Donovan Choy

Macauley Peterson

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Hyperliquid, the largest perpetuals DEX by trading volume, launched its HYPE token today to (nearly) wide acclaim.



The HYPE airdrop stands out for two reasons.&nbsp;



For one, 31% (310 million) of the HYPE token supply is being airdropped, far higher than the average airdrop of a 5% to 15% token supply range. Secondly, Hyperliquid is unique as a non-venture-backed team, which means there are no private investor <a href="https://tokenomist.ai/hyperliquid">allocations</a>.



In what seems to be the most <a href="https://x.com/0xLouisT/status/1862418001275806197">successful</a> airdrop of the year thus far, HYPE is currently trading at a $1.7 billion market cap, and a $5.1 billion FDV. For comparison, <a href="https://blockworks.co/tag/dydx">dYdX</a>, which was early to the dedicated DEX chain game, has a valuation of $1.1 billion.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXdpr9PeMe5RHdWqz86iHM4CGZhLIVqnuLklZSsB19o0N76uxkQRvMdOBsfrYX5N4Z5Z-9h3BLCcaautn9oe6C2x4QodRKgcGmF4-oqa8V5zBsA4rVUoQkt-hAlciCvh54mO9618PQ?key=SaHG6bDaGsysdI5462wPIXxn" alt=""/><figcaption class="wp-element-caption">Not everyone is happy about the airdrop, which required signing up to Terms and Conditions in advance. Source: Hyperliquid Discord</figcaption></figure>



Thanks to seamless onboarding, gas-free trading, a sleek user interface and lightning-fast token listings, Hyperliquid has cemented its reputation as the premier perps DEX of 2024.



But Hyperliquid’s success comes from more than product innovations around its orderbook exchange.



Though Hyperliquid was originally a perps application on Arbitrum, it subsequently introduced a spot orderbook exchange and migrated its DEX onto a proof-of-stake layer-1 in March 2024.



The Hyperliquid L1 chain is powered by the HyperBFT consensus protocol and claims to support about <a href="https://hyperliquid.gitbook.io/hyperliquid-docs/hyperliquid-l1/l1-overview">100K</a> TPS. Unlike most other perps DEXs, Hyperliquid’s orderbook is fully onchain, earning a nickname of “<a href="https://x.com/CC2Ventures/status/1850973371938312470">onchain Binance</a>” among its community. Others, <a href="https://blockworks.co/news/synthetix-new-dex-proposal">such as Aevo</a>, use an offchain or hybrid approach.



HYPE will likely be used for L1 staking and <a href="https://x.com/basicker_eth/status/1857389120449839227">governance</a>, adding to its positive perception as a “utility” token.



Since then, Hyperliquid has sought to leverage its DEX liquidity to bootstrap an entire financial ecosystem around its prized perps product.



Hyperliquid L1 features a general purpose parallelized EVM that is secured by the same consensus protocol as the L1, letting applications interact and build off the liquidity pools in its flagship perps and spot order books (this is still in testnet).



To let developers on Hyperliquid chain tap into its $2 billion+ in DEX liquidity, the team introduced “<a href="https://hyperliquid.gitbook.io/hyperliquid-docs/trading/builder-codes">builder codes</a>”, an onchain identifier that “lends” liquidity to applications under a fee-sharing agreement.



Taking a page out of Ethena’s book, Hyperliquid also introduced its own <a href="https://hyperliquid.xyz/blog/hyperliquidity-provider-hlp-democratizing-market-making/">Hyperliquid Liquidity Provider (HLP) vaults</a> that allowed users to participate in market making by depositing USDC and earn trading fees. As of November 2024, Hyperliquid’s HLP vaults have net a <a href="https://hypurrscan.io/stats">25%</a> annualized return. dYdX launched a similar <a href="https://www.dydx.foundation/blog/how-to-deposit-into-megavault">MegaVault</a> earlier this month.



In the past few years, dozens of perps DEXs have come and gone, but no one player since dYdX in 2022 has monopolized the sector. The perps crown subsequently rotated to GMX to Vertex and Hyperliquid today, who controls the largest market share but still fairly low at less than 30%. 



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXeW5ClGduHRe7yN0-BqcD6-HTAFf8ctg2q0Toy4DYDmljYymcqeXPNYhSOdxh8UI1V6TOVjhh1hwLjFTSIKY90PEOqcdlZnEb9gff9SGRW68MRFdUteQnub85bFu6ARs6y7MUUYSg?key=SaHG6bDaGsysdI5462wPIXxn" alt=""/><figcaption class="wp-element-caption">Perp dex dominance | Source: <a href="https://defillama.com/derivatives">DefiLlama</a></figcaption></figure>



The chart illustrates the shifting dominance among perpetual decentralized exchanges (perp DEXs) throughout the past 12 months.



SynFutures V3 (which does not yet have a token) and Jupiter Perpetual Exchange (<a href="https://blockworks.co/price/jup">JUP</a>) followed, with 12.17% and 9.09% respectively, reflecting growing diversity in user preferences. Apex Omni and edgeX maintained notable shares, though smaller, at 6.1% and 5.71% respectively.



No doubt some of the ebb and flow in volumes is attributable to incentives for airdrop hunters seeking to maximize their future token allocations.



The decline in dominance of early players like dYdX (V4 now at 4.61%) — which conducted an airdrop in August 2021, a year before announcing the pivot <a href="https://blockworks.co/news/decentralized-exchange-dydx-to-build-its-own-blockchain">to its own chain</a> — highlights increasing competition. Newer entrants like Vertex Perps, Aark Digital, and Apex Pro captured smaller but meaningful shares, while &#8220;Others&#8221; persistently occupied between 20-30%, signifying continued fragmentation.



The reigns are short-lived, and usually comes due to fall in interest post-airdrop, yet Hyperliquid has managed to sustain usage since the <a href="https://x.com/HyperliquidX/status/1785452418173706721">conclusion</a> of its primary six-month points campaign on May 1.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXd22VhED4d2WW5u6AbwRToZp5wbuwdy2nKSUhDxRW01kL5PS0iSFRrSPkP3nNilNiZquF-V3NhwoJEoLM9JWyn_18CX7HEKJiJUurfeRpedgUwdVWcgE6fKEGuRR5LVMvCuTRZUyA?key=SaHG6bDaGsysdI5462wPIXxn" alt=""/><figcaption class="wp-element-caption">Source: <a href="https://stats.hyperliquid.xyz/">Hyperliquid</a></figcaption></figure>



Despite being one of DeFi’s most cutthroat competitive sub sectors, crypto derivatives trading is still largely dominated by centralized exchanges like Binance, with only about 3-5% of trading volumes in onchain DEXs.



For more on Hyperliquid, tap into <a href="https://blockworks.co/podcast/0xresearch/acdae332-291b-11ef-964c-6fdcb21a019c">0x Research</a> podcast’s episode with Hyperliquid co-founder Jeff Yan.



