"Why are Derivatives important in Digital Assets?" - Andrew Baehr, CoinDesk Indices

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PANEL - Increasing Sophistication in Digital Assets and the Emergence of Derivatives: The financial landscape for digital assets is becoming increasingly sophisticated, with advanced financial instruments and investment strategies gaining prominence. Progression of digital asset trading, emphasizing the emergence and expansion of derivatives within this sector.

Discover intricacies of digital assets, its future, and more. Get the answers from our expert panelists featuring:

Moderator
Patrick Corker Head of Strategy, Lukka
Speakers:
Robert Strebel Head of Relationship Management, DRW
Christopher Perkins, President, CoinFund
Chris Sullivan, Principal & Portfolio Management, Hyperion Decimus
Andrew Baehr, CFA CFA, Head of CoinDesk Indices, CoinDesk

Why are Derivatives important in Digital Assets? - Andrew Baehr, CoinDesk Indices

Transcript: Why are derivatives important? Maybe a little bit about how they played a role in your background in traditional markets and how you see that playing out now with a lot of the growth, not only just in the utilization of derivatives, but the product class as a whole in digital assets. Derivatives are the primary risk management tool for many asset classes. I think equities are often the ones that are most intuitive because retail investors get to use equity derivatives, I think, fairly regularly, right? If you own a stock, you sell a call option against the stock, you receive the premium of that call option, and you get extra yield. So you're allowed to do this in a retirement account. This is something for which fewer permissions are necessary in a brokerage account.

So people get this sense of optionality in a yield context. If you work at a bank or an insurance company, part of your risk management, statutory capital preservation recipe, is to make sure that if equity markets go down 20% instantaneously, your firm is still standing. So you're using index derivatives, S &P 500 options daily to make sure that your risk profile in those conditions are sound. In the crypto space, the derivatives use that I saw from outside are one of the things that drew me into the business because a lot of that talent and experience had moved over, had ported over into crypto-native. Funding Delta One and options books, both over-the-counter and exchange-wise. So a lot of the crypto derivatives are used more in a speculative sense right now than a risk management sense. But the standards and the promise of how big and broad the market's getting, and now how a lot of that is translating into onshore markets on CME and soon with ETF options is very promising for similar use cases. So it helps complete the market. Financing. Risk management and things like structured products.

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