Jul 24, 2020
The First Step to a New Era of Clearing
Credora (formerly X-Margin) is live today, enabling derivatives trading across multiple counterparties, while automating settlement, increasing capital efficiency, and all while you maintain custody of your assets at a provider you trust.
This is the first time in finance, not just in crypto, that tech is being used to disintermediate central clearing. Credora challenges the central clearing model by providing a technological solution that delivers traders equivalent utility and increased flexibility at a lower cost. Zero knowledge technology essentially acts like a verifiable and secure ‘black box’, allowing traders to have one pool of collateral for trades across multiple trading venues.
In today’s crypto markets, price-sensitive traders often carry positions across multiple venues. Without a central clearinghouse verifying risk offsets, traders are forced to allocate capital to each venue. This is operationally demanding and invites increased liquidation risk and security concerns.
Despite these pain points, on-exchange crypto derivatives trading has soared over the past 12 months and is now averaging $20bn per day. Meanwhile, bilateral derivatives trading — which makes up a large chunk of volume in many traditional securities markets — has been limited by the lack of necessary market infrastructure.
Bilateral derivatives trading allows more flexibility for end-users to manage their risks better. Whether hedging or speculating, market participants can define the underlying assets, expiry dates, and mark-to-market methodologies.
With Credora, traders can now:
- Trade bespoke bilateral derivatives with multiple counterparties (exchanges coming soon)
- Keep funds securely in their own Fireblocks or Etana wallet (Curv and Gemini Custody coming soon)
- Net their exposure across counterparties so they can reduce collateral requirements for offsetting positions (cross-margin)
- Automatically settle net PnL across all counterparties
Through Credora’s technology, trading firms can provide portfolio margin to each other, cryptographically verifying that each counterparty is ‘good for it’, without needing to know how. The margin methodology is agreed upon bilaterally, and supporting collateral or positions remain undisclosed (bilaterally and to Credora).
Relative to central clearing, Credora
- Is more scalable — trade any asset class (something crypto has plenty of!), use any mark-to-market methodology, margin methodology, etc
- Is cheaper — no need for a massive balance sheet and regulatory overheads (which creates costs for end-users)
- Allows you to choose where collateral is held, an empowering innovation of crypto markets
- Keeps your trade details completely private — while maintaining an audit trail for reporting and compliance
Credora has already facilitated structured products designed to hedge exposure and generate yield. Retail and institutional facing platforms can leverage Credora technology to offer structured products without needing to manage derivatives risk or give up custody of the collateral. Those risks can be passed on to trading firms, while Credora ensures adequate collateral and settles automatically.
As stated, this is the first step of many to providing the features and services we imagine. In the coming months, we will be adding exchanges into the Credora cross-margin ecosystem, adding more custody solutions, and providing a risk management dashboard to view exposure across exchanges and OTC counterparties.
Credora is synergistic to multiple layers of the ecosystem, and believe that partnering with them increases our ability to solve the relevant pain points in the market. We thank our partners at LedgerPrime, JST, XBTO, Paradigm, Symbolic Capital Markets, Coinshares, Polychain, Fireblocks, Curv, Gemini, Etana, Delta.Exchange, Sparrow Exchange, and many others for their support in our launch.
