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Chicago-based derivatives exchange CME Group plans to launch options on Ethereum futures next month—just days before the long-awaited “merge” upgrade to the Ethereum network completes.
CME Group, which is the world’s largest derivatives exchange, said Thursday that the product would launch on September 12, pending regulatory review.
In the world of derivatives, futures contracts mean an investor has to buy or sell the underlying asset at a given price at the expiration date.
While options contracts give the holder the right—but not the obligation—to buy or sell the underlying asset at an agreed price at any time before the contract expires. These Ethereum options contracts would allow investors to place a bet on the future price of Ethereum with the option to cash out at any time before the contract expires.
Global Head of Equity and FX Products at CME Group Tim McCourt said: “As we approach the highly anticipated Ethereum merge next month, we continue to see market participants turn to CME Group to manage ether price risk.”
“Our new Ether options will offer a wide array of clients greater flexibility and added precision to manage their ether exposure ahead of market moving events,” he added.
The merge is the much-talked about Ethereum upgrade to ETH 2.0. When completed, on September 15 or 16 based on current estimates, the second largest cryptocurrency by market cap will move from a proof-of-work consensus mechanism to a proof-of-stake one.
This, it is hoped, will make the network faster, more scalable and more energy efficient. Right now, with proof of work, it is slow and costly.
Proof of stake is different because it gets rid of miners and instead validators “stake”—or lock-up—their crypto to keep the network secure. This means that Ethereum will no longer be “mined,” putting an end to a very lucrative industry (which some miners are resisting by campaigning for a hard fork of Ethereum that keeps proof of work).
It also means that, in order to create new ETH on the proof-of-stake Ethereum network, validators will need to pledge pre-existing ETH to the network. This, analysts expect, will have a deflationary impact on the cryptocurrency, provided that demand for ETH remains high.
The Ethereum upgrade is the talk of the crypto industry at the moment because the network is currently the go-to blockchain for a number of crypto crazes—like DeFi, crypto games, and NFTs.
CME Group already offers a number of crypto derivative products, including Bitcoin options, as well as micro-sized Bitcoin and Ethereum options.