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Crypto Exchanges, Markets and Liquidity Webinar — CoinDesk.mp
Transcript
Speaker Hello and welcome to Coin Desk researches webinar series. What you're about to listen to is a recording
of the second in our series. The first webinar gave us an inside look at the tactics of traders on OTC
desks. You can find a recording of it on Coin Desk YouTube channel. The second goes under the hood
with. 2 high growth. Crypto exchanges examining what brings in liquidity. My name is Galen Moore and
in this webinar I'm talking with Catherine Coley, CEO of Bam trading, known to most of you as Binance
US.
Speaker My other guest.
Speaker Is Sam bankman? Three, the CEO and Co, founder of Alameda Research, a quantitative crypto trading
firm, earlier this year, Alameda opened FTX, a crypto. Derivatives exchange, known for long tail markets
and indices. If you're interested in hearing the next one of these sign up at Coin desk dot. Com slash
research. Now let's go right into my conversation with Binance, US and FTX. I should mention that The
opinions expressed in this recording are not necessarily shared by Coin Desk or its affiliate companies,
and none of the content of this recording should be taken by anybody as investment advice.
Speaker Hi there guys. Catherine Coley here you are Binance US and finance US. We've launched in late
September. We are a US based digital asset marketplace committed to really user centric. I'm trying to
bring in kind of new brand of users making crypto accessible to everyone. So our focus is on diversity of
assets that we list as well as advancing product and education for people to really understand how
crypto can offer freedom for your own opportunities.
Speaker My name is Sam Bankman freed. I'm I'm the CEO of Alameda researches and FTX Alameda research. I
started a couple of years ago is a quantitative cryptocurrency trading firm just basically a combination of
arbitrage liquidity trading? Quantitative trading and OTC trading across a bunch of different platforms
worldwide, including Binance, US. And then earlier this year in spring, I started up FTX, which is a
cryptocurrency derivatives exchange, basically aiming to bring, you know, sort of a refresh to look at
derivatives trading, cleaning out a lot of the sort of baggage that. And you said. And you know,
presenting a ton of liquidity, a ton of different products, you know both in terms of underlying your
futures and more native products like new contracts and leverage tokens and and sort of completely
rethought margin and leverage.Page 3 Speaker Great. Great. OK. So lots to talk about here. I think you know, my goal is for today we can talk about
some of the liquidity issues affecting crypto markets. We can talk about how liquidity gets built, how it
gets sort of acquired, if you will, by an exchange and also. You know looking. To kind of how traders
should approach. Different environments and venues that they might be. So with that in mind, I think
that you know the top line number for everybody when it comes to looking at exchanges and trading
venues at crypto is volume and whether whether that's the right number to be looking at or not. We can
talk about it in a minute, but I think you know to start with, maybe if we can talk a little bit about. Both
of you in terms of your goals for volume, for your exchanges, and I've got a chart up here in the webinar
showing the reported volume from finance US over the month of October. And I think on the FTX side
that you guys for October averaged about 177 million in notional volume at least. If what I'm getting
from some from crypto, sorry from nomics is the right data there. And so we want to know kind of how
that you know, where your goals look in terms of growing that number?
Speaker I mean to get. Things started we we. Started off in September, being able to license the technology of of
finance.com, which at the time was kind of going through a daily volume around a billion, about about.
So to start off at zero. It was quite a humbling.
Speaker We saw kind of a team pickup in our first month going from zero to about our top day with about million. Our daily trading volume and a lot of this is, you know, given part to the overall sentiment of the
market that you have to factor in. There's so many variables when we're when we're considering you
know why. People are trading on. It can be all the efforts that you do individually or your team to build
out a product seeds fit for the market, but truly a lot of you know example attached to this given volume
on a great day to the volatility of the markets. So people are more likely they're more inclined to be
trading on days where there are. Outsized volatility in the markets and therefore needing access into
and out of certain coins on a more routine basis than just their efforts day of of flying and huddling. We
saw that kind of our peak date and then coming in from the rest of November, we continue to see our
user numbers increase and our volume numbers continue to kind of grow in line with where we see the
market activity actually happening.
Speaker I mean, if you look at in finance for example, I think average volume in the past 30 days is a little north
of a billion dollars, is that is that an aspiration, are you, are you looking at, you know hundreds of
millions and billions in terms of volume and where you'd like to be say you? Over, you know, some time
period in the future, obviously you guys are right out of the gate here. So I think you know we had that
yard.
Speaker I already found it quite humbling when I came from the world of FX for foreign exchange and so our
daily trading volume was roughly 5-6 trillion dollars. So any anytime when I see someones yardstick out
there, it's like even a billion. I'm like, oh, how little we are in the in the scheme of things. So, you know,Page 4 certainly in the in the aspects and aspirations of becoming a. 1000 plus year old market liquidity of
reaching the same levels as FX. You know I've I've got my my job set out for the next century, but the the
aspirations are I just want to get as many people familiar with cryptocurrencies understanding how it
works, preparing them for future. And I definitely think that's in our. In our sights.
Speaker Sam, what are your thoughts on that on the volume number and kind of you know where you wanted to
go for FTX where you've? Come so far.
Speaker So I guess first comment, I think the number you say, I think that's the right ballpark. I think everyone's a
little higher than that. And typically what you'll see is that our phones. A little higher. Than most states
report because we have a set. Of products that are a little bit. Hard to parse. For mostly sites we have
index features for instance, and you know that that means they're not on a single coin that the Fed is
accessed to. So those usually get dropped and then we have some volatility products. We we recently
launched but but but that's our thread order of magnitude you know a few 100 million a day and I I
think that. You know, as as circle, he said. Like, if you look at raw volume numbers, you'll get. Being
extremely volatile with like you know, our our biggest day, we got a little over a billion dollars traded
and on you know an extremely quiet day. You know, I think once a month we might be under $million traded. Yeah. So, you know, there's a factor. Of 10 there. But seeing said, look at, you know, our
volume divided by the volume of, you know global crypto volume. Or serve leading exchanges or
something that you get a much smoother curve. And as that's sort of how I think about it, rather than
sort of raw volume traded, you know, I tend to think of this like fractions of bitmap's volume, you know,
fractions of finances, volume, things like that. And and I think there are aspirations, I, I would say serve
medium term and obviously long term anything can happen. We have a lot of plans and and some of it's
gonna be plenty. Yes, I would say the medium term really the the goal here is. To reach the levels of the
top exchanges and so you know, in environments like this that generally means if you billion a day, you
know somewhere between 1:00 and 10:00, depending on on certain market market environments and.
And so I think that's, you know, if you want to say like, where do you want to be a year from now? I
think the answer is, you know, treating some number of single digit. Millions of dollars per day, adjusted
for whatever happens to the market. Or, you know, maybe, maybe face even, even better, something
like, you know, one of the top three exchanges by global volume.
Speaker What's the what's what's the? What else besides volume, Sam? I mean, what I think of that as being a
kind of looking away, whatever metrics are. You looking at as KPI.
Speaker So I think that we volumes that we see sort of the ultimate thing that matters, but that's not something
we have control over. That's sort of something that that reflects everything else we do. And so you
that's what we ultimately evaluate ourselves on the things that we can actually affect our more like
liquidity, customers onboarded both in terms of you know number of customers, but also size of
customers and things like that. You know products launched and success of the products. And so I think
for us. You know, I would sort of divide this into two different categories. The 1st and I think is huge.Page 5 One here is liquidity, which there are a lot of different ways to define it. But I think like. Bill in place,
someone would pay if they bought 200 bitcoins and then immediately sold 200 bitcoins is like, you know
that that's sort of a decent approximation of what does liquidity mean. And and then sort of extending
that to the other markets you know? Adjusting for the the overall. Liquidity of the coins and on that I
think we're doing quite. Well, you know, I think basically from the day we launched, we were, you know,
roughly the most liquid order books in crypto. But you know, in terms of diversity of products, we've
been growing pretty quickly with futures on something like 20 different underlyings, including you know
the top coins index futures and now we have some options contracts as well. And so I think in terms of
product space, you know I have a lot of aspirations, but I also to be frank, feel like. Pretty confident in.
You know, I I'd be surprised if we failed to reach those, and that's been just pretty steady progress of
releasing new things and and I think that sort of if you look at where is sort of the huge uncertainty,
what's going to determine whether we get to that, you know, $3 billion a day volume or plateau at million. You know, I think the big thing is customers, I think the big thing is can we get to the point
where you know, 50% of all cryptocurrency traders have an FTX account and you know, if you serve
assumed like, Oh yeah, you're trained crypto like probably FTX as one. Of the exchanges you're on. Or do
we sort of plateau where you know it's something more like 10 to 15% and you know there's a sizeable
slice of people who do, but the majority have never created an account, never started trading, never
deposited anything. And and I think that that's sort of what we really see as the you know the the thing
that that's going to end up determining. Uh, you know how. We grow.
Speaker Kevin, when you think about? Like who? Your user is. What's the kind? Of person that you have. In mind
or person or company or entity. Who's the sort? Of typical user of finance you ask.
Speaker Great question because I love how one type of person. You know the target market out there is
segmented into fractions that we're all trying to go after. So the products that we provide, you know,
have to cater both to the first time user as well as the advanced trader using API. So kind of in our suite
of understanding, we want to be able to offer the opportunity for people to engage as best they feel fit
without being kind of the gatekeeper that says this is what you really should be buying because I feel
like that that kind of goes against the the purpose of your cryptocurrency layers. These barriers to entry
and let people really. Access, manage and grow their own capital from their own determination. So our
target audience and clearly the kind of crypto native already the set that's already bought in to vision,
understanding how the trading works, we kind of see them as first adopters having. Familiar enjoyment
of finance platform itself, so you'll notice that finance dot US is rather similar in terms of field scope,
order books, visuals, API's are, you know, family. And so we kind. Of can cater towards the crypto aware.
And as well kind of the more larger focus of of mine is making sure our both our narrative and our
platform are digestible for that new wave of crypto savvy folks. So they may not even recognize what
crypto can provide for them, but being able to access. Funds send them all to go, you know, really be
able to explore different projects and have that autonomy all within their fingertips or something. And I
think it's super important for people as we increasingly have a kind of a global mindset and are
expanding through, you know, a variation of careers that people may not have had previously. So if you
imagine like longer the days of the the 30 year career and now you've welcomed in the gig economy asPage 6 well. As you know, global projects where you're traveling quite a lot. The idea of having crypto in your in
your portfolio really has its benefits.
Speaker I just got a question in from a listener wondering kind of how crypto market how crypto trading fees
compared to other asset categories. I think that's a good one for you, Catherine. Having come over from
FX, how do?
Speaker You think about.
Speaker That in terms of. As an important sort of driver of, you know, bringing people on board and
differentiator and then also kind of how do you think the person coming from, you know being familiar
with trading different category of assets would be would react to the fees that they're seeing on on
most crypto trade?
Speaker Yeah, it's kind of funny. I mean, I I blame and credit my experience on the FX desk for for making you
realize that some of the largest money movers out there pay nothing in order to get prices prices on on,
on certain pairs of moving currencies. Myself, when I was on the desk. Moving Hong Kong dollars into
dollars for Christmas gifts or holiday vacations required about an 8%. Fee to a competitive bank on a
pegged currency, which to me was, you know, at a principle that was difficult to digest. You know, I was
getting, you know, really like one paper, 00 even flat for for some, you know, $100 million move of
currencies and then. And me sending $35 cost me $35 and then 8% so.
Speaker The kind of.
Speaker The fee element of how FX and currency has worked is it's been a different model than you see with
equities and commissions. I think that's a tricky 1 because people oftentimes get, you know, caught up
in that as a barrier for them to then engage. And you go OK, well, if I'm going to be getting into
cryptocurrency, but it's going to cost me a percentage or plus in order to get in this position, you know,
maybe it's not, maybe it's not as accessible as. As I want it to be or, you know I'm not planning on
holding it for that long if I'm. Now I have. To pay twice if I'm going to. Get in the trade out of the trade
so. Barrier to entry is, you know, the main focus that I've kind of been hounding on. And so lowering
those fees is really important to other U.S. team to be able to provide for kind of an an affordable way
for people to learn about the technology. So we provide the 1st 30 days of your trading when you sign
up with. Nancy, this is free trading, so there are no trading fees on top of. After those 30 days, your your
initial where for trading fees starts at 10 basis points or 0.1% of your trading volume. And then if you
hold B&B you get a 25% discount on that, so assuming. OK. Losing you a little bit in the audio here.
