SBF promotes efficiency of ‘misunderstood’ crypto derivatives

FTX CEO Sam Bankman-Fried says derivatives are necessary to bolster the liquidity and efficiency of markets.

The chief executive of crypto derivatives exchange FTX, Sam Bankman-Fried (SBF), has argued that derivatives are vital for the efficiency of the digital asset markets.

In an interview with Forbes published Aug. 30, the crypto billionaire claimed that crypto derivatives are “misunderstood,” asserting that critics fail to recognise the vital role derivatives play in bolstering the liquidity and efficiency of markets.

Derivatives refer to financial contracts that derive their value from an underlying asset or benchmark. Crypto derivatives in the form of futures, options, and perpetual swaps have attracted significant popularity in recent years.

SBF described derivatives as “misunderstood,” adding:

“People will note that derivatives trade more volume in crypto than spot, which is true. But that is true of every asset class in the world.”

In addition to promoting the efficiency and liquidity of derivatives, Bankman-Fried highlighted that said products can offer greater flexibility to investors seeking exposure to crypto assets by allowing them to access the markets without taking on the challenges associated with custodying digital assets.

However, SBF acknowledged the risks associated with traders using excessive leverage, which can drive increased volatility and expose investors to liquidations. In March, Cointelegraph reported that extreme leverage had resulted in $500 million worth of BTC being liquidated over the course of just one hour.

In late July, SBF lowered the leverage available to traders on his FTX exchange from 101x down to 20x. At the time he stated the move was intended to “encourage responsible trading.” Speaking to Forbes, Bankman-Fried further elaborated on his decision to reduce the leverage available to FTX users:

“Any position that you’re putting on with that level of leverage can’t be absolutely crucial for efficient markets, and this is not something I felt was particularly important or good for crypto market health.”

Related: 3 things every crypto trader should know about derivatives exchanges

SBF also encouraged the wider crypto industry to embrace regulation, urging digital asset firms to do “a more conscientious job of interfacing with regulators.”

Earlier this month, the FTX boss estimated that it will take three to five years before there is regulatory clarity for the crypto industry. “I’m spending five hours a day on everything from regulation to licensing and everything in between,” he said.

On Aug. 9 FTX announced that it will be streamlining its KYC (know-your-customer) procedures by checking phone numbers against data held on record to confirm users’ jurisdictions.