According to FTX CEO Sam Bankman-Fried, derivatives are required to improve market liquidity and efficiency.
According to Sam Bankman-Fried, CEO of crypto derivatives exchange FTX, derivatives are critical for the efficiency of digital asset markets.
In an interview with Forbes published on Monday, the crypto billionaire claimed that crypto derivatives are “misunderstood,” asserting that critics fail to recognize the vital role derivatives play in bolstering the liquidity and efficiency of markets.
Derivatives refer to financial contracts that derive their value from an underlying asset or benchmark. Crypto derivatives in the form of futures, options and perpetual swaps have attracted significant popularity in recent years.
Bankman-Fried described derivatives as “misunderstood,” adding:
“People will note that derivatives trade more volume in crypto than spot, which is true. But that is true of every asset class in the world.”
In addition to promoting the efficiency and liquidity of derivatives, Bankman-Fried highlighted that said products can offer greater flexibility to investors seeking exposure to crypto assets by allowing them to access the markets without taking on the challenges associated with custodying digital assets.
He did, however, recognise the hazards of traders utilising high leverage, which can cause increased volatility and expose investors to liquidations. Cointelegraph revealed in March that high leverage has resulted in the liquidation of $500 million worth of Bitcoin in just one hour.
Bankman-Fried reduced the leverage allowed to traders on his FTX exchange from 101x to 20x in late July. He noted at the time that the action was designed to “encourage responsible trading.” Bankman-Fried expounded on his choice to decrease the leverage available to FTX users in an interview with Forbes:
“Any position that you’re putting on with that level of leverage can’t be absolutely crucial for efficient markets, and this is not something I felt was particularly important or good for crypto market health.”
Bankman-Fried also urged the crypto industry as a whole to embrace regulation, asking digital asset providers to perform a “more careful job of communicating with regulators.”
Earlier this month, the FTX CEO projected that regulatory clarification for the crypto business would take three to five years. “I spend five hours a day on everything from regulation to licencing and everything in between,” he explained.
On August 9, FTX declared that it will streamline its Know Your Customer procedures by comparing phone numbers to data on file to authenticate users’ jurisdictions.