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Leverage and Derivatives: Overview of Binance Futures in 2019


What was the impact of Binance Futures in 2019?

Since its debut, Binance Futures has attracted billions of dollars of trading volume and has grown into one of the largest exchanges for Bitcoin futures, by volume. On average, Binance Futures processes over 300,000 BTC daily today. 

In September 2019, Binance launched its futures trading platform - Binance Futures - to offer crypto-derivative products and expand its product offerings. Within months following its launch, Binance Futures has emerged as a leading crypto futures exchange by trading volume and number of users. Its tremendous growth has positioned Binance Futures as a price-discovery leader and the preferred platform for risk hedging. 

This report begins with a brief description of Binance Futures, followed by a summary of Binance Futures' growth since its inception. After that, it analyses the disruption of Binance's status quo after the introduction of perpetual futures contracts. Following that, it studies the impact of Binance Futures on the crypto-derivatives industry, as well as the evolution of its competitive landscape. Finally, it concludes with a discussion of upcoming plans and projects that could drive growth for Binance Futures, as a platform and an emerging source for price discovery in the digital asset industry.

1. Description of Binance Futures

A derivatives market is vital in transforming cryptocurrencies into a holistic blockchain ecosystem that caters to demand from both retail and institutional investors. 

Since introduction, the BTC futures and derivatives market has been proliferating, and demand for crypto-derivatives continues to grow strong.

1.1 Key description of the contracts

As of December 31st, 2019, Binance Futures offer three contracts.

Table 1 specifies the contract specifications of these perpetual futures products.

Table 1 -  Specifications of Binance Perpetual Futures Contracts

Source: Binance Futures, Data as of January 1st, 2020

Binance Futures contracts are perpetual. In general, perpetual contracts offer unique features:

  • Auto-rollover:  clients are not required to roll over the front-month contracts to the next. Unlike futures positions, clients do not need to roll-over any position at any time period. For instance, a user can keep a short position to perpetuity, unless he gets liquidated.

  • No expiration date: traders can hold positions without an expiry date and do not need to keep track of various delivery months, unlike traditional futures contracts. As a result, trading perpetual contracts are very similar to trading pairs on the spot market. 

  • Funding rate: every eight hours, funding rates are paid either to the long or the short based on differences with the spot right. It prevents lasting divergence in the price of the spot and perpetual contract markets.

Meanwhile, perpetual futures contracts on Binance offer the following characteristics:

  • Clear pricing rules: each futures contract specifies the quantity of the base asset delivered for a single contract, also known as “Contract Unit”. For instance, BTC/USDT, ETH/USDT, and BCH/USDT futures contracts represent only one unit of its respective base asset, which is similar to spot markets. 

  • Settlement in USDT: contracts are denominated and settled in USDT. Hence, it provides ease for new users to participate in these markets. 

More information can be found on Binance Academy

1.2 Overview of the available products 

Table 2 -  Overview of listed products on Binance Futures

Source: Binance Futures, Data as of January 1st 2020

Bitcoin Futures (BTC/USDT)

Bitcoin Futures was the first product that introduced Binance into the crypto futures industry. On September 9th, Binance Futures launched its BTC offering with USDT as its quote asset.

Ethereum Futures (ETH/USDT)

After the successful BTC futures launch, Binance Futures introduced ETH futures to expand its portfolio of products. ETH contracts were offered up to 50x leverage and subsequently increased to 75x. Binance offers ETH futures with USDT as collateral, and it is tradable under the symbol ETH/USDT on the Binance Futures trading platform. 

Bitcoin Cash Futures (BCH/USDT)

Binance Futures continue to expand with Bitcoin Cash futures added onto its platform on December 19th. The contract is tradable under the symbol BCH/USDT, and it offers up to 75x leverage on the Binance Futures trading platform.

