Front-Office Outsourcing in Crypto Derivatives Markets Set to Rise

Crypto derivatives market participants are set to increase their use of third-party trading technology as the quality and sophistication of the products on offer continues to increase, a newly published study by Acuiti has found.

The whitepaper Changing Approaches to Crypto Trading Technology is based on a survey conducted in Q4 2022 of Acuiti’s Crypto Derivatives Expert Network and is published today in partnership with Trading Technologies, a global capital markets technology platform provider.

Historically, proprietary trading firms, hedge funds and asset managers entering the crypto derivatives markets have tended towards inhouse builds owing to a relative lack of third-party offerings in the market.

However, the Acuiti study found that firms experienced challenges in building technology inhouse, in particular when it came to trading execution, risk management and market data tools.

As the quality and sophistication of third-party offerings in the crypto derivatives market increases, firms are likely to increasingly look to third parties, the study predicts. This trend is likely to accelerate as crypto-native firms expand into traditional asset classes.

Other key findings include:

• Crypto derivatives market participants would welcome increased involvement from traditional sell-side firms with balance sheet and reputation the key benefits they would bring
• A significant majority of firms execute most of their trading on exchange via a central limit order book, but over-the-counter (OTC) volumes are expected to increase
• Over a third of crypto-native firms are set to expand into traditional asset classes

“The crypto market grew from nothing to a multi-trillion dollar market in a short space of time,” says Will Mitting, founder of Acuiti. “One result of this was that the quality and sophistication of third-party technologies often lagged the inhouse builds of the early pioneers.”

“Today there are many institutional-quality third-party offerings in the market and more being launched. This is lowering the barrier to entry for firms coming into the market and tilting the calculus in favour of third-party development for both incumbents and new entrants.”

“The survey respondents made it clear that third-party support of their crypto trading expansion plans can both ease their burden and help them achieve their goals at the pace that’s comfortable for them,” said Jason Shaffer, Trading Technologies EVP Product Development and Head of Americas. “These findings are aligned with what we’re hearing from customers who are working with us on the expansion of our crypto offering. They view our advanced toolset for professional and institutional trading – combined with expanded market access – as a superior alternative to creating and maintaining inhouse systems.”

Download full report here: https://www.acuiti.io/changing-approaches-to-crypto-trading-technology.