out there.
27:50
[SPEAKER_00]: What do you think of this?
27:51
[SPEAKER_00]: Pre-IPO derivative exposure for traders, retail traders?
27:57
[SPEAKER_01]: I mean, I think it's incredibly exciting.
27:59
[SPEAKER_01]: I am also not, frankly, completely familiar with how the existing rules and regs
28:07
[SPEAKER_01]: support exactly what those offerings are.
28:11
[SPEAKER_01]: My understanding is that there's some sort of swap type mechanisms that might allow individuals or institutions to to be able to participate in a whether or not a binary event actually occurs.
28:25
[SPEAKER_01]: Will a company that's currently private go public in a certain period of time if it when it does share in the return post the initial public
28:36
[SPEAKER_01]: public offering.
28:38
[SPEAKER_01]: You know, I don't know that that's that different from other over the counter derivatives that have existed for quite some time.
28:45
[SPEAKER_01]: I do think it's exciting the potential to be able to distribute those to retail investors with all the proper risks disclosed and making sure that people do get paid when those contracts actually
28:58
[SPEAKER_01]: uh... you know get called in and when those events uh... actually has no button that's right that you can think you might actually collect that there's a smart contract out there that actually will guarantee uh... that that the parties get paid appropriately i think that's incredibly exciting uh... i wish i was a little bit more qualified to uh...
29:17
[SPEAKER_01]: to talk about that topic.
29:19
[SPEAKER_00]: Just an interesting kind of side thought that just popping my mind.
29:23
[SPEAKER_00]: But something that I do want to get your color on, you know, in a number, I'm sure you'll know quite intimately, is open interest for your exchange.
29:31
[SPEAKER_00]: And what that means, kind of some maybe growth trajectories or where you're at and realistically, where you maybe think this can go both for you.
29:41
[SPEAKER_00]: And, you know, I think the main, the large guy, the big elephant in the room is,
29:47
[SPEAKER_00]: see me, right?
29:48
[SPEAKER_00]: Like so can compare you to them.
29:51
[SPEAKER_01]: So our open interest has grown from just about two to three hundred million dollars a couple of months ago to over a billion dollars over the last couple of weeks.
30:02
[SPEAKER_01]: A lot of that has actually been the outgrowth of a few new ETFs, levard ETFs that tracked the price of XRP and Solana that have launched and that have turned to Coinbase derivatives.
30:16
[SPEAKER_01]: So in other words, there's a couple of funds out there, one from T-Cream that has a two X-Levered XRP, one called XXRP.
30:25
[SPEAKER_01]: And there's another one from ProShars that started trading a little bit later, called UXRP.
30:30
[SPEAKER_01]: And what these leverage funds do is the way that they actually gain leverage exposure is that they can use over the counter swaps and other contracts, but the most traditional and transparent way that they do this is by using exchange listed.
30:45
[SPEAKER_01]: futures.
30:46
[SPEAKER_01]: And CME has definitely had the pull position in attracting the type of business with some flagship funds like BITO and a few others that have been using CME Bitcoin futures for quite some time.
30:59
[SPEAKER_01]: So a lot of their open interest billions and billions of dollars of it is due to participation from those funds.
31:04
[SPEAKER_01]: And we finally were able to get into the game.
31:07
[SPEAKER_01]: We onboarded a couple of these funds and have seen fantastic success and hundreds of millions of dollars
31:13
[SPEAKER_01]: in new open interest come from that retail participation growing with our perpetual futures is also added to open interest although I will say that the trading volumes of retail investors don't always correlate as directly to how open interest grows.
31:30
[SPEAKER_01]: Typically retail trading, retail investors trading horizon is a little bit shorter.
31:35
[SPEAKER_01]: They're a little bit more in and out of the market.
31:38
[SPEAKER_01]: However, there is a long-term correlation because as more and more retail investors start trading a product, naturally at any one point in time, open interest will grow.
31:48
[SPEAKER_01]: And frankly, the rise and asset values also influences that.
31:53
[SPEAKER_01]: So we were super excited to reach the milestone of a billion.
31:56
[SPEAKER_01]: It's still only constitutes a fairly small percentage of US-based
31:59
[SPEAKER_01]: future's open interest for crypto, but we're seeing with especially the launch of our perpetual futures, the expansion and the suite of products over the next few weeks and hopefully months, we're hoping to see that number grow.
32:12
[SPEAKER_01]: You can tell I'm avoiding naming a specific target, which I shouldn't do and so I won't, but we
32:20
[SPEAKER_01]: Based on the trends that we're seeing and the uptick in participation, we do anticipate that volume grown over time and our market share both in volume and open interest continues to grow.
32:32
[SPEAKER_00]: I love it.
32:33
[SPEAKER_00]: That's incredible.