2. The meteoric growth of Binance Futures and its impact on Binance 

2.1 The growth of Volume and Open Interest

Within a short period, Binance Futures saw $90 billion worth of crypto futures contracts traded since its first day. Binance futures began in September 2019 with its first product, BTC/USDT perpetual contract. On the first day, 19,253 BTC volume traded on its platform, the equivalent of $170 million worth of futures contracts. It was a strong start for Binance Futures as the platform broke into the top 5 rankings in BTC futures daily volumes.

Ten days after the launch, Binance Futures marked a new record of 74,647 BTC in 24-hour volume, indicating a 388% growth from its first day. Binance Futures concluded its first month with $5.4 billion worth of contracts traded or 653,630 BTC. As it continues to grow, daily trading volume on Binance Futures eventually surpassed Binance BTC spot trading in a matter of weeks, and this has been the case ever since.

Chart 1 -  Weekly Binance Futures volume since launch

Source: Binance Futures, Data as of January 5th, 2020

October was a significant month for Binance Futures and the crypto community. In particular, Binance Futures recorded volumes of 315,000 BTC traded in a single day, worth nearly $3 billion in notional value. Binance Futures concluded the week with over $8 billion of contracts traded, the highest since its debut. 

November was its best-performing month thus far, with 4,042,674 BTC traded, a 65.71% month-on-month increase. In November, Binance Futures reached an all-time high daily trading volume of more than 370,000 BTC (approximately $2.7 billion). The following week, Binance Futures generated its highest ever weekly volume, with over $11 billion worth of contracts traded.

In December, Binance Futures expanded its portfolio of products with the introduction of Ethereum (ETH) futures contracts. Like BTC futures, Binance Futures ETH contracts are quoted and settled in USD Tether (USDT) with a maximum leverage of 75x. 

Total volumes for ETH on both spot and futures have doubled since the futures launch. By mid-December, daily volumes on ETH futures surpassed the 100 million dollar mark with over 1 million ETH futures contracts traded in a single day.

On average, over 80 percent of traders on Binance Futures trade at a leverage of 20x or higher (refer to Chart 2). Additionally, 20% of the users trade with 100x or more leverage. While high leverage trading is most popular among Binance Futures retail traders, most of its institutional traders, who contribute to 81 percent of the total trading volume, tend to trade at a leverage of 20x or less.

Chart 2 - A 30-day average of leverage usages on Binance Futures

Source: Binance Futures, Data as of January 1st, 2020

In other aspects, the open interest on Binance Futures has displayed a consistent growth since the beginning. In early November, the open interest on Binance Futures was less than $50 million daily. On December 17th, the open interest on Binance Futures broke the $100 million mark as Bitcoin hovers around its recent low, it has been the case ever since. Today, its open interest is approaching the $150 million mark, which is triple its size from two months ago. 

Chart 3 -  Daily Open interest (OI) from November 4th 2019 to January 1st, 2020

Source: Binance Futures, Data as of January 1st 2020

2.2 Disruption in Binance’s status quo: Spot vs Futures volume

As Binance Futures grows, daily trading volume on its futures platform eventually surpassed spot trading in a matter of weeks, and this has been the case ever since. In the beginning, spot trading dominated trading volumes, with 99% of Binance’s business came from spot clients. By the end of the first month, Binance Futures had contributed to 50% of trading volumes with spot clients switching between spot and futures whenever trading opportunities arise.

In the second week of October, trading volumes on Binance Futures leaped to 70% of the total volume traded. The volume spike coincides with a sharp surge in the price of Bitcoin from a low of around $7.4k to $9.6k within 48 hours. The volume spike in futures suggests that there was a strong demand for leveraged trading amongst its user base. Since mid-November, Binance Futures continued to dominate 75% of volumes on Binance its position as investors’ appetite for derivatives trading grows. 

Chart 4 - Spot Bitcoin vs Bitcoin Futures weekly volume percentage

Source: Binance Futures, Data as of January 5th, 2020

Since the addition of ETH/USDT, futures have significantly contributed to growth in overall trading volumes on ETH. Total ETH volume on both spot and futures have doubled since the introduction of ETH futures, from $434 million to $893 million. With leverage on ETH/USDT futures increased from 50x to 75x, Binance Futures saw a sharp rise in volume on its platform in early December. Since then, trading volumes on both platforms have stabilized around the range of 50-55% with ETH futures contributing to half of the total ETH volume on Binance platforms.

