The timing couldn’t be better for regulation-focused trading platform Qume, which unveils a revamped set of services Monday. Even in its soft-launch phase, the derivatives exchange has been mopping up customers in the wake of U.S. charges against BitMEX.
“We’ve seen an uptick in users with about 2,000 customer sign-ups in the last week,” Aditya Mishra, CEO of the Singapore-based Qume, said in an interview. “In terms of specific trading volume, I guess we will really know in the next week or so.”
Nearly 30% of BitMEX’s bitcoin balance has been withdrawn by customers since U.S. regulators cracked down on the firm on Oct. 1, according to Coin Metrics, with big players like Binance, Gemini and Kraken being the immediate beneficiaries.
Having noticed that the crypto derivatives space operated “like the Wild West,” Mishra said the clampdown by U.S. regulators and federal prosecutors did not come as a huge surprise within the derivatives community.
The goal for Qume, from back in January 2019 when it began being built, was to be regulation-first, Mishra said.
“Our focus was to build out a high-performance crypto derivatives exchange, and have it sit under some sort of regulatory framework,” he said. “In the last year and a half or so, the market has obviously evolved, and there are several other derivatives participants who have emerged. Some of them are doing pretty well for themselves but most operate in a fairly unregulated fashion.”
Qume, which is incorporated in Singapore, grew out of the sandbox of the Central Bank of Bahrain. In terms of know-your-customer (KYC) and anti–money laundering (AML) compliance, a team including former employees of JPMorgan and Nomura drafted up a regulatory framework. In addition, Qume last week completed the integration of Berlin-based Fractal, which uses AI and runs photos of new users across KYC databases in their home jurisdictions.
The derivatives platform does not offer its services to customers based in the U.S. or the U.K.
Just last week the Financial Conduct Authority finalized its ban on crypto derivatives to retail customers based in Britain.
Thanks to the explosive growth of decentralized finance (DeFi), firms like Qume are busy figuring out how to build bridges to a more decentralized trading experience, focusing on areas like custody.
The platform, which previously raised $3.5 million with a cap table that includes DeFi darlings like Robert Leshner and Calvin Liu of Compound Finance, provides customers with a kind of hybrid offering that can operate like a decentralized exchange (DEX).
To this end, Qume teamed up with Hashflow, a protocol that helps platforms combine centralized order-matching and trade execution with decentralized custody and post-trade settlement.
To decentralize the entire trading experience is doable but kind of clunky, said Mishra, who claims to have struck a balance. He said Qume’s centralized aspect has sub-millisecond latency and institutional-grade throughput of between 100,000 and 200,000 transactions per second. On the other hand, the DEX component is there thanks to Hashflow’s second-layer protocol.
“So we can have two different sorts of customers,” said Mishra. “There is a certain type of user that really cares about decentralization and will only come and trade if they control their own keys. But then there is also the more traditional customer from India, for example, who just sees the volatility in the crypto markets, but doesn’t necessarily want any exposure to crypto as such.”
Rather than focusing on the typical Asia markets, Qume is directing its attention towards fresh pastures in India, the Middle East and Africa, said Mishra. The company is poised to make inroads to the Indian crypto market, driven by the acquisition of Indian spot exchange BitPolo back in August of this year.
“India is still a gray area for now but my personal opinion is there should be a regulatory framework for crypto, especially given the size of the developer talent pool in the jurisdiction,” said Mishra. “Just look at the strides being made in China. I think it would be a travesty if India is kept out of this technology revolution.”
BNB Was the Best Investment in Q3, Followed by Ethereum and DeFi
Dubbed “Summer of DeFi,” CoinGecko’s Q3 2020 report reveals many reasons for a celebration in crypto. It also offers enthusiasts a few surprises.
Spot market capitalization has risen by 31%, Bitcoin’s price spent most of its time above $10,000, and decentralized exchanges (DEXes) are stealing the limelight from their centralized counterparts.
Binance’s native token, BNB, was the most profitable crypto investment at more than 90% in positive returns. Ethereum followed behind, up 60%. Bitcoin still enjoyed double-digit growth at a modest 17%.
Though BTC lagged percentage-wise, the top crypto added much more to its market capitalization than both ETH and BNB combined.
