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Could Crypto Derivatives Push The Sector Toward Critical Mass?

Despite its surging popularity and advocates’ tireless evangelism, the cryptocurrency market continues to be more a niche than part of the mainstream. Even as blockchain takes off and finds a home in multiple sectors, the most popular coins continue to be held back by adoption numbers that, while still growing, are far from reaching critical mass. Prices have largely born out this trend, which signifies a degree of stagnation in the market.

 

While hype was at all-time highs toward the end of 2017, bitcoin prices soared to nearly $20,000 and appeared poised to run even higher. Nevertheless, prices collapsed back to earth once the hype wore off and trade volumes declined, with the pattern repeating itself several times. Prices have gradually declined, finding some recent stability and support, leading industry observers to once again ponder what might drive adoption to levels of greater saturation.

New market entrant IDAP (short for International Digital Assets Platform) believes the solution simply lies beyond use cases. The company is constructing a trading platform that will let retail traders participate in cryptocurrency derivative products. IDAP is aiming to help push adoption, and one of the biggest problems the company sees is that the market for traders—both retail and institutional—is restricted to exchanging coins, curtailing choices. With their new platform, IDAP intends to broaden cryptocurrency’s reach to drive the market towards more widespread adoption.

Removing Crypto Traders’ Shackles

Crypto trading has become a hugely popular activity for investors over the past few years, with new exchanges emerging seemingly every day. However, even with all their unique features, these exchanges continue to offer the same product, and the same limitations. To date, most retail traders who want exposure to cryptocurrencies can only carry out two types of trades—exchanging cryptocurrencies for fiat currency or other coins.

Even though major exchanges like the Chicago Mercantile Exchange are now offering derivative products—namely bitcoin futures—these products remain limited to accredited institutional investors. For most retail traders, cryptocurrency resembles an asset that can be traded much like forex, except for taking unidirectional positions and little else. More importantly, however, this restricted market for cryptocurrencies can exacerbate volatility and makes it less appealing for new entrants to participate.

In addition, the status quo for cryptocurrencies doesn’t provide many ways for investors to hedge their investments, or even be insulated from the volatility and wild price swings associated with cryptocurrencies. In a market that is largely driven by sentiment and hype, spikes and crashes can wipe out entire trading portfolios in seconds. Despite the many positive aspects of cryptocurrencies, the reality is that traders are largely unprotected and choiceless when it comes to investing. Furthermore, the current exchange ecosystem is far from providing any sort of relief.

For IDAP, these problems are significant enough to hold back not just retail traders and exchanges, but the whole crypto industry. Blockchain and cryptocurrencies’ potential is predicated on the number of users participating. The more users, the more efficient and effective they can be. According to IDAP’s team, the solution lies not in creating ever-more complex solutions, but rather to deliver choice and stability to traders.

Opening a Secondary Market, and the Floodgates

To counter these limiting factors, IDAP decided to expand beyond the traditional offering most crypto exchanges currently provide. Instead of a simple coin exchange, the company is building a platform that harnesses the power and functionality of derivatives. Derivatives represent a crucial part of modern financial markets, as they help mitigate and contain risk. By introducing them to retail traders as well as institutional investors, IDAP is seeking to generate enormous demand that will attract new customers and simultaneously advance adoption.

The company will be offering a variety of derivatives for cryptocurrencies, including ETFs, futures contracts, calendar spreads, and perpetual swaps. These are meant to create a more vibrant trading ecosystem, and one that allows traders to do more than simply swap currencies. Instead, investors will be able to create diverse and hedged portfolios that reduce their exposure to extreme volatility and give them greater freedom to continue investing.

Apart from a broader range of investment products, IDAP’s platform will also supply features that will help differentiate it’s offering from the market. One of the more intriguing aspects is the company’s IDAP ladder interface, which helps traders gain a view of the market while placing or modifying their orders with a single click. Others include the ability to create synthetic spreads using existing futures, and even a simulator that helps inexperienced users implement and test their strategies risk-free.

To accomplish this ambitious undertaking, IDAP gathered a team of industry veterans with decades of experience at some of the largest global exchanges. The founding team draws upon expertise that ranges from capital markets to crypto, and includes operations, finances, and development to create a pool of invaluable knowledge. The company is opening its token sale in July, but a pre-sale is already underway with a hard cap of 750,000,000 tokens.

Toward a Broader Crypto Ecosystem

Derivatives are a key component of any mature financial market. In cryptocurrency, derivatives provide an avenue into the young market from a familiar, established base of operations. Those who have failed to overcome crypto’s sometimes-complicated barriers to entry can jump right in. Institutional entities can incorporate these instruments into their strategy as well, without worrying about legal repercussions, or the costs involved with settling in the underlying asset. Full implementation and widespread proliferation of crypto derivatives is designed to help make once-niche coins like Ethereum a mainstream investment destination.

This was once a pipe dream for cryptocurrency enthusiasts, and it was widely believed that enthusiastic institutional support for crypto would result in “moon” prices for the market’s popular coins. However, the dominant crypto market did not force traditional finance to acquiesce. The slow introduction of derivatives and rising number of traders is gradually reducing volatility and increasing liquidity, creating conditions that resemble a more mature market relative to Bitcoin’s “Wild West” period. The end result will be a crypto market forced into adulthood, and into line, by those parties which still dominate finance.

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