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Hyperliquid’s HYPE airdrop breaks the mold

As the US election season heats up, expect to see volumes and total value locked (TVL) on the leading crypto-based prediction market, Polymarket, continue to rise.



Polymarket growth has gone parabolic this year, with TVL <a href="https://defillama.com/protocol/polymarket#information">doubling</a> over the last 30 days alone.



For most financial assets, derivatives markets are usually orders of magnitudes larger than the underlying spot markets. That’s not yet the case in crypto, much less onchain — the vast <a href="https://www.coingecko.com/en/exchanges/derivatives">majority</a> of futures trading is still done on centralized exchanges today.



But the fully onchain <a href="https://blockworks.co/tag/derivatives">derivatives</a> platform D8X wants to marry the two growing crypto-native phenomenon: prediction markets and perpetual futures.



D8X co-founder Caspar Sauter sees the impending launch of leveraged prediction markets via orderbook-based futures as a natural evolution of the concept.



“As an economist, I love the fact that you can actually have a market to get predictions,” Sauter told Blockworks. “I love [<a href="https://blockworks.co/tag/polymarket">Polymarket</a>], my co-founder loves the product, and we love perps — so the natural next step was to think, ‘can we do leverage?’”



Read more: <a href="https://blockworks.co/news/d8x-perp-dex-protocol-launches-on-arbitrum">D8X protocol brings novel futures exchange to Arbitrum</a>



It turns out to be a rather difficult task, akin to the problems with perp markets on very low-cap crypto assets colloquially known as “alts” or “shitcoins.” Except, it’s worse.



Prediction markets have intrinsic features, like a price bound from $0-1. Sudden, violent moves driven by external events make them unlike highly liquid perps markets such as bitcoin.



For instance, as regards Polymarket’s <a href="https://polymarket.com/event/presidential-election-winner-2024">most liquid</a> offering — the US presidential election winner, with $391 million bet to date — a breaking news headline can potentially change the outcome in an instant.



Try to throw a perp on a spot market that’s highly illiquid and prone to explosive volatility and “you’ll get wrecked, like, from day one,” Sauter said, noting “the difficulties, from a financial engineering point of view, is probably what made people not do it yet.”



One option is to require full collateralization, with no leverage offered. But aside from lacking appeal to the more risk-tolerant speculators, it’s also not a capital efficient way for market participants, including market-makers, to hedge.



The specific financial engineering details to be used by D8X remain under wraps for now. Sauter notes that there are multiple other teams working on similar products, and he is curious to see how each will approach the challenge.



<a href="https://blockworks.co/tag/solana">Solana</a>-based derivatives exchange, Drift, <a href="https://x.com/DriftProtocol/status/1816851169354063972">announced</a> today it is also building prediction markets, for example.



D8X’s testnet deployment is expected to launch in a few weeks.



The platform also won’t stop with political predictions. “Having a prediction market is a fantastic idea,” Sauter said. “The system we have will be relatively flexible to offer more than that.”



But political prediction markets have <a href="https://blockworks.co/news/polymarket-july-all-time-high-trading-volumes">clearly struck a nerve</a>. “Adding leverage to it is kind of the cherry on top,” he said.



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Leveraged Polymarket bet derivatives are coming

Bessie Liu

Starting today, Coinbase Advanced will be offering perpetual futures trading for customers in eligible jurisdictions outside of the United States.



Traders can use USDC to place bids on four different contracts including bitcoin, ether, litecoin and XRP. Each of these contracts will offer up to 5X leverage, with the exception of XRP, which will offer up to 3X leverage.&nbsp;



For the time being, perpetual futures trading will only be available on the Coinbase Advanced webpage, but the company notes that they will soon be offering mobile trading, according to a press release viewed by Blockworks.&nbsp;



This news comes less than a month after the Coinbase International Exchange <a href="https://www.coinbase.com/blog/coinbase-receives-regulatory-approval-to-enable-retail-perpetual-futures">received</a> the regulatory green light from the Bermuda Monetary Authority (BMA) to offer perpetual futures for customers outside of the US.



As of March 2023, the derivatives market made up almost 75% of all cryptocurrency’s $2.95 trillion trading volume, a <a href="https://www.coingecko.com/research/publications/crypto-derivatives-market">report</a> from CoinGecko shows.



Read more: <a href="https://blockworks.co/news/dydx-lightspeed-derivatives-trading-volume-speed">DYdX founder touts ‘tailor-made’ decentralized derivatives market</a>



In fact, according to data on <a href="https://app.laevitas.ch/global/overview">Laevitas</a>, on Oct. 16, the global centralized exchange (CEX) perpetuals volume reached $151 billion with Coinbase competitor <a href="https://blockworks.co/tag/binance">Binance</a> capturing roughly $96.3 billion (63.7%) of it. OKX comes in second, securing an estimated 16% ($21.6 billion) of this market share.



These numbers indicate strong demand for perpetual futures products, Coinbase wrote in a blog post announcing their new offering.



“The ability to trade using margin gives traders increased capital efficiency and access to the crypto market with less upfront investment. Being able to seamlessly go long and short, traders can also use derivatives to manage risk on their underlying crypto assets,” the company said.&nbsp;



Updated Oct. 18, 2023 at 9:35 am ET: A previous version of this article referred to the platform as &#8220;Coinbase Advance&#8221; instead of &#8220;Coinbase Advanced.&#8221; 



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Coinbase Advanced offers perpetual futures to non-US customers

Sebastian Sinclair

The US Commodity Futures Trading Commission has taken action against three DeFi firms for allegedly violating federal laws relating to digital asset derivatives trading.



In <a href="https://www.cftc.gov/PressRoom/PressReleases/8774-23">orders</a> dated Thursday, the CFTC charged Opyn, ZeroEx and Deridex with allegedly operating unregistered trading platforms and offering illegal leveraged transactions in digital assets. The CFTC announced both charges against and settlements with the three firms.



Specifically, the CFTC said ZeroEx’s DEX aggregator Matcha allowed trading of third-party tokens that offered 2:1 leverage on assets like ether (<a href="https://blockworks.co/price/eth">ETH</a>) and bitcoin (<a href="https://blockworks.co/price/btc">BTC</a>), in violation of federal regulations requiring such platforms to be registered.



In a <a href="https://twitter.com/matchaxyz/status/1699919425225523352?s=20">post</a> on X, formerly Twitter, Matcha downplayed the charges, claiming the tokens identified only constitute roughly “0.1% of Matcha’s trading volume since inception.”



“At 0x, strategic decisions are made with input from outside legal counsel. In this case, we are implementing additional processes after constructive dialogue with the regulatory agency,” Matcha said.



The regulator <a href="https://blockworks.co/news/cftc-risk-watchdog-crypto">previously warned</a> industry participants and projects in May it would be keeping a close watch on new crypto products and services while it beefed up its efforts to <a href="https://blockworks.co/news/cftc-ftc-sue-celsius">pursue cases</a> it found in violation of financial rules.



