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Coinbase Sets Sights on Crypto Derivatives Throne Left Vacant by FTX – Opportunity Abounds

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Teuta Franjkovic
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Key Takeaways

  • Coinbase has received approval from Bermudan authorities to list perpetual futures contracts for non-US customers.
  • Unlike traditional futures contracts that expire monthly or quarterly, perpetual swaps have no set expiration date.
  • Traders pay a funding rate based on the difference between the mark and index price of the underlying asset.
  • Binance currently dominates the futures market in terms of trading volume, but Coinbase aims to capture a share as well.

The cryptocurrency exchange Coinbase announced that it has been given the go-ahead by Bermudan authorities to list perpetual futures for consumers outside of the United States.

The decision is not shocking; in April, Coinbase obtained a licence in Bermuda to run a spot exchange in response to a gung-ho approach from American regulators with the eventual goal of launching a perpetual futures platform.

Cash-Settled Derivatives Explained

A cash-settled derivatives contract known as a perpetual futures allows traders to use leverage to “long” or “short” an underlying asset. Perpetual swap traders pay a funding rate that equals the difference between the mark and index price of the underlying asset instead of the contract expiring every month or quarter, maintaining pricing efficiency.

The total liquidity and trading volume in the cryptocurrency market fell after FTX, the biggest crypto futures platform at the time, went under last year. The market is still suffering from the fall almost a year later, with little liquidity remaining mostly concentrated across a small number of exchanges.

The crypto market is presently dominated by Binance in terms of trading volume . For derivatives, however, Binance earned over $30 billion in trading volume over the 24 hours, translating to about $9.6 million in daily revenue from trading fees. Its spot market has seen activity of $6.2 billion, compared to Coinbase ‘s $1.2 billion. Coinbase has the ability to keep exceeding revenue projections if it can win some of this market share.

Coinbase did not immediately respond to a request for comment.

Competitive Long-Term Advantage

Perpetual futures could provide a long-term competitive advantage. Since Coinbase’s rivals currently dominate the international spot market and decentralised exchanges already provide service to it, Coinbase would be vying for a lesser share of the industry.

When it submitted a petition in July requesting that the SEC establish guidelines for cryptocurrencies and explain when a digital asset qualifies as a security, Coinbase launched an offence against the agency. Coinbase also filed a petition with a federal court in Texas to get the government to reply to its initial request after the SEC failed to do so.

The exchange also made public its response to an SEC notice from March that claimed the company had broken a number of rules intended to safeguard investors with regard to assets listed on its crypto exchange, its wallet, and staking services.

“We didn’t list securities then, and we still don’t. We’d like to in the future, but the SEC has still not complied with the law by providing companies like Coinbase with a way to register to be able to do that,” the company stated .

On Friday, the price of Coinbase’s COIN increased by 4.69%, indicating that investors are once again upbeat as the Nasdaq-listed exchange adds a new source of income to its repertoire.

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Teuta is a seasoned writer and editor with more than 15 years of experience. She has expertise in covering macroeconomics and technology as well as the cryptocurrency and blockchain industries. She has worked for several publications as a journalist and editor, including Forbes, Bloomberg, CoinTelegraph, Coin Rivet, CoinSpeaker, VRWorld and Arcane Bear. Teuta began her professional career in 2005, working as a lifestyle writer at Cosmopolitan in Croatia. From there, she branched out to several other publications, covering mainly business and the economy. She then turned her attention to the world of cryptocurrency and blockchain, believing that crypto is among the most important inventions in the history of humanity. Her involvement in fintech began in 2014 and she has since lent her expertise in writing, editing and gathering information about the world of crypto, blockchain, NFTs and Web3. An all-round news hound, mentor, editor, and writer, Teuta enjoys teamwork and good communication. She holds a WSET2 diploma and has a thing for chablis, punkrock music and shoes. She also holds a double MA in Political science and Entrepreneurship.
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