32:33
[SPEAKER_00]: And yeah, you guys are the crypto experts.
32:35
[SPEAKER_00]: And as more of these altcoin ETFs come online and more people come online to hedge these products.
32:42
[SPEAKER_00]: I mean, you guys are just at the center of it and only only growing.
32:46
[SPEAKER_00]: And liquidity gets liquidity.
32:48
[SPEAKER_00]: So the more that kind of piles in and you're just going to have more success and we're really confident that you guys are going to be knocking this out of the park.
32:55
[SPEAKER_00]: I'm curious, just another random thought that pop my head is like any liquidity patterns that you might see on periods of most liquidity.
33:04
[SPEAKER_00]: Again, as you see on Twitter or whatever, something like, oh, New York open.
33:07
[SPEAKER_00]: There's always the most on the clothes or Asia is always trading like with the most, what do you see in just like the past couple weeks or something?
33:16
[SPEAKER_01]: So it's a great question.
33:17
[SPEAKER_01]: I love talking about this because I think a lot of times when people say liquidity, they really mean volume.
33:24
[SPEAKER_01]: And they see one of the most active times of the day.
33:29
[SPEAKER_01]: And we do see, for example, in terms of volume that when it's sort of nine, ten AM in New York, it's still daytime in Europe, it's evening in Asia, those do tend to be very active periods.
33:44
[SPEAKER_01]: Mostly because that's when most people are awake, that's when most people are looking at the market and trading.
33:51
[SPEAKER_01]: We also track liquidity just in terms of the depth and quality of our bid offer.
33:57
[SPEAKER_01]: And even though, for example, there's not as much trading at two o'clock in the morning in New York, we have actually seen fantastic liquidity, twenty four hours a day on on weekdays.
34:10
[SPEAKER_01]: On weekends, we see liquidity naturally, subside.
34:13
[SPEAKER_01]: There's a lot fewer participants looking at it.
34:15
[SPEAKER_01]: People do believe it or not, take weekends off.
34:19
[SPEAKER_01]: Despite the fact that crypto is open, we have seen record volumes on the weekends, but we do see a little bit less participation and a little bit less liquidity.
34:27
[SPEAKER_01]: But for us, we've also seen tremendous growth because as you might remember, we only launched twenty four seven trading a few months ago and it takes time for our liquidity providers to catch up.
34:39
[SPEAKER_01]: So for example, a couple of years ago, we launched and we literally just had a small handful.
34:44
[SPEAKER_01]: of professional liquidity providers, market makers supporting our Bitcoin and Ethereum futures markets.
34:50
[SPEAKER_01]: We have dozens upon dozens of market makers now in our flagship products.
34:54
[SPEAKER_01]: But on the weekends, it's still a modest portion of those, but it keeps growing every single week as more clearing firms and more market makers stand up their operations.
35:04
[SPEAKER_01]: Because sometimes the crypto desks from liquidity providers in the US are not the same desks that are doing this on offshore.
35:14
[SPEAKER_01]: exchanges.
35:15
[SPEAKER_01]: And so in terms of liquidity, we do find that the most liquid parts of the day are still standard U.S.
35:22
[SPEAKER_01]: hours.
35:23
[SPEAKER_01]: I think there's a little bit of legacy inertia there.
35:26
[SPEAKER_01]: But overnight volumes continue to grow.
35:29
[SPEAKER_01]: And I think that entire attitude of when trading happens is going to change.
35:34
[SPEAKER_01]: And I will also say that
35:37
[SPEAKER_01]: what we've seen and I don't know if this is what everybody sees but I expect that they do that the volume that happens in the middle of the night it's not just a volume that comes out of Asia or from other time zones.
35:51
[SPEAKER_01]: A lot of times it's literally just people who have day jobs in other industries that want to trade at midnight that might be awake at three in the morning.
35:59
[SPEAKER_01]: There are people awake in the United States.
36:01
[SPEAKER_01]: I think that's who's trading.
36:04
[SPEAKER_00]: Yeah, it's our super producer Tivo, who's in the background listening, who's a retail guy who's probably going to be punting options on something at the night.
36:16
[SPEAKER_00]: No, I love it.
36:17
[SPEAKER_00]: I want to kind of get just, you know, as we kind of like, you know, round out the conversation, we kind of look forward and I know, you know, the nature of your role, you can't make a lot of promises and forward-looking statements, but we'll generalize and I just kind of want to know,
36:30
[SPEAKER_00]: You know, like, what are the most exciting conversations that you are having with institutions?
36:35
[SPEAKER_00]: You know, what kinds of institutions are you really looking to onboard?
36:40
[SPEAKER_00]: You know, we don't need names or anything like that, but just give us some color of like, man, you're the CEO of this derivatives exchange.
