Following the abrupt and dramatic collapse of Sam Bankman-Fried’s FTX, market makers have increased their share of crypto options trading volumes.
Options trading is described as an interdealer trade when both the price taker and the price maker are market-making firms – entities with a contractual obligation to maintain a healthy level of liquidity on an exchange. On the other hand, price makers develop orders and wait for them to be filled. Basically, it brings liquidity to the market.
The notional value of the month-to-date interdealer flow on Paradigm was $633 million, that is, 43.5% of the total crypto options trading volume of $1,455 million – as of Friday. This is the highest since January 2022. Paradigm tweeted that more buy-side takers are on the sidelines and a higher proportion of its volumes is occurring between market makers. It said the options market fells more interdealer than before FTX’s fall.
Similar to traditional finance, the crypto market is constitutes of the buy-side and the sell-side, wherein the buy-side invests in assets, including pension funds, mutual funds, institutional investors, hedge funds, and retail investors, and the sell-side includes commercial banks, investment banks, market makers, stockbrokers, and other entities. The sell-side creates, promotes, and issues traded securities. Paradigm’s fortunes are associated with Deribit – the world’s leading centralized crypto options exchange by trading volumes and open positions. Data shows that interdealer flow as the percentage of total volume on Paradigm jumped to 43.5% in December from November’s 30.4%.