Derivatives are financial instruments whose value is derived from an underlying asset. They can be used for hedging risk, speculating on price movements, and enhancing investment strategies, among other things. Especially in the highly volatile crypto markets, derivatives such as options can be attractive for investors.
While some derivatives such as futures are quite prevalent in the crypto markets, options have remained rather niche, partly due to their increased complexity for retail traders. In an interview with CVJ.CH, Chantal Bradford talks about her view on the market and where she sees crypto derivatives going. Chantal covers institutional sales in the EMEA region at Deribit, a crypto derivatives exchange with a market dominance of over 80% in the options space.
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CVJ.CH: What is Deribit's main focus at the moment?
Chantal Bradford: We offer a full suite of derivatives products, but our main focus since inception has been growing the digital assets options industry as a whole. Deribit is proud to be a dominant player in the crypto options space, but we don’t need to continue holding 80% of the market share as it shrinking will demonstrate the growth of the entire space. Options are still very underrepresented in terms of crypto derivatives overall, but we expect that to grow along with Deribit. Maybe we don't have 80%, but we might have 50%. The pie gets bigger, so Deribit might have less of the pie, but the market is bigger overall.
There are a lot of competitors at the moment, both new exchanges setting up derivatives businesses and crypto-native exchanges expanding into options. We want to continue focusing on our core business, which has been our strength and allowed us to stay ahead.
Why are options still so niche in crypto?
Probably because crypto is quite new. In traditional markets, people start with spot trading and then expand into derivatives later. However, in traditional markets, options account for the majority of trading volume. If crypto follows this path, we expect similar growth. Traditional markets don't have the perpetual contract, so many in crypto use it for hedging purposes. However, there's still massive room for growth. As more institutions, particularly traditional finance institutions like hedge funds, enter the market, options trading will increase since it's their bread and butter.
Do you think options on the newly approved ETFs will make competition fiercer for you?
We see that they are growing the market. No one is sure when they will come, but ETF options will appear for digital assets. These ETFs will grow the market, and we will grow along with it. If the CME does well, so does Deribit because everyone uses Deribit for hedging due to our liquidity. So if the CME and other similar exchanges do well it creates more arbitrage opportunities. At the moment, there is just one dominant player, but exchanges like OKX are starting to grow in options, creating more opportunities. They are mainly activating retail customers by educating them on trading options, which benefits the entire space as well. Increased flow in the market and higher volatility drive success. Even events like ETF approvals and elections create volatility, bringing more attention to options.
Currently, around 80% of volume on Deribit is institutional. Do you think future growth in options will also come from institutional money, or will retail play a bigger role?
Growing the retail base is challenging. To trade options, you need to know what you're doing, making it hard to activate retail traders. We are always going to allow for retail traders, and have taken a few steps to make trading for retail easier, including launching a mobile app. However, growth is more likely to come from institutional investors.
Last year was a year of building for us. Deribit has received our VARA license as well as our SOC 2, ISO 27001 certifications, in the past year and we have integrated more third-party custody solutions. Deribit has integrated with Copper, allowing trading using the Copper Clear Loop Network, Cobo, Fireblocks, Fidelity and we are looking at Zodia. These integrations bring more comfort to traditional markets and attract institutional investors. When I joined Deribit two and a half years ago, about 10% of our options volume came from block trades. Now it's around 25%, showing the growing interest from institutional players.
As we provide more solutions that traditional finance actors, like prime brokers, are used to we see more growth. Including our recent partnership with Hidden Road, which is live with perpetuals and options. Prime brokers like FalconX, Hidden Road, and others provide capital efficiency, allowing clients to trade on multiple exchanges with a single margin. Some customers prefer facing a prime broker rather than Deribit directly. This grows the market.
Prime brokers in particular faced heavy setbacks two years ago when FTX collapsed. How did you feel the impact?
Market volatility always results in higher trading volumes, and the month FTX went down saw extreme price activity. Many people saw Deribit as a trustworthy exchange and moved their assets to us and we had a lot of assets coming onto the exchange during that time. We now have about four billion worth of assets locked on the exchange. December, after FTX, was bad, but January saw a price rise, followed by the banking crisis, creating more volatility. This benefited our business.
In general, options had a great year last year. Deribit has been consistently growing. Since then, 30-50 corporate customers have been onboarding to Deribit a month.
What are your plans for options on altcoins?
Due to significant client demand, we recently listed Solana options, along with XRP and MATIC options as linear options settled in USDC. We plan to list around 10-20 more altcoins based on client demand and are in the process of determining which ones clients are demanding the most. The volumes are increasing, and we are pleased with the progress.
Where do you see the main hurdles for higher options retail adoption?
I think it's mainly education. There is so much you can do with options; hedging, trading volatility, directional trading, and speculation. However, for retail traders, it's an educational process. Deribit launched in 2016, and initially, nobody wanted options. Deribit’s founder, John, was an options trader and wanted to list options despite low demand. Our perpetuals contract then gained popularity due to better tech and fewer outages compared to other platforms.
Over time, spreads tightened, attracting more market makers and institutional money. Retail adoption is challenging because accessing those users is difficult for us as an institutionally focused platform.
Chantal heads up EMEA Institutional sales at Deribit, a crypto derivatives exchange specialising in options. Chantal has spent almost 15 years in financial services, initially in one of the top 5 accountancy firms where she gained her ACA before moving into the Institutional space. Prior to joining Deribit she worked at Curve Global, the Derivatives segment of the London Stock Exchange Group. Chantal holds an M.A in Spanish & Politics from Edinburgh University.
