Chloe&Kelly Talk Room — Ep.1 Derivatives
On 20th March 2020. CFG, TSwap, and HomiEx co-organized a live broadcast where notable persons in the blockchain industry were invited as honored guests for the topic sharing.
Host 1: Chloe Consensus Fintech Group Found
Host 2: Kelly HomiEx CMO
Below are the details and contents from the C&K live broadcast Ep.1
According to Carlorta Perez, the “bubble” on the new technology infrastructures(railway, canal, fiber-optic cable) generated a large amount of investment. It’s proven that this drives business possibilities after constant iterations and experiments. Although the bubble might cause wealth losses due to massive capital, it’s proven that the bubble itself empowers a new era of economies.
Blockchain after wave after wave of revelation formed the astonishing business model that we have today. The field of digital asset trading seems to be an enduring topic. There is no shortage of good projects. Coinbase and Binance mainly focus on C-Type users and spot trading-based platforms. For BitMex and Bybit, they operate a friendly derivatives-trading platform. Last but not least are BAKKT and CME. The participation of all the above aroused the excitement of many both from outside and inside of the community. Today, we are also very honored to welcome five big names in the field of trading derivatives to our studio. To share with us the past and present life of derivatives and how they will respond to the opportunities and challenges brought by the industry in 2020.
Dr. Zhou Hongming
HomiEx CEO. Ph.D. in Artificial Intelligence. A graduate from Nanyang Technological University Singapore. Served as a CEO in Mind PointEye, GroupM artificial intelligence scientist and WorldQuant Senior quantitative researcher. Back in 2013, Dr. Zhou has already been in contact with digital assets with unique insights within the field of digital currencies. A senior developer in digital currency quantitative trading, the recorded transaction volume exceeds 10 Billion U.S dollars. He established HomiEx in 2017 and recruited as a mentor on a contract basis at Huobi University in 2019.
Bullboy
TSWAP. A decentralized digital asset exchange developed under TWSAP Chain, a self-developed high-performance blockchain. Users can mortgage TSWAP Coin to smart contracts. TSWAP is a token linked to fiat currency, commodity, synthetic tokens for real assets such as stock indexes. Coin miners are entitled to the commission from the currency fees. Investors can utilize the TSWAP Coin to purchase synthetic tokens directly. TSWAP followed the DPOS community node mining scheme of incentive. The purpose is to create a platform for everyone to participate. A right and unrestricted cryptocurrency ecosystem operated independently.
Penny
Founder of Bitwork, Hong Kong’s largest blockchain incubator. Additionally, co-founded ACDX with former EXO COO Andy Cheung. ACDX’s designed to provide an advanced cryptocurrency derivatives trading platform and to promote the development of the blockchain industry with product innovation. ACDX provides products such as CBBC, Equity contract, Cumulative option/Excessive options, etc. Through these products and the platform, ACDX hopes to help users reduce risks when trading, implement different strategies and effectively capture opportunities. At the time, ACDX will contribute to projects to help expand its markets and communities and gathering of global cryptocurrency traders. The team’s formed by professionals who previously worked at Merrill Lynch, Lehman Brothers, Citibank, Standard Chartered Bank, and other well-known companies.
Sonic
Entered the crypto-community at the age of 17. Founded an incubation company with a partner in 2017. Founded CCFOX and a team in 2019. CCFOX stands for CryptoCurrency Futures & Options Exchange. Living up to its name, CCFOX specialized on a derivatives-trading platform. The platform developed entirely by the team themselves. Focused on improving the exchange system, including the digital currency exchange system and advanced futures trading system. By exploiting a high-performance matching engine resulting in 1.3W + pen/second. The cluster can exceed 100,000 pens/second. Compatible with multiple platforms. Besides, CCFOX supports forward and reverse futures contract operations on K8s node network architecture. A comprehensive API and business model on par with Bitmex, with restful and ws on standby. CCFOX aims to meet the needs of different types of users through personalized parameter configuration. At the same time, their futures system supports contract cloud functions, synchronize services to other coin exchanges — data sharing. The current technical team came from the Top 3 Stock and Futures Exchanges and Wall Street Hedge Funds. They once developed a stock market platform with over 30 million investors in the traditional financial market and this is a more than enough experience to run a trading platform without downtime and stalls.
