Cboe Sees ‘Enormous’ Future for Crypto as it Acquires Crypto Market Provider ErisX

“We think the future (of crypto) is enormous, I think we’re only seeing a small fraction of what it could be,” John Deters, executive vice president and chief strategy officer at Cboe Global Markets, told Blockworks in an interview.

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Edward T. Tilly, CEO, Cboe; Source: Cboe

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key takeaways

  • Cboe’s acquisition of ErisX provides it with the opportunity to grow tremendously by “blending the best of both” traditional and crypto markets, Deters said
  • While the company is acquiring ErisX, it will be a separate subsidiary from Cboe and will operate under its digital asset business as Cboe Digital, Deters said

Cboe Global Markets has agreed to acquire crypto spot and futures market provider Eris Digital Holdings (ErisX), at a time when the digital asset space continues to boom. 

The deal is expected to close in the first half of 2022, subject to regulatory approvals and other closing elements, the company said in a statement.

“This deal gets us into digital assets,” John Deters, executive vice president and chief strategy officer at Cboe Global Markets, told Blockworks in an interview. Cboe’s acquisition of ErisX provides it with the opportunity to grow tremendously by “blending the best of both” worlds between traditional finance and crypto markets, Deters said. 

JOHN DETERS, EXECUTIVE VICE PRESIDENT AND CHIEF STRATEGY OFFICER, CBOE GLOBAL MARKETS
John Deters, executive vice president and chief strategy officer at Cboe Global Markets; Source: Cboe

ErisX operates a US-based digital asset spot market, a futures exchange and clearing house regulated by the Commodity Futures Trading Commission (CFTC). Its clearing house is also registered with FinCEN as well as licensed in many US states, the company said. Cboe is a global provider of market infrastructure and tradable products with an average amount of $78.14 billion traded on its US Equities exchanges daily. 

While the company is acquiring ErisX, it will be a separate subsidiary from Cboe and will operate under its digital asset business Cboe Digital, Deters said. “We want the businesses to have degrees of freedom to operate with the speed and flexibility that it needs,” he said. 

Competitors edge 

Competitors in the space include global markets company CME Group and newcomers of regulated derivatives like the cryptocurrency-based exchange FTX. But, Deters said it’s fairly easy to differentiate Cboe and ErisX from their competitors. 

“CME’s product does what it’s supposed to do, but it’s constrained by the technology stack, the regulatory framework and platform it’s traded on. So, I think there’s probably some limit to how far penetrated that product ultimately gets,” Deters said. “The overlap is there but it’s not significant and we think the size of the circles and the size of the areas we’re playing in, with a complete stack in a single venue, represents the growth opportunity for the future,” he added. 

Meanwhile, Matthew Trudeau, chief operating officer at ErisX, said that ErisX’s focuses solely on crypto and hones in on this asset class through a regulated lense, which has given them the edge and flexibility to delve into that market. As the company operates in a heavily regulated way, it requires them to vet products thoroughly and acknowledge risks and implications beforehand, Trudeau said. 

“It’s not just a niche product to us,” Trudeau said. “All we do, all day, every day, is think about crypto, crypto derivatives and the crypto industry,” he added. 

As it relates to FTX and some of the other crypto exchanges, Trudeau said, “I think the recent (regulatory) moves are validation for us and show the importance of the US market, globally, for this asset,” he said. “There’s a lot of discussion about moving crypto offshore, but ironically it seems like there’s a lot of stuff moving onshore at this point…. Everybody seems to want to get into the US and I think some of the M&A activity you’re seeing is evidence of that,” he added. 

As a regulated digital asset market provider, ErisX is no stranger to working with officials. So, as it continues to grow its US market offerings, Trudeau said those elements will benefit Cboe and its digital asset expansion. Their framework provides “potentially faster, more nimble and effective products compared to those who operate in an offshore environment,” like Bahama-based FTX, Trudeau said.

“There’s a massive release of potential here”

After the acquisition, the company can add in adjacent assets, options and other relative products, Trudeau noted. “But it’s not like we have to build a brand new platform to do that,” because it already has the infrastructure available, he said. “There are near-term products we can offer related to crypto native products and new products related to commodities and securities,” Trudeau added. 

From a general point of view, the company plans to work with regulators on the digital asset space and solve existing problems related to the current marketplace, Deters said. 

“We think the future (of crypto) is enormous, I think we’re only seeing a small fraction of what it could be,” Deters said. “Once you solve (some) problems and provide clarity to the space, there’s a massive release of potential here,” he added.

In the future, Trudeau and Deters said they see the digital asset market expanding exponentially. “There’s unbounded potential in this market,” Trudeau said. “Traditional financial markets and crypto will converge and we’re seeing this happen already — both will take something from one another,” he added.

Trudeau estimates that in 10 to 15 years, all traditional assets will live in a crypto native market. “That’s a pretty exciting place to be… and a phenomenal thing to think about,” he said. 

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