Speaker 4Page 7 You hear me?
Speaker Hey, guys.
Speaker Yeah, that's right. Just.
Speaker I lose you? No, that's back to kind of the our trading fee structure. So we've rolled out, we've rolled out
VIP tiers, which gives you a rewarded fee structure based on the volume that you're trading. So the
more you're trading. Less you have to pay as well as if you're holding B&B's at a 25%. Count on on
trading and these are just in the element of understanding these markets. You don't want to penalize
people for learning and experimenting how these things trade, so getting familiar with how you know he
settles in and Bitcoin settles like understanding from mechanics of it. Wants you to be able to explore
and really get comfortable with this new technology rather than feel like you're being penalized.
Speaker Each way.
Speaker Sam, do you do you think fees are a motivating factor for people on FDX? Is that something you look at
as a as? A differentiator in.
Speaker A way to.
Speaker Bring people in.
Speaker Yeah, no, absolutely. And Surftech is something that toy said, you know, and it's definitely true that, you
know, trying to convert FX at your local bank can be a really painful procedure where you're paying for
cents and and. But the flip says it's, which I do think is we're saying is that crypto exchange fees are
massive compared to traditional. Exchange fees and I think like you know, on Wall Street, if you're
charged, you know, I think like 1/10 of a basis point is sort of a typical fee for a trade. It's pretty different
like like it's it's a fixed number of fractions of a penny per trade, but but generally 1/10 of a basis point.
Just sort of like about what you end up with, which is, you know, a good factor of 50 year or 100 or so
lower than crypto exchange rate. So you know and a lot of. That just reflects sort of. A combination of
the newer industry, the a lot of you know, infrastructural and technological barriers that you know
exchanges need to get over and and the volatility of the asset class.
Speaker 2Page 8 You've got that weird history in which exchanges use data as a as a marketing tool and make make their,
you know, make incredible revenue numbers on on fees, right?
Speaker If you.
Speaker Yeah, exactly. And and you know one other thing with me which just flows from. This is, you know. In
crypto, what are you know, what are the biggest institutions, the most powerful institutions, the most
famous ones where you lift off tenants and probably listed Stephen exchanges? You know, and and if
you, you know maybe, I mean I don't know maybe for like consensus something clear you put for the
biggest coins but you probably basically.
Speaker The only the only.
Speaker Business is making any money in crypto, right? I mean. Maybe you know, maybe. But but exchanges are
really sort of the the.
Speaker Yeah, that's right where you go to like Wall Street and and if you just go to a random trader on Wall
Street and say, hey, name like the ten highest profile businesses on Wall Street, maybe you get one or
two exchanges. But no, they're. You know, like Goldman Sachs, they maybe they need some trading
firms, some quant firms, a lot of banks and maybe you get nicey in there.
Speaker That's do you think that changes overtime like I mean, hey, he's come down and be like we start to think
about other. I mean, hopefully we start to think. About other entities as being the real giants. Of yeah,
of the right.
Speaker And so my guess are right, it's a good question. And I think that there's a few things going on here. One
big thing is volume. You know, crypto volume is still tiny, as Chloe said, compared to, you know, a tax or
equity or futures or commodity volume. And so I think you know if. You do see. A jump from, you know,
20 billion a day to 20 trillion a day traded in. In the cryptosphere, I would expect that you'd see a factor
of 10 or 100 decrease in fees. Associated with that. I want this, you know, everything just scales. You
know, if exchanges are doing 100 times the volume, but their costs have only gone up by a factor of 2,
then you're going to see fees competed.
Speaker I want I want to ask about another thing and we want the fees and ask about leverage. I just put a slide
here which is something that's new and the book is queue.com provided showing a drop in the volumePage 9 of the big 5 perpetual swap back in May when the regulator in Japan. Required them to reduce leverage
from I think it. Was 15X down to 4X. Maybe it was. So I mean, you know, just there'll be one data point
for sure, but kind of shows the importance of leverage, at least in the derivatives markets, so. And I
know. You know, finance has has rolled out the the trading on. Margin and the. And and you know the
125 X leverage, I think a couple questions come up there. You know one is like for both of you how
important. How important is leverage? You know, maybe something I think in finance, it's not something
you offer now, but maybe something you look to in the future and and also you know to what extent are
people really actually using the the numbers that you see available on exchanges like Bitmex or or FTX or
or you know?
Speaker Right.
Speaker Finance, futures, finance. Derivatives markets.
Speaker Yeah, I guess I'll, I'll, you know, refer him here and say leveraging is really, really important. And a lot of
which to look at this one is you can just look at volumes, right, like rank exchange by buying games
actual volume, you know, it's not like you know corn meal being number one over ********, you know,
coin market cap. I see. And and what you see is basically like you when you yeah for a while that.
Speaker What did say?
Speaker Was #1. And you just look at. The signal like that's not a real site like. I'm sorry but. It's I've literally never
heard of it. It's a percent wide like.
Speaker Right. You have adjusted volume figures that exclude some. Of the largest markets in. Excuse me.
Speaker Yeah, coinmarket for a while has really struggled to get to get real volumes right to be able to capture
the the biggest real volumes without, you know, without getting any kind of crap. But but if you links are
real volume, if you go to fedex.com/volume Dash monitor, you'll see something which is pretty close to
it. And I'm not saying it's perfect, but it basically gets you the highest. Real by me. Exchanges and you
have 75% of the top exchanges are derivatives or leverage exchanges and you know it's just finances.
You know, there's basically only three spot exchanges in the world that trade big volume, that's finance.
OK accent will be and you know, outside of that, I mean, almost all the the the Treaties. On leverage and
you know there are a lot of reasons for that, I'll sort of give one which is that. You know, especially like
in traditional finance, there's this solution of sort of global or at least national netting out of positions
like you're not like, oh ****. Like I'm long so much apple and noisy. I'm short so much on Amex right
now. Like I'm, you know, you might get liquidity on this position. No, you're just flat. And and you know,Page 10 they all settled to the same thing. Any broker worth or salting the net out. All of the major US exchanges
and just, you know, give you sort of default cross margin essentially and you look at crypto where no
you know an unlevered Bitcoin position on coin base and one on Bitstamp. Not the same thing like no
one, there is an existing institution in crypto, basically, that lets you consider those the same thing for
hedging or delta or risk or capital purposes. And so because of that, you have to separately keep
collateral on every single platform you're. You know you want to be ready to buy a Bitcoin on Binance,
U.S. dollars or yeah. And you know, because of that, it's just so capital inefficient that anything you can
do to to get more capital efficient is just really crucial.
Speaker What you're saying like it matters more for the institutional investor. The way that it does for the
gambler.
Speaker I mean, I think that's. Fair. Yeah, that's absolutely right.
Speaker We want to hear from you on this because like I, I know this probably isn't something that's. In your. You
know horizons for Q 1/20/20 or anything. How do you? Think about leverage and whether it's important
and whether it might be something for. You guys down the road?
Speaker Yeah, it's, it's. Certainly been something where it's kind of an overnight success with finance futures
Aaron gone from the CME has built that out and it's been kind of tremendous products for binance.com,
something that we can. To clearly see that the market appetite, much like seeing the growth of FDX, you
know being a part of seeing their story, there's an appetite clearly for that product in the market. And
it's really interesting from my side to see and and you. Blame you know, well, we don't blame anything.
But it's it's interesting the perspective because I always, I always see that we would need leverage
products or in that essence A hedgeable product for these markets to be digestible for our larger
participants and and that's from a more of a conservative. Side of how you're seeing your your use of a
product or your sort of derivatives expansion in. The market that goes down to the line of like, well, it
makes the markets more practical and you can hold balances in these currencies as well protecting your
exposure, but we're not there yet.
Speaker Right.
Speaker So, you know, I think it's it's good for us to build out this robust activity in futures and derivatives to get
people familiar with how these markets. Will be trading and scale them up to a size that would welcome
institutional adoption for a hedge or corporate use case, but that that. Still kind of. As you said, not in
my Q1.
Speaker 2Page 11 Excuse me, Sam, of to what extent people utilize the maximum leverage available on some of the
derivatives markets?
Speaker So basically what you'll see is you get a huge difference depending whether you're looking at what
fraction of traders you or what fraction. Of volume does. In general, you see a ton of people use
maximal or at least high. Leverage, let's say. But the bigger the position is, the less likely it is to be on
high leverage and and and. So you know, the high isolating firms you know as example like Alameda.
You know, it's it's not going to put on 100X leverage position pressing a large one because it's probably
liquidated because that's just what happens when you put 100X leverage position and if if you change
you overcharged not good from like it's liquidated so.
Speaker Right.
Speaker You know when. You look at sort of the highest volume fronts, you tend to see leverage more in the
like? You know, and also like, you know, for me, you're looking more like the sort of three. Is the sort of
number that you might see, whereas you know when you look at retail, especially for an unhedged
position there, you're a lot more likely to see, you know, 20X50X100X, something like that. That's the
first thing that I'll that I'll see say, you know, another thing obviously is if you're getting in and out of
positions quickly, it makes more sense to use higher leverage. Because the amount of time you're
exposing. Salt to liquidation risk is lower, whereas if you're planning to put on a position and hold it and
maybe this is a net position or maybe it's a spread against another exchange. But if you're you're going
to position on and hold it for a week on 100X leverage, you're gonna get liquidated, like you know.
Speaker Right. Well, I want, let me let. Me move from this a little bit and get into. You have many many assets.
That both of your exchanges with, I mean I guess it's not that many compared to. Some but you. Know I
look at some of, for example, if you look at. Let's see if I can pull it up here. The the finance US, you guys
kept focus over the phone yesterday. You guys went from about 7:00 when you launched. And over the,
you know, 45 days or so on 60 days since then, you're now up to about two dozen. And you know, I'm
just looking at this volume charge, just a snapshot. So you know doesn't necessarily reflect what's going
on in a more consistent basis, but I think it's pretty clear. There's a very long tail. And I mean if we you
know, if we kind of move forward to the FPX picture, you're pretty much the same thing. There's Bitcoin,
and then there's, you know, etherium. And then there's everything else. And on on finance, it's kind of
Bitcoin and XRP. And then everything else. Just wondering. Kind of how you guys think about adding
some of these long tail coins and and whether those assets are moving the needle and making a
difference for bringing traders and market makers onto your platform?
Speaker I mean, it's something that we certainly think about it. It's been a feature that. We've kind of. Accented
or focused on this diversity selection that we're going to be providing and and it's been an element
that's important to me and our team. And I think the the the ethos of of finance and sees these vision asPage 12 well along the lines of being able to be a platform that allows for freedom. And so not everyone's first
step into cryptocurrency, maybe through Bitcoin and so being able to provide a platform that lets
people get comfortable with how they see this future working for themselves is something that we want
to be, you know, agnostic to and so. Right. Which may include kind of tail risk might also just be that this
is the first time the asset is having access to us. Years and we only facilitate operations in 37 states, so
perhaps those users are isolated to some of the 13 states that we're not allowed to operate in just yet.
Until we get licenses for those. So we can keep through doors.
Speaker You have going before, in other words, or or around yeah.
Speaker And I think it should continue to keep the doors open on those coins because they've had vibrant
communities elsewhere or, you know, high demand. And in the United States and passed through our
digital asset risk assessment framework, so. No, it's it's funny. People had a lot of mixed reactions on.
That but you. Know from. From my standpoint it's a it's an access point. I'm not here to be the
gatekeeper to tell you what you should buy, because I think that's not the position that exchanges
should be in. That would be the. Position where you would be in if you. Were a protocol.
Speaker There's got to be. A criteria there's a 2000. Some odd or more?
Speaker We first when we launched. We listed 7 as I mentioned, kind of what I call large CAP points and then
we've. Announced we had 30 coins that we were exploring and have taken all of those through digital
asset risk assessment framework, which is something that we have in place for evaluating based on
yours regulation as well as the liquidity measures which Sam and I have mentioned around kind of the
importance of healthy markets. So that would be pretty in-depth process and as coins pass through the.
Then we go ahead and list them. So like last night, we've opened up deposits for nano and we'll continue
to kind of maintain a listing addition going for. So you can see us kind of increasing the number of coins
if that comes with scrutiny as we go down the market caps.
Speaker Sam, what do you think you've got a few on here. The trading pretty tiny volumes. I just added Tobo on
there. I I think the long tail effect in your in your chart here of of open interest by market is even more
pronounced than. It is on. Us what's the what's the advantage of? Having some of these, you know
markets and not only for the for the asset itself, but. For the derivative built on the asset. Seeing that.
