After ten years of barbaric growth, the cryptographic currency mining industry is gradually moving towards industrialization and financialization. In recent years, the mining industry has learned a lot from the financial community to hedge risks and enhance returns.
The second phase of the, Crypto Tonight special series “Talk to Chun” launched smoothly at 9: 00 p.m. on July 3, Beijing time: “cryptocurrency Mining and Financial Derivatives”., Crypto Tonight founder Yama invited nine top mining pools and senior figures from cryptographic financial institutions to discuss the financial products available to the cryptocurrency mining industry, as well as the characteristics of the cryptocurrency derivatives market.
The core highlights of this issue are:
Wang Chun, co-founder of F2Pool: mining businesses such as mining pools are one of the best ways to do more bitcoin.
The trading volume of Deribit CCO: Bitcoin options contracts is much higher than the simultaneous exercise price of Deribit,.
Co-founder of Three Arrows Capital: derivatives arbitrage is risky and diversified vertical sector encrypted financial institutions appear in the industry.
Matrixport COO: encrypted finance can help miners meet the three major needs of hedging, loan and income enhancement. 5% to 15% is the common income expectation range.
BTC.com CEO: miners are more professional, and mining pools should integrate resources to provide one-stop service solutions.
To view the complete video of the program, you can click here to review it. The following is a transcript of the entire program, and the content has been edited.
Guests of this episode.
Co-founder of Chun Wang:F2Pool Fish Pond, founder and CEO of stakefish.
Co-founder of Ethan Vera,Luxor Mining.
Jason Zhuang,BTC.com CEO.
Luuk Strijers:Deribit CCO.
Co-founder of Kyle Davies:Three Arrows Capital.
Founder of Darius Sit:QCP Capital.
Co-founder and CEO of Emmanuel Goh:skew.
Daniel Yan:Matrixport COO.
Head of Qian Xiong:Blockin Wallet Asset Management.
Guests introduced themselves.
Hello, Yama:! Welcome to the second issue of the Crypto Tonight special series Talk to Chun: cryptocurrency Mining and Finance! A warm welcome to our nine guests. First of all, introduce yourself and start with Chun.
Hello, Chun:. I’m Chun. This is the second issue of Talk to Chun. Welcome. Boss Wang Chun has just returned from Busan today and the journey is tiring. ).
Thank you, Yama:! How was Busan this weekend? How was the beach?
Chun:, I can’t wait to get back to Seoul, .
Yama: , really? Have you seen the horror movie Busan?
Chun:, I hope it will not turn into COVID-19 epidemic terror! I’ve been socially isolated.
Yama: is the CEO of the next Zhuang Da Jason,BTC.com.
Jason Zhuangda: Hello, everyone. I’m CEO, of Jason (Zhuangda) BTC.com. We are one of the leading mining pools in the world. We also started working with Matrixport last year to launch some innovative financial products for miners.
Yama:Jason, I know that you gave up your Ph.D. from the United States in 2012 and returned to all in to join the blockchain battlefield, Bitcoin True Love. Did you buy coins at that time?
Jason:2011 bought a lot and traded on Mentougou, but later suffered a lot of losses due to lack of trading experience. Haha.
Yama: , it just so happens that tonight we have a lot of professional traders who can exchange experiences. The next co-founder of Ethan,Luxor Mining.
Hello, Ethan:. I’m Ethan,. We are a North American mining pool, and we also operate arithmetic. I personally have a financial background. I was at Goldman Sachs before.
Thank you very much, Yama:Ethan,. It should be 5: 00 or 6: 00 in the morning, right?
Yama:, thank you, next Daniel Winter, Matrixport COO.
Hello, Daniel:. I’m COO, from Daniel,Matrixport. I’m glad to meet many new and old friends here. Matrixport provides one-stop encrypted currency financial services, pledged loans, transactions, financial management, trusteeship, etc., many of our customers are miners friends, but also rely on bit mainland background.
Yama:Daniel, I know you’re a good rapper, buy bitcoin at dip and earn money while your songs! I really hope to have hip-hop in a currency circle, it is not difficult to guess who will be the champion, . Hope to have a chance to listen to you on the spot!
Daniel: next time, !
Hello, Yama:! The next Xiong Qian comes from Blockin wallet.
