The Copycat Mentality: How BitMEX CEO Stephan Lutz Views Innovation in Web3
"Good artists copy, great artists steal," was a favorite saying of Apple’s Steve Jobs to explain his company’s blatant copying of technology from Xerox. Fast forward to the Web3 era, and BitMEX CEO Stephan Lutz shares a similar philosophy when it comes to innovation and competition in the crypto space.
A New Era for Perpetual Swaps
In an interview with CoinDesk, Lutz expressed his views on the perpetual swap, a financial instrument that underpins the crypto derivatives market. The perpetual swap is a type of derivative contract that eliminates expiration dates and mirrors the feel of margin trading. Unlike traditional futures contracts, perpetual swaps use a funding rate to maintain price alignment with the underlying asset.
According to Lutz, the perpetual swap was a cornerstone innovation in crypto trading because it addressed a fundamental challenge in building derivatives in the early crypto market structure. "You faced counterparty credit risk, and there was no real structure for bringing longs and shorts together," he explained. "The perpetual swap with the funding mechanism and the insurance fund in the background sparked the whole [futures] trading industry."
A Decade of Innovation
BitMEX was one of the pioneers in introducing the perpetual swap to the crypto market. While the exchange is no longer the largest derivatives exchange by volume, it still maintains a loyal cadre of traders who appreciate its unique features. One reason for this loyalty is that BitMEX does not have its own market-making desk. This means that the exchange doesn’t trade against its own customers, ensuring completely independent price discovery and maintaining fairness.
During periods of high volatility, particularly market downturns, BitMEX often sees its market share spike – sometimes double – due to the exchange’s loyal traders. Lutz attributes this to the exchange’s niche in bitcoin-based derivatives and its selective expansion of offerings.
The Future of BitMEX
Looking ahead to the next decade, Lutz foresees BitMEX maintaining its niche in bitcoin-based derivatives while selectively expanding its offerings. "Maybe sometime during this next decade, BitMEX will invent something new – and be flattered when the entire industry copies it," he said.
This philosophy is a nod to the Web3 era’s emphasis on innovation and collaboration. By embracing competition and copying innovative ideas, companies like BitMEX can continue to drive progress in the crypto space.
The Power of Open-Source Know-How
Lutz’s views on innovation are shaped by his experience in traditional finance, where he worked at Deutsche Börse, which operates the Frankfurt Stock Exchange. He believes that the perpetual swap is an example of open-source know-how, where companies work together to advance the industry.
"It was copied by everyone, because that’s just open-source know-how," Lutz said. "The whole world works on it, which is like the best form of flattery we can wish for in the end."
This approach to innovation is a departure from traditional business models, where companies often focus on protecting their intellectual property and preventing others from copying their ideas. Instead, BitMEX is embracing the Web3 era’s emphasis on collaboration and open-source development.
The Benefits of Perpetual Swaps
Perpetual swaps offer several benefits for traders, including:
- No expiration dates: Unlike traditional futures contracts, perpetual swaps do not have expiration dates, allowing traders to hold positions indefinitely.
- Funding rate: The funding rate is used to maintain price alignment with the underlying asset, ensuring that long and short positions are fair.
- Insurance fund: Perpetual swaps often have an insurance fund in place to protect against losses.
These features make perpetual swaps a popular choice among traders, particularly in the crypto space where market conditions can be highly volatile.
The Role of BitMEX
BitMEX has played a significant role in introducing perpetual swaps to the crypto market. While the exchange is no longer the largest derivatives exchange by volume, it still maintains a loyal cadre of traders who appreciate its unique features.
As Lutz noted, "Our funding rates can sometimes differ because we ensure completely independent price discovery, which is important for maintaining fairness. It’s a matter of neutrality."
This approach has helped BitMEX maintain its market share during periods of high volatility, particularly market downturns.
Conclusion
The Web3 era is characterized by innovation and collaboration. Companies like BitMEX are embracing this philosophy, recognizing that the best way to advance the industry is through open-source know-how and copying innovative ideas.
As Lutz said, "Maybe sometime during this next decade, BitMEX will invent something new – and be flattered when the entire industry copies it."