The Rise of Off-Exchange Settlements in Crypto

The collapse of FTX last year has prompted various players in the crypto space to explore safer trading and settlement methods. Off-exchange settlement, particularly in spot markets, has been identified as a viable solution for enhancing security and trust in crypto transactions. According to Lewis Fellas, head of hedge fund solutions at CoinShares, while off-exchange settlements are relatively straightforward for spot markets, extending this to derivatives trading presents more complexity.

OKX and CoinShares: Pioneering a New Trading Model

OKX’s collaboration with CoinShares and Komainu has led to the development of a collateral mirroring agreement, allowing clients to trade a full suite of OKX products on the derivatives platform. This system addresses the intricate aspects of margin financing and risk mitigation, particularly in scenarios where large positions might lead to significant value drops.

Expanding the Reach of Custody-Based Derivatives Trading

Beyond CoinShares, several other hedge funds, whose names were not disclosed by Fellas, will be utilizing this new system. The plan is to eventually extend this settlement system to other exchanges, broadening its impact and utility in the crypto trading world.

Komainu’s Role in Standardizing Legal Agreements

Komainu, a joint venture involving Japanese bank Nomura, CoinShares, and crypto storage firm Ledger, has been instrumental in addressing the complexities of derivatives and swaps trading. Sebastian Widmann, head of strategy at Komainu, emphasized the creation of a standardized legal agreement to facilitate adoption by various counterparties. This standardization is particularly crucial as more institutional players, who are used to segregated custody and exchange arrangements, enter the crypto market.

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