Hello, Qian:. I’m from Blockin Wallet. I’m glad to invite you. Blockin’s background is the coin printing pool, which is one of the largest mining pools, and is also committed to providing one-stop financial services to miners. My personal background is that traditional finance has come to the currency circle for less than a year.
Yama: the CCO of the next, Luuk, Deribit.
Luuk:, thanks for inviting me again. I work for Deribit. Deribit is one of the top 10 digital currency derivatives exchanges in the world. Deribit is best known for being the leader in the digital currency options market. Last Friday, we had an open position of $1.5 billion, which expired almost halfway through the day. We are not only focused on these trading volume data, we are also actively promoting the provision of more new services, promoting new markets, optimizing prices, and so on. Options are our specialty.
Yama: Bitcoin options Day last Friday! Luuk, I want to say that your Deribit pink sweaters are so beautiful that I really want one!
Luuk: , no problem!
Kyle of, Three Arrows Capital, the next guest of Yama:.
Kyle:, thank you for inviting me! We are a licensed financial institution regulated by the Singapore Monetary Authority ((MAS)). My partner Su zhu and I set up a Three Arrows (3ac) hedge fund eight years ago. I personally have a background in foreign exchange trading. Our fund is mainly engaged in trading and lending. At the same time, it will also involve investments in the primary market. For example, we like Deribit, first, and we all know Deribit options first.
Yama: 3ac has a lot of good news recently, new partners, new investments. I have a small question: why is it called Three Arrows Capital? what’s the story?
Kyle: actually comes from the famous “three Arrow training” of the Japanese warring States. Maori Yuan, one of the allusions of the general, three arrows unite as one to defeat the enemy.
Yama: is very interesting! The next founder and CEO Emmanuel of skew.
Emmanuel: Hello everyone, we provide derivatives trading data analysis, look forward to participating in today’s discussion to see what we can do for the mining circle.
Yama:, thank you! Next is the founder and CIO Darius of QCP.
Hello, Darius:, QCP is based’s trading company in Singapore, we mainly do cryptocurrency transactions. Like most other guests today, I am also a traditional financial currency circle, which has long intersected with Kyle,Daniel in foreign exchange trading. We are mainly in two areas: OTC and options trading, but like 3ac, we also invest in the primary market, such as Deribit, such as skew..
What do you enjoy most when Yama:Darius, is both a professional trader and Singapore’s youngest rugby player?
Darius: super power! Trading and rugby require high energy, brainpower and physical strength, which is perfect for me, .
Chun opening discussion: what can the mining circle do with financial products?
Emmanuel: this is also the point that I want to discuss with Luuk, Dairus and Kyle here today. It seems that miners have the need to pledge Bitcoin to borrow U to pay for electricity to buy machines. Hold’s own Bitcoin, borrowing positions need to use options products to hedge the downside risk of currency price fluctuations.?.
Jason: A few years ago, the big mine pool still kept a lot of unwithdrawn coins from miners, and some miners even used the mine pool as a wallet for half a year or more. But from 1 to 2 years ago, miners began to stop doing this, and they basically withdrew coins very quickly. As a mining pool, we don’t have that many coins in our own custody now. Miners will still store coins properly, and big miners even have their own internal management team to take care of their own coins. From the point of view of the mining pool, we are more like a bridge to help miners connect and introduce all kinds of resources. The miners themselves are becoming more and more professional, they are very clear about their needs, and most of the time they do not need the mining pool to provide them with wiring resources. Therefore, our mining pool is also thinking, such as docking lending platform, hosting platform, exchange and so on, our goal is to integrate more and better resources and provide one-stop service solutions for miners.
Daniel:, I think your question is what kind of financial products are good for miners. From our point of view, there are three problems that can be solved for miners: the first is hedging; the second is pledged lending; and the third is to enhance returns, such as 5% or 15% or more, depending on their risk-return preference.
What is the most common range of returns for Yama:?
Daniel: I think 5-15% is the common income expectation of 80% of miners, about 5% of miners may be conservative, safety is the most important; 15% or so may be that I still want to take a little risk to earn some high returns, but not too risky 30%.
The return range of Yama: sounds like a good match to the interest rate offered by 3ac. What do you think of Kyle?