<h2 class="wp-block-heading">Cracking down on DeFi</h2>



Opyn and Deridex simultaneously have been charged for allegedly failing to register as a swap execution facility or a designated contract market, while also falling short in operating as a registered futures commission merchant. 



Opyn is accused of developing a blockchain-based trading protocol for its digital asset derivative token, oSQTH, without proper registration. Despite attempts to block US users, the company violated federal laws by allowing leveraged transactions and failing to implement a required customer identification program, the CFTC said.



Deridex is accused of illegally offering derivatives via perpetual swaps, a relatively novel idea with roots in the crypto industry. <a href="https://blockworks.co/tag/perpetuals">Perps</a>, commonly referred to in shorthand, operate much like futures contracts but lack an expiration date.



The charges on Thursday potentially expose the US DeFi sector to further crackdowns. Earlier this year, <a href="https://blockworks.co/news/ooki-dao-default-judgement">Ooki DAO</a> lost its court case against the regulator, opting <a href="https://blockworks.co/news/ooki-dao-default-judgement">not to fight it out</a>. Ooki was alleged to have violated certain laws by offering margined and leveraged commodities.&nbsp;



The case drew particular attention after the DAO was served via its <a href="https://blockworks.co/news/cftc-legally-served-ooki-dao-via-website-help-bot-court-rules">online chatbot</a> in an industry first.



“Somewhere along the way, DeFi operators got the idea that unlawful transactions become lawful when facilitated by smart contracts,” CFTC enforcement director Ian McGinley said.



“The DeFi space may be novel, complex and evolving, but the Division of Enforcement will continue to evolve with it and aggressively pursue those who operate unregistered platforms that allow US persons to trade digital asset derivatives.”



While the regulator has taken into account the companies’ cooperation, it has imposed reduced penalties: Opyn, ZeroEx and Deridex have been ordered to pay $250,000, $200,000 and $100,000, respectively. The CFTC has also mandated a cease and desist order against all three.



<h2 class="wp-block-heading">Agency’s actions inconsistent with own strategic plan&nbsp;</h2>



The regulator’s action sparked some criticism.



CFTC Commissioner Summer K. Mersinger <a href="https://www.cftc.gov/PressRoom/SpeechesTestimony/mersingerstatement090723">publicly disagreed</a> with the agency&#8217;s enforcement actions against the DeFi projects, advocating for public engagement instead.&nbsp;



She emphasized that such actions mark a substantial shift from the CFTC’s previous stance of seeking dialogue with DeFi market players. 



Mersinger also pointed out that the CFTC&#8217;s 2022-2026 strategic <a href="https://www.cftc.gov/PressRoom/SpeechesTestimony/mersingerstatement090723">plan</a> had earmarked DeFi for enhanced stakeholder interaction and regulation based on guiding principles.



“Yet, today’s actions do not promote responsible innovation — they shut it down, banishing innovation from US shores,” she added.



Shalini Nagarajan contributed reporting.



Updated Sept. 8, 2023 at 5:37 pm ET: Clarifies that the CFTC charges have been settled.



Updated Sept. 8, 2023 at 7:44 am ET: Added additional context.



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DeFi projects charged by CFTC over crypto derivatives

Bart Hillerich

For qualified* cryptocurrency market participants with either a higher appetite for risk or a requirement to hedge digital asset positions, utilizing <a href="https://blockworks.co/tag/derivatives">derivatives</a> is a popular strategy.&nbsp;



Diving into the mechanics and advantages of these crypto derivatives, this article demystifies how one such derivative, perpetual swaps (“perps”), allow qualified* traders to harness the volatility of digital assets without directly holding them. From understanding the leverage they offer to grasping the significance of the funding rate, we&#8217;ll explore why perps have become a pivotal tool in the evolving landscape of cryptocurrency trading.



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Key Takeaways:



<ol class="wp-block-list">
<li>Perpetual swaps, or &#8220;perps&#8221;, let institutions express their view on digital asset prices without holding the actual cryptocurrency, offering cash settlements and no expiration dates for greater flexibility.</li>



<li>The intended purpose of the funding rate is to keep the perpetual swap price closely aligned with the underlying asset&#8217;s value, but how it&#8217;s calculated and applied by trading venues has a critical impact on the trader’s experience. This is because wild swings in funding rates can reduce confidence in the venue and potentially negatively impact the trader’s position.</li>



<li>These swaps offer institutions* a relatively simple path into the crypto market, minimizing the operational challenges of holding digital assets and enabling familiar fiat currency settlements.</li>
</ol>



<hr class="wp-block-separator has-alpha-channel-opacity"/>



<h2 class="wp-block-heading">What are perps and what makes them attractive?</h2>



Like <a href="https://www.investopedia.com/articles/investing/012215/how-invest-bitcoin-exchange-futures.asp#:~:text=Cryptocurrency%20futures%20are%20contracts%20based,without%20taking%20possession%20of%20cryptocurrencies.">futures</a>, perpetual swaps offer qualified* institutional market participants the ability to express their views of potential price movements on an underlying digital asset using leverage without incurring the operational and security risks associated with holding physical crypto.&nbsp;



Simply put, the trader can trade on the price movement of a digital asset, margin the



position, and settle the trade in cash.



Perps are like futures in that leverage is generally available, but there is no expiration



date. Instead, the contracts roll forward indefinitely and providers of perpetual swaps



employ a “funding rate” to keep the price of the contract close to the price of the



underlying asset. The funding rate is a periodic payment that is made between long and short positions, based on the difference between the price of the contract and the price



of the underlying asset.



<figure class="wp-block-image"><img decoding="async" src="https://lh6.googleusercontent.com/6ktheasbaky1IfLMzP0dAdOX7yqHU-F8civvxtYoCZluhzObF94O6hWsZ5FP2-48Qf4WQkjn317eieHEYuJsr1LZmNkDDvNkL_y9Xjrx1u-le0w9q-sNoeDqO0Tat5Nqag5cIBpt-a8oTDkFSYyozp4" alt=""/><figcaption class="wp-element-caption">How perps stack up against dated futures | Artwork by Crystal Le</figcaption></figure>



The Perpetual Swaps are attractive products because they exhibit similar characteristics and have similar use cases to products found in traditional markets. They can be summarized as follows:



Leverage



One of the most compelling attributes of derivatives is the leverage they afford. This financial tool enables traders to commandeer significantly larger positions with just a fraction of the required capital. While this presents an enticing avenue to amplify potential profits, it&#8217;s a double-edged sword. While levering up can potentially increase gains, the risks of magnified losses loom equally large, necessitating prudent decision-making.



Hedging



Perps shine as instruments of hedging, often utilized as a means to reduce exposure to price volatility. Illustratively, consider a trader invested in spot Bitcoin. To guard against potential downturns in Bitcoin&#8217;s price, they might opt to sell a Bitcoin perpetual swap contract. This strategic move hedges their position, providing a buffer against adverse price movements.



