Fireblocks, a platform for securing digital assets, has expanded support for the crypto derivatives market through a new integration with X-Margin. Together, X-Margin and Fireblocks allow the trading of derivatives on any asset, using any form of collateral while receiving cross-margin benefits across counterparties. As a distributed clearing network, X-Margin eliminates counterparty risk, while Fireblocks secures collateral and automates settlement with it’s leading digital asset security infrastructure.
“The derivatives market has always been attractive for larger investors, but one of the biggest hurdles they needed to overcome has to do with capital efficiency, custody and security,” says Darshan Vaidya, CEO of X-Margin. “Working with Fireblocks to grow X-Margin’s distributed clearing network is an obvious and natural fit given the number of institutional trading firms actively using Fireblocks. The partnership allows institutional trading firms to cross margin and bilaterally trade derivatives without compromising security.”
Crypto derivatives trading requires users to hold funds on exchanges as collateral so that contracts can be funded, making it a high risk for institutional investors, especially given the number of exchange hacks that have happened over the last year. In Q1 of 2020, crypto derivative exchanges saw more than USD2 trillion in trading volume, a 314 per cent increase from the 2019 quarterly average. With the increase in activity, it is critical to provide the necessary security for institutions to feel comfortable using some of the newer and more sophisticated financial instruments that have arrived in crypto this year.
“The Fireblocks/X-Margin integration perfectly combines cross-platform collateralisation, risk transfer, and settlements into one comprehensive package that encompasses the whole life cycle of a trade. This has been a crucial infrastructure piece that has evaded the institutional digital asset markets until now,” says Shiliang Tang, CIO LedgerPrime.
X-Margin is the first ever zero knowledge cross margin system designed to solve a major pain point in the industry. Derivatives trading firms currently need to post collateral with each venue they trade at, even if they have offsetting positions across them. This is extremely expensive, and it increases custody and operational risks. Starting with bilateral derivatives, X-Margin’s proprietary zero knowledge technology allows users to get the portfolio effects of central clearing without needing a central intermediary to verify positions. Users can net risk across counterparties and automatically settle trades.
“Using both Fireblocks and X-Margin together gives us the ability to scale our derivatives trading business by giving us capital efficiency, counterparty credit protection, and secure settlement,” says Paul Eisma, Head of Trading at XBTO.
As more traditional investors continue to enter the crypto derivatives space, it is important that they are able to operate in a secure environment with no inefficient intermediaries. With over USD18 billion digital assets secured per month by the Fireblocks platform, JST Capital, XBTO and LedgerPrime, are now the first customers to successfully trade custom bilateral derivatives with cross margin, utilising X-Margin’s distributed clearing network.