Leslie Hsu
Served at Huobi as the head of East Asia for its global station agency before joining CoinFLEX back in 2019. CoinFLEX China Business Respresentative, and former Huobi Head of BD( East Asia Region). CoinFLEX founded in 2019, the world’s first physical delivery digital currency exchange. Supported with an investment of ten million dollars by Polychain Capital, NGC Ventures and Divergence Digital Currency. CoinFLEX’s goal is to increase the trading volume of the cryptocurrency futures contract by 10X to 20X. This can be accomplished by leveraging the advantages of physical delivery. The total trading volume is about 20M to 40M USDT daily.
Q1) Recently, the market fluctuates, and the market sentiment is generally pessimistic. Do you experience any difficulty in promoting your products? People assume that highly leveraged products such as lending and derivatives are the culprit of this market crash. What do you think?
Dr. Zhou:
Recently, the number of players in derivatives trading shrank quickly, even a low leverage position could be closed out quickly. Investors lose confidence and become more cautious. However, we noticed a growth in our trading data platform and there are two main reasons.
First, we have provided better spot trading depth and more competitive trading fees, compared with Huobi and Binance. The comparison charts below are somewhat self-explanatory. I strongly believe this is one of the reasons users came to trade with HomiEx recently. Second, we launched quantitative products for many non-professional traders, operated by our professional quantitative team.
There is a high probability that users will lose money because they conducted the trade themselves. Due to this reason, we launched Cryptocurrency Rotation Model(CRM). This product has the potential to tackle ten times return regardless of ups and downs in the market. Even a hundredfold or thousand-fold is possible. This feature has attracted many users.
Now to the second part of the question of whether highly leveraged products such as lending and derivatives are the culprit of this market crash. Indeed, highly leveraged products such as derivatives are the culprits in this market crash as the market now is in the process of deleveraging. There are two types of leverage, intra-market leverage, and OTC leverage. The data reveals that both intra-market leverage and OTC leverage have reached a tremendous amount. Futures positions exceeded 30B dollars. There is also a clear amount of over-the-counter lending of billions of dollars. Futures are generally highly leveraged. OTC loans are generally fixed leverage. For 100 token, one can borrow up to RMB60–70. In short, this is something that worth a billion.
Someone must have noticed this long ago. However, most of the are still waiting for the time and some are still working out on a strategy for one fell swoop. The problem of waiting for the correct timing is somehow relieved by the global epidemic outbreak as various assets plummet. At this time, the pressure of ‘battering’ will be much lesser. Also, all kinds of leverage are fuel during the decline.
For those who are still working out on a strategy, we have observed the data on the blockchain, and it shows that no huge amount of digital currency flowing into the exchange before the market crash. Everything is normal. However, the market indeed dropped more than 50% in 24 hours.The question now is, from where did the extra coins come from?
We monitored the comparison of price changes across exchanges. These two charts, the first one is the price of Binance vs Coinbase. Price was 473 dollars lower than Coinbase when Binance at its highest. 10% lower. The second one, at the time of battering, Huobi is more expensive than Binance. These two pictures show that the main force of the battering has completed the battering on Binance. Back to what I mentioned earlier, there is no substantial change in withdrawal coins.
Who is the culprit behind this battering?
At a very critical moment when it was around 3600, Bitmex decided to stop trading for 15 minutes. This decision saved many people. Because Bitmex stopped trading, the short order of the person who broke the market cannot be closed and no one taking the risk to transact in the spot. This forced the culprit giving up the idea of battering.
