Introduction

Introducing COBIDEX - the World’s First Community-Owned Crypto Derivative Exchange

The current crypto market has a market capitalization of over $2.35 trillion, and its growth shows no sign of slowing down any time soon. As the crypto-verse garners mainstream acceptance, the next phase of crypto’s growth will be driven by a rise in the penetration rate of crypto traders and the further migration of many traders from conventional assets towards crypto derivative instruments.

With more than 500 crypto exchanges already operating, it is clear that the market is becoming increasingly crowded. This is particularly true for the traditionally popular spot market, which is over-saturated. Derivatives, on the other hand, are underrepresented but growing in popularity all of the time.

In fact, the recent astronomical growth in the crypto market has been chiefly driven by the development of crypto derivatives, which now account for more than 54% of all crypto trading activities.

Derivative Market- The Rise and Rise of Bitcoin Derivatives

Over two decades ago, the derivatives market was small and domestic. Since then, it has grown impressively to become an important asset class in today’s finance and trade markets. 

Technological innovations in the sector have also created impressive growth in terms of the variety of financial instruments offered. 

Derivatives are securitized contracts with a value that is reliant upon an underlying asset or group of assets. These assets offer exposure to almost any underlying asset, thus enabling a global reach and around-the-clock access. 

In the cryptocurrency and blockchain space, Bitcoin derivatives have become a dominant force and other derivative instruments other than Bitcoin are growing in popularity. The emergence of these financial instruments demonstrates how far bitcoin and cryptocurrencies have evolved as an asset class. 

The first forms of bitcoin derivatives were futures contracts. Bitcoin futures contracts enabled hedging against price volatility as traders locked in a future price for their BTC. 

Increasing sophistication and demand for Bitcoin derivatives caught the attention of traders seeking a way out of conventional assets. The cryptocurrency world represented an exciting market somewhat reminiscent of the dynamic growth of Wall Street decades ago. It is little wonder that most of the founders of derivative exchanges that exist today share a similar investment banking background.

As the ebbs and flows in the price of bitcoin won the hearts of more investors throughout Bitcoin’s boom and bust cycles, more traders started to use Bitcoin derivatives to profit from volatility, but it was not until Bitmex launched Bitcoin perpetual swaps in early 2016 that a rising trend in derivatives trading volumes emerged. 

Futures are useful as a hedging instrument, but they come with expiry dates. On the other hand, Bitcoin perpetual swaps create and strengthen a bond between the spot and derivatives market as there is no expiry of settlement. 

How do perpetual markets work?

The key underlying mechanism that defines the perpetual markets is its funding rate. In a perpetual market, one side is long or short and pays the other over the course of a specified time frame. The amount paid out depends on the amount of leverage that was employed and the delta between the original price of the perpetual contract and the index price.

As perpetual markets look to emulate the spot market, the first key element of funding is the interest rate component that accounts for the discrepancy in the lending rates between the base and quote currency. A second key component is related to how far the perpetual market price is from the index price. If the perpetual is below the index price, shorts payout to longs, enticing traders to go long and move out the perpetual price in line with the index. If the perpetual is above the index, traders will look to go short to direct the perpetual line back towards that of the index.

Beyond acting as a system that maintains orderly markets, perpetual funding can also be employed by investors as a way of earning interest on the liquidity of financial products rather than trading them. In 2019, Bitmex was able to pay out 8% in annual interest on perpetual swaps.

BitMex was one of the forerunners of the perpetual swap, and many other exchanges jumped on the bandwagon after seeing the success they enjoyed. ByBit came later as the first pure derivatives exchange, and more recently, OKEx, Kraken, Binance, FTX, and Huobi have all joined the party.

The volume on perpetual markets surpassed that seen on spot and margin exchanges for the first time in May 2021. Binance, one of the world’s biggest exchanges, now sees averages of over $75 billion USD per day in daily perpetual trading volume, while Coinbase’s spot book in the last 24 hours at the time of writing in August 2021 was $4.2 billion USD.

The key attraction of perpetuals for traders is the fact that they offer far more opportunities for higher leverage than spot comparables. And equally importantly, the margin can be taken in cryptocurrencies, which eliminates the need for traders to go through the fiat system. Exchanges also benefit as with higher leverage they do not need to offer so many assets on their platforms. This, in turn, reduces the number of counterparty risks that they are exposed to.

Essentially, perpetual markets and derivative exchanges are more efficient and straightforward versions of the spot and margin trading options that existed before them.

Cobidex: a Community-Owned Derivative Exchange Alternative 

With the appetite for derivative trading only likely to continue at a pace in the future, it is only natural that Cobidex will look to serve this market. However, unlike most privately controlled crypto exchanges, Cobidex has been imagined as the world’s first crypto derivatives exchange that will be owned by the community.

Cobidex will start out as a hybrid derivatives exchange, transitioning from centralized to semi-centralized before finally evolving into a fully decentralized exchange with complete community control.