Bitcoin’s rise represents approximately $40,228,217,099, while BNB’s gains represent only $1,385,669,007. Ethereum’s increase in price per coin earned it gains of $15,207,769,425.
However, to find the most significant returns on investment per coin, one need not look further than this year’s most popular niche: DeFi.
Starting with Compound in June, the hype attracted most of the attention for the rest of the summer. From scandals and drama to innovative products, DeFi is a story that keeps on giving.
And it gave the most to early adopters. UMA (UMA) gained 363% in value, followed by Aave (LEND) at 304% and Loopring (LRC) at 190%. Among the few Q3 losers, one can find the platform that started it all, Compound. Since the start of July, COMP has lost 38% of its value.
A micro-level investor that bought into most DeFi tokens, BNB, and ETH, gained more than BTC investors at the start of Q3 2020.
However, on a macro level, Bitcoin’s market capitalization gains outperform the rest of the market by a margin of magnitude greater than $25 billion.
According to the report, Bitcoin’s dominance is currently in a downtrend, which is interesting considering Microstrategy’s significant investments, followed by Square last week.
Bitcoin’s inability to capitalize on the DeFi hype caused capital to flow into both Ethereum and Tether. For now, there are no real conclusions to draw on the data, but if DeFi continues to grow and Bitcoin remains passive, we may end up seeing a Q4 where net gains of ETH and other cryptos is bigger than the net gain of BTC.
Investor’s and trader’s behavior is rapidly changing to include DEXes such as Uniswap. This is a cultural change that is unprecedented in an era of KYC and AML requirements coming to fruition.
DEXes and DeFi protocols caused significant strain on the Ethereum network. The community is also more open to Layer 2 solutions, and developers incentivized to innovate.
In September, 10% of trade volume happened DEXes, and with Layer 2 adoption around the corner, trade volumes on DEXs are likely to increase.
This past quarter was an extremely positive period for cryptocurrency. Even as most industries are struggling due to the rapid spread of COVID-19, the industry appears resilient to happenings in the rest of the world.
With American elections on the horizon, along with extreme volatility, this resilience may soon be put to the test.
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As Crypto Derivatives Run Into Challenges, Prediction Markets Offer an Alternative
The crypto derivatives market is having a hard time of late. October began with the news of CFTC civil enforcement action against the centralized crypto derivatives platform BitMEX.
BitMEX and its founders, including CEO Arthur Hayes, were charged with operating an unregistered trading platform and violating multiple CFTC regulations, including failing to implement the required anti-money laundering procedures.
Less than a week later, the UK FCA announced a ban on the sale of crypto derivatives to retail customers. The final published rules ban the sale of any CFDs, options, futures, and exchange-traded notes that reference particular types of crypto assets, including Bitcoin, Ether, and XRP, considered by the FCA to be ill-suited for the retail market. The rules will apply to any firm acting in or from the UK, starting in January 2021.
Traders who are keen to find other options in light of these developments may find solace in a number of decentralized finance alternatives that have emerged.
Prediction markets have been around for some time, though decentralized alternatives are a relatively new phenomenon. Decentralized prediction markets enable peer-to-peer trading on the outcome of certain events, with the market price indicating what the crowd thinks the probability of the event is at any point in time. It could be a market for predicting sports events, election results, even pandemic outcomes, and of course, crypto prices.
Augur (REP) developed the initial decentralized prediction market, following the first-ever Ethereum Initial Coin Offering crowdsale in 2015, though it took another three years to launch. It combines smart contracts and oracles to allow participants to predict real-world events without involving any third party.
Gnosis (GNO) is another project that has been in development since 2015, offering an open platform for creating prediction applications on the Ethereum protocol, giving the ability for anyone to create prediction markets in any realm.
Other examples include HedgeTrade, Numeraire, and Endor Protocol that combined account for millions of dollars in daily volume, with the market cap of the prediction sector now totaling nearly $600 million.
Ethereum co-founder Vitalik Buterin has also been a vocal supporter of the niche, commenting recently that “Honestly, prediction markets may be the one of the most underrated categories of Ethereum dapps right now. Omen and Augur v2 are both running and have active markets with pretty decent liquidity; go ahead and try them!”
Earlier attempts to launch decentralized prediction markets have suffered due to a lack of focus on building crypto-native markets and a lack of maturity in the ecosystem.