Kyle: our business model is very simple, we borrow money, we do not do options, options are more Deribit or QCP can provide. We borrow money after the operation is also very simple, that is, cash arbitrage, we should be the biggest players in this business model. We like to be simple, stable and secure, without involving structured products.
Emmanuel:Kyle I would like to ask, where is the best place to learn from the borrowing rate of spot arbitrage?
Kyle: market, such as you go to the Blockfi website above the interest rate plus 1-2 points is a reference, if you need more in-depth reference such as you can go to the OTC market, I think the basic idea is that each broker quotation plus 2 points is a better reference.
There are also some innovative arithmetic derivatives in the Yama: market. Ethan is an expert in this field. Can you share them with us briefly?
Ethan: computing power is a fluctuating risk value for miners. Daniel also mentioned earlier that miners have a demand for hedging risks. The fluctuation of computing power is no less or even three times higher than the currency price. Therefore, derivatives aimed at the risk of arithmetic fluctuations can prevent miners from being forced to shut down because of falling arithmetic power, which can protect miners to a certain extent and promote the development of the industry, but it is indeed very early.
Kyle:, I would also like to ask Chun, what we can learn from the financial side of the mining circle at the beginning of our discussion tonight. I want to mention the opposite direction. What can we learn from the old players in the financial circle? You have been in the industry longer and experienced more bull and bear markets.
Chun: I actually haven’t dug for a long time, although I have a fish pond as my company. Financial products are not very important to my personal needs.
Jason: Mining has learned a lot from the financial community to hedge risks and enhance returns, especially in recent years. For the financial community to learn from the mining industry, I think the main thing is to grasp the differences between the traditional financial market and the traditional financial market. Compared with other financial products in the traditional market, the price fluctuation is still too large, the risk of asset security is also greater, and the overall risk control requirements are also greater. Like DeFi’s products, code vulnerabilities in smart contracts can lead to asset losses, which are risks that traditional businesses do not encounter.
Chun: I think mining pool and mining circle business is one of the best ways of long bitcoin, it’s a bit like you are passively holding money, you don’t need to take the initiative to buy and sell on the spot on the exchange, regardless of whether the price is sometimes high or low. To me, the mining pool means more to keep the opportunity to enter the market at any time. After all, coins are generated every day.
Luuk: I would like to add that we talked a lot about mining issues, such as hashing difficulty, etc., but income and risk hedging is actually a bigger topic; in addition to mining, there are actually many other coin holders, such as exchanges like Deribit, where our revenue is bitcoin; and bitcoin lending companies. We actually have the same problem as miners: current and future income is bitcoin, ethernet or other coins. Therefore, hedging / risk hedging for future returns is extremely important. What we see at Deribit is that more and more of these companies are starting to hedge, and many of our competitors are hedging options at Deribit. Although everyone is just beginning to get in touch with these, the demand for this hedging and the pursuit of stable future returns are far from limited to the mining industry.
Emmanuel:Luuk, what do you think? if someone hedges with put options, but his hedging income is still bitcoin.
Luuk: is not important, the key point is the risk of hedging the price of bitcoin, you can also use perpetual contracts to hedge. We hope to be able to launch USDT as a margin product in a month’s time, with futures at the beginning and options at the follow-up. Because it is easier to predict if you use USDT as a margin. Another thing we are planning, especially for miners, is that if their daily income is bitcoin-based, they may prefer to hedge with Asian options. Asian options will cover a range of exercise prices, with a fixed settlement price every day, which can help Darius better hedge risk. We still have a lot to do now. First of all, if the platform margin is still bitcoin, it is true that some hedging will be difficult.
Darius: according to what you just said, many of our investors actually have these two concerns. As you said, one problem is the exchange of Bitcoin. Our income is Bitcoin and our expenditure is Bitcoin; so we need to exchange Bitcoin. The second is settlement, some people can not do cash, they prefer physical delivery. We will make physical delivery. Why do our customers sometimes choose us because they want to deliver in kind. Perhaps for Deribit, as an exchange, it will be difficult to modify these, as a middleman, we will be more flexible.
What are the characteristics of the derivatives market?
Daniel: I would like to ask Kyle, that you do a lot of arbitrage, spot arbitrage is more direct, but such as arbitrage between derivatives, where is the main point of risk control? Do you have any suggestions or share?
