Screenshot-2021-04-16-013723.png

Alternative Derivatives Exchange

STARTUP

Find a better alternative

ABOUT

FEATURED NEWS

Alternative Derivatives Exchange Ltd

Founded by Capital Market professionals with a history of near ten years of working together, ADE aims to become the premier institutional venue for hedging risk on alternative products including Weather, Freight, Hashing and Digital Assets. Backed by its proprietary technology stack including a range of dynamic client facing User Interfaces, server based high throughput matching technology and blockchain based (deployed on Ethereum) financial Clearing Mechanism, Clear Chain.

Our Business

Our marketplace is globally accessible, promotes price discovery and will offer participants the opportunity to trade a variety of Digital Asset products. Our key products include contracts based on Bitcoin, Ethereum and Litecoin. Our derivative products will provide participants with a means for managing risks associated with changes in the prices of these assets, asset allocation, ensuring physical delivery of select Digital Asset products, speculation and arbitrage. Due to the fact that both long and short positions are mostly closed prior to delivery date, the majority of our trading volume will be financially settled, meaning that settlement is made through cash payments based on the value of the underlying digital asset, rather than through physical delivery of the asset itself.

 

We will initially operate our business in two distinct markets: futures markets and market data markets. As ADE position in the market matures, exchange technology will open another revenue stream for ADE through SaaS platform offering. Futures markets offer trading in standardized derivative contracts on a regulated exchange including contracts that provide for the physical delivery of an underlying commodity and contracts that provide for financial settlement based on the prices of underlying assets. All futures contracts are cleared through a decentralised clearing mechanism Clear Chain. ADE will never take proprietary positions in digital asset derivatives or other financial instruments.

 

By using ADEs trading venue, in contrast to alternate means of execution, market participants will be able to trade larger size and achieve cost efficiencies through greater transparency and process integration.

 

In addition to trade execution, ADEs electronic platform offers a comprehensive suite of trading-related services, including electronic trade confirmation, access to clearing services and risk management functionality. ADE trading-related services are designed to support the trading operations of participants. Through ADEs electronic platform, we are able to facilitate straight-through processing of trades, and to provide seamless integration of front-, back- and mid-office trading activities. We also offer a variety of market data services for distributors and end users.

The Problem?

High cost of execution

Spot Venues charge a percentage-based execution fee 0.13% per (on average), plus charge up to 2% for withdrawal

CME Charges $2.5 per lot + Clearing fee.

No deliverable futures

ICE (NYSEs parent company) is the only derivatives venue to offer physically deliverable Bitcoin futures (only BTC).

No Trading Venues focusing on Alternative Products

Existing weather contracts are huge in area size they cover e.g. US Midwest or are Exotic custom agreements not available to a wide audience. Similarly, Freight is hedged via forward freight agreements (FFAs) or Indices. Gold Contract Size on CME is 100 troy ounces i.e. $160k approx.

No hedging mechanism

Miners and other Digital Asset (DA) investors cannot lock in yield on cryptocurrency investments,

Mining pools; cannot presently be hedged,

Master nodes: operators receive regular payment for the services provided in underlying DA with no available hedge.

Small/Mid businesses are unable to hedge the cost of Freight shipping as Brexit materialises.

Business are unable to hedge the weather impact as global warming accelerates.

Capacity issues

Spot venues and new derivatives venues suffer from capacity issues caused by a poorly built technology stack.

Lack of trust

Spot venues offer low grade security and are not regulated (hacks and insider trading common place),

Few derivatives venue offer accessible or even deliverable products, and no trusted mechanism exists for digital assets.

No Clearing

There is no publicly available clearing mechanism for digital assets (ICE has private for BTC).

No electronic venue offers standardized contracts on alternative assets or allows clearing in any kind of automated fashion,

Existing established venues offer no margin offsets (sell on one venue/buy on other = no position).

How Smart Contracts for Finance Will Make Stock Markets Faster, Cheaper and Less Error-Prone

This is the first in a series of posts looking at projects aimed at using smart contracts to solve real, pervasive, urgent problems. In my previous post, Three Ways That Smart Contracts Will Change the Way You Do Business, I gave an overview of smart contracts and I how they will transform business.In this series, I’ll be reviewing projects applying smart contracts to different industries. This first post focuses on finance, and specifically using smart contracts to manage buying and selling securities.

Ethereum will eat Wall Street's settlement layer

There’s a lot there I know.You’re looking at a bond that’s been issued to a NASDAQ traded restaurant corp called Fat Brands—a company that franchisees over 400 restaurants.Pretty normal stuff right?Wait…what’s that in the bottom right corner? An ETH address? Was this $39.7m corporate bond issued on ETHEREUM?Couldn’t be. Ethereum is just for geeks.