Speaker So I think I'll give served 3 answers to that. The 1st is you know, we'd always know what's going to trade
off before we left the market. And so some of this is, I don't know, let's list it and see if it's big, but you
know, obviously to some extent. We can guess. To to give sort of a second answer.
Speaker 3Page 13 I used a little bit of a.
Speaker Title points don't know how important this is for something. It's a bit different. Launching and
derivatives market versus the spot market in that the derivatives market is served by definition by
direct. Well, and so when you serve.
Speaker With the spot.
Speaker Market, you're in this awkward stance a little bit of like rooting for the coin to go up. Almost because
people can only get long on your platform. And so you you you're users that. Make money. If the Queen
goes up. And lose money figures down.
Speaker Yeah, I mean. That in terms of like, you know, backroom deals with whales, right, you're like, well, well,
listen, you know, if you come in and and, you know, do some market based on.
Speaker Right.
Speaker The platform and. I I I assume that kind of conversation. You know, goes on across the board. But I think
it may be in the derivatives market due to what you were just talking about. There is a little bit less of a
conflict of interest. With the this the the retail trader for example.
Speaker That's that's right. Like when you listen during this market, you could go up, could go down, people can
make. Money either way. And so you know, that means that there's a lot less of that and you know, you
don't have any of those conversations that that you're talking about. We generally don't even talk to the
project before listing them and and you know it, it's just sort of like. Is the thing people want trade. And
so you know that that's one thing that we don't see ourselves as having, you know, a duty. To support
the project in a positive direction, necessarily in a way that I'm not saying you would as a spot exchange,
but at least there be that tug. And that makes the the threshold a little bit lower and then the last thing
that I'll say is, is this sort of like you know, come for the shitcoin stay for Bitcoin effect where you know,
there are a lot of traders who you know. Yeah, it's a pretty big effect, which is, you know, I'm sure that
they really want to trade some. You know, they really want trade. Or something like that and you
actually link contracts have like significant buying for some periods and they still are, you know the
tempeh selling contract or something, but it's not the only thing they trade, but they may choose their
exchange based on which one has. A link future.
Speaker 2Page 14 Come for Bitcoin and then you. Like kind of over what?
Speaker You might think that. And there is there is some going in both directions, but I but I think the sort of
operative thing here is that there is a real effect of like, holy ****, this platform has this product. I really
want to trade right now, so you're gonna bother signing up, figuring out how it works, learning the UI,
depositing some capital so I can trade it. And now that I've put that effort. And I want to trade some
Bitcoin futures. Oh, I'm already on FTX. You know how it works. I kind of like it. You know, it sort of gets
people over the hump.
Speaker Yeah, yeah.
Speaker And so that's, you know, that's. The other way that we think that.
Speaker You will right of you know, whatever. There are certain things that make a difference on that. Another
thing right that I want to trade is is one of those. I guess you know one more thing on. That I want to ask.
About your. Your index products. A little bit. I want to pull the slide here that highlights a. Couple of
those I'm actually I'm really. Interested in these? And a couple of conversations I've had leading up to
this. People pretty interested in kind of how you're seeing. People use those and and kind of and one
thing you. Know we did get a question in from a. Listener, who was curious about. You know the really
asking more about fake volume, but mentioned the ETF report and the the continued projections of
regulated ETS in the US and I wonder to what extent you know this kind of dovetails with what CAP has
been talking about about emission of accessibility. You know you have something here that kind of
resembles an ETF. I think the Dragon Index is of, you know, China based crypto projects.
Speaker Right.
Speaker The Shitcoin index is a presumably a basket of, yeah. The utterly hopeless crypto pros. You'll give you
the ability. To have that kind of ETF like instrument to to, to short, you know, go short or long in a in a
balanced. Strategy so so. Tell me about how people are using those and. What you've seen with those
that you've launched?
Speaker So I think we've gotten a ton of excitement over them. You know that sort of outsource their volume.
And I think we're pretty happy with them even if you know and obviously we'd love for them to be a
larger fraction of the volume. But I think we're happy with them either way because we think they're
important innovative products and it. That they're really, really sort of, they've got a ton of different use
cases and just sort of and we've seen people use all different versions of this and just to run through
some, you know one is let's say you're an OTC desk, right? And you know you, you just OTC trade againstPage 15 the customer where you buy some. Some sort of moderately illiquid, you know mid cap coin, right? You
know, maybe you buy BitTorrent, maybe it's one of the more liquid ones, but like, you buy some of
BitTorrent, some Bitcoin gold something. Like that. And obviously, eventually you're gonna have to
actually, you know, sell that that token itself in order to have close down that trade. But you can't just
send a market order for $500,000 so that you'll you'll kind. Of crush the market. So how did you hedge?
And 11 answer as well. Once you hedge with the mid the mid cap futures here? And those are super.
Look at they're way, way, way more liquid than you know basically any of the. Coins in them. And you
can sort of immediately get your delta hedge off, so at least you've kind of.
Speaker Gotten rid of half the so it's not. It's kind of a misleading term in a way, right, you think Midcap, you
think you know right? I don't know Raytheon or something, but right, you know it's happened.
Speaker To crypto you know the cryptosphere so you know. So that's one answer is sort of. Hedging purposes
where you get an index which is way more liquid than any individuals and gets you off, you know at least
sort of some of some of your you know risk. That's one thing. Another thing obviously is, you know,
good news comes out from China, right? Like this happened and and, you know, Chinese coins went up a
lot. And and you want to serve you a trade on it, you could kind of choose one at random, but you're
opening yourself up to a lot of adverse selection of maybe like you don't really know exactly which coins
are going to be affected by this. There's some weird idiosyncrasies in the announcement you choose the
wrong coin. It doesn't move something like that. What you really want? You know what you're trying to
express is not like Tron. That's the one that's going to do. Well, what you're trying to express is, in
general, these coins will you wanna trade quickly easily you exclude strong.
Speaker Because that would be the one that I would, you know that I'm.
Speaker Well, So what we do have is we have the Dragon index and then we have Tron features. And so that's
another thing that you do here is if you think that like Chinese associate cryptocurrency project, you're
outperform but you're bearish on Tron, you can get long dragon like in short. Future, yeah.
Speaker Cool and I think.
Speaker You know, maybe you know question I think for Catherine in terms of your sort of ethos when it comes
to and Binance and Binance US's ethos when it comes to this stuff. You know, this is kind of a softball.
Maybe, but like. What? What is? The crypto markets here today and in general that you that you think
are going to that you think are likely to make their way over to traditional finance. I mean just to set the
table a little bit like I look at the way the large derivatives exchanges have set up, you know without
central clearing. Set up market structure. In order to manage, you know. High volatility, high risk, a lot
of. You know those those engines are are sort of constantly being. Refined and we can talk a. Little bitPage 16 about some of the hiccups in a minute. But I you know, I wonder, as you look at that and look at some of
the innovations in market structure that are happening, what do you? See here that. Has the. Potential
to to. You know, over some period of time gain adoption in traditional planning.
Speaker Yeah, that's interesting way of seeing it, because I oftentimes think we're we're pulling too much from
traditional. Finance and putting it on to crypto. So what? What is the reverse? Or what is the impact that
we'll see on our traditional? And so, like thinking about that, thank you for the question. The the other
thing I think that we've already seen from some of the equity houses or equity trade, you know, retail
trading platforms, is that reduction of fees, you know recognizing that there's efficiencies in these
platforms that they need to be transferred to their customers? So kind of the reduction of these, what
used to be kind of fat margins coming down during the increasing automation? And streamline
technology that we can be providing no longer having to really pay per per voice that's going to be
communicating. So in elements that but on the you know the future side, the US just operates in such a
such a different way. You know, given given the licensing requirement from CFTC. The clearing houses,
you know, FCMS the breakdown in the United States is significantly different of the landscape than we
can have with like the global futures markets that we've seen from. After X but but Max and Binance so
so I think there's as much as. I'd love to see that. The crossover happen quicker. You know, there's,
there's still quite quite an element of infrastructure here in the United States requires its own custom
build.
Speaker It feels like there are there, there are just.
Speaker You know, I think a lot of people use.
Speaker The analogy of like exposure. To risk and where you know and. And I hear. A lot of people talk about this
in terms of maybe the United. States not being the 1st place to adopt. Crypto assets that you know in
mass and and the reason for that being that you know there's a fair. Amount of risk you can kind of get
exposure. To here if you want.
Speaker To you can go on any of the other components of like the native use case. The native use case of
cryptocurrencies is felt so much more. Outside of the. United States to go across from California to
Nevada. You don't have to exchange your currency into a. You know highly. Local cross pair. But the
moment you go from, you know, Vietnam to Singapore, your your spreads are ridiculous and not
necessarily accessible. So I think it's just the elements which crypto provides from a use case perspective
or just immediately felt. So much more from international perspective. That's like one element that you
can factor in.
Speaker 2Page 17 Let's talk about taking on risk as a use case, right? That's because that's A and I think a lot of times
people want to separate use and speculation. I think that's, you know, there's a fair. Distinction to make.
In some cases, but. You know, broadly speaking, speculation is they're using something, yeah.
Speaker And they and they and. The risk appetite breakdown, I mean the risk appetite of of a country that's able
to leapfrog use of financial development. Through the adoption of a new technology, you know bullish,
you know, all in. Where? Where you're like. Oh well, my, you know, like my ETF.
Speaker We are in Las Vegas, right?
Speaker Yeah, well, it's funny. I've actually, like, never been to Las Vegas, but I've been to Macau enough. So I
learned, learned to play blackjack on a Macau. Floor is a little different than.
Speaker I think it's there, right, Macau is is, I mean this is not a new idea, but Macau is was experiencing
something that.
Speaker That the United.
Speaker States experienced in. The post war boom. And that you were saying that that? OK.
Speaker Yeah, it just comes with that. That attitude. It's like there's there's significant reason for why the
speculation and the upside seems so much more tangible than in the United States, where you've got,
you know, robust equities market right now as well as you know, pretty stable. I mean we think about. I
think it's. It's fascinating that we see such great legacy names coming into the space in crypto, no one
would be keeping their, you know. 401K that brand new shops that opened up the month. Ago and
you're going. To be leaving or you're replacing some of your longer standing funds at these very well
established shops. And so I think that's just the risk government of the United States is it's completely.
You know it's it's it's both different and similar in the aspect of there's a lot. Speculative money in the
United States, and there are an insane speculative appetite outside of.
Speaker The US. Yeah, yeah, I guess I I sort of, you know, us being individuals like myself being excluded from
most of the platforms we're talking about. This may not really be applicable, but I sort of look at what
what innovators are doing as maybe you know, and Bitcoin itself really like for me. You know, venture
capital is not really an asset category. I can participate in. But if I just, you know, buying a whole Bitcoin,
it's kind of like it's kind of. Like a venture bet. And so, you know, I think you get that sort of opening upPage 18 of markets that otherwise people would be or sort of asset category or asset category and that you
know analogies that otherwise. Excluded from.
Speaker Yeah, absolutely. OK.
Speaker So biggest thing maybe to kind of reach forward a little further thinking about, you know, ETF's and
access to those and and and kind of, you know, fake trading and and we've had a couple of questions
coming from listeners about you know the wash trading and the fake volumes etcetera. And I think, you
know, we're really, I mean it's one thing to just sort of pump up the volume that you will and try to sort
of you know you can gather market share by doing that.
Speaker But I think you.
Speaker Know another thing that comes into play. Is the kind of manipulability. If that's even worse and and the
you know the. The trading market, the ability to go in and really push the price around and I. Just put up.
The charge here that. That that we put together according to looking at sort of minute by minute, the
flash crash event that occurred in May 17th and this was where you know it's impossible to say whether
this was manipulation or not. But what happened was a very large outsize ask order. Got placed well
below the. Market price in the hours of the morning on the the three exchanges that formed the Bitmex
Price index. This is the most thinly traded of the three bit stamps and. The result was the price. Pushed
down by pushed down by a good $1500 or so, Bitcoin price on this one market and cascading effect of
auto liquidations on Bitmex and you know Long story short about it looks like. About 1:00 and. A half
million. In in the proposal sale revenue sacrifice in the Bitcoin market on Bitstamp triggered about a few
$100 million of of activity on bitmap to somebody who, if this was an iteration, somebody who was
positioned. To to take advantage. Of that activity. On Bitmex, what could have raised quite a return
here, and I think that you know that event is something people have picked apart and looked at since
then and we've had at least one other event that. I'm aware of that's similar. To it in the theory market.
And I wonder kind of, you know what you guys think about, you know I. Think from as a spot. Market
and finance us, you know, making sure. That the that the. That the market can be surveilled and that
manipulated activity can be excluded, and then on the, you know, on the FX side, how do you think
about sort of managing indexes and and making sure that the data that you're getting can't be
manipulated in order to affect the outcome of the of a trade on your on your market? I guess I'll.
Speaker Yeah. Yeah, so. You know, I think the first thing that I'd say I'll give a few answers. That's the first of the
sort of literal answer is we cap the divergent of any member of the index from the median at. I think it's
30 groups or something. Like that and. We have a lot of elements of our index. Way more than most to
say. You know, most sort of Bitcoin features have something like 3 elements. The index we have
something like 12 across like 6 different exchanges. And the reason we do that is it means that we're
using some less liquid markets, which is the cost, but there's certainly ways from those be 5 fifths out ofPage 19 line really gets drowned out when there's twelve of those, you know, it's like a fraction of effect. But
when if you, you know one or a couple of exchanges go haywire, it's really nice to have. Enough that
that you know, the vast majority are still showing a sort of reasonable price and and so, you know, if you
sort of throw out the outliers, you still get, you know, roughly the right index price. So that's for the first
answer to the question. And and you see what happens to one of the exchanges goes to zero. Well, you
know, capped at 30, but divergent, it's, you know, attempting the index or whatever you're talking
about a few basis point impact on the index for a an 80% move on on on a you know on fair move on an
exchange. So that that's sort of the first answer to what we do to.
Speaker A little bit further.
Speaker Applying data sources in those industries is really. I mean, I guess. I'm inviting you to come back your
competition here. But what? Why do you think? Why would somebody? Put a billion dollar daily market
on an exchange. Know an index that's composed of three three spot. Markets in my.
Speaker I mean, I don't have a better answer than just laziness and not wanting to change things from how the
war four years ago, there might be one that I don't have.
Speaker Effect of why fees. Are high now and how they? Might come down in the future.
Speaker Yeah, yeah, it's it's just sure that's how things were back when they're only a few exchanges and things
haven't changed, I think is the basic answer. So so that. That's one part. Of it is, and I think like a really
crucial part, this is you ask, how do we tell if data is? Bad you can't like. Cryptocurrency changes are not
at a point where you can get the data feed from one and tell. For sure if it's bad or good like they just
randomly published data that's wrong in exactly the same format as they publish good data, encrypted
results. How enough things can legitimately move 15% in the. So you can't even say with their big move.
Oh, that's gotta be safe. Because sometimes what happens. To you, you you're just sort. Of ****** on
that and and you're left with sort of nothing other than saying. I know there's a lot of exchanges, like,
has everything moved? If too it's a real move, maybe you don't like it, but but that seems to be what the
markets doing in $3 billion against it. So I guess it. Real and.
Speaker Do you guys have thoughts about that in terms of you know the the data that you produce and making
sure that things that are happening there are real and also you know sort of? Monitoring participation
of. You know traders on the on the platform and. Maybe you know a? Small stage. It's probably less of a
key problem, but you know something you probably think about for the future. What are your thoughts
on that?
Speaker 3Page 20 Yeah, it's it's kind of interesting that I always do it, or even more elementary than people expect. Every
single user that goes through our process goes through in depth case IC and AML. So you know exactly
who's trading on our platform. We also have on chain analytics monitoring all the behaviors that are
taking place on our new wallet addresses. Going back and forth. Through the behavior of our trading
that's taking place and and given the size of us right now, I. Mean it's it's pretty easy. To see what's
happening in the markets. If we're only trading about 5 bucks a day, so or you know 5 to 5 to 25, it's still
really reasonable size for us to be able to see who and what is happening with the full knowledge of.
Knowing all the customers that are on our platform are one embedded through our KYC. We've, you
know different tiers of verification. So we've got basic verified and Fiat, but with that it just comes a
great awareness of kind of. Who's transacting on our platform and analytics like you've seen? You know,
there's other 4 vendors out there now that provide really clear sets and risk parameters that we're able
to make sure we're not, you know, welcoming behavior that's going to be toxic.
Speaker I want to kind of actually back. Up from that a little bit and and kind. Of go back. To something we were
talking about full before. We've got a few minutes left cause. This is something. I really wanted. To hear
from you guys, just kind of what is the you know and and I think both of you probably have a good
perspective on this. You know Catherine giving your background in 4X and then with the with the.
Before this and Sam, given the fact that Alameda is actually like Mark making markets on some of the
venues that FX is providing. So the question I want to ask. Is like, what do you do to attract institutional
investors and potential market makers onto the market? You know the kind of thing that as you were
saying earlier, so liquidity is really the ultimate measure of quality and progress. How do you bring the
large participants who can? You know, we can provide that kind of liquidity.
Speaker Yeah, one of the elements that we've kind of taken advantage of being kind of the new liquidity source
for others is being able to integrate into the existing technologies that are really laser focused on those
audiences without having to take that on ourselves. So we have, you know, several partners. Already in
the space that are really focused on being able to be the. Institutional offering for folks to access these
markets and they are able to plug in directly to our liquidity. So sometimes you don't have to do the
hard work yourself, you just have to partner with people that. Are really just. Focused on it. So it's got a
couple of names that we've already built that out the functionality so people can leverage. Are are
recorded.
Speaker Sam sort of welcome that both sides. Of the table.
Speaker So I will say that you know our media is one of the most demanding and rewarding clients that you can
take. On as an exchange. And you know, I I I I sort of feel the pain on both sides now and I, you know, I
think ultimately taking on someone like Alan as a good fighter can be a really. Really good experience for
an exchange, both because you know taking on the liquid fire gets you liquidity, which is really crucial
for exchange. But I think it also involves, you know, getting a lot of requests for features that make the
platform better.Page 21 Speaker On those features like what are, what are we really looking for that an exchange should provide to bring
in or put it in place?
Speaker So there's a ton of stress testing for those things. And just to sort of go through some and and I do really
want to emphasize here that there isn't a silver bullet that, that it really is like there are 20 things and
you sort of have. To get them all. At least sort of, right? And so to go through these, you know, first of all
limits which you have to have a way for institutions to have high enough limits to operate, right. You
can't have a limit on deposits and withdrawals of $10,000 a day, or it's impossible to do arbitrage on
your exchange and. And what that means is, let's say people come buying a ton of, you know, EOS,
that's all they're doing all day is buying. EOS on your platform. Well, all liquidity fires are going to be
doing all this, moving a ton of fuel to your platform to provide liquidity and then moving out the assets,
they're selling it for. If there's a $10,000 withdrawal limit, they can only trade $10,000 a day before.
They're just like out of the US to sell on out, you know, out of the ability to bring the the tether dollars
or about the platform. So you know, you really need high withdrawal limits for high volume accounts.
You need higher rate limits, obviously. And this really if you want people providing liquidity, this is a
huge difference, right? You could imagine a taker who just sends an oil when they want to trade. Of
leaking you send you know an order of. Second, it doesn't. Matter. If no one's there, trading the whole
point is that liquidity fighter is verifying liquidity ready for someone to come trade whenever that
happens.
Speaker Right.
Speaker So you're getting high, you know, high order usage 24/7, whether or not there's high volume, high
withdrawal and it's. You're getting, you know, withdrawal times really matter. Like you have to be able
to process withdrawals within, you know, an hour or so. You know what else really matters here? Like
Fiat support? Like, if you're gonna have it, making sure it works. Well, making sure that if you have, you
know, risk limits or risk checks. Or things like. That, that, that they don't just like always flag every
institutional count every 20 minutes, you know, make and then making sure that your products really do
do what they're supposed to do. And there's a lot of cases where, you know, especially for more.
Complex products for derivatives. They'll just have really, really bad behavior in some cases. If you don't
think the product design out well and you know, did you think what happens if there's a floor? Am I
going to do something reasonable this futures contract, right? Did you see exactly how does this expire
and what data sources am I using? You know, for the expiration of it, you know, did you think about
what happened to one of the? Changes which is part of the index, decides to block deposits or
withdrawals of the coin goes to a massive premium or discount. You know, there's there's just a ton of
things, you know. Did you think about liquidity death spiral from like, what what you can do to prevent
that? There's a ton of things that you have to think through, which you're really care about. If you're
asking liquidity fighter to put on a $10 million position, providing to customers full and some previous
product. And you're like, oh, yeah, and then. Also like one to three, three months, we're just going toPage 22 liquidate you because there's a breakdown of the risk engine. Like, you're not gonna get liquidity that
way and and so you know, there's there's a ton of of different ways and this is only going through some
of them, yeah, there's tons of API requests, API rate limits. And you know, to give one example of a thing
that like half. Of all exchanges grew up. I think this. Is super instructive. You know, exchanges all starches
have an API. Almost all exchanges have a way to ask the API, something like you know what, you know,
what are my open orders, for instance, right. But on a lot of exchanges it's there's maybe generate them
of, you know, 10 queries a second or something like that. Separate and when you query what are my
open orders? You have to specify a mark it so like what are my open orders on Bitcoin tether? Well, the
problem is if your exchange has 100 markets.
Speaker Right.
Speaker And you can only get them one at a. Time it takes you 10 seconds of rate limits just to. Get your open.
Orders across the platform. You can't trade if you're. Doing that and this. Is saying that half of all
exchanges screw up, and when a woman is trying to onboard to place, this is one of the first things we
look at. We just know they probably screwed up and. That it's going to be close to a non starter.
Speaker Crypto need to grow up like is right to grow up and be like win institutions and you know, let's let's grow
up a little and then maybe we'll be ready when they actually, you know, when somebody in a large
institution actually does take interest.
Speaker Yeah, having having seen, like how institutions expect these markets to behave, having been on the
inside of traditional markets. There's a lot more that needs to be done. And so I think, you know, Sam,
Sam and Nike at least can see through things. Through the eyes of. Traditional folks and understand like
if we do not have adequate limits to accommodate for the scale and scope that they really do want to
be trading. In these markets, you know? You've got exactly time to grow up.
Speaker Right. No, you may not. Have the keys to.
Speaker I use that analogy all the time. I'm like, we're still.
Speaker Yeah, we're we're like overtime and I but I I wanna give you guys just like a minute or two to to wrap up
if. If you know. If you would and there's anything you want to. Say or talk about that. We didn't really
get into. Catherine will go first.
Speaker 3Page 23 I mean check us out that you guys, you know sign up, look at it give us your. Feedback on the platform
itself. I'm I'm keen to all of this. Feedback is the only way that we can make the product the way to the
expectations that you really already have. So we listen to you know everyone is the key component to
the platform we just announced. Next Friday of following Thanksgiving, we'll have 75% off of trading
fees for folks that hold 520 or more. So keep alert on at Finance America on Twitter and then or at
cryptically on Twitter. You pretty sure announcements and keep you in the loop. New coin listings and
new products and discounted.
Speaker Fees. That's it.
Speaker Yeah, you know nothing much. Again, like we'd really love to have you train on that check. You know,
we'd really love to have you give it a shot, create an account, see how it goes. Give us your feedback.
You know we're active under scroll meet on Twitter. You can find we have a telegram group. We've got
we chat groups in Chinese. You can always, you know, e-mail support at-x.com and you know we're
constantly growing and adding more features and and you know we'd love to have you. We want this to
be a platform that works for everyone and so you know, we'd love you to be one of those those people.
Speaker Great. Well. Catherine Sam, thanks both. Of you for joining us today, really appreciate it, but
conversation and I hope we can do this again sometime. Again, this is gaining more and you're listening.
To the second in Cornette. Researches webinar series at anybody listening to hear anybody. Signed up,
you'll get an e-mail. With the recording of the entire presentation and. I hope you will join us. For the
next one. We should be putting something. Together with crypto lending for the. Month of December
so. Look out for an announcement about that not too distant future.
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Audio file
Crypto Exchanges, Markets and Liquidity Webinar — CoinDesk.mp3
Transcript
Speaker 1
Hello and welcome to Coin Desk researches webinar series. What you're about to listen to is a recording
of the second in our series. The first webinar gave us an inside look at the tactics of traders on OTC
desks. You can find a recording of it on Coin Desk YouTube channel. The second goes under the hood
with. 2 high growth. Crypto exchanges examining what brings in liquidity. My name is Galen Moore and
in this webinar I'm talking with Catherine Coley, CEO of Bam trading, known to most of you as Binance
US.
