Skew Finance: A Deep Dive into Cryptocurrency Derivatives Analytics

Skew Finance, a platform now defunct, provided real-time analytics and data for cryptocurrency derivatives markets. It was a key resource for traders, institutions, and researchers seeking insights into the complex world of crypto options and futures. Often described as a “Bloomberg Terminal” for cryptocurrency derivatives, Skew aimed to bring transparency and sophistication to a nascent market.

Core Functionality and Data Offerings

Skew offered a comprehensive suite of analytical tools, primarily focused on Bitcoin and Ethereum derivatives. Key data points included:

• Options Skew: The platform’s namesake, options skew, referred to the difference in implied volatility between out-of-the-money puts (downside protection) and out-of-the-money calls (upside exposure) at various strike prices. Analyzing skew helps gauge market sentiment and identify potential hedging strategies.
• Implied Volatility Surfaces: Skew constructed visual representations of implied volatility across different strike prices and expiration dates, allowing users to quickly assess the “shape” of the market and identify mispricings.
• Open Interest Data: Tracking the number of outstanding contracts provided insights into market participation and liquidity. Changes in open interest could signal shifts in trader positioning.
• Trading Volume: Monitoring trading volume across various exchanges revealed which contracts were most actively traded, indicating areas of high interest.
• Futures Basis: Skew tracked the difference between the spot price of Bitcoin or Ethereum and the price of futures contracts, providing information about market expectations and arbitrage opportunities.
• Correlations: The platform offered data on the correlation between different cryptocurrencies and traditional assets, helping traders manage portfolio risk.

Target Audience and Use Cases

Skew primarily targeted:

• Professional Traders: Traders used Skew to identify trading opportunities, manage risk, and execute sophisticated strategies, such as volatility arbitrage and delta hedging.
• Institutional Investors: Funds and institutions utilized Skew for portfolio management, risk assessment, and understanding market trends.
• Researchers and Analysts: Academics and market analysts leveraged Skew’s data for research and analysis of the cryptocurrency derivatives markets.

Common use cases included:

• Volatility Trading: Profiting from changes in implied volatility.
• Hedging: Protecting against adverse price movements in underlying assets.
• Arbitrage: Exploiting price discrepancies between different exchanges or contracts.
• Market Sentiment Analysis: Gauging investor sentiment and identifying potential market turning points.

Acquisition and Legacy

In April 2021, Skew Finance was acquired by Coinbase, one of the largest cryptocurrency exchanges. The acquisition signaled Coinbase’s intention to expand its offerings in the derivatives space and enhance its institutional trading capabilities. Following the acquisition, the Skew platform was integrated into Coinbase’s Advanced Trade platform, effectively ending Skew’s independent operation. While the Skew platform itself is no longer active, its contributions to the cryptocurrency derivatives market, particularly its emphasis on data transparency and analytical tools, helped pave the way for the growth and maturation of this rapidly evolving sector.