Chart 5 - Spot Ethereum vs Ethereum Futures weekly volume percentage

Source: Binance Futures, Data as of January 5th, 2020

In December, BCH futures were added to the Binance Futures platform, offering up to 75x leverage. There was a strong demand for BCH futures from the beginning, with $20 million worth of futures contracts traded on its first day. On the same day, BCH spot markets registered only $10.1 million worth of volume traded. Thus, BCH futures contributed 67.1% of the total volume traded for BCH on both platforms. BCH futures trading volume continued to outperform ever since then, even reaching a high of 89.6% three days after its launch. 

Chart 6 - Spot Bitcoin Cash vs Bitcoin Cash Futures daily volume percentage

Source: Binance Futures, Data as of January 5th 2020

3. Analysis of the impact of Binance Futures on the crypto-derivatives industry

3.1 The landscape prior to the launch of Binance Futures

Bitcoin Futures rose in popularity over 2017, in the last crypto bull market. Traditionally, volumes have been dominant on BitMEX. Since then, many crypto exchanges have joined in to offer crypto futures, primarily BTC Futures, to capture a share of the fast-growing market.

Since the beginning of the 2nd quarter to its peak in July 2019, the entire crypto-futures market has grown almost +600%, indicating strong demand from retail and institutional investors (refer to Chart 7). 

Chart 7 - Monthly Bitcoin Futures trading volume Pre-Binance Futures

Source: Binance Futures, Data from March 2019 to August 2019

BitMEX dominated 57.3% of the crypto-futures trading industry as other exchanges like Huobi Futures and OKex Futures trailed behind. Okex Futures and Huobi Futures were the remaining exchanges that held a notable share of the market with 23.8% and 9%, respectively (refer to Chart 8). BitMEX held onto its market leadership until the 2nd half of 2019, where the emergence of Huobi Futures, gradually increased its share of the market from BitMEX, while OKex Futures steadily maintained its market power.

Chart 8 -  Market share of crypto-derivatives exchanges between March and August 2019 

Source: Binance Futures, Data from March 2019 to August 2019; Market share is calculated as (volume / total market volume of the 5 exchanges) x 100

3.2 Landscape post-Binance Futures

Since the introduction of Binance Futures, traders have more options and a better variety of trading platforms to choose from. 

As such, the crypto derivatives market is now on a level playing field. 

As shown in Chart 9, market volumes have stabilized and increased gradually since the start of Binance Futures, despite a bear market in Bitcoin during the same period. 

A key reason for its growth is due to the increasing interest from retail and institutional investors; Binance Futures reported more participation from these investors as investment opportunities arise in the crypto-market.

Chart 9 - Monthly Bitcoin Futures volume since the introduction of Binance Futures

Source: Binance Futures, Data from March 2019 to December 2019

The rapid growth of Binance Futures had a significant impact on the industry as the exchange continues to break records every month. Since introduction, Binance Futures has grown its share of the market from 2.5% in September to 13.7% in November - expanded its reach by six-fold in the short period (refer to Chart 4). 

In October, Binance Futures climbed to fourth place in the BTC futures daily volume rankings as its market share reached a new high of 10.1%. 

A month later, Binance Futures increased its share of the market of 13.7%, which meant that Binance Futures were processing half the volume of business as its close competitors who had entered the market earlier. 

Since the launch of Binance Futures, BitMEX saw its market share shrunk from a high of 58.8% in March 2019 to 31% today. On the other hand, OKex Futures and Huobi Futures maintained their position with a market share of 26.1% and 24.4%, respectively.

Chart 10 - Market Share (Since Binance Futures)

Source: Binance Futures, Data from September 2019 to December 2019; Market share is calculated as (volume / total market volume of the 5 exchanges) x 100

4. The evolution of the competitive landscape in the crypto-derivatives industry.

Despite intense competition from Binance Futures, Huobi, and OKex, BitMEX still holds the most considerable portion of the crypto derivatives market, with ~31% as of end-November 2019. 