Challenging these incumbents is the new kid on the defi block, PlotX (PLOT). It builds on development in this niche with a more gamified and user-friendly alternative, focusing on digital asset prices. PlotX is a decentralized prediction market protocol on the Ethereum blockchain, designed to bring real value to the defi space and provide traders with an alternative to derivative markets in gaining exposure to crypto-assets.
Though new to the scene, PlotX has been developed by an established team with active participation in the developer communities of the Nexus Mutual, MakerDAO, Uniswap, 0x, Bancor, Compound, and dYdX defi projects. Despite the recent slowdown in the defi niche, it has seen its community offering oversubscribed by 15x in the lead up to mainnet.
Traders can enter various prediction markets and earn yield for correctly determining the direction a particular asset will move in a given timeframe. Each market uses an Automated Market Maker, with a unique algorithm to calculate the prediction odds, and with all transactions processed on-chain for complete transparency.
Rewards get distributed instantly, and players can also use leverage to manage their exposure. Additionally, participants benefit from liquidity mining, earning further rewards for staking.
It effectively operates like a skills-based game where crypto enthusiasts can leverage their knowledge of the space to profit from correctly predicting future prices of digital assets like BTC and ETH.
Decentralized markets such as Augur and PlotX provide a means for traders to gain exposure to synthetic assets, derivatives, and predictions options in a permissionless environment. Anyone can participate and anyone with skin in the game can profit from correctly calling the outcome of the event.
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Q3 Crypto Volumes up by $155 Billion as Defi Hype Drives DEX Growth by 197%
The latest data from Coingecko shows that the combined trading volumes of cryptocurrency exchanges went up by $155 billion between July and September, from $175.7 billion to $330.6 billion. The new total volume represents a 88% increase which Coingecko attributes to the decentralized finance (defi) hype and yield farming frenzy that peaked in August.
In the report, Coingecko also observes that from the start of Q3, traded volumes on decentralized exchanges (dexs) grew much faster than those of centralized exchanges (cexs). For instance, in Q3, “the monthly average dex trading volumes (of top ten dexs) grew by 197%, outperforming the average volumes of the top ten cexs, which went up 35%.” Despite the explosive growth, which also appeared to slow in September, dex volumes account for just 6% of total cex volumes.
Explaining the relatively modest performance by cexs, the report observes that while the month of August proved to be the best after volumes grew by 83%, September trades ultimately reversed the previous month’s gains. According to the report, cex volumes dropped from $314.6 billion seen in August to $300 billion by end of September. The report states that Coinbase and Okex contributed 60% of the reversal.
Meanwhile, the report also provides data on the performance of individual dex platforms during the period. As the data shows, Uniswap, which contributed just under 50% of total dex volumes in July, saw its market share grow to 63% by end of September. Following Uniswap is Curve which experienced a fast-changing quarter after its share initially dropped from 24% in July to 13% in August. However, by the end of September, Curve had recovered after contributing 17% to total dex volumes.
In the meantime, Sushiswap, which forked from Uniswap on August 28, managed to account for 8% of the total volumes by the end of September. The rest of the dex protocols contributed 4% or less to the total volumes.
Next, the Coingecko report provides a timeline of key events that explain the apparent rivalry between Uniswap and Sushiswap. The report highlights that after forking, Sushiswap went on “to introduce a new token (SUSHI), distributed via liquidity mining.”
Explaining the significance of this move, the report says:
“Unlike Uniswap which shares 0.3% of trading fees to liquidity providers, Sushiswap shares 0.25% to liquidity providers with the remaining 0.05% being converted to SUSHI and distributed to SUSHI holders. Mining returns of over 2,000% drew in over $1.4 billion to Sushiswap at its peak.”
On September 18, Uniswap began liquidity mining and since then its total-value-locked (TVL) soared to over $2 billion by the end of that month. Lastly, the Coingecko report suggested that non-fungible tokens (NFT) farming are showing signs that they could be the next big thing after defi tokens.
Do you think DEXs volumes will continue to grow as they did in Q3? Tell us what you think in the comments section below.
Centralized Exchanges, Coinbase, Curve, Defi Tokens, DEXs, Liquidity mining, Liquidity Pool, Non-fungible token (NFT), Okex, SUSHI, Sushiswap, traded volumes, Uniswap protocol, yield farming
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