OKEx Sets Up Options on Ethereum

Last updated on December 7th, 2022 at 09:30 pm

On Thursday, Malta-based cryptocurrency exchange OKEx launched options contracts on Ethereum token. The launch ended the virtual monopoly of this type of contract by Panama-based crypto exchange Deribit.

CEO of OKEx, Jay Hao, said the ETH options contracts of OKEx will henceforth be settled in ETH. From the announcement, the face value of each of the contracts for ETH/USD will be 1 ETH.

“OKEx ETH Options Contracts will be settled in ETH. Each contract’s face value of ETH/USD options is 1 ETH,” he said.

Options are derivative contracts that give the buyer only the rights to sell or buy assets at a predetermined price and a specific date. It does not give the buyer the obligation, but only the rights. On the other hand, a put option gives the asset holder the right to sell while the call option gives the right to buy assets.

The Black-Scholes model on a real-time basis determines the mark prices for exchange options. Then a time-weighted average of the basic price is used to generate the price settlement.

This time-weighted average is generated ahead of expiry over some time. To prevent a situation OKEx termed “social drawback, the firm set up an ETH/USD insurance fund of 1,000 ETH, which was worth about $240,000 at the time of writing.

Clawbacks usually happen when the firm’s insurance fund does not have enough reserve to take care of the total margin call losses of investors. Crypto exchanges deal with such social losses and shortages by taking back a part of the profits from profitable traders when there is a sudden bearish or bullish move in the market.  This leads to forced unwinding or short/long positions.

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Options will offer more versatility to traders and it’s an ideal method of hedging their risks. The success of Ether relies on the use of Ethereum in decentralized applications, according to Hao. Since the fortunes of Ether are closely linked with the use of Ethereum’s dApps, it can be derived that options are hedging instruments of dApps.

According to the crypto derivatives research platform Skew, this year, the interest of institutional investors in the crypto market has exploded, with open ETH interest listed on top exchanges increasing by 100%. 

OKEx Leading ETH Futures Market

As of the writing of this post, OKEx was still the biggest ETH futures exchange by open interest. The firm accounted for $179 Million of the global total of $672, which is about 26%. Additionally, OKEx recently overtook BitMEX to become the biggest Bitcoin futures exchange based on open interest.

Hao said the next step for the exchange is to add ETH options to increase the market demand, especially as the company offers a wide range of features and products to traders. This allows the traders to stay more flexible in their pricing strategies, Lao reiterated.

Deribit Rules Options Market

However, while OKEx takes the lead in the futures market, Deribit exchange is topping the chart at the options segment.

Derebit accounted for over 75% of the open interests of $1.3 Billion in Bitcoin options. It also dominated the Ethereum options with almost the entire $144 Million in ETH options, with OKEx contributing only 4%. With these statistics, it’s clear that OKEx has a lot of ground to cover in both Bitcoin and ETH options.


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