Bullboy:
Leverage is just a manifestation of market sentiment. A superficial phenomenon, not a root cause. Leverage is like a thermometer for the market or summer. It’s hot because the temperature is high, even if I smashed the thermometer, the weather remains the same. The fieriness of high leverage products because of the strong demand for leverage in the market. Just like we can’t change the weather. We cannot change market sentiment. We can only respond to market sentiment. I used to be in the traditional financial market. When the stock market is hot, users will opt to increase leverage. Even when the current leverage been affected in some way, this would not prevent these customers from using other methods such as over-the-counter funding to leverage. 2008 U.S crisis, many people claimed it was initiated by Wall Street CDO complex financial derivatives. I believe that CDO is just a product launched in response to market demand. Strong CDO sales volume represents a strong demand for this type of leveraged product in the market. Even if CDO canceled by regulatory measures, can it stop customers from betting on the real estate market? This is the so-called bull-bear cycle. Just like there are spring, summer, autumn, winter and four seasons in a year. The laws of nature cannot be forcibly reversed and it’s impossible to manually intervene to alter the seasons.
Penny:
Leverage is a tool; it depends on how one uses this tool. Pistols can defend or kill and indeed, trading itself is a human game. Market behavior is also a human game. If I need to comment on this, I think everyone should be calmer when choosing leveraged products. For example, in terms of asset ratio. Many users now use forty-five percent or more of their net worth to do leveraged transactions. In this case, his risk will naturally be higher. We also observe that when people in different countries are trading derivatives. Their preferences are different. So, I think risk control is particularly important for personal transactions and I think there will be a deleveraging trend in the market. The direction of the market will be decided by the very nature of the market.
Sonic:
The market fluctuated greatly this time. Compared to the promotional issue, focusing on the reaction brought in by various products in this extreme condition is more important. The large fluctuation of the currency price and the frequency of user trading will bring a great test to the platform. Especially on the evening of March 13. Together we witnessed the downtime of several major exchanges. This leads to the withdrawal of orders from many quantitative agencies and market makers, various liquidity issues such as cancellations and at the same time, it will also affect the hedging and arbitrage strategies of other exchanges and indirectly affect the overall quote deviation. Endangers participating users to a certain degree. We once saw that the price difference between Bitmex’s markup and the latest price exceeded USD 500. Although users are short-term pessimistic, it’s still hard to promote products in this season. But if you stretch the timeline, the short-term impact is very small. On the issue of high leverage. In fact, Leverage is constantly developing due to market demand on both the traditional financial market and currency circle. After the downfall of the spot market, the derivatives market will grow significantly. This is a sign that the financial market is maturing resulting in product diversification, product maturity, better risk control. Good liquidity will have a positive impact on market expansion.
Leslie Hsu:
Inevitably there will be some difficulties in promoting due to current market downtime but according to the data we collected, CoinFLEX has not been affected much because the contract itself is a product that can be profitable regardless of ups and downs. Especially today, the recovery of the bitcoin price has given everyone an insight. CoinFLEX always provides users with ways on how to secure their positions. In short, helping users to secure profits and stop losses. For the second question, I want to first introduce to you a movie called “No Man’s Land”. The movie is about mankind’s greatest invention — Fire. But fire can hurt people too. I don’t think there is any leverage in this market. Bitcoin is difficult to return quickly above $6000, so the problem with leverage is not in the product itself. It’s about how users work on certain products. Some friends of mine will ask me advice on when to place an order/trade. I do not recommend blindly following without an in-depth analysis. Bitcoin prices change rapidly and the most critical result of following without research is big losses. All this time, CoinFLEX focused on educating users in doing risk management before trading.
Q2) It’s said that in this crypto-industry, exchanges are the most profitable but also the most dangerous path. There will be exchanges closing almost every cycle. Also, during an extreme situation like a market plummet. Exchanges will start to have problems like order cancellation, unable to add margin, etc.
How to convince users that exchanges don’t do evil, what are your comments on this issue?