Liquidity



The world of perpetual swaps is characterized by its abundant liquidity. This robust liquidity means that even sizable trades can often be executed swiftly and efficiently. Slippage or market disruptions are of course possible in the crypto perps markets (this should be nothing new, as such disruptions happen in “TradFi” markets as well). That said, if the trend of large-scale institutions adopting digital assets as a part of their strategy continues, it is likely liquidity will continue to improve over time &#8211; drawing more participants and deeper order books.



<h2 class="wp-block-heading">The significance of the funding rate</h2>



Understanding the concept of a <a href="https://www.binance.com/en/blog/futures/what-is-futures-funding-rate-and-why-it-matters-421499824684903247">funding rate</a> is crucial for anyone trading perpetual swaps. Most active participants on crypto exchanges recognize that the funding rate is primarily dictated by the difference between the perpetual price and the underlying spot market, commonly linked to a specific index.&nbsp;



This rate acts as a balancing force, attracting sellers when the perpetual price rises above the spot market, and vice versa for buyers. The success of this mechanism relies heavily on the continuous engagement of market participants in the perpetual market to maintain price consistency. While the system is often effective at facilitating seamless cryptocurrency transactions, there are occasions when market prices can diverge significantly, underscoring the ever-volatile nature of digital assets.



In general (but not always):



<figure class="wp-block-image"><img decoding="async" src="https://lh6.googleusercontent.com/gnuPrTIjV4cGGCCAeFwD7sT0ao5zrxHBTp3Jf2UB5DGwWBJBsDVAsGaNHHwJyCkW8WtVyPVvrMnSM9K8i9eh3Lr1JFQsYfrOeNeedgQff_QJbqmArA1UzcdQpEooZGz1NfSlFxpeNkR056hUDHx2KLw" alt=""/><figcaption class="wp-element-caption">Perps and Funding Rate | Source: <a href="https://coinguides.org/funding-rate-bitcoin/" target="_blank" rel="noreferrer noopener">CoinGuides</a></figcaption></figure>



Institutional* market participants have telegraphed their interest in trading on venues where the perpetual swap funding rate reflects a value close to the venue’s actual borrowing costs, meaning the rates are not directly tied to the rates that are predominantly displayed on large-scale/retail crypto trading platforms, thereby minimizing the potential for excessive fluctuations of the funding rate. A funding rate might be meticulously computed by integrating elements like T-Bills, adding a markup tailored for USD financing, and juxtaposing it with the prevalent market borrowing rate designated for digital assets.&nbsp;



However, it&#8217;s noteworthy that in the volatile domain of crypto, positioning and overarching funding markets might not always align seamlessly. When these markets diverge, it invariably impacts the funding rate, emphasizing the ever-evolving nature of digital asset trading.



<h3 class="wp-block-heading">The critical role of a venue&#8217;s funding rate calculation</h3>



The method a trading venue employs to calculate its funding rates can significantly influence its market reputation and trader trust. For trading venues aspiring to introduce a perpetual swap contract without frequently subjecting their clientele to the volatile (and often unpredictable) funding rate fluctuations common in leading exchanges, it&#8217;s imperative to leverage their robust, scalable pricing mechanisms.&nbsp;



These mechanisms should span both spot and derivative markets and incorporate a flexible financing fee, catering to both long and short positions. The determination of this variable fee is often rooted in various factors: insights from traditional futures markets, the prevailing costs associated with borrowing digital assets, strategic market positioning, the set margin requirements, and the established credit relationships with trading partners. By prioritizing precise funding rate calculations, trading venues may foster more transparent, and efficient trading environments for their users.



<h2 class="wp-block-heading">Navigating the cryptocurrency trading landscape with perpetual swaps</h2>



In the fast-paced, ever-evolving world of cryptocurrency, perpetual swaps stand out as an advanced beacon for traders seeking to navigate the tumultuous waters of digital assets. This guide has illuminated the intricate mechanics and potential advantages of perps, revealing why they are widely considered to be a cutting-edge crypto strategy.&nbsp;



By utilizing these derivatives, traders can employ leverage, hedge against uncertainties, and obtain deep liquidity, all without wading into the operational complexities of holding physical crypto.&nbsp;



As the digital finance landscape continues its onward march, it should be expected that new and innovative financial products will be brought to market. Qualified* market participants may want to consider the use of perpetual futures products offered by reliable venues as a means to further hone their strategy and manage their risks.



This content is sponsored by <a href="https://www.blockfills.com/">BlockFills</a>



<hr class="wp-block-separator has-alpha-channel-opacity"/>



At BlockFills, the team is committed to advocating for the proliferation of digital assets through the traditional financial system. However, they also understand that many firms who desire exposure to this asset class may be required to move into the market cautiously due to the existence of financial, operational, regulatory, and reputational risks. Perpetual swaps and related products may provide a means for qualified* institutions to gain exposure to the asset



class by posting collateral and performing all settlements in a way that they are already



very familiar with—fiat currency.



Perpetual Swaps are provided to institutional* clients via BlockFills’ UK-based, FCA-regulated affiliate, <a href="https://www.basiscap.com/">Basis Capital Markets</a> UK Limited. Basis’ crypto “perp” offerings are powered by a strategic partnership with BlockFills, whose bespoke, end-to-end technology and cryptocurrency trading solutions including the multi-asset, trading and execution platform, Vision Trader, the sophisticated, industry-leading front-end platform, Phoenix, and reliable, 24/7 market access through BlockFills’ FIX API. The BlockFills electronic trading venue optimizes liquidity across fragmented markets by applying aggregation and matching algorithms and simplifying the trade management lifecycle for institutions.&nbsp;



<hr class="wp-block-separator has-alpha-channel-opacity"/>



BlockFills Disclaimer:



The information in this document is not to be construed as an offer to sell or a solicitation or an offer to buy contracts for difference (CFD), cryptocurrencies, futures, swaps, foreign exchange, or options on the aforementioned.&nbsp; All information contained herein is believed to be accurate, Reliz Ltd makes no representation as to the accuracy or completeness of any data, statistics, studies, or opinions expressed and it should not be relied upon as such. The risks of trading can be substantial. Each investor must consider whether this is a suitable investment. Before trading one should be aware that with potential profits there is also potential for losses that may be very large. Contracts for difference (CFD), cryptocurrencies, futures, swaps, foreign exchange, and options trading is highly speculative in nature and involves substantial risk of loss, and is not appropriate for all investors. Those acting on this information are responsible for their own actions. Past performance is not indicative of future results.&nbsp;&nbsp;



*Derivative Products available to Qualified Counterparties Only. For US Persons, client is an Eligible Contract Participant (“ECP”) as defined in Section 1a(18) of the Commodity Exchange Act and related guidance. Non-US Persons must qualify as an Eligible Professional Client.



