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December 4, 2020

Crypto RFQ

Crypto Derivative Products With Efficient Frontier


Efficient Frontier is an algo trading company. They have been developing strategies and infrastructure in the traditional markets since 2006. In 2017, they felt the cryptocurrency ecosystem was mature enough for them to jump in and apply their technology, infrastructure and knowledge to this nascent space. Roei Levav, co-founder and CEO of Efficient Frontier, joined Paul Gordon, editor of Coinscrum Markets, to discuss the latest developments in the crypto markets. 

It was a big week in the cryptocurrency markets, with bitcoin touching on a new high and a lot of attention around Ethereum with the launch of the Eth2 Beacon Chain and the start of the process to migrate from POW to POS. Meanwhile, the attention surrounding decentralized finance (DeFi) has drifted a bit. 

Efficient Frontier is connected to the backbone of the infrastructure on the trading part of the industry, and it has been interesting for them to see the progress across exchanges, infrastructure and products in the last six months. 

(2:39) “So from a latency perspective, robustness of the infrastructure is APIs, products, and all this stuff has made aggressive progress over the last six months. And we’ve been obviously part of that. So I think exchanges…are facing a very significant challenge, not being just the matching engine but being the broker/retail, the bank, holding funds, giving leverage, taking risk, all of that, and having millions of people connecting to the website at the same time, this is actually a larger challenge than traditional exchanges are facing in that sense…We come from traditional markets so we know to appreciate that progress,” said Roei . 

Efficient Frontier is seeing the market approaching the traditional market level in some cases. But they are also seeing some things that you probably wouldn’t see in the traditional markets regarding withdrawals, etc. at some large exchanges. But it’s a new market that is growing and still in its infancy, Roei said, adding that conditions are much better than they were security wise. 

(4:11)  “So we feel comfortable about that. Even if things are happening, from a tech perspective, from a regulatory perspective, we feel comfortable where we are now and it’s progressing,” said Roei. 

On the product side, they have been viewing the STO market, where Openfinance has been acquired by INX Limited. It is an amazing development and a real breakthrough from a regulatory perspective, he said. 

DeFi has been on a roller coaster, and this will likely continue given that crypto is experimental in many ways. The STO guys say this is going to be 95% of the market, and DeFi will be part of that. 

(5:30) “I think we are in the middle of that. I think DeFi and decentralized systems have an amazing value to provide, but at the same time, there’s a long way to go,” said Roei. 


Derivatives are interesting for Efficient Frontier and for bringing the market mainstream at some point. One very strong use case is the hedging opportunity. That is because you can’t expect a pension fund to put USD 2 billion into BTC and wake up tomorrow seeing it down 10%. Even from a regulatory perspective, Roei explained, they need to be able to effectively hedge their position to a large extent. And for that to happen, you need to have a deep, healthy derivatives market, whether it’s futures, perpetual swaps or even options, which is a super small segment right now.  

Players like PayPal have opened the gates to more retail, and Efficient Frontier is seeing some new flows into the market on many exchanges, not just the large ones. This is creating accessibility to products that are a bit more complicated, like options. 

(7:30) “So now you have this whole space of the gamification of products, where you actually can buy or sell pretty much whatever bets you want,” said Roei. 

Market Maker

As a market maker and liquidity provider in algo-trading, Efficient Frontier is trading around USD 150 million on a daily basis across most of the products. Options are still small and experimental but are getting there. Roei expects that there will be a significant ramp-up next year. 

As an issuer of perpetual swaps, you might not want to be on derivatives or have derivatives for your asset because now people can short it. At the same time, however, it actually opens the gates for much larger players and much larger volumes and trading opportunities. 

Efficient Frontier has been in discussions with many players about whether they should participate. For Roei, it is a matter of the maturity of the industry. You need to have an effective derivatives market generally for an asset because then you have to have a solid price discovery process. 

(10:34) “Right now, it’s still small, it’s still early days. We are still seeing that growing. Bitcoin is still very dominant, I’d say probably 85-90% of the market on derivatives. Ether is probably somewhere around 5-10%. It’s growing for sure, but it’s still small. We need to see more retail players, more funding, more flows into the market for that to grow,” said Roei. 

Exchanges are playing an enormous role in this market for sure. Some have come in and were not very successful. Now it’s moving at a slower and more healthy pace, Roei said.

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Gerelyn Terzo
Gerelyn caught wind of bitcoin in mid-2017 and after learning about the peer-to-peer nature of Satoshi's creation has never looked back. Previously she covered institutional investing and fintech for several major trade publications. Gerelyn resides in Verona, N.J.

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