GFO-X CEO Arnab Sen was recently interviewed by Emmanuel Vallod, Partner and Head of Ventures at Hivemind Capital.

Arnab shares his insights on the relevance of derivatives, institutional needs, and the evolution of digital assets in traditional finance. Tune in to understand what's required for banks and large institutions to participate fully in this emerging asset class, backed by cutting-edge derivative structures and stringent regulatory compliance.

Arnab “If you have a spot market, if there's a real underlying use case, let's say for BTC as a store of value, you're going to need to hedge or trade around that asset class”

Watch the podcast here.

Key Discussion Points

• Importance of Derivatives for Institutions: Large institutions use derivatives to enhance yield, buy protection, and issue structured products to clients [00:00]. Derivatives are crucial because they are typically how large institutions enter an asset class [00:31]

• Crypto Market Maturity: Arnab believes the crypto market is still very early in its maturity, comparing it to the "afternoon of day one in a test match" [09:34]. He points out that options, which are a significant portion of traditional finance derivatives, are under 5% of total crypto derivatives, indicating a lack of maturity [10:08].

• Challenges for Institutional Adoption: Market Structure Issues: Early crypto market structures were unregulated, with exchanges performing too many functions, leading to conflicts of interest that deter large institutions [04:01].

• Lack of Trust and Under-collateralization: There's little trust in the crypto market, leading to pre-funded models that don't work for derivatives [10:51]. The crypto derivatives ecosystem is described as “insanely under collateralised” [36:47].

• Regulatory and Balance Sheet Issues: Banks face balance sheet issues and capital charges that prevent their participation [13:54]. Institutions require licensing from a Tier 1 jurisdiction and Qualified Central Counterparty (QCCP) status for balance sheet efficiency [33:05].

• Integration with Legacy Systems: Banks operate on antiquated systems and require new crypto solutions to integrate with their existing workflows [47:20].

• GFOX's Role: GFOX aims to bridge the gap by providing regulated, centrally cleared solutions for digital asset derivatives, partnering with entities like LCH for central clearing [11:15]. They focus on solving frictions in the options market [10:38] and bringing banks into the digital asset evolution [19:47].

• Real World Assets (RWA) and Derivatives: The world runs on derivatives, not spot markets [01:00:07]. Tokenised assets need to be usable as collateral, and regulated derivatives are essential to create demand and liquidity for RWAs [52:05]. The digitisation of assets can also shift power back to banks by enabling more efficient collateral management and risk distribution [55:51].