Basis Capital Markets UK Ltd. is authorized and regulated by the Financial Conduct Authority (Firm Reference Number 810733).



Basis Capital Markets UK Ltd. is registered in England and Wales at 70 Pall Mall, London, SW1Y 5JG, United Kingdom (Company Number 09882444).



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The crypto investor’s guide to perpetual swaps

Coinbase has launched a new perpetual futures exchange targeting non-US institutional investors and traders, in an effort to diversify its revenue and capture a larger share of the crypto market.



The Coinbase International Exchange will initially list bitcoin (<a href="https://blockworks.co/price/btc" target="_blank" rel="noreferrer noopener">BTC</a>) and ether (<a href="https://blockworks.co/price/eth" target="_blank" rel="noreferrer noopener">ETH</a>) perpetual futures later this week, settling all trading in USDC without requiring fiat on-ramps, Coinbase said in a statement shared with Blockworks.



It follows reporting last month that the exchange was said to be <a href="https://blockworks.co/news/coinbase-abu-dhabi-bermuda-derivatives">eyeing a derivatives push</a> in overseas jurisdictions including Abu Dhabi while securing licensure in Bermuda, where the new exchange will be established.



Bermuda&#8217;s regulatory framework is known for its transparency, compliance, and cooperative approach, the exchange said. The Bermuda Monetary Authority (BMA), which regulates financial services in Bermuda, is an active member of a number of international organizations.&nbsp;



The BMA also maintains “close relationships” with other regulatory agencies globally, Coinbase said.



“Coinbase is committed to the US, but countries around the world are increasingly moving forward with responsible crypto-forward regulatory frameworks,” Coinbase said in a statement.



“We would like to see the US take a similar approach instead of regulation by enforcement which has led to a disappointing trend for crypto development in the US.”



That trend has been largely the result of US SEC chair Gary Gensler&#8217;s approach to <a href="https://blockworks.co/news/crypto-regulation-policy-law">crypto regulation</a>, which has angered the industry and prompted vocal opposition. Coinbase itself has sued the regulator in what it&#8217;s calling an attempt to seek <a href="https://blockworks.co/news/coinbase-sec-rulemaking-petition">clarity on digital asset regulation</a>.



While Coinbase has sought to diversify regulatory risk it&#8217;s also seeking to diversify its dependency on spot trading revenues which, at times, have hammered its share price based on poor quarterly performances. Perpetual futures account for up to 75% of global crypto trading volume, the exchange said.



Round-the-clock risk management, typical liquidity provisions from market makers and dynamic margin requirements will make up some of the exchange’s features. Coinbase also said its exchange will incorporate a liquidation framework that meets strict compliance standards in addition to being “well-capitalized” in the event of destabilizing market events.



Coinbase’s perpetual contracts will offer up to 5x leverage and direct access trading via <a href="https://en.wikipedia.org/wiki/API" target="_blank" rel="noreferrer noopener">API</a> is available to institutional clients outside the US. The products are not yet available to retail customers.



It is unclear whether Coinbase intends to make its latest exchange available to retail investors. Blockworks has reached out for further clarification.



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Coinbase International Debuts Perpetual Futures for Non-US Institutional Traders

Bankrupt FTX continues to allow crypto trade despite customers’ inability to withdraw funds. As of 3 pm ET, trading on both the FTX.com website and the FTX mobile app are functioning normally.



According to FTX&#8217;s website, there has been over $200 million in volume of spot bitcoin traded over the past 24-hours. 



Among FTX futures markets, which offer up to 20 times leverage, the site still registers upwards of $300 million in volume for both bitcoin and ether perpetual contracts.



<figure class="wp-block-image"><img decoding="async" src="https://lh4.googleusercontent.com/9TS8e-ZJx-LTvv3ZrKx7W-nbk1bYmoPkBXYqfLYQm--QBL0E4vp5TraVVWUAIlBnbqtQaAy7rr6F8QxTTlOVy42EiyXbRjlQX6NgxEP-8BDm_u2P-8-fM6sv5rYW0fZ55zKPJY2-89ZZa4FZ_IkbpMIYqRf8f_IMybDPkkJyyGETFpopNnr2ooFCba6d9A" alt=""/></figure>



Volumes are steadily declining across the board following the <a href="https://cms.blockworks.co/news/whats-next-for-ftx-and-its-customers-after-bankruptcy-filing/" target="_blank" rel="noreferrer noopener">bankruptcy filings</a> of the complex web of companies that make up Sam Bankman-Fried’s dizzying corporate structure. 



Crypto trackers CoinGecko, CoinMarketCap and Messari have all scrubbed FTX from their volume rankings, but the platform’s markets remain fully functional, begging the obvious question:&nbsp;



Why? What’s the point of trading on an exchange you can’t exit from?



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="1024" height="713" src="https://blockworks-co.imgix.net/wp-content/uploads/2022/11/Screenshot-2022-11-11-at-15.58.04-1024x713.png" alt="" class="wp-image-38606" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2022/11/Screenshot-2022-11-11-at-15.58.04-1024x713.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2022/11/Screenshot-2022-11-11-at-15.58.04-1024x713.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2022/11/Screenshot-2022-11-11-at-15.58.04-1024x713.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2022/11/Screenshot-2022-11-11-at-15.58.04-1024x713.png?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2022/11/Screenshot-2022-11-11-at-15.58.04-1024x713.png?w=369 369w, https://blockworks-co.imgix.net/wp-content/uploads/2022/11/Screenshot-2022-11-11-at-15.58.04-1024x713.png?w=375 375w, https://blockworks-co.imgix.net/wp-content/uploads/2022/11/Screenshot-2022-11-11-at-15.58.04-1024x713.png?w=314 314w, https://blockworks-co.imgix.net/wp-content/uploads/2022/11/Screenshot-2022-11-11-at-15.58.04-1024x713.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2022/11/Screenshot-2022-11-11-at-15.58.04-1024x713.png?w=50 50w, https://blockworks-co.imgix.net/wp-content/uploads/2022/11/Screenshot-2022-11-11-at-15.58.04-1024x713.png?w=1976 1976w" sizes="auto, (max-width: 1024px) 100vw, 1024px" /><figcaption>Still 23,400 BTC ($388 million) open interest on FTX.</figcaption></figure>



One reason could be the loophole in Bahamas regulations that <a href="https://cms.blockworks.co/news/ftx-re-enables-withdrawals-but-only-in-bahamas/" target="_blank" rel="noreferrer noopener">allowed local accounts</a> to continue withdrawing, a fact that is being exploited in a variety of ways by users prepared to risk legal trouble.



For instance, using FTX’s NFT marketplace, users are able to set up self-dealing auctions of otherwise low-value NFTs, then withdraw the proceeds as USDT stablecoins via Bahamas-based user accounts.



