OKX, the second-largest cryptocurrency trading platform, has introduced off-exchange derivatives trading with minimized counterparty risk, strengthening its partnership with CoinShares and custody joint venture Komainu. The collaboration aims to bring traditional finance (TradFi) standards to derivatives settlement, addressing the complexities of risk mitigation in the derivatives market.
Enhancing Counterparty Risk Mitigation
Building on its existing partnership with asset manager CoinShares and custody joint venture Komainu, OKX now offers derivatives trading without the counterparty risk associated with on-exchange assets. This move comes in the wake of efforts by various players in the crypto space to develop mechanisms for off-exchange trading and settlement within trusted custody setups.
🚀 Big news in crypto trading! 🌐 OKX, the second-largest trading platform, is shaking things up with derivatives trading sans the usual risks of on-exchange asset holdings. 🤝 Teaming up with CoinShares and Komainu, they’re pushing for traditional finance standards in… pic.twitter.com/75eUTY6Uo6
— Chambers Christine (@ChambersCh48682) November 15, 2023
Derivative trading introduces additional complexities compared to spot markets. According to Lewis Fellas, Head of Hedge Fund Solutions at CoinShares, the collaboration includes a collateral mirroring agreement to facilitate the trading of OKX’s full suite of derivatives products. This involves managing margin financing, risk mitigation on the downside, and addressing collateral calls in case of significant position losses.
Expanding Custody-Based Derivatives Trading
The new system, combining Komainu custody-based derivatives trading with CoinShares, is set to be utilized by various hedge funds. While specific funds were not disclosed, Fellas mentioned plans to expand the settlement system to other exchanges in the future.
In addition to addressing trading complexities, the collaboration has created a standardized legal agreement that can be adopted by multiple counterparties. Sebastian Widmann, Head of Strategy at Komainu, emphasized the aim of bringing standards to the marketplace, particularly as more institutional players enter the space, emphasizing the segregation of custody and exchange.
Advancing TradFi Standards in Crypto
OKX‘s initiative aligns with the broader industry trend of advancing traditional finance standards within the crypto sector. By focusing on derivatives settlement with reduced counterparty risk, the collaboration aims to provide a secure and standardized framework for institutional and professional traders venturing into the crypto derivatives market.