Cryptocoin Insurance aims to create the first centralized option exchange. Why is the first exchange? One can recall solutions offered by other market participants, but when looking at it, it turns out that this is about either binary options or exchanges that support only Bitcoin.
Unlike all the existing solutions on the market today, Cryptocoin Insurance launches a classic option exchange. It will support the put and call options for 10-20 basic cryptocurrencies. Each client of the exchange, investor, hedger or speculator can either buy or sell any of the quoted options.
Why has nobody launched something like that yet?
It is almost impossible to launch an option exchange without solving several problems on the market. Of course, this is provided that the creators expect to receive real income from it, and not losses.
The first problem is the lack of necessary knowledge and competencies. Options are a difficult product to understand. It takes several months for many users to master it. The majority of others do not even try to understand the issue (since everything seems to be extremely difficult). However, we all remember that you should work with the market tools that are of little interest to the “crowd”. And from this point of view, options is a great chance for earnings.
In this case, the task is not just in options trading, but in creating an exchange, algorithms, risk management, etc. from scratch. It is much easier to launch another simple cryptocurrency exchange and not to bother with the above issues.
The second problem is rather a problem “in the minds”. Most of us believe that options on the cryptocurrency market are utopia because of the huge volatility – nobody wants to see into a matter and find the answers, although everything is actually quite simple.
Let’s take a stock option on the American stock market. The market itself is trading only a few hours a day. The rest of the time it is waiting for the opening of the next day, creating the potential for huge gaps, when the news comes out.
Imagine that the stock closed today at $2 and opened tomorrow with a gap at $8. 400% growth, huge earnings for option buyers and a huge loss for sellers. This is where volatility is really huge and where option sellers have really huge risks.
How can this compare to cryptocurrency? Indeed, there may be a strong fall or rise during the day on the market. Bitcoin or Ether can change their price by 10%, 20%, 30%. But not 400%, right? But there is another most important thing. This change has no gap, which means that an option exchange allows to close transactions by a margin call –losing the deposit but without huge losses, like in the stock market.
The third problem is that everything was too simple until recently. What is it about? It is about several hundred cryptocurrency exchanges, some of which were written as a kitchen-table effort: that is, a few programmers gathered and offered a ready-made solution in a couple of weeks. Curiously enough, most of these solutions earned their creators money.
The situation is different today. The sharp drop in volumes (which are the main type of earnings of stock exchanges) literally closes the entrance to the market for new, ill-conceived solutions. Therefore, the focus is on the numerous niche options.
How does Cryptocoin Insurance earn?
The company has the following sources of income:
- Insurance company. Cryptocoin Insurance sells insurance against the risk of both rising and falling markets for customers who do not want to deal with options. In fact, it is also an option, but it is repackaged in the familiar insurance for us.
The profit in this case is gained from selling insurance and receiving insurance premiums.
- Option exchange. The main income comes from the fee from each transaction. It amounts to 0.5% per operation or 1% per lap. In other words, the client pays 0.5% of the option price when buying it and another 0.5% when selling it later.
The increased volatility of options, which allows for a profit potential much higher than on the spot market, does not make this fee essential for buyers and sellers. At the same time, it allows the exchange to receive a high income, compared with the usual cryptocurrency exchanges, due to the complete lack of competition.
Additional income is provided for taking tokens to the exchange (listing). This will be an extremely important question for many ICOs. Suppose that a particular coin is already listed on 10 exchanges. Its listing on the eleventh will not actually give the company any additional benefits, but listing of this coin on the exchange will immediately increase the demand for it. This demand will be secured by funds and long-term investors, as they will be able to hedge their risks.
The Cryptocoin Insurance ICO is launching on November 1. Anyone can take part in the offering. Details can be found here:
Telegram chat: //t.me/ccin_official