BitMEX Shutdown Kicks Off the War for Crypto Derivatives Market Dominion

Trouble at top crypto derivatives trading venues BitMEX and OKEx could prove to be openings for some of its more nimble competitors.

The latest developments at the two exchanges are not exactly encouraging for affected customers. Executives at erstwhile leader in crypto derivatives products, BitMEX, including co-founder Arthur Hayes, now face a lawsuit from US authorities, accusing the exchange of pocketing $440M of client funds.

And traders at OKEx are probably rueing the day they deposited funds at that venue, because withdrawals have been suspended since mid-October, with a post by the exchange on Friday 30 October confirming that was changing any time soon.

Against this grim background then, all the more galling for the ensnared traders given the recent run-up in the price of bitcoin, a number of dynamic new entrants to the cryptocurrency derivatives exchange space – Bingbon, Bybit and AAX – are attempting to eat into both BitMEX and OKEx’s market share.

Let’s start with Vietnamese new entrant Bingbon. Founded in 2018, it has established itself as a leading crypto trading platform, enabling retail traders to gain exposure to crypto derivative contracts. The trading venue covers not only digital assets but other financial instruments, such as forex, global equities and commodities.

At the last count, there were around 300,000 accounts on Bingbon, responsible for approximately $500,000 in daily trading volume.

One way in which Bingbon aims to set itself apart from competitors is through offering copy trading, where users can look up successful traders, follow them, and copy their trading strategies.

All statistics related to the lead traders, such as profit rate, trading record and the number of followers can be viewed on their profile so that users can find and rely on credible guides.

Global investment platform eToro was the first to introduce copy trading, so Bingbon is not breaking new ground but it is certainly leading the way among its crypto exchange peers.

And with an eye to giving traders what they want, it offers leverage of up to 150x, which is higher than what’s being offered by most of its competitors.

There is no evidence so far of security breaches suffered by Bingbon, but then again the platform has only been operating since 2019, so it hasn’t yet had the opportunity to build-up much of a track record on security.

As proof of its intent regarding security matters, Bingbon launched a bug bounty program in collaboration with cybersecurity firm SlowMist, offering a reward of up to 4,000 USDTs to anyone who finds vulnerabilities on the platform.

Although there are no known reports of a hack or loss of client funds, it has been subject to a number of denial of service attacks.

The platform, as you would expect, provides 2-factor authentication and stores most cryptocurrency assets in cold wallets. A nice touch is a separate password for funding your account.

Bingbon says it has implemented defensive risk-control measures along with security monitoring processes, as it seeks to manage the risks associated with storing crypto in hot wallets.

All told, though, on the security front, there’s nothing here that particularly stands out from the crowd.

Singapore-based Bybit is a somewhat different proposition, certainly in terms of customer footprint. Established in March 2018, Bybit is one of the fastest-growing cryptocurrency derivatives exchanges, with more than a million registered users and a trading volume of roughly $2 billion (October 2020) – that puts it way out ahead of Bingbon, if not BitMEX or OKEX just yet.

Bybit allows you to trade perpetual futures (i.e. no expiry date). The original trailblazer with perpetuals was BitMEX, and it played a large part in establishing itself on traders’ radars. Bybit is presumably hoping to do the same.

As with BitMEX, there’s a mutual insurance policy for your perpetual positions, so hopefully this is a policy that actually pays out – unlike the notorious smallprint at BitMEX that means traders, allegedly, rarely if ever, receive compensation for downtimes and other such trading interruptions.

As you would expect of a crypto derivatives exchange, Bybit offers clients 100x adjustable leverage, but not Bingbon’s 150x as yet.

But it is where security is concerned that Bybit may be looking to pull ahead.

The "Exchange Transparent Assets" program from BitUniverse allows any user to review Bybit’s platform assets. Instead of obtaining the data directly from the platform, an independent third-party obtains it from a public blockchain and manages the disclosure.

Any on-chain or off-chain fund movements are monitored by an independent internal control business line to ensure an immediate response. Bybit has also adopted the integrated risk management framework for internal and external anti-fraud and anti-laundering practice.

The extent of a company’s investment in security reflects its actual commitment and capability as opposed to whatever the hard sell on the website might say.

We can measure the financial outlay to secure its business processes and operations using the security Investment/IT Investment ratio is a good benchmark for comparison within an industry.

This benchmark ratio is approximately 10% in the internet industry, 5% to 8% in the financial industry and below 4% in other industries. Among crypto trading platforms, a lot of the major players spend around 15%. Bybit is spending about 20% currently and this is expected to increase to 25% to 30% in the future.

Of course it’s what the exchanges are actually spending that money on regarding security that really counts.

In this regard the AAX digital asset exchange is deserved of a mention. It is something of a first in the crypto space with its integration of the matching engine used by the London Stock Exchange Group – LSEG Technology's Millennium Exchange – and as such AAX can trumpet institutional-grade security and systems resilience.

AAX is so confident in the robustness of the technology that it promises to deliver 100% uptime for traders on its spot and futures markets.

That’s no idle boast for its part given that the LSEG engine is in use on a total of 40 exchanges around the world, not just the LSE – for example the Johannesburg Stock Exchange and the Singapore Stock Exchange.

Back with Bybit, the firm also lays claim to market-leading features, such as its cold wallet system that comes with an in-built solutions hierarchy. All the deposit addresses provided to users are cold wallet addresses and asset consolidation and withdrawals are completed with offline signatures.

And if that’s not enough for traders’ peace of mind, withdrawal requests are subject to manual reviews three times a day and users can only withdraw once every eight hours. As for internal control, withdrawals are subject to at least three layers of risk-control verifications.

Additionally, Bybit’s crypto asset consolidation among cold wallets follows a strict policy that includes physical environment security, system security, encryption techniques, operation authentication, monitoring and audit.

Bybit is certainly making waves and it will be interesting to see how Bingbon develops too; and AAX could be setting new standards for what traders can expect from a best-of-breed crypto derivatives exchange.

At the centre of the action in East Asia, situated as it is in the burgeoning blockchain hub that is Singapore, of the three, Bybit is well-positioned and certainly seems to be cognizant of the fact that a key competitive differentiator in the space is robust security.

Having said that AAX, which was also founded just a couple of years ago, looks like it is out in front as far as integrating a state-of-the-art tech stack for its order book and will appeal to those fed up with the deficiencies of the current market leaders, at least in that regard.

But the crypto exchange world is highly competitive and no one should expect BitMEX or OKEx to roll over and die. Nevertheless, there are today much wider choices for crypto derivatives traders, as the likes of AAX, Bingbon and Bybit show.