An institution will trade a crypto option in size once four things are true: it can close a position with somebody other than the dealer who sold it, margin the whole book at once and get a fill record a compliance officer will sign, and a name (entity) has agreed in advance to eat the loss when a counterparty fails. Part I and Part II of this series went through who offers those today.
This last part is about ISO Markets, the company that has brought me on as Chief Strategy Officer. A collab between Ripple, Ripple Prime, TJM, HRP and Liquid Mercury. What follows is a description of what we are building, written by somebody with a stake in it.
How a Trade Works
The model is request-for-stream. Those that read this with solely traditional options markets experience may be unaware of that term. A client picks the dealers it wants to see, and those dealers stream two-way prices continuously instead of answering one request for quote at a time or constantly posting two-sided markets all day long, ripe for picking off. FX desks have traded this way for years. The client hits the best bid or takes the best offer, and Ripple Prime, the prime broker in the middle, steps into the trade at the fill. That is what lets a position bought from one dealer be closed with another. Every quote and fill is time-stamped with its route, which gives compliance its record and gives the desk the data to measure what its execution cost.
Clients come in through a terminal, through Bloomberg, or by API, and post BTC, ETH, stablecoins, Treasuries, cash or RLUSD as collateral. The participants it is built for are funds, prop desks, asset managers, miners, agents of customers and companies holding bitcoin on the balance sheet. The contra parties are the market makers streaming the prices.
ISO never takes the other side of a trade, and that is the difference I care about most.
FalconX is a principal desk, so the firm quoting you is also your counterparty. Paradigm runs a request-for-quote network whose blocks settle on exchanges like Deribit, so the collateral still ends up on a venue. On ISO the dealers compete for the fill, the client's order never reaches a rival desk, and the margin sits at the prime.
The people who built it came out of the pits and off of the FX desks this model borrows from. Between them, the co-CEOs, Patrick Hourihane and Ron Klipstein, held memberships at the CME, CBOT and LIFFE and traded at GETCO. Klipstein also ran electronic FX at Citibank and Northern Trust. Steve Beitler, the chief risk officer, co-founded TJM Institutional Services in 1996. Joe Piotrowski, the CTO, ran technology at LiquidPoint and Dash. I'm honored to work with them.
What a Hedged Book Costs
Take the simplest hedge there is. A fund holds 100 bitcoin with its custodian and writes 100 calls against them on Deribit. Deribit's standard margin on a short call is 10 to 15 percent of the underlying, depending on how far out of the money it sits, plus the option's price. So the fund posts 10 to 15 coins of margin, and more if the call moves in the money, against a risk the coins in custody already cover. Deribit cannot see them. Write the same call against stock in a US brokerage account and the call needs no margin at all.
The market has moved part of the way. In February 2025 BitGo and Copper's ClearLoop took Deribit margin off the exchange and into qualified custody, where a venue failure cannot take it. It is still committed to one venue, and it still nets against nothing held anywhere else.
Other markets got further. US equities went from Reg T's flat 50 percent to portfolio margin, which stresses a stock position 15 percent each way and charges the worst loss. In FX, CLS settles more than $8 trillion of payments a day, and its netting cuts the funding needed by over 96 percent, yes, re-read that and click on the link, about $4 for every $100. ISO's own site says it wants to do for crypto derivatives what CLS did for FX.
At one prime, the calls and the coins sit in the same book, so the call needs no separate margin, the same as it would against stock in a brokerage account. A desk running spot, futures and options through that prime margins the net. The more flow that runs through one book, the more of it offsets, and collateral tends to stay where it works hardest. Moving means re-margining the whole book at once.
What Still Has to Be True
ISO has not printed a trade and has no published launch date yet. Netting only pays when enough flow shares one book, and on the first day that book will be thin. Ripple Prime's cross-venue margin is on its roadmap and not quite live, so a desk that keeps half its book on Deribit will fund that half the old way for a while.
The CFTC's crypto rule is still under White House review, and it will say what a US firm may post and hold. ISO will operate inside whatever it says. And one prime broker in the middle is still one name. I said in the first part of this series that a prime concentrates counterparty risk, and nothing in the last three weeks changed that.
Bottom Line
Score it against the four needs. The design closes a position with any dealer on the network and keeps a record of every quote and fill. It margins the whole book at the prime, though not yet across venues. For the loss, it puts one prime's balance sheet in the middle, more than any crypto venue offers and less than the fund the OCC has been building since 1973. That is three and a partial, and the partial is the hardest one.
Crypto options are one of the last big markets where every venue wants its margin up front, position by position, with no credit for the hedge. Equities stopped charging that way, and so did FX. Whoever nets this market first will carry the same book on a fraction of the capital.
Disclosure, not a recommendation: I am Chief Strategy Officer at ISO Markets and I founded Liquid Mercury, which builds the technology behind ISO Markets. I have an economic interest in both. Nothing in this issue is investment advice.
All the best,
— Tony
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