Speaker 2
My other guest.
Speaker 1
Is Sam bankman? Three, the CEO and Co, founder of Alameda Research, a quantitative crypto trading
firm, earlier this year, Alameda opened FTX, a crypto. Derivatives exchange, known for long tail markets
and indices. If you're interested in hearing the next one of these sign up at Coin desk dot. Com slash
research. Now let's go right into my conversation with Binance, US and FTX. I should mention that The
opinions expressed in this recording are not necessarily shared by Coin Desk or its affiliate companies,
and none of the content of this recording should be taken by anybody as investment advice.
Speaker 3
Hi there guys. Catherine Coley here you are Binance US and finance US. We've launched in late
September. We are a US based digital asset marketplace committed to really user centric. I'm trying to
bring in kind of new brand of users making crypto accessible to everyone. So our focus is on diversity of
assets that we list as well as advancing product and education for people to really understand how
crypto can offer freedom for your own opportunities.
Speaker 4
My name is Sam Bankman freed. I'm I'm the CEO of Alameda researches and FTX Alameda research. I
started a couple of years ago is a quantitative cryptocurrency trading firm just basically a combination of
arbitrage liquidity trading? Quantitative trading and OTC trading across a bunch of different platforms
worldwide, including Binance, US. And then earlier this year in spring, I started up FTX, which is a
cryptocurrency derivatives exchange, basically aiming to bring, you know, sort of a refresh to look at
derivatives trading, cleaning out a lot of the sort of baggage that. And you said. And you know,
presenting a ton of liquidity, a ton of different products, you know both in terms of underlying your
futures and more native products like new contracts and leverage tokens and and sort of completely
rethought margin and leverage.
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Speaker 2
Great. Great. OK. So lots to talk about here. I think you know, my goal is for today we can talk about
some of the liquidity issues affecting crypto markets. We can talk about how liquidity gets built, how it
gets sort of acquired, if you will, by an exchange and also. You know looking. To kind of how traders
should approach. Different environments and venues that they might be. So with that in mind, I think
that you know the top line number for everybody when it comes to looking at exchanges and trading
venues at crypto is volume and whether whether that's the right number to be looking at or not. We can
talk about it in a minute, but I think you know to start with, maybe if we can talk a little bit about. Both
of you in terms of your goals for volume, for your exchanges, and I've got a chart up here in the webinar
showing the reported volume from finance US over the month of October. And I think on the FTX side
that you guys for October averaged about 177 million in notional volume at least. If what I'm getting
from some from crypto, sorry from nomics is the right data there. And so we want to know kind of how
that you know, where your goals look in terms of growing that number?
Speaker 5
I mean to get. Things started we we. Started off in September, being able to license the technology of of
finance.com, which at the time was kind of going through a daily volume around a billion, about about.
So to start off at zero. It was quite a humbling.
Speaker 3
We saw kind of a team pickup in our first month going from zero to about our top day with about 29
million. Our daily trading volume and a lot of this is, you know, given part to the overall sentiment of the
market that you have to factor in. There's so many variables when we're when we're considering you
know why. People are trading on. It can be all the efforts that you do individually or your team to build
out a product seeds fit for the market, but truly a lot of you know example attached to this given volume
on a great day to the volatility of the markets. So people are more likely they're more inclined to be
trading on days where there are. Outsized volatility in the markets and therefore needing access into
and out of certain coins on a more routine basis than just their efforts day of of flying and huddling. We
saw that kind of our peak date and then coming in from the rest of November, we continue to see our
user numbers increase and our volume numbers continue to kind of grow in line with where we see the
market activity actually happening.
Speaker 2
I mean, if you look at in finance for example, I think average volume in the past 30 days is a little north
of a billion dollars, is that is that an aspiration, are you, are you looking at, you know hundreds of
millions and billions in terms of volume and where you'd like to be say you? Over, you know, some time
period in the future, obviously you guys are right out of the gate here. So I think you know we had that
yard.
Speaker 3
I already found it quite humbling when I came from the world of FX for foreign exchange and so our
daily trading volume was roughly 5-6 trillion dollars. So any anytime when I see someones yardstick out
there, it's like even a billion. I'm like, oh, how little we are in the in the scheme of things. So, you know,
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certainly in the in the aspects and aspirations of becoming a. 1000 plus year old market liquidity of
reaching the same levels as FX. You know I've I've got my my job set out for the next century, but the the
aspirations are I just want to get as many people familiar with cryptocurrencies understanding how it
works, preparing them for future. And I definitely think that's in our. In our sights.
Speaker 2
Sam, what are your thoughts on that on the volume number and kind of you know where you wanted to
go for FTX where you've? Come so far.
Speaker 4
So I guess first comment, I think the number you say, I think that's the right ballpark. I think everyone's a
little higher than that. And typically what you'll see is that our phones. A little higher. Than most states
report because we have a set. Of products that are a little bit. Hard to parse. For mostly sites we have
index features for instance, and you know that that means they're not on a single coin that the Fed is
accessed to. So those usually get dropped and then we have some volatility products. We we recently
launched but but but that's our thread order of magnitude you know a few 100 million a day and I I
think that. You know, as as circle, he said. Like, if you look at raw volume numbers, you'll get. Being
extremely volatile with like you know, our our biggest day, we got a little over a billion dollars traded
and on you know an extremely quiet day. You know, I think once a month we might be under $100
million traded. Yeah. So, you know, there's a factor. Of 10 there. But seeing said, look at, you know, our
volume divided by the volume of, you know global crypto volume. Or serve leading exchanges or
something that you get a much smoother curve. And as that's sort of how I think about it, rather than
sort of raw volume traded, you know, I tend to think of this like fractions of bitmap's volume, you know,
fractions of finances, volume, things like that. And and I think there are aspirations, I, I would say serve
medium term and obviously long term anything can happen. We have a lot of plans and and some of it's
gonna be plenty. Yes, I would say the medium term really the the goal here is. To reach the levels of the
top exchanges and so you know, in environments like this that generally means if you billion a day, you
know somewhere between 1:00 and 10:00, depending on on certain market market environments and.
And so I think that's, you know, if you want to say like, where do you want to be a year from now? I
think the answer is, you know, treating some number of single digit. Millions of dollars per day, adjusted
for whatever happens to the market. Or, you know, maybe, maybe face even, even better, something
like, you know, one of the top three exchanges by global volume.
Speaker 2
What's the what's what's the? What else besides volume, Sam? I mean, what I think of that as being a
kind of looking away, whatever metrics are. You looking at as KPI.
Speaker 4
So I think that we volumes that we see sort of the ultimate thing that matters, but that's not something
we have control over. That's sort of something that that reflects everything else we do. And so you
that's what we ultimately evaluate ourselves on the things that we can actually affect our more like
liquidity, customers onboarded both in terms of you know number of customers, but also size of
customers and things like that. You know products launched and success of the products. And so I think
for us. You know, I would sort of divide this into two different categories. The 1st and I think is huge.
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One here is liquidity, which there are a lot of different ways to define it. But I think like. Bill in place,
someone would pay if they bought 200 bitcoins and then immediately sold 200 bitcoins is like, you know
that that's sort of a decent approximation of what does liquidity mean. And and then sort of extending
that to the other markets you know? Adjusting for the the overall. Liquidity of the coins and on that I
think we're doing quite. Well, you know, I think basically from the day we launched, we were, you know,
roughly the most liquid order books in crypto. But you know, in terms of diversity of products, we've
been growing pretty quickly with futures on something like 20 different underlyings, including you know
the top coins index futures and now we have some options contracts as well. And so I think in terms of
product space, you know I have a lot of aspirations, but I also to be frank, feel like. Pretty confident in.
You know, I I'd be surprised if we failed to reach those, and that's been just pretty steady progress of
releasing new things and and I think that sort of if you look at where is sort of the huge uncertainty,
what's going to determine whether we get to that, you know, $3 billion a day volume or plateau at 300
million. You know, I think the big thing is customers, I think the big thing is can we get to the point
where you know, 50% of all cryptocurrency traders have an FTX account and you know, if you serve
assumed like, Oh yeah, you're trained crypto like probably FTX as one. Of the exchanges you're on. Or do
we sort of plateau where you know it's something more like 10 to 15% and you know there's a sizeable
slice of people who do, but the majority have never created an account, never started trading, never
deposited anything. And and I think that that's sort of what we really see as the you know the the thing
that that's going to end up determining. Uh, you know how. We grow.
Speaker 2
Kevin, when you think about? Like who? Your user is. What's the kind? Of person that you have. In mind
or person or company or entity. Who's the sort? Of typical user of finance you ask.
Speaker 3
Great question because I love how one type of person. You know the target market out there is
segmented into fractions that we're all trying to go after. So the products that we provide, you know,
have to cater both to the first time user as well as the advanced trader using API. So kind of in our suite
of understanding, we want to be able to offer the opportunity for people to engage as best they feel fit
without being kind of the gatekeeper that says this is what you really should be buying because I feel
like that that kind of goes against the the purpose of your cryptocurrency layers. These barriers to entry
and let people really. Access, manage and grow their own capital from their own determination. So our
target audience and clearly the kind of crypto native already the set that's already bought in to vision,
understanding how the trading works, we kind of see them as first adopters having. Familiar enjoyment
of finance platform itself, so you'll notice that finance dot US is rather similar in terms of field scope,
order books, visuals, API's are, you know, family. And so we kind. Of can cater towards the crypto aware.
And as well kind of the more larger focus of of mine is making sure our both our narrative and our
platform are digestible for that new wave of crypto savvy folks. So they may not even recognize what
crypto can provide for them, but being able to access. Funds send them all to go, you know, really be
able to explore different projects and have that autonomy all within their fingertips or something. And I
think it's super important for people as we increasingly have a kind of a global mindset and are
expanding through, you know, a variation of careers that people may not have had previously. So if you
imagine like longer the days of the the 30 year career and now you've welcomed in the gig economy as
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well. As you know, global projects where you're traveling quite a lot. The idea of having crypto in your in
your portfolio really has its benefits.
Speaker 2
I just got a question in from a listener wondering kind of how crypto market how crypto trading fees
compared to other asset categories. I think that's a good one for you, Catherine. Having come over from
FX, how do?
Speaker 3
You think about.
Speaker 2
That in terms of. As an important sort of driver of, you know, bringing people on board and
differentiator and then also kind of how do you think the person coming from, you know being familiar
with trading different category of assets would be would react to the fees that they're seeing on on
most crypto trade?
Speaker 3
Yeah, it's kind of funny. I mean, I I blame and credit my experience on the FX desk for for making you
realize that some of the largest money movers out there pay nothing in order to get prices prices on on,
on certain pairs of moving currencies. Myself, when I was on the desk. Moving Hong Kong dollars into
dollars for Christmas gifts or holiday vacations required about an 8%. Fee to a competitive bank on a
pegged currency, which to me was, you know, at a principle that was difficult to digest. You know, I was
getting, you know, really like one paper, 00 even flat for for some, you know, $100 million move of
currencies and then. And me sending $35 cost me $35 and then 8% so.
Speaker 2
The kind of.
Speaker 3
The fee element of how FX and currency has worked is it's been a different model than you see with
equities and commissions. I think that's a tricky 1 because people oftentimes get, you know, caught up
in that as a barrier for them to then engage. And you go OK, well, if I'm going to be getting into
cryptocurrency, but it's going to cost me a percentage or plus in order to get in this position, you know,
maybe it's not, maybe it's not as accessible as. As I want it to be or, you know I'm not planning on
holding it for that long if I'm. Now I have. To pay twice if I'm going to. Get in the trade out of the trade
so. Barrier to entry is, you know, the main focus that I've kind of been hounding on. And so lowering
those fees is really important to other U.S. team to be able to provide for kind of an an affordable way
for people to learn about the technology. So we provide the 1st 30 days of your trading when you sign
up with. Nancy, this is free trading, so there are no trading fees on top of. After those 30 days, your your
initial where for trading fees starts at 10 basis points or 0.1% of your trading volume. And then if you
hold B&B you get a 25% discount on that, so assuming. OK. Losing you a little bit in the audio here.
Speaker 4
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You hear me?
Speaker 3
Hey, guys.
Speaker 2
Yeah, that's right. Just.
