Author: Professor Suo said
"What is the purpose of the contract?"
This year, Binance launched a large number of contracts. I didn’t count the number of contracts, but it is likely that it has surpassed many of the former leading “derivatives exchanges”.
Nowadays, many exchanges mainly list "contracts" and rarely list spot products. The reasons are basically the same. If the market value is too high and the spot market is listed, it is easy for users to take over. There is no need to worry about listing contracts because users can go short or long on contracts.
So in fact, including but not limited to Binance, OKX, Bybit, the number of contracts launched is much larger than the spot market, and this is the reason.
And the most important thing is that for spot goods, you may really need to "reserve spot goods" for users to use for cash withdrawal needs, but "contracts" are completely unnecessary, after all, it is not "physical delivery".
If you stand at the perspective of a bystander, the exchange itself is a place to provide "transactions", so all it needs to do is provide trading pairs to everyone. It earns commissions, so whichever one can make money from commissions, and whichever one can increase "commission income", then do it.
So isn’t “leverage” a “handling fee” or the income from leverage geometry?
So actually from the perspective of the "exchange", this is a normal operation. After all, they are looking for "transaction fees". Unless you insist that the "exchange" is taking advantage of customers, there are more explanations, and it all depends on your imagination. I won't say more, there is no need.
Why is the spot market more affected?
What we are actually discussing here is why spot trading has a greater impact on exchanges or prices.
In case of spot trading, the exchange has to "reserve spot" for users to withdraw and trade, so a lot of circulation will be locked in the exchange, and many users may not necessarily buy or sell them, which will result in the MC that may actually circulate in the market being much less than the actual MC.
If an exchange launches spot trading, it means that it must have spot trading itself. After all, before opening a transaction, it must first ensure that there is spot trading at the exchange address, and these addresses are all public.
Therefore, the positive effect on price is far greater than that of the "contract", and the most important thing is that listing on the spot will make the "liquidity" not so good. The "liquidity" here refers to the fact that many "spot tokens" are locked in the "trading search".
Especially when many spot tokens, someone finds out through on-chain monitoring that the balance of a certain exchange’s tokens is very small, they will force the exchange to buy tokens themselves through short squeeze. This happened with $REEF. At that time, @gate_io did not have enough tokens, so @dotyyds1234 forced a short squeeze for a while 😂.
Liquidity battle
In fact, the main relationship between contracts and spot lies in the "liquidity" debate.
After the contract is launched, the liquidity is very good, and since there is no need to buy "spot", the impact on the price is actually "not big". It is only through the subsequent "arbitrage" trend that it becomes bigger, so many people will use "contracts for arbitrage", which leads to very good "liquidity".
Moreover, we can find that for many currencies, the spot trading volume is far lower than the contract trading volume.
In fact, because of the contract, you can make money not only when the price goes up, but also when the price goes down, which leads to better liquidity.
The same 10,000u may be turned into a capital flow of 200,000u in the contract market. For the exchange itself, it is a drain, and whoever can generate more capital flow will be favored.
As for spot, especially at the moment, the liquidity of spot is not good. Because of the recent market, the altcoin has been going down all the way. For many exchanges, the spot has only one big positive line and then has been falling all the way. It is rare that the spot will continue to rise after being listed on the exchange. Even the rich and powerful VC coins can’t do it. Can the meme that relies purely on concepts do it?
So we give an option that allows you to make money even if the price falls, and that can only be a contract.
Therefore, from the starting point of allowing "users to make money", there is actually nothing wrong with signing a "contract".
Final Chapter
In fact, for those who hold a lot of positions, if they use Binance's contracts, they can have enough opportunities to sell their positions. If they use spot positions, they may not be able to sell all of their positions.
Because the depth of the spot market itself is not very strong and the trading volume is not large, it is still quite difficult to rely solely on the chain. If you open a contract directly, there is a high probability that you can open it in one go.
It reminds me of $ARKM. A group member started by holding 10% of the total circulation, and he couldn't sell it out by selling it with spot transactions. So he opened full contracts and sold it step by step, and completed the sale directly.
So in fact, there is no conflict between spot and contracts. It just depends on how you use them, or how you understand the concept of liquidity.
For most assets, the better the liquidity, the faster it falls, and the worse the liquidity, the better it rises.
For example, there are assets such as NFT and BRC20.
Think about it, the transaction fees are so high, the exchange must want to get a piece of the pie, so if they can’t list spot products, they must list contracts, right?
After all, it's all business. They can't control the price. If they are shorting, you can just buy on the chain to cover the short position 😂.
Anything with good liquidity will be controlled by "market makers".
