The Evolution of Bilateral Crypto Derivatives Trading
Capital markets face a growing collateral conundrum. Despite a vast $230 trillion universe of marketable securities, only about $25.5 trillion¹, roughly 11%, is actually leveraged for collateral or margin use. This leaves ~90% of high quality, liquid assets sitting idle. This underutilization is not due to lack of demand, but from fragmented infrastructure, outdated workflows, and market cut-off hours. As a result, institutions are unwittingly leaving enormous value on the table.
Enter crypto derivatives, one of the fastest growing and liquid segments of on-chain finance, with annual volumes exceeding $23 trillion². Institutions are drawn to the 24/7 global liquidity, composability, and real-time risk management that traditional markets simply cannot match.
It’s no surprise then, that these firms are turning to on-chain infrastructure as the next frontier in crypto derivatives collateral management - unlocking 24/7 asset convertibility, mobility, and financing. By bringing real-world assets on-chain to use as collateral, institutions are finally able to put their idle capital to work at its maximum utility, gaining a critical edge in crypto derivatives trading.
But this next phase of capital markets evolution requires more than just speed and automation. As the head of trading at leading market Galaxy talked about at The Tie’s Bridge event, to truly scale institutional activity in crypto derivatives trading, privacy is essential.
Privacy is the foundation for institutional scale. Without it, institutions risk revealing their trading strategies and risk becoming targets of front-running. Privacy is what gives institutions the confidence to trade at higher volumes on-chain, ensuring collateral and margin flows are only visible to participants involved in the transaction. This is the final catalyst that is necessary to propel institutional capital markets from small pilots to mass global adoption.
Why Canton Network is the Only Institutional-Grade L1 Chain For Bilateral Crypto Derivatives Trading
Despite the rapid growth of crypto derivatives, institutional adoption remains constrained by key challenges:
- Lack of privacy: transparency is the default on legacy public L1 blockchains, leaving crypto derivatives trading activity vulnerable to front-running and predatory attacks. Take the recent Hyperliquid whale case as a recent example, a whale’s $500M+ high-leverage short was visible to the entire market, triggering coordinated attempts to liquidate the position. Private on-chain trades are critical to prevent market manipulation and protect alpha.
- Overcollateralization: crypto derivatives risk management is impacted by a structural mismatch between 24x7 crypto trading, and margin regimes that are still bound by traditional business hours. To compensate, institutions are forced to overcollateralize with capital locked up to buffer against risks they can’t dynamically respond to. On Canton, this changes with the on-chain delivery and real-time convertibility of high-quality collateral (USTs, MMFs, wrapped BTC) and stablecoins, always with privacy as standard. The result is more automated margining, accurate collateralization and capital unlocked to capture new opportunities and earn additional yield.
- Operational friction: traditional OTC crypto derivatives trading is manual and fragmented: they require legal documentation, manual margin calls, and slow dispute resolution. Each counterparty relationship requires bespoke agreements and valuation models, leading to frequent mismatches and process delays.
- Delayed risk management: collateral flows in OTC trades are bounded by cut-off hours, batch settlement windows, and manual reconciliations. These limitations can create delays in risk monitoring and response - margin shortfalls may only be discovered after the fact. During periods of high volatility, posted margin can become outdated in minutes, amplifying counterparty credit risk and forcing traders to hold excess idle collateral as a buffer.
How Canton Network addresses the key challenges for bilateral crypto derivatives trading:
- Privacy-preserving execution: Canton is purpose-built with native, institutional-grade privacy, designed from the ground up without compromising on interoperability. Trades are executed on a shared ledger without revealing confidential information to competitors or third parties. This protects trading strategies, mitigates front-running risk, while maintaining full compliance and auditability, enabling institutions to confidently trade more.
- Capital efficiency & margin optimization: Canton enables precise, intraday margining based on real-time risk calculations, which significantly reduces the need for overcollateralization. Institutions can free up their balance sheet and deploy capital more effectively, whilst earning yield on their posted margin using high quality collateral. Supported asset types include stablecoins (e.g. Circle’s USDC), wrapped bitcoin (e.g. CBTC), and yield-bearing tokenized money market funds (e.g. USYC).
- Automated, interoperable workflows: Canton enables on-chain representation of collateral agreements which enforces agreement terms and executes post-trade processes programmatically - streamlining workflows across counterparties without sacrificing privacy or control.
- Atomic settlement: through interoperable smart contracts, Canton facilitates atomic, conditional asset transfers - ensuring instant settlement of trades and margin calls and reduced counterparty risk.
- Live risk management: with synchronized on-chain data, Canton enables traders to monitor exposures in real-time and dynamically adjust continuous 24/7 margin in response to underlying volatile market conditions.
Looking Ahead: Unlocking Institutional-Grade Crypto Derivatives Infrastructure
As institutional interest in crypto derivatives trading accelerates, institutions are demanding that platforms deliver the same standards of privacy and regulatory compliance that they expect from traditional markets - without sacrificing the speed, composability, and 24/7 liquidity of blockchain.
Canton Network is the only public L1 blockchain that can bridge this gap, enabling institutions to trade, settle, and manage collateral on-chain with full confidence - combining programmable workflows and high-quality on-chain collateral, all with privacy, empowering the next evolution of capital markets to happen today. Canton Network is where finance flows.
Ready to Start Building on Canton?
Take advantage of the latest features in Canton today and start creating highly composable applications for 24/7 on-chain capital markets and payments with institutional-grade privacy:
¹2023 Capital Markets Fact Book, SIFMA, July 2023
²Cryptocurrency Derivatives Market Statistics 2025: Growth, Trends, and Projections