In September, the futures market saw a total of $213 billion traded across the top 5 exchanges, by volume. BitMEX led the market with $78 billion worth of contracts traded on its platform, while OKex and Huobi trailed behind with $67.6 and $54.3 billion, respectively. In its first month of operations, Binance Futures recorded $5.4 billion in volume, narrowing the gap with fourth-place Deribit, which saw $7.7 billion in volume traded. 

On September 24th, when BTC price plummeted 12% in a matter of minutes, many other major platforms experienced overloads or complete outages. Interestingly, Binance Futures were among the few exchanges to continue smooth operations, this was due to its fast matching engine which can manage up to 100,000 orders per second.

Chart 11 - Trading volumes of top 5 derivatives exchanges in September

Source: Binance Futures, Data from September 1st to 30th, 2019

In October, the aggregated top 5 volume increased by 1.6% to $216 billion. BitMEX saw a decline in volumes with $77 billion, down 1.3% month-on-month. OKex and Huobi also saw lower volumes as both ended the month with $59 and $49.8 billion, respectively, 12.7% and 8.3% lower than the previous month. On the contrary, Binance Futures recorded higher volume with an increase of 311% as more users migrate to the newly-launched platform and overtaking Deribit, which grew modestly to $8.3 billion (refer to Chart 9). As such, Binance Futures share of the market increased by five-fold to 10.1%.

Chart 12 - Trading volumes of top 5 derivatives exchanges in October

Source: Binance Futures, Data from October 1st to 31st, 2019

Volumes continued to decline for both BitMEX and OKex in November, and both platforms saw a decline in volumes of 10.4% and 1.9%, respectively. Deribit saw the most significant decline among the group with 15% lower volumes than the previous week. Huobi and Binance Futures saw positive growth in November, Huobi recorded 9.13% growth in volumes while Binance Futures grew 36.6% month-on-month.

Chart 13 - Trading volumes of top 5 derivatives exchanges in November

Source: Binance Futures, Data from November 1st to 30th, 2019

November was an excellent month for Binance Futures as the exchange moved closer to narrow the gap with its competitors. In November, Binance Futures performed remarkably against BitMEX, OKex, and Houbi as its volumes grew 600% since its launch. In the month, Binance Futures broke the 50% mark on volume percentage against OKex and Huobi. Binance Futures also gained traction against BitMEX, after the latter experienced consecutive decline in volumes. As such, Binance Futures saw volumes percentage against BitMEX rose from 10% in September, to an average of 50% by end-November, with the highest mark at 65.8%. Additionally, Binance Futures broke an all-time-high record on November 22nd, with 371,214 BTC traded. The surge in volume occurred during the massive sell-off in BTC, which saw prices fall 20% in a matter of days, from $8500 to $6762.

5. Conclusion and what to look for in 2020?

Since 2019, the entire crypto-futures industry has become more competitive than ever, as crypto exchanges race to offer the latest products and functionalities to attract users. As such, market share between the top 5 derivative exchanges is less concentrated and is now on a level playing field.

Although Bitcoin Futures is still in its infancy, already, the futures market is challenging the spot market. On the Binance trading platform, Futures have surpassed spot markets as investors look for more options to utilize their crypto assets. With the addition of new offerings such as ETH/USDT and BCH/USDT, volumes are likely to continue growing in 2020. In the coming months, Binance Futures plans to further expand its product offerings as well as the addition of BUSD collateral.

BUSD is a stablecoin backed by the US dollar, which was launched as a partnership between Binance and Paxos. In September 2019, Binance introduced the stablecoin as collateral against widely traded cryptocurrencies such as BTC and ETH. 

According to Binance, BUSD collateral will be available on its futures platform to provide greater variety for users. Recently, Binance Futures announced the launch of XRP and EOS futures on its trading platform. Trading on XRP and EOS perpetual futures began on January 6th and 8th respectively, offering up to a maximum leverage of 75x.