Speaker 3
I lose you? No, that's back to kind of the our trading fee structure. So we've rolled out, we've rolled out
VIP tiers, which gives you a rewarded fee structure based on the volume that you're trading. So the
more you're trading. Less you have to pay as well as if you're holding B&B's at a 25%. Count on on
trading and these are just in the element of understanding these markets. You don't want to penalize
people for learning and experimenting how these things trade, so getting familiar with how you know he
settles in and Bitcoin settles like understanding from mechanics of it. Wants you to be able to explore
and really get comfortable with this new technology rather than feel like you're being penalized.
Speaker 4
Each way.
Speaker 2
Sam, do you do you think fees are a motivating factor for people on FDX? Is that something you look at
as a as? A differentiator in.
Speaker 1
A way to.
Speaker 2
Bring people in.
Speaker 4
Yeah, no, absolutely. And Surftech is something that toy said, you know, and it's definitely true that, you
know, trying to convert FX at your local bank can be a really painful procedure where you're paying for
cents and and. But the flip says it's, which I do think is we're saying is that crypto exchange fees are
massive compared to traditional. Exchange fees and I think like you know, on Wall Street, if you're
charged, you know, I think like 1/10 of a basis point is sort of a typical fee for a trade. It's pretty different
like like it's it's a fixed number of fractions of a penny per trade, but but generally 1/10 of a basis point.
Just sort of like about what you end up with, which is, you know, a good factor of 50 year or 100 or so
lower than crypto exchange rate. So you know and a lot of. That just reflects sort of. A combination of
the newer industry, the a lot of you know, infrastructural and technological barriers that you know
exchanges need to get over and and the volatility of the asset class.
Speaker 2
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You've got that weird history in which exchanges use data as a as a marketing tool and make make their,
you know, make incredible revenue numbers on on fees, right?
Speaker 3
If you.
Speaker 4
Yeah, exactly. And and you know one other thing with me which just flows from. This is, you know. In
crypto, what are you know, what are the biggest institutions, the most powerful institutions, the most
famous ones where you lift off tenants and probably listed Stephen exchanges? You know, and and if
you, you know maybe, I mean I don't know maybe for like consensus something clear you put for the
biggest coins but you probably basically.
Speaker 3
The only the only.
Speaker 2
Business is making any money in crypto, right? I mean. Maybe you know, maybe. But but exchanges are
really sort of the the.
Speaker 4
Yeah, that's right where you go to like Wall Street and and if you just go to a random trader on Wall
Street and say, hey, name like the ten highest profile businesses on Wall Street, maybe you get one or
two exchanges. But no, they're. You know, like Goldman Sachs, they maybe they need some trading
firms, some quant firms, a lot of banks and maybe you get nicey in there.
Speaker 2
That's do you think that changes overtime like I mean, hey, he's come down and be like we start to think
about other. I mean, hopefully we start to think. About other entities as being the real giants. Of yeah,
of the right.
Speaker 4
And so my guess are right, it's a good question. And I think that there's a few things going on here. One
big thing is volume. You know, crypto volume is still tiny, as Chloe said, compared to, you know, a tax or
equity or futures or commodity volume. And so I think you know if. You do see. A jump from, you know,
20 billion a day to 20 trillion a day traded in. In the cryptosphere, I would expect that you'd see a factor
of 10 or 100 decrease in fees. Associated with that. I want this, you know, everything just scales. You
know, if exchanges are doing 100 times the volume, but their costs have only gone up by a factor of 2,
then you're going to see fees competed.
Speaker 2
I want I want to ask about another thing and we want the fees and ask about leverage. I just put a slide
here which is something that's new and the book is queue.com provided showing a drop in the volume
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of the big 5 perpetual swap back in May when the regulator in Japan. Required them to reduce leverage
from I think it. Was 15X down to 4X. Maybe it was. So I mean, you know, just there'll be one data point
for sure, but kind of shows the importance of leverage, at least in the derivatives markets, so. And I
know. You know, finance has has rolled out the the trading on. Margin and the. And and you know the
125 X leverage, I think a couple questions come up there. You know one is like for both of you how
important. How important is leverage? You know, maybe something I think in finance, it's not something
you offer now, but maybe something you look to in the future and and also you know to what extent are
people really actually using the the numbers that you see available on exchanges like Bitmex or or FTX or
or you know?
Speaker 4
Right.
Speaker 2
Finance, futures, finance. Derivatives markets.
Speaker 4
Yeah, I guess I'll, I'll, you know, refer him here and say leveraging is really, really important. And a lot of
which to look at this one is you can just look at volumes, right, like rank exchange by buying games
actual volume, you know, it's not like you know corn meal being number one over ********, you know,
coin market cap. I see. And and what you see is basically like you when you yeah for a while that.
Speaker 2
What did say?
Speaker 4
Was #1. And you just look at. The signal like that's not a real site like. I'm sorry but. It's I've literally never
heard of it. It's a percent wide like.
Speaker 2
Right. You have adjusted volume figures that exclude some. Of the largest markets in. Excuse me.
Speaker 4
Yeah, coinmarket for a while has really struggled to get to get real volumes right to be able to capture
the the biggest real volumes without, you know, without getting any kind of crap. But but if you links are
real volume, if you go to fedex.com/volume Dash monitor, you'll see something which is pretty close to
it. And I'm not saying it's perfect, but it basically gets you the highest. Real by me. Exchanges and you
have 75% of the top exchanges are derivatives or leverage exchanges and you know it's just finances.
You know, there's basically only three spot exchanges in the world that trade big volume, that's finance.
OK accent will be and you know, outside of that, I mean, almost all the the the Treaties. On leverage and
you know there are a lot of reasons for that, I'll sort of give one which is that. You know, especially like
in traditional finance, there's this solution of sort of global or at least national netting out of positions
like you're not like, oh ****. Like I'm long so much apple and noisy. I'm short so much on Amex right
now. Like I'm, you know, you might get liquidity on this position. No, you're just flat. And and you know,
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they all settled to the same thing. Any broker worth or salting the net out. All of the major US exchanges
and just, you know, give you sort of default cross margin essentially and you look at crypto where no
you know an unlevered Bitcoin position on coin base and one on Bitstamp. Not the same thing like no
one, there is an existing institution in crypto, basically, that lets you consider those the same thing for
hedging or delta or risk or capital purposes. And so because of that, you have to separately keep
collateral on every single platform you're. You know you want to be ready to buy a Bitcoin on Binance,
U.S. dollars or yeah. And you know, because of that, it's just so capital inefficient that anything you can
do to to get more capital efficient is just really crucial.
Speaker 2
What you're saying like it matters more for the institutional investor. The way that it does for the
gambler.
Speaker 4
I mean, I think that's. Fair. Yeah, that's absolutely right.
Speaker 2
We want to hear from you on this because like I, I know this probably isn't something that's. In your. You
know horizons for Q 1/20/20 or anything. How do you? Think about leverage and whether it's important
and whether it might be something for. You guys down the road?
Speaker 3
Yeah, it's, it's. Certainly been something where it's kind of an overnight success with finance futures
Aaron gone from the CME has built that out and it's been kind of tremendous products for binance.com,
something that we can. To clearly see that the market appetite, much like seeing the growth of FDX, you
know being a part of seeing their story, there's an appetite clearly for that product in the market. And
it's really interesting from my side to see and and you. Blame you know, well, we don't blame anything.
But it's it's interesting the perspective because I always, I always see that we would need leverage
products or in that essence A hedgeable product for these markets to be digestible for our larger
participants and and that's from a more of a conservative. Side of how you're seeing your your use of a
product or your sort of derivatives expansion in. The market that goes down to the line of like, well, it
makes the markets more practical and you can hold balances in these currencies as well protecting your
exposure, but we're not there yet.
Speaker 2
Right.
Speaker 3
So, you know, I think it's it's good for us to build out this robust activity in futures and derivatives to get
people familiar with how these markets. Will be trading and scale them up to a size that would welcome
institutional adoption for a hedge or corporate use case, but that that. Still kind of. As you said, not in
my Q1.
Speaker 2
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Excuse me, Sam, of to what extent people utilize the maximum leverage available on some of the
derivatives markets?
Speaker 4
So basically what you'll see is you get a huge difference depending whether you're looking at what
fraction of traders you or what fraction. Of volume does. In general, you see a ton of people use
maximal or at least high. Leverage, let's say. But the bigger the position is, the less likely it is to be on
high leverage and and and. So you know, the high isolating firms you know as example like Alameda.
You know, it's it's not going to put on 100X leverage position pressing a large one because it's probably
liquidated because that's just what happens when you put 100X leverage position and if if you change
you overcharged not good from like it's liquidated so.
Speaker 2
Right.
Speaker 4
You know when. You look at sort of the highest volume fronts, you tend to see leverage more in the
like? You know, and also like, you know, for me, you're looking more like the sort of three. Is the sort of
number that you might see, whereas you know when you look at retail, especially for an unhedged
position there, you're a lot more likely to see, you know, 20X50X100X, something like that. That's the
first thing that I'll that I'll see say, you know, another thing obviously is if you're getting in and out of
positions quickly, it makes more sense to use higher leverage. Because the amount of time you're
exposing. Salt to liquidation risk is lower, whereas if you're planning to put on a position and hold it and
maybe this is a net position or maybe it's a spread against another exchange. But if you're you're going
to position on and hold it for a week on 100X leverage, you're gonna get liquidated, like you know.
Speaker 2
Right. Well, I want, let me let. Me move from this a little bit and get into. You have many many assets.
That both of your exchanges with, I mean I guess it's not that many compared to. Some but you. Know I
look at some of, for example, if you look at. Let's see if I can pull it up here. The the finance US, you guys
kept focus over the phone yesterday. You guys went from about 7:00 when you launched. And over the,
you know, 45 days or so on 60 days since then, you're now up to about two dozen. And you know, I'm
just looking at this volume charge, just a snapshot. So you know doesn't necessarily reflect what's going
on in a more consistent basis, but I think it's pretty clear. There's a very long tail. And I mean if we you
know, if we kind of move forward to the FPX picture, you're pretty much the same thing. There's Bitcoin,
and then there's, you know, etherium. And then there's everything else. And on on finance, it's kind of
Bitcoin and XRP. And then everything else. Just wondering. Kind of how you guys think about adding
some of these long tail coins and and whether those assets are moving the needle and making a
difference for bringing traders and market makers onto your platform?
Speaker 3
I mean, it's something that we certainly think about it. It's been a feature that. We've kind of. Accented
or focused on this diversity selection that we're going to be providing and and it's been an element
that's important to me and our team. And I think the the the ethos of of finance and sees these vision as
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well along the lines of being able to be a platform that allows for freedom. And so not everyone's first
step into cryptocurrency, maybe through Bitcoin and so being able to provide a platform that lets
people get comfortable with how they see this future working for themselves is something that we want
to be, you know, agnostic to and so. Right. Which may include kind of tail risk might also just be that this
is the first time the asset is having access to us. Years and we only facilitate operations in 37 states, so
perhaps those users are isolated to some of the 13 states that we're not allowed to operate in just yet.
Until we get licenses for those. So we can keep through doors.
Speaker 2
You have going before, in other words, or or around yeah.
Speaker 3
And I think it should continue to keep the doors open on those coins because they've had vibrant
communities elsewhere or, you know, high demand. And in the United States and passed through our
digital asset risk assessment framework, so. No, it's it's funny. People had a lot of mixed reactions on.
That but you. Know from. From my standpoint it's a it's an access point. I'm not here to be the
gatekeeper to tell you what you should buy, because I think that's not the position that exchanges
should be in. That would be the. Position where you would be in if you. Were a protocol.
Speaker 2
There's got to be. A criteria there's a 2000. Some odd or more?
Speaker 3
We first when we launched. We listed 7 as I mentioned, kind of what I call large CAP points and then
we've. Announced we had 30 coins that we were exploring and have taken all of those through digital
asset risk assessment framework, which is something that we have in place for evaluating based on
yours regulation as well as the liquidity measures which Sam and I have mentioned around kind of the
importance of healthy markets. So that would be pretty in-depth process and as coins pass through the.
Then we go ahead and list them. So like last night, we've opened up deposits for nano and we'll continue
to kind of maintain a listing addition going for. So you can see us kind of increasing the number of coins
if that comes with scrutiny as we go down the market caps.
Speaker 2
Sam, what do you think you've got a few on here. The trading pretty tiny volumes. I just added Tobo on
there. I I think the long tail effect in your in your chart here of of open interest by market is even more
pronounced than. It is on. Us what's the what's the advantage of? Having some of these, you know
markets and not only for the for the asset itself, but. For the derivative built on the asset. Seeing that.
