Unlocking the Multi-Trillion Dollar Digital Asset Derivatives Market for Institutions

Kemet Trading
4 min readAug 22, 2022

Kemet Trading provides institutional-grade infrastructure for digital asset derivative trading — optimizing access to liquidity, data, trade execution and post-trade workflows.

At Kemet Trading, we believe that digital asset derivatives are the next frontier of institutional trading. We also believe that it’s currently extremely inefficient given its projected growth.

To put things into perspective, the global traditional OTC derivatives market is currently ~$600T in market size. The total digital asset derivatives market is around ~$2T. We are here to provide institutional-grade infrastructure to help digital asset derivatives close that gap.

In this first article of many, we’ll discuss:

  • The institutional preference for derivatives over spot instruments.
  • The complexity of trading, as an institution, in a fragmented digital asset derivatives market.
  • How Kemet Trading is changing the landscape of digital asset derivative trading for institutions.

The Institutional Preference for Derivatives

Derivatives provide institutions more benefits over their spot counterpart:

  • Leverage: The ability to leverage positions is fundamentally enticing for higher “CAGR”; leverage allows for a substantially higher alpha overall.
  • Reduced Operational Risk: Derivatives allow institutions to gain synthetic exposure without the need for custody of any underlying asset. Custody is a friction-heavy process.
  • Efficient Hedging: Derivatives are prime instruments to help mitigate various financial risk exposures that they may be exposed to. Every major institution utilizes derivatives in some form or another for hedging against markets.
  • Deep Liquidity: Almost every digital asset derivative is cash settled. This drives a more capital efficient market-making operation; translating to deeper liquidity across the market.

Trading Digital Asset Derivatives: A Complex Landscape

Digital assets lack the infrastructure necessary to execute elaborate derivative strategies adjacent to traditional markets. Institutions struggle to maneuver a market that is fragmented across liquidity, data and execution.

The following diagram depicts the current state of the digital asset derivative market as it stands:

Source: Kemet Trading Research

Running a digital asset derivatives trading desk in this state is cumbersome:

  • Multiple traders executing hundreds of trades a day using various instruments across multiple liquidity venues, means that there is no central trade blotter, which risks desk performance and results in an increased margin of error throughout trading sessions.
  • Fragmented liquidity venues make desk management and the trade lifecycle overly complex.
  • Fund admins struggle to onboard multiple liquidity venues and track the desk’s outstanding positions.
  • Risk managers lack necessary tooling to track real time positions, greeks and leverage ratios.
  • Auditors deal with multiple exchanges, both domestic and global, in an unclear regulatory environment. This makes compliance difficult.
  • DeFi trading is complicated. Running a DeFi trading desk across multiple supporting functions is even more complicated.

It’s a mess that needs fixing for this asset class to grow to a size on par with traditional markets. All of these moving parts struggle to find an efficient workflow to better their performance and maintain their edge across the market.

How Kemet Trading is changing the landscape of digital asset derivative trading for institutions

Kemet Trading is the streamlined solution to trade digital asset derivatives designed for institutional investors. Our offering allows firms to:

  • Access the best liquidity venues across CeFi and DeFi.
  • Utilize our state-of-the-art algorithms for best order execution.
  • Enable standardized pre- and post-trade work flows.
  • Allow cross-functional collaboration within the trading desk.
  • Track every portfolio with real-time P&L, aggregate deltas and manage position risk.

We provide institutions with the only platform necessary to access the entire digital asset derivatives market and all of its fragmented touch points and manage the full-trade lifecycle in one institutional-grade, customizable solution.

At Kemet Trading, we believe that the growth of the digital asset derivatives market over the next 24-months will be dependent on the increased participation from institutions. We foresee a shift in two directions identified by width and depth.

  • By width, we see the instrument offerings extending as the market continues to grow. This means a wider array of Leverage Tokens, specialized multi-asset packaged derivatives, more synthetic traditional assets like oil and benchmark market indices.
  • By depth, we see the development of adequate institutional-grade infrastructure necessary for increased adoption, which ultimately translates to growth across the market. Allowing institutions to run their desks using a single platform is a fundamental shift in what is currently possible.

Kemet Trading addresses the biggest pain point for any institutional investor looking to enter the digital asset derivatives space or advance their strategies.

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Kemet Trading

Institutional-grade infrastructure for digital asset derivatives trading; optimizing access to liquidity, data, trade execution and post-trade workflows.