SBF promotes the effectiveness of misunderstood crypto derivatives

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Managing Director of the FTX Crypto Derivatives Exchange, Sam Bankman-Fried (SBF), has argued that derivatives are vital to the efficiency of digital asset markets.

In an interview with Forbes published on August 30, the crypto billionaire claimed that crypto derivatives are poorly understood, claiming that critics fail to recognize the vital role derivatives play in boosting market liquidity and efficiency. .

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

The SBF qualified the derivative products as misunderstood, adding:

People will notice that derivatives trade more in crypto than in spot, which is true. But this is true for all asset classes around the world.

In addition to promoting the efficiency and liquidity of derivatives, Bankman-Fried pointed out that these products can offer greater flexibility to investors seeking exposure to crypto assets by allowing them to access markets without facing the associated challenges. preservation of digital assets.

However, SBF has recognized the risks associated with traders using excessive leverage, which can lead to increased volatility and expose investors to liquidations. In March, Cointelegraph reported that extreme leverage resulted in the liquidation of $ 500 million of BTC in just an hour.

At the end of July, SBF reduced the leverage available to traders on its FTX exchange from 101x to 20x. At the time, he said the move was meant to encourage responsible trade. Speaking to Forbes, Bankman-Fried explained in more detail their decision to reduce the leverage available to FTX users:

Any position you put in place with this level of leverage cannot be absolutely crucial for efficient markets, and it is not something that I consider particularly important or good for the health of the crypto market. .

Related: 3 Things Every Crypto Trader Should Know About Derivatives Trading

SBF also urged the entire crypto industry to adopt the regulation, urging digital asset companies 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 regulations are clear for the crypto industry. I spend five hours a day on everything from regulation to licensing and everything else, he said.

On August 9, FTX announced that it would streamline its KYC (know your customer) procedures by matching phone numbers to recorded data to confirm user jurisdictions.

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