Dr. Zhou:
I think there are two aspects. First would be the technical issue. Many exchanges are under extreme conditions. Order cancellation and unable to add margin, this happened mainly due to their technical limitations. Second would be report. If something like advance liquidation occurred in an exchange continuously, then we might need to reconsider placing our trust in this exchange. Our current ability to process transactions in the market is impeccable. You are welcome to try it out personally at our HomiEx platform.
Bullboy:
My perspectives are to believe in technology, believe in the rules instead of believing in humanity. The temptation that exchanges facing is huge. It’s a test of human nature. Exchanges might boast that they never commit anything unethical, but the problem lies in how to prove the integrity of an exchange. I think decentralized exchanges are the future trend. Customer assets are kept in their decentralized wallet. Exchanges are not in contact with customer assets. All transaction records are on the chain, wins and losses are clearly stated. It is also an opportunity for second and third-tier exchanges to ride on the wave of decentralization and to catch up with front-line exchanges. However, the development of decentralized underlying technology is relatively difficult. Each exchange is developed separately, and I think this is a waste of resources. The TSWAP public chain we developed is a decentralized on-chain solution specially created for exchanges and all code is 100% open source. Security and transparency is very high.
Penny:
This is a problem that existed in the industry for a long time. But Korea is doing a good job in this industry. That country practices a relatively sound mechanism. Bank will be there to intervene if there’s risk exist. We need to understand that in most countries, the regulation is not comprehensive. I think the solution to this problem is transparency. This is crucial as transparency is everyone’s perception of security. As for now, the implementation of decentralization is still relatively difficult.
Sonic:
Exchange is known as the most dangerous circuit because the exchange stands very close to the money. The various scandals that have occurred in the exchange industry are very similar to what happened in the P2P industry that lasted for years. In the beginning, it’s just a platform for matching transactions, but eventually, it turned into a fund. Some of the platforms are typically betting platforms like casinos. Market price with an unconditional commission. The order book is nothing more than a fake front end. Users profit when the platform loses, and users lose when the platform profits. Under extreme conditions, when the platform cannot react on its own. The user’s asset is no different from being frozen because the platform must first ensure that it does not lose money. Then the loss will naturally occur to the user. Real matching engine,
reasonable tying mechanism, matured standardized price, and fair index statistics are all necessary key elements of the platform. If you want to do no evil, then we must adhere to the principle of decentralization. Commit to nothing else other than providing a trading platform to the user. At CCFOX, we keep money from user’s transactions into the most trusted third party in the industry — Cobo Custody. We will continue to do this to safeguard users’ money and prevent users’ accounts from being manipulated.
Leslie Hsu:
The most secure exchange in the world is an exchange without users, both decentralized and centralized. When there are people, there will be problems. So the key is how to manage. CoinFLEX’s management in this area is divided into several parts.
1) We are backed by the industry’s top institutions. Management is something they very concerned about.
2) Our management comes from leading companies in various industries with ample experience in this area.
3) Our CEO Mark founded Coinfloor in 2012. His experience all the years earned him credibility among users. We have selected many potentials third parties service providers to ensure security.
At the same time, I think the exchange should only profit from the trading fee.
1) Exchanges should not compete with users ever. It should be a fair game. On a side note, CoinFLEX’s matching system uses Trading Technologies.
2) CoinFLEX focuses on positive energy development and activities. We value positive brand image and publicity. At the same time, we also attach great importance to user feedback.
3) Stress importance to risk control. Provide a friendly environment. For example, we have an on-going activity where users are awarded a commission based on platform trading fees.
Q3) What are the opportunities and challenges brought by the industry in 2020? How will your company change this year?
Dr. Zhou:
The global epidemic impact on the market in 2020 will slowly manifest itself. The economic downturn, debt defaults, and other crises will occur. Running an exchange in this situation will become difficult. So, at this critical time, HomiEx is preparing another plan that is greater than what we are doing right now. That’s to provide something that can help non-professional traders. Hence, we have launched Cryptocurrency Rotation Model(CRM). We will continue to launch more quantitative products in the future which also include financial products. We are not betting against users but to benefits together in this trading market. BTC increased by over $1000 yesterday. Many are stimulated by this situation. But take note that this is a product with good liquidity and if the global market cannot effectively continue to rebound. It’s still difficult to get out of this tight situation.