The Solution?

ADE works to solve all previously discussed problems:

Cost of Execution – ADE planned fee structure is extremely competitive. Namely, we intent to charge £0.07 per lot traded (irrespective of size e.g. 1,3 or 5 BTC) at launch. CME charges 2.5$ and spot 0.1%

Deliverable Assets – all assets listed on ADE that can be physically settled ARE delivered by sellers at Contract Expiry i.e. all apart from Weather which is cash settled. 

Capacity – ADE is built with high throughput in mind. As such it is capable of matching over 500k trades per second in a stable and resilient manner. This creates an additional revenue source for leasing of ADE technology.

Alternative Derivatives venue – As its name suggests, ADE will be a venue for trading Derivatives on Alternative Assets. Ranging from Digital Assets to Weather and Freight.

Hedging Venue – ADE will offer SME’s the ability to hedge real world risks in a fully integrated and transparent manner including Weather, Freight costs as well as Digital Asset mining related costs.

Trust – Regulated venue, will use third party custodians connected via Ethereum based communication (Clearing) layer. This brings a layer of transparency and reputability.

What makes you different?

USPs

All components have already been builtany suggested investment is for Operational Costs only.

Clear Chain: A decentralised clearing solution that dramatically cuts clearing costs and offers native cross exchange margin netting.

Deliverable crypto; will attract hedgers from all over the world and as such bring real volumes further down the curve.

Unique Contracts (Alternative Derivatives); Hashing, Freight (Trucking/Air/Maritime) , Weather, Deliverable Gold and Indices. All designed to manage real world risks and maximise trading opportunities for participants.

Dynamic Initial Margin: Fully automated mechanism governing initial margin requirements; operates in real-time.

Delivery Margin Deleverage Mechanism: A set number of days prior to delivery the underlying position margin switches to underlying requiring a proportional top up every day so that at delivery the position is 100% collateralised. Protects market integrity and prevents manipulation.

Indices; Will work towards attracting more passive investors looking to get exposure to the crypto space but also the savvier HFT community that will look to arb the index against its constituents (on a single venue).

Market Making Efficiencies Native to the Matching Engine; two sided quotes will receive margin offsets and Mass Quote functionality is available to all clients.

Uptime and Regulation; with 24/7 uptime ADE will have server based matching engines allowing for high order throughput and easy scaling up. ADE will be regulated by the FCA prior to launch.

Pricing; flat fee structure with low costs of execution (£07) and low minimum monthly costs (e.g. £30 PCM) will draw in clients from all competitive venues.

ALL technology is proprietary and built by Capital Markets HFT professionals.

We are establishing ourselves as the leading electronic marketplace for combined global futures Alternative Derivatives trading by leveraging a number of key strengths, including:

extensive financial industry experience and relationships;

regulatory approval (pending);

trained team of developers (with lower costs);

availability of integrated access to a variety of alternative futures markets

highly scalable, high throughput, proven technology infrastructure;

unique, proprietary technological features;

transparency and independence; and

strong value proposition.

Together this team will be able to assure that the technology stack deployed is top of the range, exceeding current finance industry standards and that through making sure that the resources available to the business are employed efficiently, the strategic direction of the business reflects its capabilities.

Availability of integrated access to a variety of alternative futures markets

When launching a business, it is of paramount importance to have the growth strategy planned out while maintaining a variety of potential paths to follow in response to industry developments. ADE is a technology rich business and as such can launch a variety of contracts and cooperate with a number of businesses to make sure those contracts respond to market demand and are, by virtue of that attribute, successful.

Highly scalable, high throughput, proven technology as core infrastructure;

Our electronic trading venue provides low latency trade execution and is, we believe, the world’s most flexible, efficient and secure system for Digital Asset trading. We have designed our platform to be highly scalable, meaning that we can expand capacity and add new products and functionality efficiently, at relatively low cost and without disruption to our markets. Our platform can also be adapted and leveraged for use in other markets, as demonstrated by our decision to introduce weather futures contracts on our platform. We believe that our commitment to investing in technology to enhance our platform will continue to contribute to the growth and development of our business on the whole. Over time, this will increasingly become relevant as ADEs volume and reputation grows, allowing leveraging of the technology stack through Software as Service agreements.

