EMX: Building A Blockchain Derivatives Exchange
Blockchain technology has the potential to disrupt seemingly every industry; on an almost daily basis, someone, somewhere, is launching a blockchain-based company.
In the finance industry, much of the noise in the mass media has focused on how blockchain technology might disrupt traditional banking and payments. However, one company is looking to disrupt the derivatives trading business, providing what it considers to be a more fair, transparent and cost-effective trading experience for both retail and institutional investors.
EMX – previously EverMarkets, until a re-brand earlier this month – is building a derivatives exchange, called the EverMarkets Exchange, that will utilize blockchain technology. Led by CEO Jim Bai, who previously worked at Citigroup and Graham Capital, and COO Jerald David, who served as an executive at the CME and Dubai Mercantile Exchange, the EverMarkets Exchange will offer futures contracts which give price exposure to cryptocurrencies and various traditional assets, including crude oil, gold and stock indices. Bai’s previous experiences explain the genesis of where EMX got its start.
“When I worked at Citi, and Graham Capital, the futures markets I traded in impacted every corner of the economy. We want to build an exchange where anyone in the world can access these markets, namely the experienced crypto traders that are intent on expanding the depth of their trading strategies ” he said.
Trading on the EverMarkets Exchange will be done through its own cryptocurrency - the EMX token, an Ethereum-based token - which will be the sole denomination for all contracts and used for collateral and all transaction fees. Trade settlement will be done on the Ethereum blockchain, utilising smart contracts (code that enables near-instantaneous clearing and settlement of trades). Together, the token and the exchange will enable users to trade an array of global futures contracts from a single point of access, as David explains.
“Let’s say I want to trade different types of oil futures. WTI is listed on the NYMEX. There’s crude on the DME. Those are two different exchanges I have to register with, post collateral and pay fees at. With the EMX token, I can trade both on the same platform, in the same currency and recognise a lot of efficiencies, especially when it comes to the use of collateral. From a macro perspective, it’s a powerful tool.”
The cost savings which could be realised from trading futures on the EverMarkets Exchange could be significant. On traditional derivatives exchanges, the back-office processes that occur after a trade carry a high degree of complexity; payment, clearing, and settlement processes are currently intermediated by a whole host of systems, depositories, and counterparties which differ across borders and across products. The streamlined, transparent and standardized approach that blockchain technology delivers could be a significant driver of cost savings by simplifying these workflows and, in turn, increasing overall productivity. Bai is vividly enthusiastic about the opportunity.
“The derivatives trading market is a perfect application of blockchain technology. You eliminate the intermediaries and the slow post-trade processes. The blockchain acts as one central repository which everyone can access.”
Alongside the cost savings, David notes the portfolio management benefits that traders can realize through blockchain-based trading platforms.
“With instantaneous settlement, you have a real-time view of what your portfolio looks like and can make much more informed trading decisions. The flow of token-based trading is so much quicker compared to fiat currencies.”
David also sees the potential for enhanced risk management capabilities, something asset owners are increasingly focused on.
“Using blockchain, transactions are fully and transparently recorded”, he said. “This represents real-time risk management which allows the exchange to have checks in place to ensure customers have the financial capability to trade. Double spending doesn’t happen and people can’t trade with tokens they don’t have.”
The firm will hold its ICO in July, and in Q3, launch a trading competition, open to traders around the world. The competition will be a public beta test of the platform; EMX will use data from the competition to help further hone the exchange’s technology to handle the different types of situations which global trading brings.
The firm expects live trading on its platform to commence before the end of 2018 for users outside the US.
EMX’s evolution is headed in a very specific direction, according to David.
“We envision a futures marketplace where customers can interact with regional specific or global commodities through a single venue.”
“Cryptocurrencies and the technology behind them are inherently democratic. We have a vision where investors, whether retail or institutional, can use crypto tokens to trade not just cryptocurrencies, but equities, commodities and bonds. It’s one platform with global access.”