NFTs with no utility — and therefore no expectation of secondary market value — have suddenly seen millions of dollars in sales.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">People now withdrawing FTX balances by buying NFTs from Bahamian accounts for six- and seven-figure amounts, buyer then gets side payment and Bahamian withdraws funds Tens of millions of Tether taken so far <a href="https://t.co/UVnz5FUBNT">pic.twitter.com/UVnz5FUBNT</a>&mdash; foobar (@0xfoobar) <a href="https://twitter.com/0xfoobar/status/1590978050950279168?ref_src=twsrc%5Etfw">November 11, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



<h3 class="wp-block-heading">FTX users would need to preserve trade data</h3>



There are good reasons for the website and user accounts to remain accessible — at least for a while. 



Customers of FTX need records of their holdings and activity, both for tax reporting purposes and to participate in any asset recovery process in bankruptcy.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Given FTX site will likely go down soon, I made a (dependency-free) Python script to pull FTX fills/funding/borrow/lending/etc for taxes/accounting. It&#39;s here: <a href="https://t.co/4bpReDHl45">https://t.co/4bpReDHl45</a> Just need to make an api key here: <a href="https://t.co/xi3p6Pgojc">https://t.co/xi3p6Pgojc</a>&mdash; Shane Barratt (@ShaneBarratt) <a href="https://twitter.com/ShaneBarratt/status/1590748119280799744?ref_src=twsrc%5Etfw">November 10, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



While this may be possible even in the event the website itself is shut down, it’s obviously easier for users to use the account tools made available to them by the FTX front end, and numerous industry watchers have been <a href="https://twitter.com/bitbitcrypto/status/1590438573945540609" target="_blank" rel="noreferrer noopener">recommending</a> users do just that.



But trading?



Update 7:27am ET: Blockworks advises caution when interacting with any FTX domain or app. Since this article was published, FTX has opened an <a href="https://www.reuters.com/technology/ftx-says-it-is-investigating-unauthorized-transactions-2022-11-12/" target="_blank" rel="noreferrer noopener">investigation</a> into what it describes as several &#8220;unauthorized transactions&#8221; from the exchange&#8217;s crypto wallets.



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FTX is Bankrupt But You Can Still Trade Crypto There

<div id="highlights-block_62fb227a9c713" class="highlights">
 <ul>
 <li>Brisbane-based Mycelium has launched its perpetuals product following a successful DAO vote earlier last week</li>
 <li>BitMEX co-founder Arthur Hayes assisted in a support capacity where he provided &#8220;immeasurable&#8221; advise ahead of the delivery of the product, Mycelium said</li>
 </ul>
 
</div>



BitMEX co-founder Arthur Hayes has been advising Australia-based blockchain infrastructure provider Mycelium on an &#8220;ongoing basis&#8221; ahead of Tuesday&#8217;s launch of its perpetual swap product, according to a statement.



Mycelium Perpetual Swaps, which live on Ethereum layer-2 Arbitrum, provide exposure to &#8220;blue chip&#8221; cryptos with 30x leverage, allowing them to trade against the platform&#8217;s liquidity pool.



Brisbane-based Mycelium <a href="https://cms.blockworks.co/mycelium-to-launch-perpetual-swaps-following-tracer-dao-merge/" target="_blank" rel="noreferrer noopener">merged</a> with decentralized derivatives platform Tracer DAO late last week following a successful proposal vote by members of Tracer&#8217;s decentralized autonomous organization. The move was described as a precursor to future derivative product launches from Mycelium.



Traders of the perpetual product are able to access markets involving governance tokens from Curve Finance (CRV) Frax (FXS) and Balancer (BAL). Additional markets for bitcoin (BTC), ether (ETH), chainlink (LINK) and uniswap (UNI) have also gone live marking Mycelium as the largest provider of perpetuals on Arbitrum, the provider said.



Perpetual swaps, unlike traditional futures, allow traders to speculate on the future price of an asset, without an expiration date.



Traders are not required to post 100% of collateral as margin, which allows for&nbsp;leverage in many multiples on certain contracts. Margin is typically denominated in crypto. Perpetual swap products have risen in popularity in crypto ever since BitMEX pioneered the crypto derivatives in 2016.



It follows the platform&#8217;s first derivative product, dubbed &#8220;Perpetual Pools,&#8221; in 2021 which was launched under the brand name Tracer, also on Arbitrum.



The pools function by rebalancing long and short positions while attempting to shield traders from liquidations. Over the past 12 months, the product has witnessed more than $800 million in trading volume, Mycelium said.



<h3 class="wp-block-heading">Arthur Hayes&#8217; involvement</h3>



Hayes, who has kept a low profile following his <a href="https://cms.blockworks.co/bitmex-founders-hayes-delo-plead-guilty-to-violating-us-bank-secrecy-act/" target="_blank" rel="noreferrer noopener">guilty plea</a> to US Department of Justice charges of violating the Bank Secrecy Act, continues to provide &#8220;advice and support&#8221; to Mycelium, a spokesperson told Blockworks.



Hayes and BitMEX&#8217;s other co-founder Ben Delo were accused of flouting US anti-money laundering rules from 2015 to 2020.



The BitMEX co-founder has been working with the Tracer (now Mycelium) team for over a year, a spokesperson told Blockworks, where he has been providing feedback on ideas regarding financial engineering.



Further details of his involvement were not provided and a request for additional information was declined.



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BitMEX’s Arthur Hayes Advises Mycelium’s Perpetuals Launch

<div id="highlights-block_62f5b9decd099" class="highlights">
 <ul>
 <li>Members of Tracer DAO&#8217;s decentralized autonomous organization have voted to merge the platform with blockchain provider Mycelium</li>
 <li>Following the vote, Mycelium is expected to launch its perpetutal swaps contracts on Arbitrum by late August</li>
 </ul>
 
</div>



Users of the Ethereum-based decentralized derivatives platform Tracer DAO voted Tuesday to migrate its&nbsp;token and brand under blockchain provider Mycelium&#8217;s roof.



A proposal put forth to members within the platform&#8217;s decentralized autonomous organization on Sunday reached a near-unanimous decision, with more than 99% in favor of the move, according to a recent <a href="https://vote.tracer.finance/#/proposal/0x2f2103cc31a01e36f94d488ae5c3ea9a9d57b5f4543a8897fe2d74c9f8c3ec7c" target="_blank" rel="noreferrer noopener">voter snapshot</a>. Future product launches will also fall under the Mycelium banner.



The integration with its core service provider will allow Mycelium to further expand Tracer&#8217;s exchange platform and develop future trading products, including perpetual swaps, according to a <a href="https://tracerdao.medium.com/introducing-mycelium-perpetual-swaps-launching-august-2022-85a460f0afb6" target="_blank" rel="noreferrer noopener">blog post</a>.



Australia-based Mycelium plans to offer a perpetual product sometime this month where traders will be able to utilize markets for Curve&#8217;s native token (CRV) Frax&#8217;s governance token (FXS) as well as Balancer&#8217;s governance token (BAL), the post reads.