Strong value proposition

We believe that, by using our electronic platform, market participants can achieve price improvement over alternate means of trading. Electronic trade execution on our platform offers cost efficiencies by providing firm posted prices, reducing trade-processing errors and back office overhead, and allows us to accelerate the introduction of new products on our platform.

The combination of electronic trade execution and integrated trading and market data services facilitates automation by our participants of all phases of trade execution and processing from front-office to back-office, ranging from trading and risk management to settlement.

 

For comparison sake, with Bitcoin at $10,000, if the ADE average anticipated trading volume per trader of 1,188 lots (Mid contract size 2 BTC) per calendar month executed on Binance (spot exchange) would cost an average trader over $28,000, while the same volume along with the associated Market Data fee would be less than £200. In terms of traditional Derivatives incumbent venues, users trading 1000 BTC per month via ADE contracts would save $2,446.4 compared to CME and $3,101.4 compared to ICE.

 

In terms of additional fees for ADE clients e.g. custody fees are charged either on a yearly basis as a % of notional and/or at withdrawals. Thus, ADE users will experience significantly cheaper rates of execution over alternative venues.

The market

At over 600 trillion the derivatives market is the largest global market in the world. Its daily turnover is larger than the total money supply of the United States.

 

Most of the Derivatives volume is traded OTC (Over the Counter) via a phone or messenger system. This is slowly migrating onto a screen driven by regulation and transparency requirements. ADE is perfectly positioned, with its focus on alternative products, to absorb these previously phone traded products.

 

ADE will only deal with exchange traded derivatives. While the initial product list is determined, ADE can list additional products with little or no additional cost to business.

 

The Potential Available Market is significantly larger, by adding a single product group (Interest Rate Futures) the Available Market becomes close to 8 times larger. The Potential Available Market income stands at 65 billion per annum. Additional Income potential is also available via technology leasing and Clearing through Clear Chain.

Competition

Established venues are beginning to enter the digital assets market (e.g. ICE Sep 2019, deliverable BTC).

Limited competition:

Chicago Mercantile Exchange (CME): BTC only (non deliverable), Weather (no granularity), Freight (Baltic Shipping Index based, not physical)

InterContinental Exchange (ICE Bakkt): BTC only

Deribit/BitMex: non regulated (Panama/Seychelles incorporated) BTC and ETH with no futures curve structure.

Existing venues do not want to be first movers: No institutional venue with our offering or even similar, advertised plans.

Lack of commitment of resources for new technology and new markets – incumbents do not help businesses manage risks positioned as “Data Companies” instead

No Smart Contract/Blockchain Clearing Mechanism.

No regulated entity using industry “standard” technology or offering deliverable futures contracts on a range of individual alternative assets or Indices; ADE will assist mass adoption of cryptocurrency and provide access to alternative markets in a manner industry professional are familiar and comfortable with.

The Offering Including Valuation

The original intention of the founders was to bring ADE to market with no outside funding. The plan was to fund the business via SaaS technology deals. With this in mind, ADE started negotiating with a UK based entity in April 2019. This lasted until Dec 19 when we were informed, we won the bid vs 5 other companies. The terms were for 2.6m to be paid per annum to ADE for the use of our technology. However, in late Jan – mid Feb the client discovered internal Fraud at board level as a result of this it is increasingly likely that the client entity will shut down and ADE SaaS deal will not materialise. This has forced ADE management to hold a late Seed Stage round. 

How much money do we need?

£250,000

Equity 10%

Pre-money valuation: £ 2,250,000

Post-money valuation: £ 2,500,000

The Company valuation reflects the value of the technology and the business as a whole however, due to the aforementioned bad luck, we are discounting the business value for the late seed stage significantly.

BASE Case Valuation

The primary source of income for ADE will be earned from Market Data (MD), User ID and Trade Execution fees.

 

MD will be charged at £5000 p.a. for each Clearing Member and User ID fee will be charged at £30 pcm. The MD fee will allow Clearing Member clients to receive real-time price updates for internal use . In order to interact with the exchange in any way e.g. submit trades, create users etc a User ID will be required. Each lot (e.g. 1 BTC) Traded will be charged at £0.07. Clearing is facilitated via Clear Chain the ADE deployed Decentralised Clearing mechanism and funds stored with third party custodians.

 

In order to promote the business, liquidity and increase in traded volumes various Designated Market Makers programs will be made available

Image Gallery

CREATED

UK, 17 May 2018

INVESTMENT ROUNDS

STATUS

Startup

Previous Funding Rounds

£50,000

LOCATIONS

UK

Do You Have A Question? If you need any more info, you can contact the entrepreneur directly.

Team

Join Trendscout

Join Trendscout