The purpose of pursuing this transitional approach is to ensure sufficient liquidity at the beginning and a good trading experience with zero slippage and a choice of trading instruments. This initial hybrid ownership structure will be a stepping stone for Cobidex before it transitions into a fully decentralized exchange when the conditions are right. 

Once the transition is complete, the community will have full ownership of the exchange via the Cobi token (a governance token). Cobi token holders will receive a share of the daily revenue generated by the exchange proportional to their Cobi token holding as long as their Cobi tokens are staked. 

Tokenomics

Cobidex is governed by the Cobi token. Holders of the Cobi token have voting rights on decisions affecting the exchange. More so, they are eligible for dividends from revenue generated on the platform.

Here is a breakdown of Cobidex tokenomics:

Cobidex Features

Trade Mining 

The Cobi Governance Token will not be offered through any public sale. Instead, Cobi tokens will come into circulation through “trade mining.” The trade mining incentive rewards traders for simply using the Cobidex platform to trade. Cobi tokens will be rewarded to traders 100% in line with the trading fee paid.

Traders will receive their Cobi tokens every 24 hours based on the trading fee generated that day, and at a later stage, the tokens received from trade mining can be staked to earn a daily yield from the entirety of Cobidex’s daily revenue. This staking reward will also be distributed on a daily basis.

At the initial launch phase of the platform, 2.4 billion Cobi tokens will be distributed to the Cobidex community via trade mining. This is 50% of all Cobi tokens in circulation. A further 30% will be distributed via the trade mining process over the course of the platform’s lifetime.

Referral Mining

As a pure community-owned exchange, participating on Cobidex is invite-only. This structure, along with the heavily incentivized trade mining initiatives, was designed to seamlessly encourage the rapid onboarding of new members as Cobidex looks to grow into the largest and most active trading community in the world.

At Cobidex, new traders will encounter a more personalized level of trading that features fewer restrictions and the kinds of offers that are of genuine interest and value to traders.

New users will also have the opportunity to play their own role in the growth of the community. Each user receives five invites to bring more like-minded traders to Cobidex. Users who would like to invite more than five invitees may request more invitations. The decision on whether this request is accepted or not will depend on the trading activity of your first five invitees.

Once your invitees register their account and begin trading on Cobidex, you will unlock the Referral Mining bonus that will see you receive 20% of their entire trading fees in perpetuity.

Cobidex will initially pay the Referral Mining fee in Cobi. Once the token distribution period has ended, Cobidex will pay out this 20% on all trading fees generated by your invitees in USDT.

Community Market Making

On top of the opportunities available through the different forms of incentivized mining, all Cobi holders will also benefit from a monthly share of the exchange’s total generated revenue from market-making activity for that month. This reward will be known as the CMM (Community Market Making), and it will be a unique feature to Cobidex that sees all traders rewarded for the essential part they play in the exchange’s success.

The idea behind CMM is to implement a new kind of fairer and transparent market making that gives some degree of protection to retail traders. Community Market Making is a central part of the Cobidex roadmap with the hope that it will be up and running in Q1 of 2022.

Liquidity Mining

In addition to the schemes outlined above, a third way to make a passive income through Cobidex will be by staking your existing tokens. Liquidity mining can be done with BTC, USDT, ETH, and other alt-tokens, with APY paid out in the deposited token. On top of the APY paid out on your deposited token, an additional payout will be made in Cobi. Several staking options will be available based on the amount of time the tokens are staked.

The Cobidex Value Proposition

The main value proposition of Cobidex is that users will play a key role in growing what will become the world’s first community-owned crypto derivatives exchange- a unique proposition that will see the community own and profit from the success of the exchange.

Cobidex traders will also benefit from a highly competitive fee structure that comes with the added benefit of refunding any exchange fees in the form of the Cobi governance token.

With Cobidex, traders earn Cobi tokens by trading on the platform. And these tokens will later payout to the traders who stake them in the form of daily dividends based on Cobidex’s daily revenue.

Cobi holders will trade in exactly the same way they could on any other exchange, but with the unique opportunity of converting cost to investment by earning a daily yield on the Cobi tokens they have received as a reward simply for trading on the exchange.

In Conclusion

In the context of the rapid uptake in derivative/futures trading, particularly the popularity of perpetual markets, the arrival of the Cobidex exchange to the still underdeveloped crypto derivative scene seems perfectly timed.

Cobidex users will enjoy the liquidity of any typical centralized exchange platform while also benefiting from highly competitive fees, with the added bonus that all trading fees will be refunded 100% in the form of Cobidex’s governance token.

The ultimate objective of Cobidex is to transition into the world’s first community-owned crypto derivatives exchange and have the whole entity run as a DAO (decentralized autonomous organization). This complete transition will only be possible in accordance with the ever-changing legal landscape that looks to regulate the crypto market, but Cobidex’s focus on empowering and giving back to the community will never waiver.

For more updates, please visit the COBIDEX social media channels 

Join Our Telegram Channel - https://t.me/cobidex

Official Twitter Account - https://twitter.com/cobidexofficial

Facebook -