As a core service provider to the DAO since February 2021, Mycelium developed the smart contracts for Tracer&#8217;s &#8220;Perpetual Pools&#8221; derivative product which launched on scaling solutions platform Arbitrum late last year.



Markets for bitcoin, ether, chainlink and uniswap will also be created under Mycelium&#8217;s perpetuals offering which would make it the broadest market for the contracts on on Arbitrum, Tracer said.



A perpetual swap is similar to a futures contract, except that there is no expiration date for the contract. In crypto, they have grown to become the dominant choice among traders for the purpose of price discovery, according to <a href="https://insights.glassnode.com/the-week-onchain-week-17-2022/" target="_blank" rel="noreferrer noopener">data provider Glassnode</a>.



Perpetual swaps closely resemble spot index pricing which makes it easier and more intuitive for traders to manage their positions as well as leverage, the provider said in April. 



Derivatives exchange BitMEX pioneered the financial product back in 2016. In most instances, traders are not required to post 100% of collateral as margin, allowing&nbsp;leverage in many multiples on certain contracts. Margin is typically denominated in crypto.



Multiple exchanges within the industry now support perpetuals as part of their suite of offerings including Binance, dYdX, FTX, Bybit and Bitget. 



Holders of Tracer&#8217;s native token (TCR) are now also able to swap their tokens to Mycelium&#8217;s native token (MYC) on a 1:1 basis ahead of the transition, expected to be completed by the latter half of August.



&#8220;This transition will allow Mycelium to deliver greater value to all existing Tracer and TCR stakeholders, in addition to providing a more dynamic ecosystem of DeFi products and services for users to access,&#8221; Tracer said in a statement shared with Blockworks.



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Mycelium to Launch Perpetual Swaps Following Tracer DAO Merge

Sam Martin

<div id="highlights-block_617725d07bf3f" class="highlights">
 <ul>
 <li>Bitcoin experienced intense volatility that coincided with the closing of CME futures markets</li>
 <li>AAVE, MKR and COMP battle it out for DeFi marketshare</li>
 </ul>
 
</div>



Bitcoin (BTC) experienced a mini flash crash around 2:15 PM ET today but quickly recovered.



Perpetual funding rates remain an important metric to keep an eye on. 



Some industry experts believe that the volatility can be attributed to the recently approved BTC ETF.



The borrowing and lending space in DeFi may be large enough for AAVE, COMP and MKR to all thrive. 



Despite recent turbulence in the NFT space, there remains a lot of catalysts for price appreciation. 



<h3 class="wp-block-heading">Latest in Macro:</h3>



<ul class="wp-block-list"><li>S&amp;P 500: 4,596, +.98%</li><li>NASDAQ: 15,448, +1.39%</li><li>Gold: $1,799, +.03%</li><li>WTI Crude Oil: $83.06, +.48%</li><li>10-Year Treasury: 1.578%, +.049%</li></ul>



<h3 class="wp-block-heading">Latest in Crypto:</h3>



<ul class="wp-block-list"><li>BTC: $60,972, +3.40%</li><li>ETH: $4,264, +6.38%</li><li>ETH/BTC: .0700, +4.31%</li><li>BTC.D: 44.65%, -.84%</li></ul>



<h3 class="wp-block-heading">BTC liquidation cascade</h3>



Bitcoin experienced an intense period of volatility today around 2:15 PM ET, with the BTC price falling as low as $57,653 before quickly recovering. There was a strong rally in the middle of last night from $58,000 up to nearly $62,000 right before the sell-off.



It appears speculators got too excited too quickly, as perpetual funding rates were racing higher as the price action traded in a range right before the sell-off. 



&#8220;The funding rate is derived from the difference between the market price of perpetuals and the spot index it’s anchored to. Excessive buying of perps increases the spread between perp price and the spot index, causing funding to go up. Conversely, negative funding is incited by an influx of perp shorting, forcing the contract’s price to fall lower than spot prices,&#8221; <a href="https://members.delphidigital.io/reports/leverage-wipes-out-but-is-the-worst-behind-us/" target="_blank" rel="noreferrer noopener">wrote</a> Ashwath Balakrishnan of Delphi Digital.



He continued, &#8220;For funding to fall lower, one of two things needs to happen: either existing longs get shaken out and are forced to cover, or there’s an increase in bearish sentiment prompting traders to go net short. Either way, it’s unclear whether we’ve found a local bottom yet.&#8221;



As seen in the following chart, open interest weighted funding rates raced higher prior to the dip in price. Unfortunately, traders began getting aggressive quickly after the correction which signals additional caution may be appropriate. 



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="1024" height="683" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/oi-weighted-funding-rate-2-1024x683.jpeg" alt="" class="wp-image-10064" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/oi-weighted-funding-rate-2-1024x683.jpeg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/oi-weighted-funding-rate-2-1024x683.jpeg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/oi-weighted-funding-rate-2-1024x683.jpeg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/oi-weighted-funding-rate-2-1024x683.jpeg?w=386 386w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/oi-weighted-funding-rate-2-1024x683.jpeg?w=392 392w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/oi-weighted-funding-rate-2-1024x683.jpeg?w=329 329w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/oi-weighted-funding-rate-2-1024x683.jpeg?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/oi-weighted-funding-rate-2-1024x683.jpeg?w=1200 1200w" sizes="auto, (max-width: 1024px) 100vw, 1024px" /><figcaption>Source: Laevitas.ch</figcaption></figure>



According to Skew, roughly $32 million worth of futures positions were liquidated in just a 10-minute window. 



<figure class="wp-block-image size-full"><img loading="lazy" decoding="async" width="869" height="333" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-4.00.35-PM.png" alt="" class="wp-image-10060" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-4.00.35-PM.png?w=869 869w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-4.00.35-PM.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-4.00.35-PM.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-4.00.35-PM.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-4.00.35-PM.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-4.00.35-PM.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-4.00.35-PM.png?w=80 80w" sizes="auto, (max-width: 869px) 100vw, 869px" /><figcaption>Source: Skew.com</figcaption></figure>



<h3 class="wp-block-heading">Are BTC ETFs to blame?</h3>



Some industry experts believe that the volatility can be attributed to the recently <a href="https://cms.blockworks.co/first-bitcoin-futures-etf-nears-1b-on-first-day-of-trading/" target="_blank" rel="noreferrer noopener">approved</a> BTC ETF, which is backed by leveraged positions in the form of cash-settled futures contracts. 



Caitlin Long, 22-year Wall Street Veteran and founder of Avanti, took to Twitter to share her thoughts:



<figure class="wp-block-embed aligncenter is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">ANOTHER LEVERAGED SLAMDOWN in <a href="https://twitter.com/hashtag/bitcoin?src=hash&amp;ref_src=twsrc%5Etfw">#bitcoin</a> trading mkts today. Again, this is the type of foreseeable event that happens with the bad kind of financialization (the leveraged kind). It increases the cost of capital for the whole sector. smh <a href="https://t.co/hC1sbEtiXx">https://t.co/hC1sbEtiXx</a>&mdash; Caitlin Long 🔑⚡️🟠 (@CaitlinLong_) <a href="https://twitter.com/CaitlinLong_/status/1453807532443455488?ref_src=twsrc%5Etfw">October 28, 2021</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



It is unclear if the added leverage via ETF approvals to the BTC ecosystem is to blame for the volatility in price.



