Get the Facts: Principles for Digital Assets Platforms
Guiding Principles
Learn more about the FTX Principles for Digital Assets Platforms
1. The CFTC should act to promote the healthy development of US cryptocurrency markets. US economic interests and global financial leadership depend on it.
2. The CFTC should eliminate the barriers to meeting the full potential of cryptocurrency markets by ensuring federal regulation enables competitive markets driven by innovation, new technologies, and opportunity for American investors.
3. The CFTC should promote equity and access within the financial system by supporting technologies that enable underserved communities to buy and sell financial products with ease.
4. The CFTC should promote new technologies and models that limit systemic risk in futures markets, ensuring market resilience for investors and American businesses that rely on these exchanges.
5. The CFTC can and should support expanded investor choice to promote the vibrancy of American markets.
Key Points
1. The CFTC should act to promote the healthy development of US cryptocurrency markets. US economic interests and global financial leadership depend on it.
- While many of the digital-asset ventures and companies have been founded by Americans, more than 90 percent of trading volumes for digital assets takes place outside of the U.S., to the detriment of U.S. investors, economy and job market. Most of this trading volume comes from derivatives trading.
- Allowing digital asset exchanges to trade certain margined products on a non-intermediated basis will allow U.S. and other investors to trade derivatives on bitcoin (BTC) and Ethereum (ETH) on the type of platform popularized for spot markets and markets outside the U.S., providing choice for U.S. investors to trade these assets onshore.
- The global market cap of cryptocurrencies reached $3 trillion[i] for the first time in November 2021.
- The country that leads in the development of digital asset trading will have an outsized influence on the standards set for such trades around the world.
- It is critical for American global financial leadership to empower U.S. cryptocurrency markets and set the standard for a rapidly growing industry.
2. The CFTC should ensure federal regulation enables competitive markets driven by innovation, new technologies, and opportunity for American investors.
- Particularly as it relates to bitcoin (BTC) and Ethereum (ETH) futures, most U.S. volume trades on one exchange. Other platforms have tried to list BTC and ETH futures, but have had limited success because of the overall market and network advantages that incumbent exchanges enjoy.
- The public is better served if there are fewer barriers to entry and investors at least have the choice to access markets through an internet connection if they choose, rather than other methods that can be costlier.
3. The CFTC should promote equity and access within the financial system by supporting technologies that enable underserved communities to buy and sell financial products with ease.
- Cryptocurrency companies are working with non-profits, cities and counties to provide accounts for underserved communities.
- Members of these communities often do not have insured checking accounts, for a variety of reasons, including credit histories.
- Over 1/3rd of the U.S. population is unbanked or underbanked[ii].
- Cryptocurrency companies can onboard these members and provide solutions for depositing pay checks and transferring payments, including to loved ones based in other countries.
4. The CFTC should promote new technologies and models that limit systemic risk in futures markets, ensuring market resilience for investors and American businesses that rely on these exchanges.
- In March 2022, nickel prices rose dramatically[iii] in the week following Russia’s invasion of Ukraine. Volatility was allowed to build up over the weekend, and investors faced huge margin calls they could not cover. The London Mercantile Exchange was forced to suspend trading.
- 24x7 assets need a 24x7x365 risk and margin model. It’s too risky to allow risk to accumulate overnight and over weekends in a world with around-the-clock news, especially for markets where price action in the underlying spot markets is occurring around the clock, or is influenced by world events.
- This market structure also reduces other operational risks because of its relative simplicity compared to other models, presenting fewer risks to the platform as well as the end investor, and making it easier for the platform to manage risk overall.
- Exchanges should manage risk solely based on the collateral actually posted to the platform. Traditional platforms tend to base margin-extension or credit decisions on off-platform assets; this can expose clearing organizations to significant credit risk.
5. The CFTC can and should support expanded investor choice to promote the vibrancy of American markets.
- The business models and market structure for digital assets trading are growing because users have greater and easier access to the platforms, and enjoy the trading experience once they arrive there.
- Giving investors the choice to access markets directly will further empower the end investor. Investors still will have the choice to use intermediaries if they wish.
[ii] https://morningconsult.com/2021/08/17/unbanked-underbanked-demographic-profile/
