What to know:
- A decade ago, BitMEX invented the perpetual swap and became the first crypto derivatives exchange. But then everyone stole the model and derivatives exchanges became a dime a dozen.
- But BitMEX’s current CEO Stephan Lutz is OK with this.
As a seasoned researcher with a keen interest in the dynamic world of crypto derivatives, I can’t help but admire the resilience and adaptability of BitMEX. Having witnessed the meteoric rise and fall of many players in this fast-paced industry, it’s fascinating to see how BitMEX has managed to stay relevant, even as competitors have sprung up like mushrooms after a summer rain.
Steve Jobs, a favorite of Apple, often expressed that “Great innovators borrow, exceptional innovators take inspiration,” to justify Apple’s noticeable adoption of technology from Xerox.
In the context of the emerging Web3 landscape, BitMEX CEO Stephan Lutz, who took on his role towards the end of 2022, expresses a receptive stance regarding competitors adopting their innovation – the perpetual swap, which forms the basis for the crypto derivatives market. The reasoning behind this is that increased usage of such tools contributes to a more robust and vibrant market overall.
In a conversation with CoinDesk, Lutz stated, “Since it’s open-source, everyone has adopted it – it’s the highest form of praise we could ask for.” This implies that because it’s openly accessible, people worldwide are working on it, which is essentially flattering us in the best way possible.
As an analyst, I’d describe perpetual swaps this way: Unlike traditional futures that obligate one to buy or sell an asset at a fixed price on a specific date, perpetuals function more like margin trading without expiration. They work by being a continuous series of short-term futures contracts, using a funding rate (a payment exchanged between long and short positions) to keep the price in line with the underlying asset.
Lutz argues that the perpetual swap was a cornerstone innovation in crypto trading because it addressed a fundamental challenge in building derivatives in the early crypto market structure.
He pointed out that you encountered a situation where one party’s creditworthiness was at risk, and there wasn’t an effective system for uniting long and short positions. The development of the continuous swap structure, which included a funding mechanism and a protective insurance fund, is what essentially ignited the entire futures trading sector.
It also allows traders to react with the hyperdrive speed required in crypto.
In traditional finance (TradFi), some investors think the market follows a seven-year cycle. However, Lutz, an experienced professional from Deutsche Börse, which manages the Frankfurt Stock Exchange, notes that this pattern is actually only six months long in the crypto world. He emphasizes the importance of swiftly adapting to new trends and developments.
Although BitMEX is no longer one of the top derivatives exchanges in terms of volume due to larger centralized platforms such as Binance entering the perpetual futures market, it continues to maintain a dedicated group of traders.
One reason for that is because BitMEX does not have its own market-making desk. It doesn’t trade against its own customers, Lutz said.
He noted that variations in our funding rates may occur due to our commitment to impartial pricing determination, a crucial aspect for upholding fairness. In essence, it’s about maintaining objectivity.
In times of significant market turbulence, especially during market slumps, BitMEX frequently experiences an increase in its market share – sometimes even doubling. This is largely attributed to BitMEX’s dedicated base of derivatives traders who remain faithful to the exchange.
Another 10 years
It can sometimes be challenging to envision the future trajectory of a cryptocurrency business, considering the rapid pace at which this sector evolves.
As an analyst, I find it intriguing to contrast the lengthy liquidation and winding-up process of Lehman Brothers with the swift bankruptcy resolution of FTX. While Lehman Brothers’ demise in 2008 marked a protracted period of uncertainty and complex unwinding, FTX’s resolution has been relatively quick, offering a more streamlined approach to addressing its financial challenges.
From my perspective as a crypto investor, I anticipate that BitMEX will continue to thrive in its specialized area of bitcoin-based derivative trading, while also strategically broadening its product portfolio over time.
Perhaps within the coming years, BitMEX could innovate something novel – a development that they’d find pleasing when the entire sector emulates it.
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2024-12-11 08:09