Derivatives markets are notoriously complex. In traditional markets, investors are able to place a funds into an account, and then trade short and leveraged positions from that account.

But cryptocurrency derivatives, because each is an independent platform, demand unique margin accounts from which traders can be leveraged. For traders, wishing to participate in a variety of markets, this system leads to enormous complexity.

What’s more, cryptocurrency derivative markets are subject to a number of harrowing risks. For example, clawbacks (or platforms taking user profits to cover leveraged losses) often cause massive risk for investors. With insufficient insurance for its leveraged positions, the recent OKEx clawback cost its user base 1200 BTC (nearly $9M at the time).

These problems highlight the immaturity in the market. As a relatively young marketplace (BTC was only created a decade ago!) much work must be done before genuine stability is possible.

Simplify the demons

Each of these flaws creates risk for investors. For the cryptocurrency derivatives market to grow, these must be addressed in ways that create lasting stability for investors and providing simplicity of use at the same time.

One company, FT Exchange, is seeking to create a derivatives exchange model that solves both problems in a simple and elegant way. This is accomplished using a number of internal stablecoins relating to the top cryptocurrencies.

These internal stablecoins provide substantial flexibility for users. Those seeking to create margin positions on different coins no longer have to have additional wallets open for each. Instead, users are able to purchase the respective stablecoin of the market they desire, whether bull, hedge, or bear.











In this way, the platform allows for remarkable simplicity for investors. From a single margin wallet, an investor can invest in a wide variety of derivatives. For example, one could conceivably place long positions on BTC and EOS, while shorting XRP, and all without opening a number of different wallets.

Declawing the clawbacks

What’s more, FT Exchange is also creating a system where investors are shielded from clawbacks. This is done through a proprietary three-tier protection system.

First, the exchange will close out losing positions carefully with rate-limited liquidation orders. This limits massive sell-offs and short squeezes.

Second, a unique backstop liquidity provider is standing by to step in and cover the stop-losses and protect accounts in danger of bankruptcy. This stops the trickle down that eventually results in clawbacks.

Finally, the company leverages their substantial insurance fund to prevent further customer losses. The insurance fund is the final component, providing stability for investors.

Taken together, the three-part system promises to protect investors, while at the same time providing the necessary market exposure for strong returns.

Just another exchange?

Of course, the question with any exchange or trading platform relates to trust. There’s no particular reason why any exchange should be trusted over another, even with creative user protection in place.

However, FT Exchange is not just another exchange. The platform is backed by Alameda Research, a top cryptocurrency liquidity provider. The company is already trading in excess of $200M per day on sites like BitMEX, OKEx, Huobi, bitflyer, and Deribit futures. This sort of liquidity backing provides necessary protection for users that other smaller exchanges can’t offer.

Finally, the company offers a zero-fee over the counter (OTC) trade platform with more than 15 coins supported, and shared KYC and onboarding with FT Exchange.

Step in or Jump in?

Overall the company is seeking to provide the sort of maturity that is needed in the cryptocurrency derivatives market. By reducing the risk of clawbacks, and simplifying the necessary complexity for derivatives trades, FT Exchange will add new vigor to a struggling market.

However, users who believe the platform is offering something special can also participate by purchasing the native token - FTT. The token will be locked for 6 months, during which time one third of profits from the exchange will be distributed to token holders.

After that time, the token will be unlocked and listed on exchanges, allowing others to buy and sell the token. This will provide additional secondary liquidity to the FT Exchange platform.

While there are certainly issues facing the cryptocurrency derivatives markets, companies like FT Exchange are doing their part to move the industry toward the sort of stability that will inspire confidence. As confidence grows, so will adoption and deeper investment.