Written by: Qingzhou

The exchange is a leading role in the cryptocurrency industry, and it is also the most competitive track. After the blockchain became famous, in a short period of time from October 2017 to June 2018, the number of exchanges soared to tens of thousands There are so many homes.

Today, in the entire industry, there are only a few hundred exchanges left. Under the current situation where giants are entrenched, there are "very few" projects that can successfully enter the market as a novice and successfully obtain financing.

However, although the number of exchanges has decreased, the intensity of competition has not diminished at all. Only by doing a good job and doing the right thing to gain an absolute advantage in the competition can new entrants break through. This makes the "latecomers" of this track "It's even rarer.

Spot Trading vs Derivatives Trading in 2021

First of all, what makes us very excited is that 2021 will continue the growth trend of 2020, and the trading volume of exchanges will usher in another huge growth.

If calculated in U.S. dollars, according to CryptoCompare data, in January 2021, the total cryptocurrency spot transaction volume increased by 97% from the previous month to $2.34 trillion. Derivatives trading volume rose 101% from the previous month to $2.89 trillion, an all-time monthly high.

In February, the total volume of cryptocurrency spot transactions increased by 17.2% to $2.74 trillion. Derivatives trading volumes edged down 0.3% to $2.89 trillion.

The important thing to know here is that in February, the trading volume of the top market (ie the top-ranked exchanges) increased by 35.4% to reach 2.4 trillion US dollars, while the trading volume of the sub-market (second-ranked exchanges) fell by 36.1%. Top exchanges accounted for 86.1% of the total volume.

Such astonishing data also means that exchanges must compete to advance to a higher level, and the profits brought by the top platforms are incomparable.

Exchange's Competitive History 

In the history of exchange competition, there have been some interesting developments. While exchanges such as Binance, Huobi, and OKEx are at the top, many new exchanges have reached the goal of breaking through. Let’s take a look back and forth.

In the spot trading market, retail investors move around hot coins, so whoever can hold hot coins can get the users brought by the currency. Under the dominance of Binance, Huobi, and OKEx, new coins and hot coins have become chips for the growth of new exchanges.

Matcha and BIKI successfully achieved transaction volume growth through small currencies in 2019, and among them, Matcha has successfully entered the ranks of large-traffic exchanges.

However, in 2020, Gate and FTX will repeat their old tricks. During the period when DeFi hot coins are frequent, they quickly list coins and specialize in popular coins. They have also made amazing results in a short period of time, and have entered the ranks of higher-level exchanges. Among them, FTX not only broke out in spot transactions, but also showed its superiority in derivatives.

For derivatives trading, it is not as simple as the operation of spot trading, and will pay more attention to comprehensive factors such as the team's technology and operation.

In the traditional trading market, the volume of derivatives is often much higher than that of spot trading. According to historical data, taking the foreign exchange market as an example, the volume of derivatives trading is three times that of the spot trading market. In the cryptocurrency industry, the volume of the derivatives market is far from reaching such expected levels.

For example, as shown in the above figure, in December 2020, the derivatives market accounted for 54.8% of the total crypto market share, and in January 2021, it increased to 55.3%, while in February, the spot trading volume increased significantly, and the derivatives market shrank to crypto 51.3% of the money market. What is more ironic is that half a year ago, the derivatives market only accounted for one-third of the cryptocurrency market.

Details of the derivatives trading market

Derivatives trading belongs to a higher-level category in the cryptocurrency trading market. With the growth of spot trading volume and the maturity of users, it has gradually entered the field of vision of more users. However, the track's frenetic cash flow makes it particularly competitive. The following is a comparison of the transactions of major exchanges in the derivatives market in the past two years.

What we can find is that in the early days of 2019, BitMEX has always been ahead of other exchanges, and then with the growth of Huobi, Binance, and OKEx, although BitMEX's trading volume is still growing, its market share has been declining sharply. After that, Huobi, Binance, and OKEx accounted for most of the transaction share, and the sudden rise of FTX is indeed quite surprising.

From the proportion of open positions and trading volume within 24 hours, we can more clearly see the impact of the short-term adjustment of the exchange's operating methods on the market share of derivatives.

The picture above shows the holdings and trading volume of derivatives exchanges viewed in a screenshot on March 12. From the perspective of holdings, Bybit and FTX, which are not ranked high in monthly trading volume, occupy the second or third place. , Bybit took the fourth place, and FTX took the sixth place.

Others that appear in the position rankings include Bitfinex, BTSE, BitMEX, Kucoin, and Deribit, and those that appear in the trading volume rankings include Bitforex, Cointiger, Hopex, BitZ, and Bitget.

