FTX and Paradigm partner for spreads trading: lower risk, lower fees

Paradigm, a zero-fee, institutional liquidity network for crypto derivatives traders, has launched spreads trading in partnership with FTX, marking a major step towards the development of a liquid interest rate curve in crypto.

Spreads trading enables joint customers to generate yield via “cash and carry” trades leveraging FTX’s spot and futures instruments across multiple currencies and futures expirations. In addition, traders can farm funding rates on perpetuals with a single click.

Users executing “cash and carry” trades and funding rate farming will be able to place the trades via Paradigm with guaranteed atomic execution of both legs without any exposure to delta risk, the firm stated.

Paradigm offers spreads trading between spot, perpetual, and futures instruments on BTC, ETH, SOL, AVAX, APE, DOGE, LINK, and LTC, all with guaranteed atomic execution and clearing of both legs on FTX, the third exchange to partner with Paradigm on futures spreads.

Spreads trading for reduced risk and tighter prices

The crypto ecosystem is learning from past mistakes and, to address the aggressive volatility issues in digital asset markets, retail users ought to use institutional tools for hedging.

In what is known as rolling expiring futures positions, market participants can use futures spreads to buy one futures contract and simultaneously sell another futures contract with a single trade. This allows traders to lock in fixed hedging costs using futures (versus the floating cost of perpetual funding rates) and roll them when nearing expiration.

According to the announcement, spreads executed on Paradigm and cleared on FTX will be charged 50% less fees compared to executing two individual outright trades. This is due to the structurally less risky nature of spreads trading, with guaranteed atomic execution of both legs. Lower risk enables market makers to quote tighter prices and in significantly larger sizes.

Sam Bankman-Fried, Chief Executive Officer at FTX, commented: “Paradigm is a leading network providing institutional liquidity for crypto derivatives, and we’re excited to expand on our relationship with a formal partnership to collaborate on product developments for both of our users. This structured spread trading product is the first that will enable crypto investors to utilize cash and carry trades through FTX and Paradigm.”

Anand Gomes, Chief Executive Officer at Paradigm, said: “FTX and Paradigm have a longstanding relationship, and I am ecstatic that we are able to bring our two companies together to improve the crypto ecosystem. With basis trading becoming a tradeable asset class on FTX, we should see significant interest from both crypto-natives trading yield as well as new investors in crypto who can now trade cash and carry as a single asset. And looking ahead, combining the client base and product expertise of both companies will undoubtedly lead to more synergies and new product offerings further down the road.”

Paradigm has a large network of institutional counterparties in crypto with over 1,000 clients trading over $10 billion per month, including Hedge Funds, OTC Desks, Lenders, Structured Product Issuers, Market Makers, and prominent Family Offices.