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Rebutting CME CEO, SBF Defends FTX's New "Liquidation Model" in Congress

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FTX's proposal may create a new pattern in the encryption industry, and even in the derivatives industry.

FTX proposed to CFTC in March to replace traditional brokers (FCMs) with automatic clearing. In response to this proposal, big names in the commodity futures industry gathered in Congress yesterday to debate. What exactly did they say?

U.S. House of Representatives Agriculture Committee Hearing May 12 "The Changing Role of Markets: Trends in Liquidation Models and FTX Proposal", inviting top executives from the derivatives industry to gather to debate on FTX's CFTC proposal in March . Including CME CEO and Intercontinental Exchange (ICE) CEO were present to express their opinions.

According to FTX Policy Site Announcement, FTX wants to require customers to deposit collateral in the account, and the system will calculate the margin positions on a rolling basis with 30 seconds as the time unit. If the margin ratio drops too low, FTX will begin liquidating user positions within seconds.

In response to the proposal, several members of Congress who oversee CFTC expressed their disapproval of encryption at the hearing The distrust of the industry, even mentioning the recent chaos caused by UST (TerraUSD).

House Agriculture Committee Chairman David Scott believes FTX's proposal "could be a serious threat (to the financial system)."

CME CEO: It is a catastrophe for the US economy and investors

Terry Duffy, chief executive of CME, the world's largest derivative financial product trading platform, believes that if the proposal is passed, it will be beneficial to the financial market a disaster.

“The risk of using this liquidation model is quite high, these The consequences of the product would be a disaster, and this risk is not limited to crypto commodities, because once the proposal is passed, this model can be used for other commodities.”

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Terry Duffy's main concern is that once the proposal passes, this liquidation model could potentially be applied to other commodities, adding to the system risk.

Intercontinental Trading Platform (ICE ) CEO Christopher Edmonds and former CFTC acting chairman Walt Lukken.

Their concerns are not groundless.

If this model is only used on FTX, and the encryption is limited Commodities, the risk is controllable. Once it is extended to other commodities and other trading platforms, then it will be necessary to consider the liquidation speed and volume of the counterparty.

SBF: Proposals will bring innovation and bring mobility back to the US

FTX founder and CEO Sam Bankman-Fried explained that FTX's proposal reduces systemic risk by pre-requiring traders to provide collateral . From the perspective of risk management, this liquidation method is more conservative than the traditional method, and blockchain technology can liquidate more efficiently.

“We believe (the proposal) will create competition and Innovation will bring liquidity to the U.S. market and provide more choices for U.S. users. Our derivatives clearing model at FTX.US is more conservative than in other places in the world, which reduces systemic risk and enhances protection mechanism.”

Aiming at CME and ICE CEO Worried, SBF reiterated that it has no plans to launch "non-digital asset" contracts for the time being.

“We have no plans to use this liquidation model any time soon Issuing contracts other than digital assets. I'm not lying, I really mean it."

In addition, SBF also accepts that there may be additional restrictions, but he does not agree to limit the FTX model to only trading digital asset contracts forever.

It is conceivable that if the proposal is passed, although in a short time This liquidation model will only be used for encrypted assets, but if this liquidation method is stable in the future, it will also be used for other commodities, and this will also bring competition to the U.S. futures market. Currently, all commodity futures trading volumes are concentrated On top of CME and ICE.

On the other hand, 95% of cryptoasset transactions are currently liquid Sex is outside the United States. If this proposal is passed, it will be equivalent to creating a year-round trading environment in the United States, which is a very good strategic consideration for the United States.

CoinFund co-founder Christopher Perkins expressed solidarity with SBF, arguing that If passed, the FTX proposal would empower entrepreneurs to create cryptocurrency businesses within the United States, since most innovation now occurs outside the United States.