The Forex Majors build the most traded market in the world. Forex traders are known for trading with high leverage so they are an optimal fit for perpetual protocol.
The Forex Majors contain these 7 pairs:
EUR/USD
USD/JPY
GBP/USD
CHF/USD
USD/CAD
AUD/USD
NZD/USD
Key Metrics
ca. 6.6 trillion USD daily trading volume
72% of that volume is traded in the major 7 pairs,
This is super interesting. Though I do wonder if Defi natives will trade Fx? Was looking at Synthetix which I think is the only one that has it and the volumes are pretty low
Thanks for the constructive concerns, I´m happy to give you my thoughts on it.
From my experience, there is quite some overlap of traders in crypto that trade just about any market. And it makes sense because trading multiple markets and multiple strategies means diversification, thus smoother returns.
The prime targets are not the pure defi natives but the more generalized traders. Therefore the idea to partner with some of these interdisciplinary market makers / trading corps. And to be honest, for the pure crypto traders we have/add enough markets anyways. So by adding Forex we can also diversify and expand our customer base.
In my opinion there are several reasons why Forex volume on SNX is low and is bound to stay low.
High gas fees per trade. Layer2 SNX is even younger than PERP so most trading is still done on L1. Confirmation times and gas costs are preventing any profitable short term Forex trading. PERP has super fast and gasless execution.
Transaction fees of 0.3% is actually a lot. In EUR/USD pair this equals to roughly 36 pips. Centralized brokers usually take 3-5 pips. PERP would be at 12 pips with current fee table - way more competitive. (could we implement an individual fee plan for different markets? Would be amazing if we just take 0.03% commission in Forex in order to compete even with centralized brokers… Imagine the volume!)
Leverage. SNX doesn´t allow for highly leveraged positions (yet) like PERP does. This is absolutely essential for Forex trading so you cannot compare the two. I´m surprised that SNX has any forex volume at all. It can only come from long term currency hedges because everything else is prohibitive expensive, slow and capital intensive.
I just checked the overall volume on SNX and I´m amazed. They only have around 30m daily volume. We are already topping this - a clear sign of better product market fit. So let´s not shy away to build the bridge to TradFi.
Not trying to pick bones from an egg but I check out the EUR/USD pair on FTX (actually launched around the same time as perp.exchange), the vol is relatively small as well.
Totally understand that the forex market is massive, but maybe it’s just too early to be traded decentralized?
Interesting point. However, you´re comparing yet another centralized company with a decentralized protocol. That´s like saying one shouldn´t have built uniswap because you have coinbase… There is inherent value in enabling decentralized trading and the evidence is there.
Yes, there is the risk that those markets will not immediately take off. That´s why partnerships are essential and should help increase the chance of a fast success. And again, if we can set the fee lower on these markets, it becomes very attractive. If we go to the extreme and put the fees on 0.01% this would be lower than fees on STP brokers. That opens a whole new world of possibilities in the mid and long term (like having CFD brokers using perp as their backend settlement layer).
I´m pushing this idea because the payoff of this opportunity is asymmetrical. If it flops, there is no damage done except for the opportunity cost of lost time. If it is a success it tenfolds the value of the protocol immediately.
This to me is more a timing issue than anything. I do think it is a massive market but I know the team is so time constrained right now that it might make more sense to launch the 11 odd Defi blue chip markets first before trying something like this out. And even then, there might be other crypto markets that give us more volume.
The way I see it right now is our target users seem to be:
Individual algorithmic traders
Retail traders
The first set are already going to trade regardless. Second set I think are more Defi users so makes sense for them to trade more Defi tokens.
You’ll notice I’ve left out large institutions because most of them actually would consider our trading volumes too small (considering even a small house is doing like 500m+ trading volume a day). I think as we get closer to our target of 300M trading volume per day it might make more sense to visit this.
I think it’s a good idea to list maybe one experimental pair(whichever is traded most eur/usd?) with tighter controls to let it stew and see what kind of growth it gets, it’s the only way to know how it will be received by the community.
That being said I wouldn’t list it at the expense of other crypto pairs that’s on the docket nor would I be in favor of listing a whole lot of them. The project should focus on growth of the crypto space with small experimental side projects to show the community what’s also possible so that a larger conversation can be started to expand those listings.
On the same vein, it’s also why I’m also in favor of experimental listing of a stock or index but that requires additional discussion as it’s not 24/7 which I do have concerns about.
I kind of agree with you and @tongnk that this might not have highest priority. Of course we should first get more crypto market exposure, as this is all the rage right now.
However, not tapping into the biggest markets on earth, i.e. Forex and stock indices, in the medium term would be a bad business decision, in my opinion. In the end it´s about how and when to tap into these markets. Personally I´d prefer if we attack it before another protocol does it because I see the biggest short term potential for perp - but in the end I´m invested in all of them, so whatever.
BTW, Chainlink already has Oracles for all the proposed pairs, except for CAD and NZD pair.
I guess the bigger question should be; will the inclusion of a forex trading pair increase both the users and the trade volume on the platform? At this early stage, I’m leaning towards no.
I would be all for this when the platform is more mature but I feel the most important listings (the low hanging fruit?) for now should be more based around crypto to grow the platform.
Personally i think this is a great addition. I have been searching for something exactly like this as my native currency is EUR and the major Defi protocols only use USD based stablecoins and not EUR ones.
With perpetual protocols leveraging this would let people like me hedge against the foreign currency risk of USD for example.