What are the characteristics of these cryptocurrency derivatives exchanges? Let's make a comparison. In terms of attributes, exchanges can be classified as follows.

Spot and Derivatives Exchange:

Huobi、Binance、OKEx、Cointiger、Kucoin、Bitget、Bitforex

Derivatives Exchange:

Main Agency: Deribit

Focus on retail investors: FTX, Bitfnex

For institutions + retail investors: Bitmex, Bybit, BTSE

From the perspective of attributes, the trading volume or growth of trading volume of exchanges for retail investors has changed greatly. However, if it is aimed at both institutions and retail investors, the trading volume of derivatives is expected to match the trading volume of the "Big Three" with a large number of users. For example, the short-term trading volume of Bybit trading and OKEx in the above picture is almost the same.

From the point of view of facing institutions and retail investors, if there is not enough user base, facing institutions can achieve a more stable transaction depth, but it needs to have a complete technical interface. For retail investors, the growth is huge, but better user experience and transaction currency are needed.

We still take some new data as an example, which is enough to prove some characteristics of new exchanges in derivatives trading. Here we need to separately calculate the detailed market share of each currency perpetual contract.

We can find that in the derivatives trading area of ​​most exchanges (such as perpetual contracts), the number of contract trading pairs is not large (compared to spot trading pairs), because there will be more users only if the trading depth of the currency is sufficient Or institutions see that using leverage can achieve higher returns, so most perpetual contract transactions are in currencies with better depth.

There must be mainstream currencies such as BTC, ETH, LTC, XRP, ADA, etc., and there will be updated star currencies every year, and their transaction market value is also extremely high. This is an opportunity for some exchanges.

Take Ethereum as an example for the mainstream currency. In the Ethereum derivatives open interest statistics on March 14, MXC is the best. In addition, both FTX and Bybit are in the rankings in terms of open interest and trading volume.

Let's take a look at the new other popular coins.

As shown in the figure above, according to the data analysis of DOT derivatives on March 14, Kucoin’s open interest is nearly twice that of Binance’s DOT/USDT contract trading pair. In terms of trading volume and open interest, we can also see that FTX is at the top.

The currencies that need comprehensive statistics are the perpetual contracts of star currencies such as LINK, UNI, LUNA, AAVE, SUSHI, etc. It can be seen that FTX has become an almost absolute leader.

Therefore, for the inference of breakout opportunities, we can try to draw the following conclusions based on the transaction nature of derivatives exchanges and the above data:

1. Add as many popular and star coins as possible, and increase leverage with higher multiples;

2. Possess high-level technology to ensure smooth trading experience;

3. There is an API interface to create convenient trading tools for institutions;

4. More open, open the trading door for retail investors;

5. Have stronger operational ideas.

What challenges do new exchanges face?

The author believes that other challenges may still lie in the problems faced by previous derivatives exchanges. For example, BitMEX used to be the leader in the Bitcoin futures market, but due to product stagnation and regulatory crackdowns, Binance Futures jumped up.

Among them, the U.S. Commodity Futures Trading Commission (CFTC) and the U.S. Department of Justice (DOJ) accused the BitMEX owner of illegally operating an unregulated trading platform and accused it of violating anti-money laundering regulations. The bias towards regulation is crucial. For example, on March 9, South Korean crypto exchange Bithumb announced that it will suspend trading services for residents of countries or regions that do not meet the Anti-Money Laundering AML standards of the Financial Action Task Force (FATF). According to data released by the Financial Action Task Force, Bithumb will suspend the provision of encrypted trading services for 21 countries.

write at the end

write at the end

The development of cryptocurrencies is rushing forward. Today, BTC has broken through 60,000 US dollars. More cryptocurrencies will continue to show results in the financial market, and there is still a lot of room for trading volume on exchanges. In this context, compared with spot products, the space for derivatives will be even greater, but due to the nature of derivatives, their development cycle will be longer. However, with the development demonstration of FTX and other exchanges in derivatives, the new exchange has a clearer development plan.

Finally, let’s take a look at the relevant data of the top exchanges in derivatives trading. It can be seen that the top exchanges are completely ahead in terms of trading pairs and trading volume. Only the number of trading pairs is one of the top five transactions. The number of trading pairs in the perpetual contract has already exceeded 100.

In such a fierce battlefield, many existing rules cannot be bypassed, so there are not many opportunities for new competitors. They can "imitate first" and "innovate later" to achieve breakthroughs based on existing experience and new ideas.