Kyle:, I admit, there are risks. If you long, on one exchange and short, leverage on another, the currency will most likely be closed within a day with a big fluctuation in the currency price. So it’s important for you to understand the risks you face. In 2016-2017, many people may have done spot arbitrage. In 18 and 19 years, more and more spot arbitrage began. Back to your question, if you want to enter the market, I think the best advice is to let professional people do professional things. Instead of doing it yourself, you might as well lend money to institutions that are already very professional in this area. In addition, we see diversified vertical financial institutions, such as institutions specializing in options trading and lending, which does not mean that all financial services are concentrated in one big exchange. This is also a very good phenomenon, and the industry has more diversified ways to develop. In addition, everyone has their own customer groups that are good at serving, for example, some organizations are good at serving miners, and the mining pool is a good example. To some extent, the development of polycentralization is also a form of decentralization.
Darius: I would like to add that many people do not pay much attention to the credit risk in loans, who can be trusted and who is responsible.
Kyle: Yes, I think the wave of 312 has made a lot of people begin to realize this problem. I agree with Chun at the beginning that if your market gives too much trust in the early days, your currency may be long gone. Now the market and players are relatively mature, and there is a certain degree of supervision as protection. I don’t think the goal is for you to lend 100 opponents and 100 counterparties to do transactions. In fact, three may be enough, and it is also the most perfect choice. at least that’s what our current experience looks like. To sum up, the lending market has more to do with credibility, trust and regulation than meaningless decentralization.
Ethan:Qian I would like to ask you about currency printing, you are now also entering the market to make loans, you will be concerned about, for example, your users have used some hedging tools to reduce the impact of currency price fluctuations, if so, will you give them higher credit?
Qian: is like this, miners actually prefer products with a certain hedging risk, such as zero interest loans, such as never closing positions, then the logic behind these products is that complex financial instruments such as options will be used. For us, we will find some natural counterparties to hedge risks such as loan deposits. Of course, if users do not need education and already have this awareness of spontaneous hedging, we must like such users very much. But we serve miners, not picky miners, so we try to think about how we can better serve them and provide more practical financial products to meet their needs.
Qian: I would like to ask Darius a question, your derivatives trading is very professional and active, do you think derivatives will stabilize the volatility of encryption trading? Moreover, can the entry of institutions finally eliminate the large fluctuations in BTC?
Darius: I think we can look at this problem in several levels. First of all, from the current situation of cryptocurrency, why the currency price fluctuates so much, I think the reason is that the leverage of derivatives is too high, such as the ultra-high leverage ratio on Bitmex. Generally speaking, the unlimited use of leverage leads to huge volatile fluctuations in currency prices. If the use of leverage ratio is limited, this fluctuation phenomenon should be improved to some extent.
Yama: Etay Fong options market seems to be quite popular recently, the feeling of institutions entering the market, the open position soared to 200 million U.S. dollars this, a record high, what do you think of this phenomenon?
Daniel: gives me the impression that there is a big etheric holder coming into the market, desperately selling call, is a bull market or a bear market phenomenon, I think it is difficult to say.
Luuk: We can see the deal, so we know who’s behind it. One of them is… Um… This is a favorite topic for the media. Maybe the etheric place today is similar to the bitcoin of two years ago. At present, there are several companies that are particularly active in this field. Personally, I think there are two reasons. One is to increase income, and the holders of Yitai Fong generate income by selling options. 2 is the expectation of Ethernet Square 2.0 and Staking, that it will usher in a small bull market, so there has been a lot of interest. So I think it’s both. But on the whole, there are more market movements and more participants in Yi Tai Fong. Of course, it may also be because bitcoin options are very successful, so they think ethernet options will also be the latest successful product. Of course, the options market in Taifang is less efficient, especially when you compare the number of market makers in bitcoin options with the number of market makers in Taifang options, so there are more profit opportunities in price. Although ETF options are growing rapidly, its liquidity and market quality are still far inferior to that of Bitcoin.
Darius: just now Kyle actually mentioned etheric lending. From an external observation, one reason may be that the etheric lending market has contributed to the surge in the options market.
Kyle: ethernet now borrows at high interest rates, as does bitcoin, and one of the best ways to protect your position is to use options.