Bullboy:
The blockchain industry in the year 2020 will be facing changes. In the field of centralized exchanges, three major oligopoly markets have obvious monopoly advantages. Matthew effect intensifies. Hence, it’s hard for an exchange to promote products and it will get harder in the future. But 2020 is also the year of new applications in the blockchain. Decentralized exchange, Defi, Stablecoin and Web 3.0 gradually will become the leader of the new era. Soon, blockchain is no longer a speculative market but something that will change our lives. This will profoundly affect the structure of global financial markets and even change the global social structure. On the decentralized exchange track, the old oligarch and the new exchange are on the same starting line. Moreover, ‘giants’ have certain disadvantages like vested interests, gains, and losses. These factors altogether might even slow them down in a race with new exchanges. We firmly believe that technology changes the world as technological progress makes life better. TSWAP will continue to explore the underlying technology of the blockchain in 2020 to create the best public chain in the decentralized trading industry. At the same time, we will develop 100 supernodes to join the community alliance. Including exchanges, Defi, Dapp developer, Pos mining pool, and others. We welcome people to join this community to build an ecosystem of decentralized transactions together.
Penny:
I think this year’s market is an opportunity for ACDX. We can look at the current spot market such as those with fiat currency Bitfinex, Upbit, and Bithumb. Most users are still doing spot transactions. I think users will slowly move from the spot market to the derivatives market. Establishing an exchange is simple, but the derivatives industry is more than just a perpetual contract or a future product. There are only a few competitors in the current derivatives market. ACDX will release new financial products. Our co-founder Andy will lead everyone to create new products once again. Among the top exchanges, although the contract may look objective, the overall transaction volume may be generated by 5% of the users. Transparency and security, these two factors will attract more users in the derivatives market.
Sonic:
The diversification of derivative products must be the future trend. Since our establishment, we feel the rapid development of the derivatives market. Even though we just joined this industry, we have gained some achievements in this industry. Our daily turnover reached 10 billion. This achievement is inseparable from the motto “Do No Evil”. We are dedicated to contributing to this industry. Hence, we consistently looking for ways to promote the industry to a good side. CCFOX takes it to our hearts to serve users and help the industry to progress. We will focus on the global market in 2020, product internationalization and expanding our business overseas. Introducing more high quality for the digital currency derivatives industry to new users and new HOLDERs worldwide.
Leslie Hsu:
Although the halving of BTC in 2020 has produced a consensus that it will rise, many decided to move in different tracks. But in fact, someone at the end of last year has already predicted this market downfall. At the same time, the “long vacation” of the epidemic and the habitual melting of US stocks resulted in a real shock to the economy. Looking at the virtual currency, Bitcoin went from $10,000 to $3800 then bounced back to above $6000. Liquidity is strained by the impact of the global economy that eventually leads to the downfall in the entire market. I hope that halving can bring better benefits to this industry instead of halving the current price of the currency. CoinFLEX’s on-going event helped to reduce losses among users and this is open to everyone. Next, we will be launching Feibao Token that utilizes a physical delivery characteristic. We hope that through this product, we may provide everyone an option of an anti-risk product.
We are thankful for the insightful sharing by these guests in this first live broadcast. Leverage and contract are a tool. I also hope that every user can make good use of this tool. Today we have gained some valuable lessons on a reasonable allocation of assets, pay attention to risk control, avoid risk, and keep in mind that the virtual market is unpredictable.
At the same time, guests also suggested that in the early days of the industry. We should embrace the rules to build a transparent, ethical, and healthy trading ecology.
In the next episode, we will invite a special guest who is a notable person in the mining circle. “You own a block mine”. Come and interact with everyone in the live room. We will continue to give-away mysterious gifts in the next episode. Follow C&K for more surprises.
