Binance wants to launch futures trading in the U.S., possibly through buying a licensed firm

Crypto exchange Binance is looking to roll out futures trading in the U.S. — potentially in the form of a business acquisition — according to a person familiar with the exchange's plans. 

A source with knowledge of the matter told The Block that Binance would possibly buy or partner with a U.S.-licensed company through which it would launch futures in the country — similar to how Binance entered the U.S. market via little-known firm BAM Trading Services.

Binance did not return The Block's requests for comment by press time. The Block has learned that Binance's futures platform in the U.S. could potentially be branded under its Binance.US arm.

Christopher Robins, head of legal and regulatory affairs at Binance.US, told The Block: "BAM Trading Services Inc. (Binance.US) is not authorized to offer futures contracts and has not sought regulatory approval from the CFTC [the U.S. Commodity Futures Trading Commission] to become a DCM [Designated Contract Market]."

When asked whether Binance.US is acquiring or partnering with any other firm to launch futures, Robins said: "We have no plans to launch a futures business."

Exchanges require a DCM license from the CFTC to offer derivative products in the U.S., and getting that license isn't easy. Edward Woodford, co-founder and CEO of U.S.-based, now-dormant crypto derivatives platform Seed SEF, told The Block that it is "very difficult" to obtain a DCM license. "Very few have secured such licensing, and those that have, [it has taken] years to achieve," said Woodford. Woodford said that today, Seed's core business "is around settlement as a money transmitter." The firm shut down its exchange in June.

Jessica Titlebaum Darmoni, head of marketing at crypto derivatives platform ErisX, echoed with Woodford's comment. Darmoni told The Block that "it takes time to launch a U.S.-based regulated futures market."

She added that crypto exchanges that seek to launch futures market in the U.S. would also need a Derivatives Clearing Organization (DCO) license from the CFTC, or would have to partner with a DCO licensed firm.

"We have had our DCM license since 2011 and more recently, obtained our DCO license in July 2019. A DCM license enables us to operate a U.S. based regulated futures market, and a DCO enables us to operate a clearinghouse, which acts as the counterparty to every trade," Darmoni told The Block.

A quick search on the CFTC website shows that crypto-focused firms Bitnomial, LedgerX and ErisX are currently designated as DCMs. Still, Binance could also opt to acquire a licensed firm that is not currently offering crypto-related products.

A specific launch date for Binance's U.S. futures platform is unknown, but The Block has learned that the plans are a top priority for Binance CEO Changpeng Zhao.

FTX plans

Crypto exchange FTX has also looked into launching futures in the U.S., CEO Sam Bankman-Fried told The Block. But regulatory issues remain the "only hurdle," he said, referring to getting a DCM license.

As such, launching futures via purchasing an entity that already has such licensure is one way of going about that, Bankman-Fried told The Block. He thinks that Binance, if it were to launch futures in the U.S., could also go that route. "They would be looking to acquire or partner with someone with a license," said Bankman-Fried.

He went on to say that FTX's U.S. futures platform just needs to pass the regulatory hurdle. "Tech-wise, we'd be ready to go almost immediately," said Bankman-Fried. "Though I suspect for other players there would be more tech work involved."

FTX could also acquire or partner with a licensed entity, said Bankman-Fried, adding that the move is not definite. "We might or might not do it, but if we did, it would likely be in the next 6-12 months," Bankman-Fried told The Block.

Binance Futures growth

Binance has operated a futures trading platform since last September, but it is not officially available to U.S. residents. The platform has grown to become the fifth-largest platform by open interest or the value of outstanding derivative contracts that are yet to be settled.

Binance Futures now commands 9.34% share of the total open interest currently, after BitMEX, OKEx, Huobi, and CME Group, according to The Block Research.

Source: Skew, The Block Research 

Binance Futures' trading volume has also increased significantly since launch, posting its busiest month in May thus far.

Source: Skew, The Block Research 

Should Binance launch a futures trading service in the U.S., it would be "one of the few ways Americans could legally trade crypto futures," Bankman-Fried told The Block. He added that the U.S. "could potentially be a large market, and Binance could take a large share of it."

(Update, August 5: This story has been updated to include additional information from ErisX's head of marketing Jessica Titlebaum Darmoni).