Jason: I have a question. We settled nearly 100,000 bitcoins last week. What do you think of the impact of such a large open contract settlement on the price? Is the market growing?
Luuk::, this is an interesting question. There are two possibilities. One is that the market is growing, and it is because there are more institutional clients entering the market. Everyone is saying that, but I have to be more frank. It’s still in the early stages, and managers of many organizations still have a lot to worry about. Although a few have made headlines, there is still a big difference between you and traditional assets. These news attracts more institutions to enter, and everyone enters the market in anticipation of a bull market, which will lead to a long-term consensus on price growth, which will push prices up. I don’t know exactly when it will happen, but on the whole it will promote the bull market trend in the next few years.
The settlement of open positions in options is often misunderstood by many people. If you just look at the volume of open contracts, for example, last Friday, the volume of our open contracts was almost $14,500,000, which sounds very large; but this is nominal value, each option contract is a BTC,1 BTC is about $9000-10000, 100000 contracts are nearly $1 billion open contracts; about 75% of them are in Deribit. Nearly 25 per cent are in CME, and some are scattered on other exchanges. So the settlement of 100000 contracts is the highest in Deribit history and the highest in the world. But if you take a closer look at the positions of ITM or ATM, it is actually very limited. So a lot of people are speculating that there will be a bull market. Among the options that expire at the end of June, many predicted that Bitcoin would rise to $30,000 and $20,000, while others predicted that Bitcoin would fall below $5000. If you look at the biggest pain point, like a smile chart, you will see that the biggest impact / pain point is actually the ITM call option, which is very limited.
If you take a closer look at the impact of this maturity date, especially the settlement between counterorders, in fact, many people are very disappointed, the impact is very small (settlement is very small). In the next settlement cycle, such as September or December, I expect these figures to be larger; and more open positions will be close to ATM and there will be less OTM. When this happens, say, 20,000 or 30,000 maturing options are very close to the settlement price, you will see a rise in volatility and there may be a push to a particular exercise price in the market. We don’t see this yet, but it is likely to happen in the future, that is, on the largest balance sheet date, there will be huge volatility.
Kyle: can use skew data to make predictions.
Luuk: We also often use skew, because it shows the whole derivatives market, rather than just the more comprehensive data information of deribit,.
Darius: I don’t think open positions have a direct effect on currency prices. The expiration date of each open position is also different, for example, last month or a month ago, when Wall Street mogul Paul Tudor Jones demanded to enter the market, CME had a surge in the number of call buyers, which looked very bullish, but as a result, the currency price was about 9k.
Luuk: I would like to ask Ethan a question, the feeling of institutional admission is still relatively early, large-scale capital entry will affect your existing income model to a certain extent, resulting in a vicious circle of institutional trends that require higher transfer costs. What do you think?
Ethan: I agree that institutional players are still at an early stage and are more active than the retail market, which is a positive boost to miners’ earnings. The entry of large institutions has become the mainstream, and if they are more inclined to hold money without trading, the transfer fee income is reduced, and the feeling is that sign may not be so good for miners. But we should look at this problem more positively, and then it should be explored with new usage scenarios, I hope. And if a large number of institutions enter the market, it may also boost the currency price itself, even if the transaction frequency is less, but the earnings may still be very optimistic for the miners.
Discuss the credit, trust and risk control mechanism of the encryption industry.
Kyle:312 is indeed a very good market reminder and a wake-up call for everyone. Credit, I think on the one hand, we can look at regulation supervision, this is definitely an important plus item. Regulation is also different, Money Lender regulation and hedge fund regulation are different, jurisdiction is also a consideration. Then, the second point, I think it can be the Balance Sheet balance sheet, preferably an audited (audited financials), which can give you an accurate grasp of the size and strength of the counterparty. The third point is how long you have been in the industry, time is also a super important credit dimension (you see, this is also the credit advantage of veteran players in the mining circle). The fourth point is a good partnership, the better the relationship can make each other better understand each other, in the business constantly rely on the actual business endorsement, credit upgrade. Our goal is actually long bitcoin.