36:45
[SPEAKER_00]: What's like what you want to frickin' tackle right now?
36:48
[SPEAKER_00]: Who's that?
36:49
[SPEAKER_01]: So for me, more liquidity in the ult.
36:54
[SPEAKER_01]: Okay.
36:55
[SPEAKER_01]: We trade a lot of altcoin features now.
36:59
[SPEAKER_01]: they're getting more and more active as crypto is a whole gets more active and my biggest mission is to recruit more and more liquidity providers so that we can not just offer the best possible product to both retail and institutional clients but also take all of our crypto futures twenty four seven there is a liquidity threshold that we believe we have to meet we want to make sure that when we take a product and make it available for trading on weekends
37:27
[SPEAKER_01]: that it's a liquid product that it's a great experience and we've done that so far with sort of the crypto major.
37:33
[SPEAKER_01]: So that's a huge huge priority for me and my team over the next several months is to round out the twenty four seven offering round out the offering of perpetual style futures in the US and just broaden the breadth of the product offering for the US market because we want to be competitive with the offshore market.
37:52
[SPEAKER_01]: We want to do it in a regulated way and we want to work with not just
37:57
[SPEAKER_01]: Coinbase clients, but even clients from other FCMs and partner with anybody who wants to partner with us and just continue to grow our network and be as competitive as possible.
38:10
[SPEAKER_01]: And ultimately, it is things like options on futures and introducing additional products.
38:16
[SPEAKER_01]: And that requires also bringing on additional market participants who have more of an expertise in options.
38:23
[SPEAKER_01]: I'm very much looking forward to collaborating with Derby team.
38:26
[SPEAKER_01]: and what they've been able to build and what we can learn from one another and just grow this ecosystem as much as possible.
38:33
[SPEAKER_00]: I love it and maybe even take a playbook out of some of the dexes and incentivize liquidity somehow with now SEC saying we can air drop tokens and we could issue these things in clever ways I think there's just going to be a race to incentivize all this liquidity because a lot of these guys like well you know why am I going to want to jump over and it just takes so much time and there's so many security things because I think you're kind of implying like big market makers just onboarding them bringing your all to bringing your liquidity and all that stuff and
39:02
[SPEAKER_00]: You know, a lot of them are, you know, just these structures, these, you know, I run an actively managed hedge fund and it's like, you know, to spin up a new counterpart, you just, you know, it takes a lot of efforts and stuff and there's security considerations and stuff and so I guess the question that I'll post to you is like, are there any incentive models, rebates, maybe, or lower trading fees or something that is really gonna grab these market makers by the neck and bring them on over because you got an offering that's just too good to resist.
39:33
[SPEAKER_00]: So we have done that.
39:34
[SPEAKER_01]: We absolutely have done that.
39:36
[SPEAKER_01]: It's one of the reasons we've been able to grow and launch new products as much as we have.
39:40
[SPEAKER_01]: So we absolutely take advantage of incentive models all of which are filed and approved or certified rather with the CFTC.
39:49
[SPEAKER_01]: All of our programs are available to everybody.
39:53
[SPEAKER_01]: And so we absolutely have incentive models that we take advantage of specifically to launch new products and
40:00
[SPEAKER_01]: We're always talking to the CFTC about more new inventive ways to bring more participants to the exchange.
40:07
[SPEAKER_01]: That's sort of my official sounding.
40:10
[SPEAKER_00]: I love it.
40:10
[SPEAKER_01]: I'm going to give you on that one.
40:12
[SPEAKER_00]: That's great.
40:13
[SPEAKER_00]: You know, even I'm sure people are learning that you even have to file and publish that there's these incentive models and people are probably like, oh, I didn't even know that.
40:21
[SPEAKER_00]: And so, no, that's cool.
40:23
[SPEAKER_00]: So, so what are you looking for for next just I know where I think we're still waiting on a CFTC commissioner to be confirmed.
40:29
[SPEAKER_00]: So, I think that's really the next big milestone
40:34
[SPEAKER_00]: Are there any milestones in clarity act potentially getting past?
40:37
[SPEAKER_00]: What other things are on the lookout that you're paying attention to and that guys in your circle are kind of tracking?
40:42
[SPEAKER_01]: So for sure, although we have an amazing work in relationship with acting Chairman Caroline Fam and the staff at the CFTC.
40:52
[SPEAKER_01]: So on the one hand, we're absolutely looking forward to the permanent Chairman taking office and other commissioners being appointed
41:02
[SPEAKER_01]: But we're not waiting.
41:04
[SPEAKER_01]: Like I said, we're constantly engaged with our regulators, with the staff at DMO, which is the division of market oversight, which is the part of the CFTC that we deal with.
41:18
[SPEAKER_01]: And again, I think that for us, our biggest focus is crypto as collateral in the U.S.
