Cryptocurrency exchange OKX is launching derivatives trading for its users without the counterparty risk associated with exchange-traded assets, thanks to a partnership with CoinShares and Komainu.
Following the collapse of FTX, leading companies in the crypto space have been developing and implementing new ways to trade and settle OTC derivatives within the safe confines of a trusted custodian.
According to Lewis Fellas, head of hedge funds at CoinShares, OTC settlement is relatively easy in spot markets, but derivatives trading requires a different approach, CoinDesk reported.
"We've entered into a collateral mirroring agreement and built it into the derivatives trading platform, which allows us to trade the entire OKX product suite," Fellas said.However, Fellas noted that it is much more complex because there is margin financing, and it is important to mitigate the risk in case a client takes a huge position and it goes down.
In addition, he emphasized that other hedge funds will be using the new system, in addition to Komainu's deployment of custodial derivatives trading with the main structure of Coinshares. This settlement mechanism will be available on other exchanges at a later date.
OKX partnered with Komainu, a joint venture between Japanese bank Nomura, CoinShares, and cryptocurrency storage company Ledger, in June 2023.
Sebastian Widmann, head of strategy at Komainu, said that in addition to tackling the complexity of derivatives and swaps from a trading perspective, the companies have developed a standardized legal agreement that can later be adopted by multiple counterparties.
"We're trying to bring standards to the market as more firms enter the market, especially institutional players who are used to doing custody and exchange transactions separately," Widmann said.
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