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Un-coupling market and credit risk

In a previous article, I explained what “deferred delivery” was, and how to derive its price from spot prices. The little maths we needed is behind us, this part will focus on what becomes possible when forward contracts become readily available.

NB: deferred delivery, forward contracts, and futures are one and only. Specifics differ — futures for example are exchange-listed products, but they all refer to an arrangement whereby a price is fixed today with delivery, whatever the form, postponed to a later date.

So let’s come back to our marketplace, with one corn producer…

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a.k.a how to navigate the unregulated world of crypto exchanges

Whoever has been working in an investment bank knows that regulation is a big deal, even more so after 2008. By contrast, the world of digital assets is largely unregulated.

What is regulation anyway, why does it even exist? It could be argued that regulators worldwide have a single objective: to protect investors, small and big alike. What do investors need protection from? For the sake of simplicity let’s abstract this to the simplest notion : “information asymmetry”. Financial markets deal with information, assimilating information into price to obtain the…

A look at order book distribution around mid-price

When we formed the team to launch SUN ZU Lab, we had mostly one question: are crypto-assets liquid, and if there is indeed liquidity to be found, to what extent is it different in quantity or quality from what we had seen in traditional markets for 25 years?

Liquidity is defined as the ability to buy or sell an asset for large size without significant adverse price movement.

This straightforward question is not so simple and has many ramifications. Indeed if you can qualify and quantify liquidity, then you should be able to execute better (i.e. with smaller adverse price…

So much for “Unrivaled transparency”

As a capital market professional, I have expressed before (here) how skeptical I was about Tether and its so-called “transparency”. For all intent and purposes, Tether looks more and more like a traditional bank with “fractional reserves”, a very ancient and old-fashioned way of operating a banking business, in which the bank doesn’t hold reserves for all the money it has issued (ignoring for a second the underlying fraud that this situation constitutes in the case of Tether). For a newcomer supporting the total disruption of finance as we know it, the resurgence of a…

A back-of-the-envelope comparison between risks on traditional and crypto markets

Last autumn I had the pleasure of giving an introductory course on financial risk management at the IAE Master in Bordeaux. The purpose was to provide students with a general understanding of what financial risk looks like, and what it means to “manage” risk.

Naturally, as part of the course, I had to offer a typology of financial risks i.e. a list as exhaustive as possible of all risks, their magnitude, likelihood, and to some extent the way to mitigate them.

The result is the table below: it is naturally a simplification, but not an excessive one. Listed are the…

Indexing is making its way into the market for digital assets

Indexing has been a popular strategy on traditional markets, indeed recent history shows index funds and ETFs have received massive inflows and registered a growth in assets superior to actively managed funds.

Thus it is no surprise that indexing is starting to emerge on digital assets. It is a way for investors to diversify their exposure away from the most heavily traded assets while keeping a rigorous methodology to avoid arbitrary decisions. Trakx is a leading provider of such indexing solutions.

However, investing under an indexing strategy doesn’t necessarily mean more liquidity. Indeed an index is often nothing more than…

Central banks routinely issue money without any reserve backing it. Could Tether do the same and become the first decentralized central bank?

I have expressed before skepticism about Tether (a.k.a USDT) and the fact that a high level of uncertainty still exists on the actual level of reserves backing the token issuance. For all the bad press this uncertainty has created however, a similar situation has occurred regularly in history. Before central banks became the norm, many commercial banks and governments took liberties in issuing money, if only to finance recurring war efforts here and there. …


For those who follow the Tether story, there’s been a recent development worth mentioning: the publication of an audit of Tether reserves by a third-party. The statement is available for download on their front page. Tether does have a page with a statement of account (here), but as it is unaudited and uncertified it is not worth much.

There’s been a lot of discussion about whether Tether is a scam of gigantic proportion, but overall those suspicions have had little effect on the rhythm of issuance, reaching today almost $48 bln judging by the latest official figures on coinmarketcap…

What a strange market!

We at SUN ZU Lab are striving to gain a deep understanding of how the markets for digital assets function, to help our clients achieve their investment strategy through better execution. Based on our long (very long!) experience of traditional markets, we have started looking closely at liquidity and arbitrage. The interested reader will find a sample of our efforts here.

We subsequently turned our attention to the basic behavior of trading venues, trying to understand if there was something special there compared to what we knew of traditional well-established exchanges. Thus we started looking at…

We built a quantitative indicator on market integration

There is a lot of talk about arbitrage in the world of digital assets. Myth or reality?

We at SUN ZU Lab wanted to provide the necessary tools to examine this question and provide reliable answers. Therefore we designed a quantitative indicator to detect macro arbitrage opportunities when markets fall out of synchronization. Our goal was to produce an indicator that captures the existence and broad magnitude of price discrepancies between markets on the same asset. A secondary objective was to determine to what extend those discrepancies appear and disappear based on market behavior (e.g. volatility) or geography (e.g. region).

Stéphane Reverre

25+ Years in Capital Markets, Fintech Investor, Crypto-Realist, Author. President at SUN ZU Lab (

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