Two Worlds Colliding: FX and Crypto

Institutional investors are getting much more involved in the crypto space, after many years sitting on the sidelines. The Full FX caught up with Laurens Fraussen, research analyst, Kaiko, at the digital asset market data firm’s recent Agora event in Cannes, to understand the implications for FX markets, what FX can learn from crypto and vice versa, and next steps in bringing FX on-chain.

Q: What is driving institutional investors’ interest in perpetual futures (perps) trading?

Laurens Fraussen: Traditional finance (TradFi) institutions have begun to take notice of the 24/7 trading infrastructure that the crypto community has built over the past 15 years and use it to their advantage to reduce settlement times. For example, instead of settling a tokenised US Treasury in T+1, it’s now possible to settle almost instantaneously.

In addition to building the DeFi infrastructure, we need to stress test how institutions can bring FX products on-chain for crypto-native players first, then banks and custodians, without introducing an extra layer of friction. Infrastructure is going to be the primary objective for both industries over the next few years

The attention is also due to a substantial increase in stablecoin assets under management, which has been the main currency for trading on-chain. We’ve seen a Hyperliquid boom with tokenised perps coming on-chain, as well as tokenised oil and indices. TradFi has managed to capture a piece of the action through exchange-traded funds, such as [BlackRock’s] iShares Bitcoin Trust [launched in January 2024], which is experiencing daily volume of around $18 billion – almost rivalling Binance in Bitcoin’s spot volume.

While TradFi is taking a page out of the digital assets book, decentralised finance (DeFi) is doing the same. For example, S&P Dow Jones Indices (S&P DJI) and Kaiko have made a financial benchmark available as a native digital asset, bringing the iBoxx US Treasuries Index on-chain via the Canton Network. I see convergence happening, which is great.

Q: What are the next steps in tokenised collateral?

Fraussen: Tokenised collateral could be a stablecoin, or tokenised US Treasury bills, bonds or gilts. We need to ensure that assets and collateral move without any friction, without the end user or bank having to change the way they or their systems operate. Ensuring that it’s all interoperable without any friction is the next hurdle in terms of continuously tokenising and bringing everything on-chain.

Currently, there’s $29 billion in real world assets on-chain, more than $300 billion in stablecoins, and repos being put on-chain, such as Canton, which regularly processes over $350 billion in daily US Treasury repo volume.

But for all these systems to work in a cohesive way, interoperable infrastructure remains to be built. If we want to use tokenised money market funds (MMFs) as collateral, for example, we will need to build bridges on each blockchain to allow them to work together. It’s important that what we’re building doesn’t turn into another bureaucratic layer that introduces more friction.

We also need to align crypto perps funding rates across exchanges and ensure there’s sufficient liquidity available. To move collateral from one chain or tokenised US Treasury to another requires liquidity. If I want to settle $100 million, for example, I’m going to need liquidity at the end of the trade. If the liquidity isn’t there, then the whole point of tokenising everything becomes moot.

Q: What is the implication for FX markets?

Fraussen: USD-backed stablecoins account for more than 90% of total stablecoin market capitalisation. Our main concern is ensuring that they are settled properly [at a 1:1 peg]. To do that, everyone needs to start working together and not fragment liquidity more than it is currently.

The bottleneck today is that I need to go through either a Solana- or Ethereum-specific off-ramp solution, if I want to move my stablecoin back to my fiat bank account. These separate solutions create settlement friction, as it becomes less instantaneous and creates extra layers of difficulty that can be prevented if systems were interoperable.

The infrastructure to get FX on-chain, such as fiat currency with which I can buy a good or resource, needs to be frictionless. Presently, it’s only stablecoin trading in the FX space. Perps and spot trading use stablecoins.

Q: Is there a desire in the industry to get FX on-chain?

Fraussen: It’s already happening. By tokenising indices like iBoxx, we’re laying the foundation for tokenising FX pairs and bringing those on-chain in an easier and compatible manner. Once the infrastructure is in place, it will become convenient to move collateral around from one MMF to another, use it to refinance debt or make a payment on time.

Q: What can crypto learn from the FX market?

Fraussen: Crypto can learn how to ensure spreads are as efficient as those on traditional FX markets. [The crypto crash on] October 10 is a case in point. Bitcoin went from over $40 million to below $30 million at 5% market depth and from nearly $20 million to $14 million at 1% market depth, which resulted in price discrepancies exceeding $4,000 between exchanges. This could have been prevented if the spreads and order book depth were truly present.

Currently, market makers can do as they please – they can pull liquidity if they choose to. A positive outcome of the 10/10 crash is that some exchanges have begun working on a framework and restructuring agreements with market makers to prevent something similar from happening in future.

Crypto assets are more volatile than currencies because it’s still a niche and small market, except perhaps Bitcoin. But the crypto industry needs to work on ensuring that the liquidity that is shown in the order books is actually there. Then spreads will improve because liquidity begets liquidity. The more I can trade without my spreads being impacted, the more I will want to trade.

Q: What can FX learn from crypto?

Fraussen: Naturally I would say 24/7 markets. It’s happening slowly – for example FX markets are currently expanding on Hyperliquid [through its permissionless perpetual futures framework, HIP-3]. I’m interested to see whether we will be able to use tokenised US dollars and euros, as well as potentially yen and the Korean won, in the same portfolio.

Q: What are the next steps in bringing FX on-chain?

Fraussen: In addition to building the DeFi infrastructure, we need to stress test how institutions can bring FX products on-chain for crypto-native players first, then banks and custodians, without introducing an extra layer of friction. Infrastructure is going to be the primary objective for both industries over the next few years.

Data will also be a critical component and needs to be regulated. Kaiko, for example, is a regulated benchmark administrator under the EU Benchmark Regulation and completed a SOC 2 Type II audit. Because we are audited and fully regulated, we believe that institutional players will be more inclined to work with us.

Q: Do you think 2026 will be the year that institutional investors move on-chain?

Fraussen: It’s already happening. Recently, we saw S&P DJI come on-chain on Hyperliquid, and now on Cantor through Kaiko. Plus, we have seen major crypto-focused asset managers 21Shares and Bitwise, as well as Franklin Templeton and BlackRock with its MMF.

There is still room for growth in terms of liquidity and AUM. The tokenised US Treasury market is currently $25 billion, out of a potential $1 trillion US Treasury market.

While we still have a long road ahead of us in terms of making everything interoperable, seamless and frictionless, I’m optimistic that big institutions are beginning to move at a moderate pace.

Despite a crypto market downturn, with Bitcoin dropping 40% to 50%, institutions are showing great interest, which means they’re not tourists – they are here to stay.