00:00It's time now for our metal spotlight. Kaoshi is looking to bring perpetual futures beyond crypto.
00:05The company is seeking approval to launch contracts tied to gold, silver, platinum, and says copper could be next as
00:12demand tied to AI and computing continues to grow.
00:15Joining us now is Kaoshi Chief Risk Officer Udesh Jha. Udesh, thank you so much for joining this.
00:20And look, these perpetual futures are something you traditionally see, for example, processing tens of billions in crypto.
00:26Why expand this out into hard commodities, into precious commodities?
00:31Thank you for having me here. I think it's a great question.
00:35I think we have already seen the innovation that perpetuals have brought onshore with the launch of our crypto perpetuals.
00:43And we have started to see a lot of crypto, our perpetuals, grow on real-world assets like metals, like
00:51S&P, like crude oil, offshore.
00:54And what we are trying to do is build an ecosystem so that they can be offered in a regulated
00:59platform like Kaoshi.
01:01Who is your audience here? Is it those who already trade on Kaoshi, maybe are more used to trading crypto?
01:06Or are you trying to tap that retail investor who's maybe in ETFs now, or maybe trying to deal with
01:12rollover headache costs of futures themselves?
01:14Are you trying to gain market share in this overall industry?
01:19I think we look at ourselves at servicing both retail as well as institutions.
01:24If you look at gold or silver, they are products that are used by retail as well as institutions.
01:31They are a store of value.
01:32They and perpetuals provide for a continuous exposure.
01:36They don't have any expiry, which means that you don't have to pay the roll costs.
01:41They concentrate liquidity in one contract.
01:45So there are many benefits that both retail as well as institutions can have with these perpetual contracts.
01:51I know with the crypto perpetual contracts, they trade 24-7, as does crypto.
01:56And that's one of the appealing things for this.
01:57For now, you're just matching the underlying market, which trades 24-5, so only five days a week.
02:02Could that change, Udesh?
02:05Yes, we wanted to start off with basically matching it to the underlying markets.
02:10There's a lot of things happening in the financial sector today.
02:14There are many other markets that are moving from weekdays to weekend trading or potentially move from daytime trading to
02:2223-5.
02:24Our thought process was that we want to start with a 23-5 or 24-5 market and then see
02:30how it goes.
02:31I think eventually we have seen the power of both perpetuals as well as prediction markets to provide for a
02:38lot of price discovery over the weekends.
02:42And as the market grows in the underlying sectors, whether it's futures or traditional futures or cash, we will surely
02:50look at expanding it to 24-7.
02:53It's a market that we've seen a lot of pushback from your entrants and others.
02:58Traditional exchanges like CME have really started to push back on prediction platforms, trying to expand into what they see
03:05as their territory, but more traditional-type futures.
03:09Udesh, how do you see that pushback?
03:11And does that translate at all to things like CFTC pushback?
03:15Is it harder to pass regulators when you are encroaching right on the doorsteps of more traditional exchanges?
03:23Well, our thought process is that we are not necessarily going for the market that looks at dated contracts with
03:30these products.
03:31We are not looking for those constituents who like specific sliders in the future because that's not what perpetuals offer
03:39you.
03:40Perpetuals offer better pricing.
03:42If you look at a price of a perpetual on any, whether it's a crypto or any other asset class,
03:47compare it to the cash market or the spot market price, you will see that they track much closer because
03:53of things like funding adjustment and so on and so forth.
03:55They also provide, because of good price matching, they provide for better risk management.
04:00And in addition, because there are no roles, they are much more cost-effective.
04:04So, when you make these innovations, obviously, there are incumbents who will look at it, you know, because there's a
04:12lot of fees associated with the roles and others that may potentially be impacted.
04:19But our view is to provide better risk management at a better cost.
04:23And so, necessarily, we don't think ourselves competing against the traditional products, which will have a demand as well.
04:29There are a lot of use cases, like an agricultural company hedging a future date or an airline company hedging
04:36a future cost of oil.
04:38But we are not competing or we are not providing that marketplace at this point in time.
04:43We're looking at purely folks who want continuous exposure at a better price and improved risk management.
04:50Udesha, how do you respond to the broad criticism, which I'm sure you hear lobbed at Kaoshi a lot, and
04:55not just you, your competitors, too, that it's the casino-fication of everything,
04:59that you're essentially allowing for more risk, and more risk specifically along the lines of retail investors that they perhaps
05:05wouldn't have already taken.
05:06And apologies to Rashi here.
05:08I've got about a minute left.
05:10No, I'm glad that you asked this question, because the perpetuals we offer, we should actually have a different name
05:14for it.
05:15We should call it regulated perpetuals.
05:16What we are offering, we are not innovating in risk management.
05:20Whatever we are offering perpetuals onshore follow the exact same routine as a traditional futures that trades.
05:27Traditional futures have a lot of leverage.
05:29If you look at some of the traditional futures like S&P futures, they have 15x leverage.
05:33Gold has 20x leverage.
05:35Some of our crypto perpetuals, they only have six to eight times leverage.
05:39We also do not do things like order liquidation through the clearinghouse, which is something very consistent with how a
05:45traditional futures manages risk.
05:47So there are many things, and I think we need to distinguish between a regulated perpetual and what trades offshore
05:53for a better answer.
05:54Gudesh, thank you so much for joining.
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