FalconX Launches New Crypto Derivatives
San Mateo-based FalconX announced on Thursday a significant advancement in the crypto market with the launch of forward rate agreements linked to Ethereum staking yields, marking the introduction of a new category of rate-based derivatives. These contracts are based on the Treehouse Ethereum Staking Rate (TESR), a daily benchmark produced by the infrastructure provider Treehouse.
Decentralized Offered Rates Framework
This initiative is part of Treehouse’s framework called “Decentralized Offered Rates,” which aims to establish crypto-native benchmarks comparable to traditional financial indices such as Libor and the Secured Overnight Financing Rate.
Market Context and Institutional Interest
The introduction of TESR FRAs comes at a crucial time, as there has been a notable increase in Ethereum staking, with the validator entry queue recently reaching a two-year high. This growth has been propelled by substantial inflows into ETFs and corporate treasury investments, with billions of dollars being funneled into the ecosystem.
However, Ethereum staking yields have experienced volatility in 2023 due to changes in network activity and validator engagement, leading institutional investors to seek mechanisms to manage their exposure to these rates.
FalconX’s Role and Initial Participants
FalconX, which operates as a digital-asset prime broker and has the support of notable investors including Accel, Tiger Global, and GIC, has developed the TESR forwards to enable institutions to hedge against or speculate on Ethereum staking returns. The staking mechanism became the native yield for Ethereum following its shift to a proof-of-stake consensus model.
Among the initial participants in these forward rate agreements are Edge Capital, Monarq, and Mirana. Other companies, such as BitPanda, RockawayX, and Algoquant, have shown interest in engaging with this new market, according to FalconX. However, it’s important to note that these financial instruments are presently unavailable to clients based in the United States.
Expert Insights and Future Outlook
Nicholas Gallet, CEO of Gallet Capital and an ex-Nomura rates trader, remarked, “Staking rate derivatives like TESR FRAs are long overdue. For the first time, long-term holders of crypto assets can hedge against the volatility of staking yields and express future market views in a manner akin to traditional finance.”
FalconX emphasized that this new derivative market is designed to be “live and continuously accessible,” setting it apart from previous attempts, which often consisted of individual pilot transactions. The company anticipates that the implementation of standardized documentation and workflows will foster ongoing participation and greater liquidity in the market over time.
