OKEx has embarked on a remarkable journey. From allegations of fake trading volumes to navigating substantial losses, the path hasn't always been smooth. Yet the young company's motto "it's OK to be brave" truly defines its core philosophy. Brave, indeed, it has been. And it has evolved into one of the world's largest cryptocurrency spot and derivatives exchanges.
At the beginning of 2020, the cryptocurrency landscape appeared unstoppable. Bitcoin was showing 35 percent year-to-date gains, altcoins were gaining momentum and even surging, and the derivatives sector was thriving. Then it happened. The black swan event that nobody anticipated in the form of a global pandemic.
As cryptocurrency prices entered a downward spiral, it demonstrated that, contrary to popular belief, these markets are far more correlated with traditional markets and the global economy than previously assumed. While major derivatives exchanges began getting "REKT" unable to handle the volatility, OKEx maintained its stability.
On March 13th, for instance, Bitcoin plummeted by more than 44 percent within a matter of hours, hitting a low of $3,791.9 before rebounding sharply to around $5,000. That level of extreme volatility wiped out numerous traders taking the plunge on BTC along with it.
When this wave of trading activity overwhelmed exchanges in such a brief period, it highlighted those capable of managing the surge — the platforms with sufficient market depth to handle the volume while safeguarding traders' interests.
As market participants witnessed, even the powerful BitMEX was forced offline for "technical issues" (later attributed to DDoS attacks). Smaller competitors like Deribit (and even Binance) saw their insurance funds get depleted. But OKEx weathered the storm gracefully (with only a minor app delay).
According to Skew data, OKEx recorded an impressive $16 billion in 24-hour trading volume, topping the charts throughout that period. According to a tweet by OKEx CEO Jay Hao, the trading platform processed approximately 300k orders/sec during the volatile period and its trading services were delivered stably.
Indeed, OKEx has come a long way.
Last week, CryptoSlate caught up with Lennix Lai, Markets Director at OKEx, at the Crypto Think Digital Assets Conference in London. The last time we spoke was a little over a year ago following his presentation in a crowded Pacific Ballroom of the Grand Hyatt hotel in Seoul.
OKEx was hosting the event to announce the launch of its perpetual swap product — something that Lennix admits, the company wasn't certain would be a successful venture.
Some 15 months later, following its tremendous success (the USDT swap + coin-margined swap now trades around $300 billion), the exchange is certainly glad it did. Lai admitted:
"We had an internal debate over whether we would cannibalize the futures products that we already had," Lennix says, but "it's turned out so great. Even if the two products look the same, similar, they are actually complementary… the futures space needs both."
I bring up the fact that some people at the conference are labeling 2020 the "Year of crypto derivatives." And in fact, the market is already much larger than spot markets. But, how big is it going to get? Lennix says that at the time OKEx launched its perpetual swap product, its derivatives market was about the same size as spot, but today, it's two or three times larger.
"I won't be surprised if the derivatives space will be five or 10 times larger than spot markets in less than two or three years," he states unequivocally. "The momentum is getting huge, there are more sophisticated traders who understand about derivatives, they want to hedge risk and implement complex strategies… and also the exchanges have improved a lot in managing the risk on derivatives."
(Indeed, they have, the 'clawback' seems like an ancient mechanism compared to OKEx's maturity today).
OKEx is one of the few (if not, the only) exchanges to make its derivatives traders take questionnaires before they are allowed to trade. The exchange wants to ensure that its traders understand what they are trading and what risks are involved. Lai said:
"We ban customers if they don't understand the product if they fail the test. The products that we define as derivatives, options, futures, swaps, you need to understand what is options, what is futures, how we calculate the margin, PnL, execution… then you can access the products."
I point out that this may drive a lot of users elsewhere, yet it is a trade-off OKEx is happy to make. Lai nods his head and emphasizes:
"We even want to have more education especially on complex products like options, through more investor education… I think it's part of the adoption, you have to understand what you're buying, what you're trading."
Some traders say that you don't need to know anything about the underlying asset to trade it — just know how to read the price. But Lennix disagrees:
"If you really want to become a serious trader, you really need to understand what's the underlying risk, what's the black swan risk, what you're actually buying and selling, what event may happen… you need to be very aware before you tap into this market."
I ask if that's perhaps one of the (many) barriers keeping the institutions at the gate. Lennix says:
"I think so because most of the really serious institutional players have to run through very rigorous due diligence to allow asset managers to buy or sell and trade. They need to understand all the technical aspects of Bitcoin and blockchain to understand."
Lai believes that regulation is another obstacle for the institutions. But, he says, it's getting better. Unlike Binance or other Malta and BVI-based exchanges, OKEx is actually based in Malta. The company has been working closely with the Malta regulators to comply with the EU AML5 regulations. Lai says:
"Regulators across the board mostly acknowledge bitcoin, institutions will get in when regulation is clear, and the market is going to be huge because of this."
Currently, Lai estimates that just one percent of OKEx's customer base is institutional. Still, that one percent easily accounts for some 80 percent of the trading volume. This, he believes, is the same for all cryptocurrency exchanges across the board.
That has to make you wonder just how much growth there is left in the space once the institutions really move en masse.
The year of crypto derivatives? Well, so far, it's been the year of the "coronavirus." Still, since derivatives allow traders (with iron-clad stomachs) to make profits even from the most bearish of markets, the recent carnage should only fuel its growth.