It is worth noting, however, that the CME only accounts for roughly 20% of aggregated futures open interest albeit a growing portion. This is significant to add because the CME is where all of the futures are being traded that back the aforementioned ETFs. 



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="1024" height="572" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/skew_btc_futures__aggregated_open_interest-1024x572.png" alt="" class="wp-image-10067" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/skew_btc_futures__aggregated_open_interest-1024x572.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/skew_btc_futures__aggregated_open_interest-1024x572.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/skew_btc_futures__aggregated_open_interest-1024x572.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/skew_btc_futures__aggregated_open_interest-1024x572.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/skew_btc_futures__aggregated_open_interest-1024x572.png?w=467 467w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/skew_btc_futures__aggregated_open_interest-1024x572.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/skew_btc_futures__aggregated_open_interest-1024x572.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/skew_btc_futures__aggregated_open_interest-1024x572.png?w=1200 1200w" sizes="auto, (max-width: 1024px) 100vw, 1024px" /><figcaption>Source: Skew.com</figcaption></figure>



<h3 class="wp-block-heading">Aave, Compound and MakerDAO battle it out for marketshare</h3>



Aave (AAVE) and Compound (COMP) facilitate peer-to-peer borrowing and lending. Liquidity providers (LPs/lenders) earn interest for their services, while borrowers pay interest on top of their loans to pay the LPs. 



MakerDAO (MKR) allows users to take out loans by locking up digital assets as collateral in return for a decentralized stablecoin, DAI. However, borrowers need to be attentive to their loan-to-collateral ratio as asset prices fluctuate in order to avoid having their collateral liquidated. 



AAVE, COMP and MKR all compete for users&#8217; appetites to take on leverage via borrowing. However, when it comes to lending it is really just AAVE and COMP battling for market share because they have peer-to-peer ecosystems versus MKR&#8217;s collateralized debt position (CDP) model. 



AAVE currently leads based on total valued locked (TVL) in its platform, followed by MKR at third and COMP at seventh: 



<figure class="wp-block-image size-full"><img loading="lazy" decoding="async" width="1001" height="379" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.14.40-PM.png" alt="" class="wp-image-10074" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.14.40-PM.png?w=1001 1001w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.14.40-PM.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.14.40-PM.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.14.40-PM.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.14.40-PM.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.14.40-PM.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.14.40-PM.png?w=80 80w" sizes="auto, (max-width: 1001px) 100vw, 1001px" /><figcaption>Source: DefiLlama</figcaption></figure>



According to the following Dune Analytics dashboard, the percentage of market participants interacting with COMP has remained consistent since mid-2020, whereas AAVE has stolen a lot of marketshare away from MKR. 



COMP and MKR each hold a 25% market share of active addresses versus AAVE with 50%. 



<div class="wp-block-image"><figure class="aligncenter size-full"><img loading="lazy" decoding="async" width="625" height="281" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.21.24-PM.png" alt="" class="wp-image-10076" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.21.24-PM.png?w=625 625w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.21.24-PM.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.21.24-PM.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.21.24-PM.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.21.24-PM.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.21.24-PM.png?w=80 80w" sizes="auto, (max-width: 625px) 100vw, 625px" /></figure></div>



However, the picture looks a lot different when looking at the market share of loans outstanding per project. AAVE leads with a 35.7% market share, with MKR in 2nd with 34.5%, and COMP in last with 29.9%. 



This implies that while there are fewer active addresses on MKR taking out loans, they are players with very big pockets and trust the stablecoin, Dai, is a pristine asset.



<div class="wp-block-image"><figure class="aligncenter size-full"><img loading="lazy" decoding="async" width="410" height="318" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.27.46-PM.png" alt="" class="wp-image-10077" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.27.46-PM.png?w=410 410w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.27.46-PM.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.27.46-PM.png?w=331 331w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.27.46-PM.png?w=337 337w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.27.46-PM.png?w=282 282w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.27.46-PM.png?w=80 80w" sizes="auto, (max-width: 410px) 100vw, 410px" /></figure></div>



With roughly $80 billion of loans outstanding between the three protocols and only 3.5 million DeFi users, the total addressable market and growth run way is extremely large. Only time will tell if all three protocols can thrive side by side.



<h3 class="wp-block-heading">Non-Fungible Tokens (NFTs)</h3>



<figure class="wp-block-embed aligncenter is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">&#8211; Twitter is implementing NFTs &#8211; Coinbase is building an NFT marketplace &#8211; Facebook is all in on Metaverse &#8211; GameStop is building an NFT marketplace &#8211; Nike working on NFT verification of shoes &#8211; Warner Bros looking to release music NFTs Heck yeah I&#39;m bullish&mdash; Cobble ᵍᵐ (@cobble) <a href="https://twitter.com/cobble/status/1453692007046647810?ref_src=twsrc%5Etfw">October 28, 2021</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Trading data from <a href="https://opensea.io/rankings" target="_blank" rel="noreferrer noopener">OpenSea</a> and <a href="https://solanalysis.com" target="_blank" rel="noreferrer noopener">Solanalysis</a> of some of the top Solana and Ethereum projects can be found in the photos below:



<div class="wp-block-image"><figure class="aligncenter size-large"><img loading="lazy" decoding="async" width="1024" height="331" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.44.13-PM-1024x331.png" alt="" class="wp-image-10078" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.44.13-PM-1024x331.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.44.13-PM-1024x331.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.44.13-PM-1024x331.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.44.13-PM-1024x331.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.44.13-PM-1024x331.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.44.13-PM-1024x331.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.44.13-PM-1024x331.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.44.13-PM-1024x331.png?w=1234 1234w" sizes="auto, (max-width: 1024px) 100vw, 1024px" /><figcaption>Top Ethereum Projects</figcaption></figure></div>



<div class="wp-block-image"><figure class="aligncenter size-large"><img loading="lazy" decoding="async" width="1024" height="282" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.43.56-PM-1024x282.png" alt="" class="wp-image-10079" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.43.56-PM-1024x282.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.43.56-PM-1024x282.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.43.56-PM-1024x282.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.43.56-PM-1024x282.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.43.56-PM-1024x282.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.43.56-PM-1024x282.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.43.56-PM-1024x282.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.43.56-PM-1024x282.png?w=1208 1208w" sizes="auto, (max-width: 1024px) 100vw, 1024px" /><figcaption>Top Solana Projects </figcaption></figure></div>



If you made it this far, thanks for reading! Looking forward to catching up tomorrow.



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