Luuk:, this is a very important question. I probably slept for a novel or half an hour that day; it should be a wake-up call for the whole market. It is also one of the reasons why we went online with USDT. Because when the market plummets, some users begin to enter the death spiral, perhaps it is more appropriate to say, because the margin is also plummeting, the market is extremely panicked. We also need to re-evaluate if we deal with Qiang Ping, especially to optimize liquidity calculations, we are also reviewing our portfolio margin model, such as how to optimize option liquidations. The larger the trading product, the greater the counterparty risk. As exchanges, we have to protect ourselves, in the external system, to structure stronger logic in computing, including improving our own balance sheets.
Daniel: financial platform to gain user trust, there are three very important points, the first is the Reputation, platform, including the background of the team; the second is how to do risk control; the third is how to ensure the safety of assets. We attach great importance to the construction of the risk control system, for us, the real risk is the door, trust is everything. Black Swan Day like 312 is definitely the best time for us to prove whether our risk control is adequate and whether our execution can keep up with the wild swings of the market.
A common saying in the Chun: bitcoin industry is: don’t trust, verify..
The Qian: industry was quite early, unlicensed and poorly regulated in most countries. From my point of view, this question is more about what identity and what to do. The credit intermediary should be to do the credit intermediary corresponding to the risk and return, and the asset management is the asset management. There is a distinction between the two on the user’s risk, equivalence and creditworthiness. The status of the mining pool is naturally a credit intermediary for miners, and we will do a good job in this role. On this basis, we have made wallets to provide one-stop financial services. Wallet only provides platform services, concentrate on risk control and screening of asset management projects, and do a good job of risk isolation between projects.
Yama: always asks himself: where does financial credit come from? Why should you trust what the other party says, whether the other party has the strength of personal assets, or the strength of investors, or endorsed by regulatory agencies or physical assets, and so on. When the other party shows you a luxurious office, it doesn’t mean anything, because it is the most free expense, and what really consumes time, energy and capital cost is legal compliance operation; when the other party shows you the address of his wallet, it doesn’t mean anything. because the money itself probably doesn’t belong to them. When the other party claims to be hundreds of millions of dollars, it doesn’t mean anything, because there is no way to verify the authenticity of the numbers, let alone audited financial statements. The financial professionalism assessment of the team and partners, whether there is a team strength that matches the size of its so-called assets. Currency circle is a new area full of opportunities, regardless of origin, but finance is a credit business, the market and users need to be vigilant. Credit needs to be built slowly, rather than getting rich overnight, take 100000 to make a 10 million look, and the user market will pay for it.
One thing that I think is very important for us about Darius: is the education of users. Only when users have professional knowledge can they identify professional players, which is a virtuous circle of the market.
Jason: I think credit is very difficult to obtain, as the head of the mining pool we have a natural credit advantage of computing power. For financial products, many users in China are not familiar with overseas institutions. In fact, even for companies like Matrixport, which we work closely with, we still need to gain further trust in the domestic mining circle. For many miners, this credit is also hard to come by, mining circle finance, a long way to go.
Yama:, what do you have to share at the end of the evening!
There are really many opportunities in the Darius: market, options and DeFi, negative interest rates in the traditional world, we have too many opportunities!
Qian: We continue to work with the most professional financial teams in the industry, for example, we have recently been actively working with CyberX.
Luuk: is very brief to add that we are about to launch the “Market maker Protection Program”, which is a relatively minority tool to help option market makers carry out risk management. It can automatically withdraw orders under certain circumstances. For example, after more than a certain number of orders are closed, part of the quotation can be withdrawn for the sake of risk control. We think this will improve the quality of the market, a smaller price difference and a larger quantity of quotations. This is a niche, not aimed at most people, but will help option market makers. Secondly, I have mentioned that we will launch USDT as margin futures, including some small coins, and, of course, BTC/USDT,ETH/USDT. We are also looking at VIX, implied volatility futures, which is a hedging tool for more mature markets; finally we will announce more partners in subspecies, similar to our partnership with Copper. Market makers, hedge funds or retail investors all get a return because they can deposit their money in an escrow wallet they trust and trade on Deribit. These should all be online right away.
Jason: our machine gun pool is online, as well as the new cooperation with Matrixport to fully serve the miners!
Kyle: orders to the options market, options are still super early, super small, we really have a bright future, .
Emmanuel: We and okex are currently actively working together, there will be new products to be presented to you, please look forward to it!
Yama:, thank you. Good night!