Tassat Preps for Bitcoin-Swaps Trading
Trading in bitcoin derivatives likely will see an uptick when the latest swaps-execution facility begins trading.
“Everything we have done regarding the financial instruments has been done in partnership with participants, and the technology is already built and approved,” Thomas Kim, CEO of Tassat, told Markets Media. “It is really at our discretion when to launch our exchange.”
The newest bitcoin-derivatives trading venue plans to trade physically-settled bitcoin-dollar bilateral swaps in four tenors, first two quarters and the first two serial months, with each contract representing five bitcoins.
“Basically, it is very similar to what the CME is doing on the cash-settled side,” added Nick Goodrich, director, business development at Tassat. “It would be an interesting thing to swap trade between the CME contracts and our contracts.”
Tassat passed its last regulatory milestone on November 6, when the US Commodity Futures Trading Commission approved the digital asset startup’s acquisition of SEF-operator trueEx’s SEF registration.
The new liquidity venue will operate a central limit order book, which will support the typical market and limit orders.
“I subscribe to the simple and straightforward,” said Kim. “For the foreseeable future, it will be market and limit orders.”
However, in short order after the SEF’s launch, Tassat also intends to launch a request-for-quotes capability for its participants.
“Everything on the platform is largely institutional,” he added. “This is the ability for buy-side clients and their counterparties to quote prices directly between each other and be able to stream those prices based on demand.”
All trades on the platform will be settled bilaterally on the bitcoin blockchain by the counterparties without Tassat acting as a clearer.
In case of trade break or default, the non-defaulting counterparty would use the defaulting counterparty’s initial margin and variation margin to recoup any losses that occurred during the trade’s lifecycle, according to Goodrich.
“If there is one that happens at delivery, it is effectively a very similar process that would happen if they had used a custody or settlement provider,” he said. “It goes into a delivery failure, and ultimately if it is not remedied, a default.”
Tassat will be the fifth venue to trade bitcoin derivatives, behind the Cboe Global Markets, CME Group, The Intercontinental Exchange, and LedgerX. Cboe Global Market ceased listing its bitcoin-futures contracts in March of this year.
When asked if the US market could support the increasing amount of bitcoin-derivatives markets, Kim was optimistic.
“Each liquidity venue offers something different,” he said. “It could be different products, workflows, or relationships. They will innovate and offer different products on different timelines and at different scales. I worry less about other liquidity venues and worry more about relationships and what the market is looking for.”