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August 22, 2019

Deribit and Paradigm Launch the World’s First Multi-Instrument Block-Trading Solution for Crypto Derivatives

Deribit and Paradigm Launch the World’s First Multi-Instrument Block-Trading Solution for Crypto Derivatives
Cryptocurrency derivatives exchange Deribit and Paradigm, the first institutional-grade OTC communication platform, have launched a joint workflow solution for institutional crypto-derivative traders. This partnership represents the next step in catering to growing institutional demand for crypto derivatives and launches the world’s first multi-instrument block-trading solution offered by a crypto-derivative exchange. Block trading on Paradigm is currently live with some of the most renowned institutional trading firms.

This new block-trading solution will enable institutions to directly negotiate crypto-derivative trades with counterparties of their own choosing, via chat on Paradigm. Once agreed, the trade information will automatically be submitted to Deribit for execution and clearing.

What are Block Trades?

Block trades are privately negotiated, principal-to-principal transactions in futures or options, or spreads and combinations of the two, that exceed certain minimum quantity thresholds. Once traders agree on a price, these transactions are submitted to the exchange for execution and clearing.

In existing financial markets, institutional traders prefer this method of transacting when they believe that there is insufficient liquidity in the order book to execute a large trade at a specific price in a single transaction. In other words, block trades reduce slippage and minimize impact on the market price since the transaction is negotiated away from the order book.

First of its Kind

Previously, no other exchange has offered a block-trading facility for crypto derivatives. Instead, institutional traders privately negotiated large trades via Telegram or Skype and then manually coordinated execution on Deribit’s order book. This approach exposed traders to a significant amount of execution-related market risk, especially for spread and combination trades.
“For the first time, institutions that trade crypto derivatives in large volumes can negotiate privately on the Paradigm platform, after which the trade will be automatically executed, margined and cleared at Deribit and displayed on the public tape as a block trade, eliminating any execution risk associated with the order book” said XBTO Group’s CEO Philippe Bekhazi. “When excellent companies operating in a similar space work together by leveraging relationships and sharing ideas, everyone wins – including, most importantly, the end user.” XBTO Ventures is an investor in both Paradigm and Deribit.

Why we partnered with Paradigm?

In addition to the automated blocking functionality, Paradigm also provides an exceptional suite of institutional trading tools. Some of the most desired tools include automated RFQs, a full audit trail, a directory of potential counterparties and the ability to “approve” specific counterparties before a trading relationship is initiated with them. This workflow offers institutions the opportunity to conduct their own due diligence on counterparties in order to satisfy their own regulatory requirements and firm policies. A full set of features on Paradigm can be found below.

Access for Institutional Traders

Crypto-derivative block trading on Deribit will be available both through the Paradigm system and directly via Deribit’s API. Traders will have access to block trades in Bitcoin (BTC) or Ethereum (ETH) backed futures and options, including spreads and combinations of the two products.

The Paradigm platform is accessible to professional traders, by invitation only. Interested parties should submit a request here or join Paradigm’s Telegram channel for more information. Access is restricted to applicants who have been approved by Paradigm following its internal review process. A full list of territories where Paradigm may not be accessed can be found here. At this time, Paradigm may not be accessed by U.S. persons or IP addresses.

About Deribit

Deribit is the answer to those searching for a professional-grade cryptocurrency derivatives exchange. The founding vision was to create an efficient and fair marketplace that could connect traders of all backgrounds and trading styles. The proprietary matching engine allows for extremely high levels of requests per second, giving traders a smooth experience even during times of high activity and volume.

Launched in 2016, Deribit is among the highest-volume crypto-derivative exchanges in the world. Currently, users can trade perpetual, futures, and options contracts. Furthermore, Deribit remains the only exchange offering European-style cash-settled crypto options and continues to set the standard for the rest of the industry.

About Paradigm

Paradigm is an institutional-grade communication platform that automates price negotiation and settlement workflows for OTC digital asset traders. The firm’s mission is to bring traders together and drive efficiencies in their workflows so that they can focus on what matters most: trading.

Paradigm is a privately funded company backed by XBTO Ventures, Vectr Fintech Partners, Monex Group, and some of the most prominent angel investors in the OTC markets.

August 16, 2019

BTC Perpetual contract comparison

Perpetual Swap is a derivative product similar to a futures contract. However, unlike the traditional futures contract, the perpetual contract has no expiry (hence the name ‘perpetual’).

Deribit launched its BTC perpetual swap in August 2018, and almost immediately it became the most traded instrument on the platform. It is not unusual for the perpetual swap alone to make up 80% of the trading volume in a given day.
However, Deribit is not the only platform providing perpetual contracts. In the article below, you can see what sets Deribit’s BTC perpetual apart from other perpetual contracts in the market.

Funding

Perpetual contracts feature funding payments. These payments are incorporated so that the price of a perpetual contract stays as close as possible to the price of the underlying instrument’s price. If the perpetual trades higher than the index, the longs make funding payments to the shorts and vice versa. This will make the product less attractive to the longs and more attractive to the shorts, thus pushing the perpetual price back to the level of the index. For the funding mechanism to be the most efficient, Deribit has implemented a continuous funding calculation and exchange. This is a crucial distinction from other products in the market. A continuous funding mechanism ensures a more stable price relationship between the perpetual and the index price and avoids artificial volatility during funding times.

Index

It is vital that the index tracked by the perpetual is resistant against any manipulations and outliers in one of its constituents. If it is not, it can force false liquidations that are not caused by the general market conditions. For this reason, Deribit does not include the exchanges with the lowest and the highest prices, thus ensuring that the Deribit BTC Index tracks the real BTC market price.  

Liquidation

At Deribit, we believe in a fair and transparent market. We like to incorporate these principles also in the way we operate. Leveraged trading is a high-risk strategy; however, advanced risk management can decrease this risk. For this reason, we have developed an incremental liquidation system. As soon as an account does not have enough equity to maintain its positions (as assessed by the risk engine), the Deribit liquidation system will start closing small parts of the position in the market. However, as soon as the maintenance margin is lower than the margin balance, liquidation will stop. This ensures that the position is not closed at bankruptcy when the liquidation can be executed at a favorable price. Our insurance fund also gives an extra layer of security, as it is used to cover the negative balance of the bankrupt traders. Until this day, we have not had any socialized losses.

Contract details

 Deribit provides one of the highest market maker rebates in the market. We believe in equality of all market participants, therefore, providing the same rate for all.  Moreover, our subaccount system allows traders to have several separate positions on the same instrument. It is especially useful if the traders want to keep specific strategies separate, without having them averaged into a single position. It is essential if traders wish to have different strategies with various risk profiles simultaneously. If traders want the positions to be netted together on Deribit, they open them on the same account, and it is done automatically.

In the past year, we have listed the Ethereum perpetual and are looking forward to introducing even more products. We are happy to see our customers appreciating our products, and we continue to work hard to give them the best crypto derivatives in the market!