Exchanges Frenzily Launch Contracts: The Interests Behind, Spot Impact, and Liquidity Game

Author: Professor Su said

"What is the Purpose of Listing Contracts?"

This year, Binance has launched a large number of contracts. I haven't counted the exact number, but it is highly likely that it has surpassed many of the previously leading "derivatives exchanges."

Currently, many exchanges primarily focus on "contracts" and rarely list spot trading. The reasons are generally similar: with high market capitalization, spot trading makes it easy for users to take over, while contracts allow users to short or long without fear.

Thus, exchanges like Binance, OKX, and Bybit have launched far more contracts than spot trading, and the reasons are the same.

Moreover, the main point is that for spot trading, you may really need to "reserve spot assets" for users to withdraw, whereas "contracts" do not require this at all, since they are not "physically settled."

From a very observational perspective, exchanges are essentially places that provide "trading," so as long as they offer trading pairs, they earn transaction fees. Therefore, they will list whatever generates fees, and whatever can increase "fee income," they will pursue.

So isn't "leverage" also a form of income from fees?

From the perspective of an "exchange," this is a normal operation, as the goal is to earn "trading fees." Unless you insist that "exchanges" profit from customer losses, then there are more interpretations, and it can be left to everyone's imagination; I won't elaborate further, as it's unnecessary.

What are the Greater Influences of Spot Trading?

This actually explores the question of why spot trading has a greater impact on exchanges or prices.

When trading spot, the "reserved spot assets" are used for user withdrawals, which leads to a lot of circulation being locked in the exchange, and many users may not necessarily buy or sell them. This can result in the actual market capitalization circulating in the market being much less than the actual market capitalization.

If an exchange lists spot trading, it means that it must have spot assets, as it needs to ensure that there are spot assets in the exchange's address before opening trading, and these addresses are all public.

Therefore, the positive impact on prices is much greater than that of "contracts," and most importantly, listing spot trading can make "liquidity" not as good. Here, "liquidity" refers to many "spot tokens" being locked in the "exchange."

Especially when many spot tokens are monitored on-chain, if someone finds that a certain exchange has a very low token balance, they may force a short squeeze by withdrawing, causing the exchange to buy tokens themselves. This has happened with $REEF, where there weren't enough tokens in @gate_io, leading to @dotyyds1234 forcing a short squeeze for a while 😂.

The Battle for Liquidity

In fact, the main relationship between contracts and spot trading lies in the debate over "liquidity."

After listing contracts, liquidity is very good, and since there is no need to buy "spot," the actual impact on prices is "not significant." It mainly increases through later "arbitrage" trends, so many people use "contracts for arbitrage," which leads to very good "liquidity."

Moreover, many tokens show that the trading volume of spot is far lower than that of contracts.

In fact, because of contracts, you can make money whether the price goes up or down, which further enhances liquidity.

For example, with 10,000 USDT, in the contract market, it could turn into a cash flow of 200,000 USDT. For the exchange itself, it is just skimming off the top; whoever can generate more cash flow is favored.

On the other hand, spot trading, especially in the current market where liquidity is not good, has seen altcoins decline. For many exchanges, spot trading often results in a big bullish candle followed by a continuous bearish trend. Few tokens can continue to rise after being listed on exchanges, and even well-funded VC tokens struggle to do so. Can purely conceptual meme tokens achieve this?

So, if there is an option to make money even when prices fall, it can only be through contracts.

Therefore, from the perspective of "helping users make money," there is actually nothing wrong with listing "contracts."

Conclusion

For those holding a significant amount of assets, if they list contracts on Binance, it can provide ample opportunity to offload. However, with spot trading, it may not be possible to sell everything.

This is because the depth of spot trading is not very strong, and the trading volume is also low. If you rely solely on on-chain selling, it can be quite challenging. However, if you directly open contracts, there is a high probability that you can enter the market successfully.

This reminds me of $ARKM, where a group member held 10% of the total circulation. They couldn't sell through spot trading, so they opened contracts and gradually sold off, successfully completing their exit.

In reality, there is no conflict between spot and contracts; it just depends on how you use them or how you understand liquidity.

For most assets, the better the liquidity, the faster they fall; the worse the liquidity, the better they rise.

For example, this applies to assets like NFT and BRC20.

Considering the high transaction fees, exchanges always want to get a piece of the pie. If spot trading isn't listed, contracts must be listed, right?

Ultimately, it's all business. They cannot control prices; they can short, and everyone can directly buy on-chain to trigger a short squeeze 😂.

Those with good liquidity will always be controlled by "market makers."