Sam Bankman-Fried (SBF), the CEO of crypto derivatives exchange FTX, has suggested that derivatives are necessary to bolster liquidity and also essential for the functioning of the digital asset markets.
The crypto billionaire said that crypto derivatives are “misunderstood” in an interview with Forbes published Aug. 30, claiming that detractors fail to see the critical function derivatives play in enhancing market liquidity and efficiency.
Derivatives are financial contracts whose value is determined by an underlying asset or benchmark. In recent years, crypto derivatives such as futures, options, and perpetual swaps have gained a lot of traction.
Derivatives are “misunderstood,” according to SBF, who adds:
“People will note that derivatives trade more volume in crypto than spot, which is true. But that is true of every asset class in the world.”
In addition to improving derivatives’ efficiency and liquidity, Bankman-Fried stated that such products can provide greater flexibility to investors seeking exposure to crypto assets by allowing them to access the markets without having to deal with the issues of digital asset custody.
SBF, on the other hand, acknowledged the hazards of traders utilizing high leverage, which can lead to heightened volatility and liquidations for investors. In March high leverage has resulted in the liquidation of $500 million worth of Bitcoin in just one hour.
SBF reduced the leverage offered to traders on his FTX exchange from 101x to 20x in late July. He noted at the time that the change was made to “promote responsible trading.” Bankman-Fried explained his decision to decrease the leverage available to FTX users in an interview with Forbes:
“Any position that you’re putting on with that level of leverage can’t be absolutely crucial for efficient markets, and this is not something I felt was particularly important or good for crypto market health.”
SBF also urged the crypto industry as a whole to embrace regulation, encouraging digital asset providers to perform a “more careful job of communicating with regulators.”
Earlier this month, the CEO of FTX predicted that regulatory clarification for the crypto business would take three to five years.
“Everything from regulation to licensing and everything in between,” he added, adding that he spends five hours a day on it.
FTX announced on August 9 that it will streamline its KYC (know-your-customer) procedures by comparing phone numbers to data on file to verify customers’ jurisdictions.