Cryptocurrency derivatives exchange Deribit and Paradigm, an institutional-grade OTC communication platform, today announced they’ve launched a joint workflow solution for crypto-derivative traders. Block trading on Paradigm is currently live with some of the most renowned institutional trading firms.
This new block-trading solution will enable institutions to directly negotiate crypto-derivative trades with counterparties of their own choosing, via chat on Paradigm. Once agreed, the trade information will automatically be submitted to Deribit for execution and clearing.
Block trades are privately negotiated, principal-to-principal transactions in futures or options, or spreads and combinations of the two, that exceed certain minimum quantity thresholds. Once traders agree on a price, these transactions are submitted to the exchange for execution and clearing.
In existing financial markets, institutional traders prefer this method of transacting when they believe that there is insufficient liquidity in the order book to execute a large trade at a specific price in a single transaction. In other words, block trades reduce slippage and minimize the impact on the market price since the transaction is negotiated away from the order book.
Previously, no other exchange has offered a block-trading facility for crypto derivatives. Instead, institutional traders privately negotiated large trades via Telegram or Skype and then manually coordinated execution on Deribit’s order book. This approach exposed traders to a significant amount of execution-related market risk, especially for spread and combination trades.
“For the first time, institutions that trade crypto derivatives in large volumes can negotiate privately on the Paradigm platform, after which the trade will be automatically executed, margined and cleared at Deribit and displayed on the public tape as a block trade, eliminating any execution risk associated with the order book. When excellent companies operating in a similar space work together by leveraging relationships and sharing ideas, everyone wins – including, most importantly, the end-user.”
– XBTO Group’s CEO Philippe Bekhaz
XBTO Ventures is an investor in both Paradigm and Deribit.
In addition to the automated blocking functionality, Paradigm also provides a suite of trading tools.
Tools include automated RFQs, a full audit trail, a directory of potential counterparties and the ability to “approve” specific counterparties before a trading relationship is initiated with them.
This workflow offers institutions the opportunity to conduct their own due diligence on counterparties in order to satisfy their own regulatory requirements and firm policies.
A full set of features on Paradigm can be found below:
Crypto-derivative block trading on Deribit will be available both through the Paradigm system and directly via Deribit’s API.
Traders will have access to block trades in Bitcoin (BTC) or Ethereum (ETH) backed futures and options, including spreads and combinations of the two products.