ErisX releases physically-settled Ethereum futures contract in the United States

New York-based crypto exchange ErisX announced on May 12th that it has just released the first physically settled Ethereum futures contract in the United States. The company states that “robust, transparent and regulated financial markets are critical infrastructure that enable price discovery, risk transference, and hedging opportunities”

A futures contract ties the buyer into an obligation to purchase an asset at a set price in the future. This new Eris Ethereum (ETH) contract differs from preceding investment vehicles as it is targeted at Institutional Ethereum stakeholders. Data from the ETH futures market shows that most trading currently occurs on international, retail-driven platforms.

Data from: Skew Analytics

ErisX was founded in 2018 as the successor to Eris Exchange. The Eris exchange was built in 2010 as an interest rate swap platform. The platform was designed to be an alternative to Over-The-Counter derivatives markets that work with in a Centralized Clearing Party model.

The exchange offered derivatives with fewer regulatory restrictions for smaller European and American traders. It received the 2011 FOW Award for Best Innovation by an Exchange in the Field of Product Design for North America.

Exchange interest swap products offered by Eris shifted to CME upon the creation of ErisX. The CME Group is a global leader and provides a derivatives marketplace offering a wide range of futures and options products for risk management.

ErisX now offers spot and derivative cryptocurrency trading solutions. It initially launched spot services in April 2019 before physically settled Bitcoin futures were released in December 2019.

ErisX has had 3 successful funding rounds since its switch to becoming a digital asset exchange. The most recent round of funding occurred in April 2019 with the company US$20 million from investors that included: ArcLight Securities, Castle Island Ventures, Dragonfly Capital Partners, Flow Traders, Tradestation and New York Digital Investment Group (NYDIG)

Settled actual blockchain ETH tokens settled using at the end of each contract.

The exchange claims that the new physically settled futures contract will offer a number of investment advantages not previously available to Ethereum stakeholders, such as miners, speculators, hedgers, and enterprise users. The advantages are broader market participation, more flexible time horizons and risk diversification options for businesses, and more accurate price discovery.

The contract is described as a “fully funded physically settled futures contract for the Ether.” Each individual contract is priced at 1 ETH, and is currently ~US$86 based on global prices. The maximum limit of contracts is 75,000ETH or US$13,950,000. A trader is reported as “Large” if they hold at least 25 contracts, ~US$ 4750 based on current ETH/USD global prices.

Unlike many of its competitors ErisX does not offer leverage on any of its futures contracts. This means traders cannot borrow from peers on the platform, or the exchange, when trading. Contracts on the platform are fully funded. This means the seller of the contract must post the entire amount of the digital currency being sold, and the buyer of the contract must post the equivalent amount of US dollars.

Recently experienced Wall Street hedge fund manager Paul Tudor Jones revealed that the Tudor group holds a Bitcoin (BTC) futures contract position. He tells clients that he specifically chooses US dollar cash-settled Bitcoin futures because of issues surrounding factors like trustworthiness.

Jones explains“I’m not a millennial investing in cryptocurrency, which is very popular in that generation, but a baby boomer who wants to capture the opportunity set while protecting my capital in ever-changing environments.