Binance’s push to capture the cryptocurrency derivatives and futures market

Binance’s push to capture the cryptocurrency derivatives and futures market

Binance acquired JEX, a little-known crypto derivatives trading platform. Concurrently, the exchange is publicly testing two Bitcoin futures platforms. These initiatives are part of Binance’s push to capture the crypto derivatives market and usurp incumbents BitMEX and Deribit.

Binance’s Bitcoin futures

The world’s largest cryptocurrency exchange announced that its team is developing two futures platforms, in parallel, “Futures A” and “Futures B,” to give its customers the opportunity to vote for their favorite system. In order to encourage users to participate in the ballot, Binance will host a trading competition granting winners a total of 10,000 BNB, worth over $216,000.

The simulated trading competition will begin on Sept. 3 and will last for five days until Sept. 8 at 00:00 AM UTC. All participants will be provided with 100,000 USDT for testing purposes on both trading platforms. The competitors will be ranked in accordance with their trading volume and will be required to maintain at least the originally allocated funds by the end of the tournament in order to be eligible for the prizes.

In addition, those who vote correctly for the winning platform will be given a 50 percent trading fee discount on the official Binance Futures Platform for a full month.

A few hours after the announcement, Binance also revealed that it acquired JEX, a cryptocurrency trading platform offering spot and derivatives trading services. The crypto-asset exchange will be renamed Binance JEX and will be focused on delivering Binance customers with derivatives products, including futures, options, perpetual contracts. The new derivatives trading platform will offer perpetual futures based on the BTC/USDT pair with up to 20x leverage.

“JEX has a seasoned developer team with proven experience in crypto asset product development. [They have] developed solid derivatives product offerings, which are aligned with Binance’s product roadmaps in the crypto asset derivatives market,” said Binance co-founder Yi He.

Binance is entering the crypto derivatives market in preparation for the anticipated launch of Bakkt’s physically-settled Bitcoin futures, which is believed to bring an inflow of institutional capital and liquidity into the space. The firm will also compete with established brands such as Deribit, BitMEX, and the Chicago Mercantile Exchange (CME) that have been dominating the total cryptocurrency options trading volumes.

Considering Binance’s lagging position in the derivatives space, it’s likely the exchange will have to leverage its current leading user base to gain an edge. Whether the exchange can generate sufficient volume to dislodge BitMEX or Deribit is uncertain.

According to Ricky Li, cofounder at Altonomy:

“Given the huge existing customer base on spot and margin trading, it will be relatively much easier for Binance to build initial liquidity than other competitors, which is the most difficult part of starting up an exchange.”

Nonetheless, liquidity tends to beget more liquidity. A prime example is Tether, which despite its many shortcomings still dominates the stablecoin market, even in the face of unencumbered alternatives such as USD Coin and TrueUSD, because of the lead it established.

Similarly, Binance will need to provide a decisive advantage over competitors to gain control over the crypto-derivatives market.

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