Speaker 4
So I think I'll give served 3 answers to that. The 1st is you know, we'd always know what's going to trade
off before we left the market. And so some of this is, I don't know, let's list it and see if it's big, but you
know, obviously to some extent. We can guess. To to give sort of a second answer.
Speaker 3
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I used a little bit of a.
Speaker 4
Title points don't know how important this is for something. It's a bit different. Launching and
derivatives market versus the spot market in that the derivatives market is served by definition by
direct. Well, and so when you serve.
Speaker 3
With the spot.
Speaker 4
Market, you're in this awkward stance a little bit of like rooting for the coin to go up. Almost because
people can only get long on your platform. And so you you you're users that. Make money. If the Queen
goes up. And lose money figures down.
Speaker 2
Yeah, I mean. That in terms of like, you know, backroom deals with whales, right, you're like, well, well,
listen, you know, if you come in and and, you know, do some market based on.
Speaker 4
Right.
Speaker 2
The platform and. I I I assume that kind of conversation. You know, goes on across the board. But I think
it may be in the derivatives market due to what you were just talking about. There is a little bit less of a
conflict of interest. With the this the the retail trader for example.
Speaker 4
That's that's right. Like when you listen during this market, you could go up, could go down, people can
make. Money either way. And so you know, that means that there's a lot less of that and you know, you
don't have any of those conversations that that you're talking about. We generally don't even talk to the
project before listing them and and you know it, it's just sort of like. Is the thing people want trade. And
so you know that that's one thing that we don't see ourselves as having, you know, a duty. To support
the project in a positive direction, necessarily in a way that I'm not saying you would as a spot exchange,
but at least there be that tug. And that makes the the threshold a little bit lower and then the last thing
that I'll say is, is this sort of like you know, come for the shitcoin stay for Bitcoin effect where you know,
there are a lot of traders who you know. Yeah, it's a pretty big effect, which is, you know, I'm sure that
they really want to trade some. You know, they really want trade. Or something like that and you
actually link contracts have like significant buying for some periods and they still are, you know the
tempeh selling contract or something, but it's not the only thing they trade, but they may choose their
exchange based on which one has. A link future.
Speaker 2
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Come for Bitcoin and then you. Like kind of over what?
Speaker 4
You might think that. And there is there is some going in both directions, but I but I think the sort of
operative thing here is that there is a real effect of like, holy ****, this platform has this product. I really
want to trade right now, so you're gonna bother signing up, figuring out how it works, learning the UI,
depositing some capital so I can trade it. And now that I've put that effort. And I want to trade some
Bitcoin futures. Oh, I'm already on FTX. You know how it works. I kind of like it. You know, it sort of gets
people over the hump.
Speaker 2
Yeah, yeah.
Speaker 4
And so that's, you know, that's. The other way that we think that.
Speaker 2
You will right of you know, whatever. There are certain things that make a difference on that. Another
thing right that I want to trade is is one of those. I guess you know one more thing on. That I want to ask.
About your. Your index products. A little bit. I want to pull the slide here that highlights a. Couple of
those I'm actually I'm really. Interested in these? And a couple of conversations I've had leading up to
this. People pretty interested in kind of how you're seeing. People use those and and kind of and one
thing you. Know we did get a question in from a. Listener, who was curious about. You know the really
asking more about fake volume, but mentioned the ETF report and the the continued projections of
regulated ETS in the US and I wonder to what extent you know this kind of dovetails with what CAP has
been talking about about emission of accessibility. You know you have something here that kind of
resembles an ETF. I think the Dragon Index is of, you know, China based crypto projects.
Speaker 4
Right.
Speaker 2
The Shitcoin index is a presumably a basket of, yeah. The utterly hopeless crypto pros. You'll give you
the ability. To have that kind of ETF like instrument to to, to short, you know, go short or long in a in a
balanced. Strategy so so. Tell me about how people are using those and. What you've seen with those
that you've launched?
Speaker 4
So I think we've gotten a ton of excitement over them. You know that sort of outsource their volume.
And I think we're pretty happy with them even if you know and obviously we'd love for them to be a
larger fraction of the volume. But I think we're happy with them either way because we think they're
important innovative products and it. That they're really, really sort of, they've got a ton of different use
cases and just sort of and we've seen people use all different versions of this and just to run through
some, you know one is let's say you're an OTC desk, right? And you know you, you just OTC trade against
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the customer where you buy some. Some sort of moderately illiquid, you know mid cap coin, right? You
know, maybe you buy BitTorrent, maybe it's one of the more liquid ones, but like, you buy some of
BitTorrent, some Bitcoin gold something. Like that. And obviously, eventually you're gonna have to
actually, you know, sell that that token itself in order to have close down that trade. But you can't just
send a market order for $500,000 so that you'll you'll kind. Of crush the market. So how did you hedge?
And 11 answer as well. Once you hedge with the mid the mid cap futures here? And those are super.
Look at they're way, way, way more liquid than you know basically any of the. Coins in them. And you
can sort of immediately get your delta hedge off, so at least you've kind of.
Speaker 2
Gotten rid of half the so it's not. It's kind of a misleading term in a way, right, you think Midcap, you
think you know right? I don't know Raytheon or something, but right, you know it's happened.
Speaker 4
To crypto you know the cryptosphere so you know. So that's one answer is sort of. Hedging purposes
where you get an index which is way more liquid than any individuals and gets you off, you know at least
sort of some of some of your you know risk. That's one thing. Another thing obviously is, you know,
good news comes out from China, right? Like this happened and and, you know, Chinese coins went up a
lot. And and you want to serve you a trade on it, you could kind of choose one at random, but you're
opening yourself up to a lot of adverse selection of maybe like you don't really know exactly which coins
are going to be affected by this. There's some weird idiosyncrasies in the announcement you choose the
wrong coin. It doesn't move something like that. What you really want? You know what you're trying to
express is not like Tron. That's the one that's going to do. Well, what you're trying to express is, in
general, these coins will you wanna trade quickly easily you exclude strong.
Speaker 2
Because that would be the one that I would, you know that I'm.
Speaker 4
Well, So what we do have is we have the Dragon index and then we have Tron features. And so that's
another thing that you do here is if you think that like Chinese associate cryptocurrency project, you're
outperform but you're bearish on Tron, you can get long dragon like in short. Future, yeah.
Speaker 1
Cool and I think.
Speaker 2
You know, maybe you know question I think for Catherine in terms of your sort of ethos when it comes
to and Binance and Binance US's ethos when it comes to this stuff. You know, this is kind of a softball.
Maybe, but like. What? What is? The crypto markets here today and in general that you that you think
are going to that you think are likely to make their way over to traditional finance. I mean just to set the
table a little bit like I look at the way the large derivatives exchanges have set up, you know without
central clearing. Set up market structure. In order to manage, you know. High volatility, high risk, a lot
of. You know those those engines are are sort of constantly being. Refined and we can talk a. Little bit
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about some of the hiccups in a minute. But I you know, I wonder, as you look at that and look at some of
the innovations in market structure that are happening, what do you? See here that. Has the. Potential
to to. You know, over some period of time gain adoption in traditional planning.
Speaker 3
Yeah, that's interesting way of seeing it, because I oftentimes think we're we're pulling too much from
traditional. Finance and putting it on to crypto. So what? What is the reverse? Or what is the impact that
we'll see on our traditional? And so, like thinking about that, thank you for the question. The the other
thing I think that we've already seen from some of the equity houses or equity trade, you know, retail
trading platforms, is that reduction of fees, you know recognizing that there's efficiencies in these
platforms that they need to be transferred to their customers? So kind of the reduction of these, what
used to be kind of fat margins coming down during the increasing automation? And streamline
technology that we can be providing no longer having to really pay per per voice that's going to be
communicating. So in elements that but on the you know the future side, the US just operates in such a
such a different way. You know, given given the licensing requirement from CFTC. The clearing houses,
you know, FCMS the breakdown in the United States is significantly different of the landscape than we
can have with like the global futures markets that we've seen from. After X but but Max and Binance so
so I think there's as much as. I'd love to see that. The crossover happen quicker. You know, there's,
there's still quite quite an element of infrastructure here in the United States requires its own custom
build.
Speaker 2
It feels like there are there, there are just.
Speaker 1
You know, I think a lot of people use.
Speaker 2
The analogy of like exposure. To risk and where you know and. And I hear. A lot of people talk about this
in terms of maybe the United. States not being the 1st place to adopt. Crypto assets that you know in
mass and and the reason for that being that you know there's a fair. Amount of risk you can kind of get
exposure. To here if you want.
Speaker 3
To you can go on any of the other components of like the native use case. The native use case of
cryptocurrencies is felt so much more. Outside of the. United States to go across from California to
Nevada. You don't have to exchange your currency into a. You know highly. Local cross pair. But the
moment you go from, you know, Vietnam to Singapore, your your spreads are ridiculous and not
necessarily accessible. So I think it's just the elements which crypto provides from a use case perspective
or just immediately felt. So much more from international perspective. That's like one element that you
can factor in.
Speaker 2
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Let's talk about taking on risk as a use case, right? That's because that's A and I think a lot of times
people want to separate use and speculation. I think that's, you know, there's a fair. Distinction to make.
In some cases, but. You know, broadly speaking, speculation is they're using something, yeah.
Speaker 3
And they and they and. The risk appetite breakdown, I mean the risk appetite of of a country that's able
to leapfrog use of financial development. Through the adoption of a new technology, you know bullish,
you know, all in. Where? Where you're like. Oh well, my, you know, like my ETF.
Speaker 2
We are in Las Vegas, right?
Speaker 3
Yeah, well, it's funny. I've actually, like, never been to Las Vegas, but I've been to Macau enough. So I
learned, learned to play blackjack on a Macau. Floor is a little different than.
Speaker 2
I think it's there, right, Macau is is, I mean this is not a new idea, but Macau is was experiencing
something that.
Speaker 3
That the United.
Speaker 2
States experienced in. The post war boom. And that you were saying that that? OK.
Speaker 3
Yeah, it just comes with that. That attitude. It's like there's there's significant reason for why the
speculation and the upside seems so much more tangible than in the United States, where you've got,
you know, robust equities market right now as well as you know, pretty stable. I mean we think about. I
think it's. It's fascinating that we see such great legacy names coming into the space in crypto, no one
would be keeping their, you know. 401K that brand new shops that opened up the month. Ago and
you're going. To be leaving or you're replacing some of your longer standing funds at these very well
established shops. And so I think that's just the risk government of the United States is it's completely.
You know it's it's it's both different and similar in the aspect of there's a lot. Speculative money in the
United States, and there are an insane speculative appetite outside of.
Speaker 2
The US. Yeah, yeah, I guess I I sort of, you know, us being individuals like myself being excluded from
most of the platforms we're talking about. This may not really be applicable, but I sort of look at what
what innovators are doing as maybe you know, and Bitcoin itself really like for me. You know, venture
capital is not really an asset category. I can participate in. But if I just, you know, buying a whole Bitcoin,
it's kind of like it's kind of. Like a venture bet. And so, you know, I think you get that sort of opening up
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of markets that otherwise people would be or sort of asset category or asset category and that you
know analogies that otherwise. Excluded from.
Speaker 3
Yeah, absolutely. OK.
Speaker 2
So biggest thing maybe to kind of reach forward a little further thinking about, you know, ETF's and
access to those and and and kind of, you know, fake trading and and we've had a couple of questions
coming from listeners about you know the wash trading and the fake volumes etcetera. And I think, you
know, we're really, I mean it's one thing to just sort of pump up the volume that you will and try to sort
of you know you can gather market share by doing that.
Speaker 1
But I think you.
Speaker 2
Know another thing that comes into play. Is the kind of manipulability. If that's even worse and and the
you know the. The trading market, the ability to go in and really push the price around and I. Just put up.
The charge here that. That that we put together according to looking at sort of minute by minute, the
flash crash event that occurred in May 17th and this was where you know it's impossible to say whether
this was manipulation or not. But what happened was a very large outsize ask order. Got placed well
below the. Market price in the hours of the morning on the the three exchanges that formed the Bitmex
Price index. This is the most thinly traded of the three bit stamps and. The result was the price. Pushed
down by pushed down by a good $1500 or so, Bitcoin price on this one market and cascading effect of
auto liquidations on Bitmex and you know Long story short about it looks like. About 1:00 and. A half
million. In in the proposal sale revenue sacrifice in the Bitcoin market on Bitstamp triggered about a few
$100 million of of activity on bitmap to somebody who, if this was an iteration, somebody who was
positioned. To to take advantage. Of that activity. On Bitmex, what could have raised quite a return
here, and I think that you know that event is something people have picked apart and looked at since
then and we've had at least one other event that. I'm aware of that's similar. To it in the theory market.
