Galaxy: On-chain OTC Options Trade Key to Finance Evolution

Galaxy Digital is working with crypto investment firm CoinFund to alleviate credit risk and boost transparency with on-chain trading

article-image

rafapress/Shutterstock modified by Blockworks

share

Trading over-the-counter (OTC) options on-chain represents a key next step in finance after the collapse of various centralized heavyweights in the segment, according to Galaxy Digital executives.

The crypto-focused firm is now able to trade such options tied to digital assets with Galaxy, the company told Blockworks. Galaxy completed its first trade with crypto investment firm CoinFund.

OTC options are derivatives contracts that trade outside of a formal exchange. The buyer and seller can create their own terms — including strike price and expiration dates — for the private transaction. 

Trading them on-chain alleviates credit risk typically associated with traditional OTC options trades, while also protecting privacy, according to Jason Urban, Galaxy’s global head of trading.

“You’re essentially using smart contracts to manage the collateral, ensuring that even if a counterparty defaults, the other party on the trade can get the money they’re owed,” Urban told Blockworks.

“Previously, margining had to be done off-chain, so a typical OTC option in crypto looked a lot like an OTC option within another asset class.”

Onchain “trustless” settlement means that each party must submit their side of the settlement before anything is released to either entity, added Lini Gao, Galaxy’s vice president of institutional sales and structuring.

“Counterparties must be compliant to a pre-defined set of rules surrounding margin requirements throughout the life of the trade,” Gao said. 

Investor demand for on-chain solutions that afford more transparency and less credit risk has picked up following the collapse of crypto exchange FTX and other centralized entities in recent months, Urban noted. 

To execute, margin and settle the trade, Galaxy used Aevo, an on-chain options trading platform developed by Ribbon Finance. 

The DeFi derivatives platform introduced Aevo last September. Its mainnet went live last month — initially allowing users to trade ETH options.

Loading Tweet..

Aevo’s OTC exchange launched Monday, allowing users to trade altcoin options on-chain across weekly, biweekly and monthly maturities.

CoinFund decided to use the platform to benefit from “advantageous margin requirements and on-chain payoff enforcement, as well as being able to select a precise strike price,” according to Ribbon Finance.

The OTC options trade comes a little more than a year after Galaxy made an OTC crypto transaction with banking giant Goldman Sachs via a bitcoin non-deliverable option. 

Galaxy, which says it works with roughly 960 counterparties, posted a net income of $134 million during the first quarter.


Don’t miss the next big story – join our free daily newsletter.

Tags

Upcoming Events

Hilton Metropole | 225 Edgware Rd, London

Mon - Wed, March 18 - 20, 2024

Crypto’s premier institutional conference returns to London in March 2024. The DAS: London Experience: Attend expert-led panel discussions and fireside chats Hear the latest developments regarding the crypto and digital asset regulatory environment directly from policymakers and experts.

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Pack your bags, anon — we’re heading west! Join us in the beautiful Salt Lake City for the third installment of Permissionless. Come for the alpha, stay for the fresh air. Permissionless III promises unforgettable panels, killer networking opportunities, and mountains […]

recent research

Top Icon.png

Research

Osmosis thrived in H2 2023 on the back of increased DeFi activity deriving from recently launched Cosmos-related projects and better market conditions. With new value accrual mechanisms for the native token, Osmosis is well-positioned to continue its strong performance in 2024.

/

article-image

The settlement ends the legal battle over eth.link, a domain once owned by imprisoned developer Virgil Griffith

article-image

TBC President Lee Bratcher told Blockworks he’s “confident” about the Council’s case against the DOE

article-image

The Monday trading volumes total passes the previous high mark set on the fund’s first day of trading nearly seven weeks ago

article-image

The hearings are expected to last for a couple of days as the court hears arguments for and against the bankruptcy plan proposed by Genesis

article-image

Equities were mixed toward the end of Monday’s session while cryptocurrencies continued their rally

article-image

Though the opposing flow trend is likely to slow over time, industry watchers note, bitcoin fund assets could one day eclipse the $90 billion gold ETF space