Galaxy Digital executives believe that trading over-the-counter (OTC) options on the blockchain is a significant advancement in the finance industry, especially after the downfall of several centralized players in this sector.
The crypto-focused firm recently announced its capability to trade OTC options linked to digital assets, with CoinFund being the first crypto investment firm to engage in such a trade.
Unlike options traded on formal exchanges, OTC options are derivatives contracts that are negotiated privately between the buyer and seller, allowing them to establish their own terms, such as the strike price and expiration dates.
By trading these options on the blockchain, Galaxy Digital eliminates the credit risk usually associated with traditional OTC options trades while safeguarding privacy.
The use of “trustless” settlement on the blockchain means that both parties must submit their side of the settlement before any funds are released.
Galaxy Digital employed Aevo, an on-chain options trading platform developed by Ribbon Finance, to execute, margin, and settle the trade. Aevo was introduced last September and went live on the mainnet last month, initially enabling users to trade Ethereum (ETH) options.
The platform’s OTC exchange launched just this week, allowing users to trade altcoin options on-chain across various maturities, including weekly, biweekly, and monthly.
CoinFund chose to utilize Aevo due to its advantageous margin requirements, on-chain payoff enforcement, and the ability to select precise strike prices, according to Ribbon Finance.
This OTC options trade comes slightly over a year after Galaxy Digital engaged in an OTC crypto transaction with banking giant Goldman Sachs, involving a bitcoin non-deliverable option. With approximately 960 counterparties, Galaxy Digital reported a net income of $134 million in the first quarter, highlighting its strong position in the market.
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