And I wonder kind of, you know what you guys think about, you know I. Think from as a spot. Market
and finance us, you know, making sure. That the that the. That the market can be surveilled and that
manipulated activity can be excluded, and then on the, you know, on the FX side, how do you think
about sort of managing indexes and and making sure that the data that you're getting can't be
manipulated in order to affect the outcome of the of a trade on your on your market? I guess I'll.
Speaker 4
Yeah. Yeah, so. You know, I think the first thing that I'd say I'll give a few answers. That's the first of the
sort of literal answer is we cap the divergent of any member of the index from the median at. I think it's
30 groups or something. Like that and. We have a lot of elements of our index. Way more than most to
say. You know, most sort of Bitcoin features have something like 3 elements. The index we have
something like 12 across like 6 different exchanges. And the reason we do that is it means that we're
using some less liquid markets, which is the cost, but there's certainly ways from those be 5 fifths out of
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line really gets drowned out when there's twelve of those, you know, it's like a fraction of effect. But
when if you, you know one or a couple of exchanges go haywire, it's really nice to have. Enough that
that you know, the vast majority are still showing a sort of reasonable price and and so, you know, if you
sort of throw out the outliers, you still get, you know, roughly the right index price. So that's for the first
answer to the question. And and you see what happens to one of the exchanges goes to zero. Well, you
know, capped at 30, but divergent, it's, you know, attempting the index or whatever you're talking
about a few basis point impact on the index for a an 80% move on on on a you know on fair move on an
exchange. So that that's sort of the first answer to what we do to.
Speaker 3
A little bit further.
Speaker 2
Applying data sources in those industries is really. I mean, I guess. I'm inviting you to come back your
competition here. But what? Why do you think? Why would somebody? Put a billion dollar daily market
on an exchange. Know an index that's composed of three three spot. Markets in my.
Speaker 4
I mean, I don't have a better answer than just laziness and not wanting to change things from how the
war four years ago, there might be one that I don't have.
Speaker 2
Effect of why fees. Are high now and how they? Might come down in the future.
Speaker 4
Yeah, yeah, it's it's just sure that's how things were back when they're only a few exchanges and things
haven't changed, I think is the basic answer. So so that. That's one part. Of it is, and I think like a really
crucial part, this is you ask, how do we tell if data is? Bad you can't like. Cryptocurrency changes are not
at a point where you can get the data feed from one and tell. For sure if it's bad or good like they just
randomly published data that's wrong in exactly the same format as they publish good data, encrypted
results. How enough things can legitimately move 15% in the. So you can't even say with their big move.
Oh, that's gotta be safe. Because sometimes what happens. To you, you you're just sort. Of ****** on
that and and you're left with sort of nothing other than saying. I know there's a lot of exchanges, like,
has everything moved? If too it's a real move, maybe you don't like it, but but that seems to be what the
markets doing in $3 billion against it. So I guess it. Real and.
Speaker 2
Do you guys have thoughts about that in terms of you know the the data that you produce and making
sure that things that are happening there are real and also you know sort of? Monitoring participation
of. You know traders on the on the platform and. Maybe you know a? Small stage. It's probably less of a
key problem, but you know something you probably think about for the future. What are your thoughts
on that?
Speaker 3
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Yeah, it's it's kind of interesting that I always do it, or even more elementary than people expect. Every
single user that goes through our process goes through in depth case IC and AML. So you know exactly
who's trading on our platform. We also have on chain analytics monitoring all the behaviors that are
taking place on our new wallet addresses. Going back and forth. Through the behavior of our trading
that's taking place and and given the size of us right now, I. Mean it's it's pretty easy. To see what's
happening in the markets. If we're only trading about 5 bucks a day, so or you know 5 to 5 to 25, it's still
really reasonable size for us to be able to see who and what is happening with the full knowledge of.
Knowing all the customers that are on our platform are one embedded through our KYC. We've, you
know different tiers of verification. So we've got basic verified and Fiat, but with that it just comes a
great awareness of kind of. Who's transacting on our platform and analytics like you've seen? You know,
there's other 4 vendors out there now that provide really clear sets and risk parameters that we're able
to make sure we're not, you know, welcoming behavior that's going to be toxic.
Speaker 2
I want to kind of actually back. Up from that a little bit and and kind. Of go back. To something we were
talking about full before. We've got a few minutes left cause. This is something. I really wanted. To hear
from you guys, just kind of what is the you know and and I think both of you probably have a good
perspective on this. You know Catherine giving your background in 4X and then with the with the.
Before this and Sam, given the fact that Alameda is actually like Mark making markets on some of the
venues that FX is providing. So the question I want to ask. Is like, what do you do to attract institutional
investors and potential market makers onto the market? You know the kind of thing that as you were
saying earlier, so liquidity is really the ultimate measure of quality and progress. How do you bring the
large participants who can? You know, we can provide that kind of liquidity.
Speaker 3
Yeah, one of the elements that we've kind of taken advantage of being kind of the new liquidity source
for others is being able to integrate into the existing technologies that are really laser focused on those
audiences without having to take that on ourselves. So we have, you know, several partners. Already in
the space that are really focused on being able to be the. Institutional offering for folks to access these
markets and they are able to plug in directly to our liquidity. So sometimes you don't have to do the
hard work yourself, you just have to partner with people that. Are really just. Focused on it. So it's got a
couple of names that we've already built that out the functionality so people can leverage. Are are
recorded.
Speaker 2
Sam sort of welcome that both sides. Of the table.
Speaker 4
So I will say that you know our media is one of the most demanding and rewarding clients that you can
take. On as an exchange. And you know, I I I I sort of feel the pain on both sides now and I, you know, I
think ultimately taking on someone like Alan as a good fighter can be a really. Really good experience for
an exchange, both because you know taking on the liquid fire gets you liquidity, which is really crucial
for exchange. But I think it also involves, you know, getting a lot of requests for features that make the
platform better.
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Speaker 2
On those features like what are, what are we really looking for that an exchange should provide to bring
in or put it in place?
Speaker 4
So there's a ton of stress testing for those things. And just to sort of go through some and and I do really
want to emphasize here that there isn't a silver bullet that, that it really is like there are 20 things and
you sort of have. To get them all. At least sort of, right? And so to go through these, you know, first of all
limits which you have to have a way for institutions to have high enough limits to operate, right. You
can't have a limit on deposits and withdrawals of $10,000 a day, or it's impossible to do arbitrage on
your exchange and. And what that means is, let's say people come buying a ton of, you know, EOS,
that's all they're doing all day is buying. EOS on your platform. Well, all liquidity fires are going to be
doing all this, moving a ton of fuel to your platform to provide liquidity and then moving out the assets,
they're selling it for. If there's a $10,000 withdrawal limit, they can only trade $10,000 a day before.
They're just like out of the US to sell on out, you know, out of the ability to bring the the tether dollars
or about the platform. So you know, you really need high withdrawal limits for high volume accounts.
You need higher rate limits, obviously. And this really if you want people providing liquidity, this is a
huge difference, right? You could imagine a taker who just sends an oil when they want to trade. Of
leaking you send you know an order of. Second, it doesn't. Matter. If no one's there, trading the whole
point is that liquidity fighter is verifying liquidity ready for someone to come trade whenever that
happens.
Speaker 2
Right.
Speaker 4
So you're getting high, you know, high order usage 24/7, whether or not there's high volume, high
withdrawal and it's. You're getting, you know, withdrawal times really matter. Like you have to be able
to process withdrawals within, you know, an hour or so. You know what else really matters here? Like
Fiat support? Like, if you're gonna have it, making sure it works. Well, making sure that if you have, you
know, risk limits or risk checks. Or things like. That, that, that they don't just like always flag every
institutional count every 20 minutes, you know, make and then making sure that your products really do
do what they're supposed to do. And there's a lot of cases where, you know, especially for more.
Complex products for derivatives. They'll just have really, really bad behavior in some cases. If you don't
think the product design out well and you know, did you think what happens if there's a floor? Am I
going to do something reasonable this futures contract, right? Did you see exactly how does this expire
and what data sources am I using? You know, for the expiration of it, you know, did you think about
what happened to one of the? Changes which is part of the index, decides to block deposits or
withdrawals of the coin goes to a massive premium or discount. You know, there's there's just a ton of
things, you know. Did you think about liquidity death spiral from like, what what you can do to prevent
that? There's a ton of things that you have to think through, which you're really care about. If you're
asking liquidity fighter to put on a $10 million position, providing to customers full and some previous
product. And you're like, oh, yeah, and then. Also like one to three, three months, we're just going to
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liquidate you because there's a breakdown of the risk engine. Like, you're not gonna get liquidity that
way and and so you know, there's there's a ton of of different ways and this is only going through some
of them, yeah, there's tons of API requests, API rate limits. And you know, to give one example of a thing
that like half. Of all exchanges grew up. I think this. Is super instructive. You know, exchanges all starches
have an API. Almost all exchanges have a way to ask the API, something like you know what, you know,
what are my open orders, for instance, right. But on a lot of exchanges it's there's maybe generate them
of, you know, 10 queries a second or something like that. Separate and when you query what are my
open orders? You have to specify a mark it so like what are my open orders on Bitcoin tether? Well, the
problem is if your exchange has 100 markets.
Speaker 2
Right.
Speaker 4
And you can only get them one at a. Time it takes you 10 seconds of rate limits just to. Get your open.
Orders across the platform. You can't trade if you're. Doing that and this. Is saying that half of all
exchanges screw up, and when a woman is trying to onboard to place, this is one of the first things we
look at. We just know they probably screwed up and. That it's going to be close to a non starter.
Speaker 2
Crypto need to grow up like is right to grow up and be like win institutions and you know, let's let's grow
up a little and then maybe we'll be ready when they actually, you know, when somebody in a large
institution actually does take interest.
Speaker 3
Yeah, having having seen, like how institutions expect these markets to behave, having been on the
inside of traditional markets. There's a lot more that needs to be done. And so I think, you know, Sam,
Sam and Nike at least can see through things. Through the eyes of. Traditional folks and understand like
if we do not have adequate limits to accommodate for the scale and scope that they really do want to
be trading. In these markets, you know? You've got exactly time to grow up.
Speaker 2
Right. No, you may not. Have the keys to.
Speaker 3
I use that analogy all the time. I'm like, we're still.
Speaker 2
Yeah, we're we're like overtime and I but I I wanna give you guys just like a minute or two to to wrap up
if. If you know. If you would and there's anything you want to. Say or talk about that. We didn't really
get into. Catherine will go first.
Speaker 3
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I mean check us out that you guys, you know sign up, look at it give us your. Feedback on the platform
itself. I'm I'm keen to all of this. Feedback is the only way that we can make the product the way to the
expectations that you really already have. So we listen to you know everyone is the key component to
the platform we just announced. Next Friday of following Thanksgiving, we'll have 75% off of trading
fees for folks that hold 520 or more. So keep alert on at Finance America on Twitter and then or at
cryptically on Twitter. You pretty sure announcements and keep you in the loop. New coin listings and
new products and discounted.
Speaker 2
Fees. That's it.
Speaker 4
Yeah, you know nothing much. Again, like we'd really love to have you train on that check. You know,
we'd really love to have you give it a shot, create an account, see how it goes. Give us your feedback.
You know we're active under scroll meet on Twitter. You can find we have a telegram group. We've got
we chat groups in Chinese. You can always, you know, e-mail support at-x.com and you know we're
constantly growing and adding more features and and you know we'd love to have you. We want this to
be a platform that works for everyone and so you know, we'd love you to be one of those those people.
Speaker 2
Great. Well. Catherine Sam, thanks both. Of you for joining us today, really appreciate it, but
conversation and I hope we can do this again sometime. Again, this is gaining more and you're listening.
To the second in Cornette. Researches webinar series at anybody listening to hear anybody. Signed up,
you'll get an e-mail. With the recording of the entire presentation and. I hope you will join us. For the
next one. We should be putting something. Together with crypto lending for the. Month of December
so. Look out for an announcement about that not too distant future.
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