Today we are proud to announce connectivity to Deribit, a quickly growing cryptocurrency derivatives exchange based in Europe. Deribit is the market leader in options and a strong player in the futures market, with healthy volumes and a loyal customer base built on solid technology and a steady focus. They’re not looking to be the flashiest market player, nor has its leadership taken sloppy risks to become an overnight success. They have slowly built Deribit with the goal of being a trusted marketplace built for high-volume throughput. The Deribit founders are a brother-brother team, John and Marius Jansen, and I have met them at multiple industry conferences…which got us talking about the possibilities of TT and Deribit.
While we realize Deribit doesn’t cater to our U.S. crypto customer base, it does present a perfect shape as a puzzle piece in our ideal crypto portfolio, which we want to include all types of exchanges, products, ways to access the market and more. Deribit was highly requested by our customers in 2019, and we’re really excited about our customers’ ability to now have another derivatives exchange (1) for spread trading like products and (2) that provides the #1 options outlet for crypto on a platter to our growing options base. Right now on the TT® platform, customers can access crypto on Deribit, BitMex, CoinFLEX, Coinbase, CME and ICE.
And because of our news today, I thought it would be great to host a “5 Questions” Q&A with Deribit CEO and Co-founder John Jansen.
Before 2017, crypto volumes were ruled by spot exchanges. Even in 2017, spot crypto volumes were huge, and derivatives exchanges were very few and far between. But by the end of 2018, the leading volume exchanges were derivatives exchanges, and in 2019, the most successful spot exchanges came charging into derivatives with new offerings. What insight did you and your brother have to think that derivatives were the better way to go from your founding date?
John: Typically in all markets, the size of the derivatives market is much bigger than the underlying market. This applies to equities, fixed income, commodities, etc., so it was fair to assume the same would happen to crypto assets. I started my career as an options market maker. With that knowledge and my belief in the potential of Bitcoin, we quickly realized that BTC derivatives—and, more specifically, options—would be the thing that would distinguish us from the rest.
TT’s bread and butter crypto customers are trading the spread of the difference between an instrument on one exchange versus a related instrument on another (for example, a Deribit perpetual vs. the CoinFLEX January future), so auto trading tools and a reliable exchange are all very important. Reliability is one thing I really liked about Deribit. Can you talk about your emphasis on technology, speed, and trust?
John: 75-80% of our volumes are professional/institutional. I think that the reason for this preference of professional firms is based on our system performance—simply, the number of messages our system can process per second. Furthermore reliability, not only of us as the company, but also of the system itself. Traders are interested not only in how often do problems occur, but when they do, as it is inevitable in such a new industry, how are they dealt with? With the client’s or the exchange’s best interest at heart? We believe that we only can have long-lasting relationships, if we develop the platform with their best interest in mind, and focusing on system performance, preferably reducing latencies while safeguarding the stability of the platform.
Traditional exchanges have giant budgets, staffs and physical reach to support their customers. Even a company like TT has sales, customer success and support staff in multiple cities around the world to handle inbound opportunities and issues. How has Deribit been able to acquire a global customer footprint with a small team and a single location?
John: Deribit only employs around 25 people, and have team members all across the world. In order to grow, an important aspect is partnerships. This typically is in the form of affiliate structures, technology providers, signal providers, asset managers, etc. We often announce new partnerships and, frankly, without the good relationships with these parties, we would not have gotten to where we are today. The most important feature is a superior technology and a unique product offering, and we still are the only ones with a liquid options market.
When I first started watching Deribit in the summer of 2017, your only product offering was a front-month futures contract. How have you grown your product breadth, which leads to some fragmentation of liquidity, and managed to grow your volumes to a significant portion of market share and multiple hundreds of millions in volume per day?
John: Since we started in 2016, we have continuously expanded our product offering. However, we have not focused simply on offering a long list of different coins, rather contract types that have most demanded by traders. Our main focus has always been to maintain high system performance that allows for more advanced trading strategies.
At the moment, we are not adding options of lower market cap coins, as options have a high system impact—one price move in the underlying asset results in hundreds of updates in all of the prices of the various linked option series. This does not mean that we will not add more products in the future. If there will be demand, we will introduce more coins, however, we will only do it with a clear focus on system processing power, as the platform’s performance is something that cannot be compromised.
I alluded to in my opening that Deribit is an unregulated exchange. You don’t currently perform KYC on all users, so can you describe how you think about complying with AML laws so that you don’t facilitate illegal money transfers?
John: In 2020 the Netherlands will implement a new AML directive to improve financial transparency. However, there is ambiguity in how this regulation will affect Deribit. We have always believed that crypto markets should be freely available to most, therefore we have had our concerns about the new regulation sacrificing any privacy of our users. Additionally, it could cause too high regulatory and cost burden. Due to this, we have decided to relocate to Panama. Nonetheless, we want to avoid any illegal activity on our platform. Therefore, starting February 10, 2020, we will introduce a KYC procedure in line with the industry standard for crypto-to-crypto businesses.