41:27
[SPEAKER_01]: And then figuring out other potential structures, whether they relate to decentralization,
41:32
[SPEAKER_01]: new products, maybe new crypto index products that we're considering, but it's not stopping us.
41:39
[SPEAKER_01]: I think that even though there's a little bit of a transition or a period at the CFTC, we're continuing to engage.
41:44
[SPEAKER_01]: with the staff and the chairman's office.
41:46
[SPEAKER_01]: And we find that that's been an incredibly helpful relationship.
41:50
[SPEAKER_01]: But yeah, you know, we're, we're regulated US futures exchange.
41:55
[SPEAKER_00]: Everything we do.
41:55
[SPEAKER_01]: That's my man.
41:57
[SPEAKER_01]: Everything we do is involves rule filings and self certifications and programs and fair access.
42:03
[SPEAKER_01]: So, you know, we're adhering to all those principles.
42:05
[SPEAKER_01]: We think it's certainly sort of a requirement and a high bar that we have to meet.
42:11
[SPEAKER_01]: But we also think it's a fantastic advantage.
42:14
[SPEAKER_01]: of operating the U.S.
42:16
[SPEAKER_01]: and being able to cater to the U.S.
42:18
[SPEAKER_01]: market.
42:18
[SPEAKER_00]: I love it.
42:20
[SPEAKER_00]: No, it's really interesting to kind of get all the inner workings.
42:25
[SPEAKER_00]: And it kind of last question is like, you've watched the evolution of just derivatives and trading from way back when to, I don't know, if it was open crime market pits and then electronic, you know, you saw at ISE, you saw the whole electronic shift and then we got crypto and kind of what's the next, let's just bring it into five years.
42:43
[SPEAKER_00]: What's the next five years of your business look like with where do crypto derivatives kind of go from here?
42:49
[SPEAKER_01]: So I would love for crypto derivatives to follow the same arc.
42:54
[SPEAKER_01]: ISE was the first ever electronic options exchange for a product that had already been in existence for decades, but I think ultimately between what we did back there and what firms like think are swim and ultimately robin and help to do is they sort of help mainstream options, which were this exotic maybe not for retail type product and it just became
43:16
[SPEAKER_01]: ubiquitous, and then ultimately volumes have continued to grow and continue to explode.
43:20
[SPEAKER_00]: And I'm hoping that the options share was retail this past month.
43:24
[SPEAKER_00]: That's great.
43:26
[SPEAKER_01]: And in fact, I would tell you that options are a much more retail product than people realize.
43:31
[SPEAKER_01]: And I think our competitors and friends at Robinhood and other firms like Schwab and Fidelity, they've proved that.
43:39
[SPEAKER_01]: So I'm hoping for the same kind of trajectory to take shape in crypto.
43:45
[SPEAKER_01]: And while we're already electronic, we have taken features and derivatives to twenty four seven now in the US as well.
43:53
[SPEAKER_01]: I think what's left is the breadth of offering and sort of like the growth in blockchain-based finance and blockchain-based commodities and equities and just the explosion of the number of coins that we can trade.
44:06
[SPEAKER_01]: Now that's not to say that there aren't fantastic amounts of quality crypto assets to trade, but many of them are low market cap.
44:15
[SPEAKER_01]: Many of them don't trade as much, but the trends we're seeing today is that the number of those tradable assets will continue to grow.
44:22
[SPEAKER_01]: There will be indexes to be made out of them.
44:26
[SPEAKER_01]: And I think ultimately it will rival the equity options market, the equity market in terms of the breadth of offering commodities, equities, various other types of crypto tokens.
44:36
[SPEAKER_01]: And that's what I'm really excited about for the next several years.
44:40
[SPEAKER_00]: Amazing.
44:40
[SPEAKER_00]: Boris, it'll be you have ski.
44:42
[SPEAKER_00]: Thank you so much for joining us.
44:43
[SPEAKER_00]: CEO of Coinbase, derivatives exchange and head of US markets.
44:48
[SPEAKER_00]: We really, really appreciate you taking a big chunk of time out of your busy schedule to join us on the podcast.
44:53
[SPEAKER_00]: So until next time, we hope to have you back on again.
44:56
[SPEAKER_00]: I'm sure there's going to be lots of growth and exciting milestones.
44:59
[SPEAKER_00]: We'd like to celebrate with you guys.
45:00
[SPEAKER_00]: So whenever you got some big news, come on back to the crypto one on one podcast.
45:04
[SPEAKER_00]: You'll always have a home here.
45:05
[SPEAKER_00]: But until next time, Boris enjoy the rest of your week and
45:09
[SPEAKER_00]: We'll see you soon.
45:10
[SPEAKER_01]: We'll do thanks so much for having me press.
45:12
[SPEAKER_00]: Take care.