S&P 500 Gains Can Earn You Bitcoin on New Bain Capital-Backed Exchange

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Crypto investors have a new way to bet on the price of bitcoin – or on traditional assets – with the formal launch of EverMarkets Exchange (EMX)’s derivatives platform.

The Palo Alto, California-based startup was founded two years ago and opened the exchange to a restricted audience at the end of May 2019. Effective Monday, the market is now available to participants worldwide – though U.S. residents are excluded.

Co-founder Craig Austin told CoinDesk that the company wants to give customers access to a “world market” by trading derivatives tied both to crypto and traditional assets, and while it bills itself as “institutional-grade,” EMX is primarily interested in a retail market.

“We kind of over the last year and a half built one platform to let traders from around the world trade global markets collateralized in cryptocurrency,” he said. “That’s the key idea for us, to let anyone in the world outside the U.S. to send cryptocurrencies to a marketplace and get exposure to the world market, so not just cryptocurrencies but also equity markets.”

At present, EMX offers two products: a bitcoin perpetual swap contract and a U.S. 500 Equity Index perpetual swap (based on the S&P 500). Perpetual swaps are futures contracts with no expiration date; the underlying asset is never delivered, and payments are periodically exchanged between the buyer and seller. The contract type was initially designed for the crypto market by derivatives exchange BitMex.

Down the road, EMX will look at other traditional swaps, such as gold and crude oil, as well as different cryptocurrencies to build futures contracts on top of.

Notably, while EMX isn’t licensed as an exchange or financial services business by any jurisdiction, it is registered in Bermuda. Austin said, “we’re trying to offer a more regulatory-safe market” by abiding by know-your-customer and anti-money laundering guidelines.

He added:

“A lot of those markets don’t have strong KYC and AML procedures. We see the regulatory environment changing over the next 12 months and we want to be positioned that we’re trading on the platform but we’re also ready for more exchanges, more regulations.”

Soft launch

The company currently sees a few hundred traders active on its site every week, as part of the company’s initial testing phase, Austin said.

“We were testing internally for about two months now with friends and family,” he said. The company selectively invited external users shortly thereafter.

Roughly 2,500 individuals signed up to trial the platform, with the entire list being granted access a few weeks ago.

Away from blockchain

When EMX first announced its intention of building a derivatives exchange in March 2018, the company intended to utilize a blockchain-based trading platform, co-founder Jim Bai told CoinDesk at the time.

However, the company has since moved away from this model. Austin explained that, in his team’s view, the technology is not yet mature enough to support a widely accessible trading platform.

“I guess our thesis is in the next 12 months we won’t see DEXs take off for broad adoption,” he said, referring to decentralized exchanges.

As of right now, EMX’s trading platform is based on “standard, cloud-based” technology, he said.

Moving forward, the company does intend to make its trading platform compatible with different blockchains, allowing users to collateralize their trades with multiple cryptocurrencies. Austin wouldn’t commit to any specific tokens just yet, though he said “maybe a stablecoin makes the most sense.”

The fact that EMX is only a derivatives exchange means that customers won’t actually be trading crypto, he noted, adding:

“You get exposure to markets like us equities and other cryptocurrencies. You won’t actually trade the token, you just get exposure to a future or a swap.”

At any rate, EMX will only launch with its existing products in order to build up liquidity. Only once the platform sees higher transaction volumes, will it start adding its other products.

Ongoing development

The company previously raised $1 million in early-stage financing from Bain Capital Ventures and Skype co-founder Jaan Tallinn. EMX is now in the middle of raising another $2 million, Austin said.

These funds will be aimed at improving the customer experience, including by building a mobile application.

“We found that half of our users are accessing us on the go,” Austin said. “No one really has a great [mobile app] yet but being on everyone’s devices is important to us.”

Also included in EMX’s roadmap is a plan to launch a spot market for crypto traders, though this is further down the road and not necessarily a priority.

Ultimately, once the exchange has raised sufficient funding, Austin said the company will try to apply for the requisite U.S. licenses to offer services in its home country.

“As a U.S. company, as U.S. people we are interested in the U.S. market but … there’s a ton of hurdles to offer to the U.S. people that we’d have to get through and it’s not even determined which hurdle we’d have to get through,” he said, concluding: