Prediction Markets, Tokenisation, Supplant Regulation in Deriv Market Thinking

While regulatory trends have dominated derivatives market thinking for several years, a new report from Crisil Coalition Greenwich finds that prediction markets and tokenisation have supplanted them as a big driver of change.

Inevitably, market conditions resulting from geopolitical conflict ranks number one as a driver of change, cited by 49% of respondents to the firm’s survey – notably within this, concerns were highest amongst end users at 63% – followed by the rise of prediction markets at 43%. Tokenisation was cited by 38% and the impact of AI and DLT by 36%, before the regulatory agenda in the US and EU came in at 33%.

While the buy side is concerned about volatility, the report notes that just 39% of intermediaries felt the same. “For the intermediaries, an increase in volatility and volume can be good for business, as most are ultimately paid on turnover,” writes Stephen Bruel, research director at the firm and author of the report. “But regardless of your place in the ecosystem, these market conditions are often when derivatives show their true value. Whether used to speculate on market change or protect against uncertainty, derivatives markets thrive when volatility reigns.”

Observing that prediction markets have become “the biggest story in derivatives markets since bitcoin futures launched in 2017”, the report highlights the “exceptionally rapid growth” in the contracts, but also notes “there are concerns about reputation risk”. It finds that 38% believe these markets risk undermining the reputation of mainstream futures markets, while 29% believed they were a “sideshow”. Conversely, 23% argued that these markets will benefit the futures industry by encouraging more trading.

On tokenisation, 44% believe its role in modernising and accelerating collateral management is a big potential change, it is largely a service-side belief, with the fewest number, 34%, being end-users. This segment seems more excited by generative and agentic AI, where end users were the highest percentage seeing it as an agent for change (37%).

“Tokenisation can improve multiple elements of the collateral management process, including operational efficiency and capital efficiency,” writes Bruel. “With markets moving to 24×7 trading, the ability to move collateral on weekends and holidays will help manage the risks of 24×7.

“This is no longer purely theoretical,” he adds. “There are many initiatives now under way to explore the use of tokenisation to enhance the collateral process.”

Concluding the report, Bruel notes, “While a backdrop of global uncertainty cements the importance of derivatives for investors, end users and traders, innovation is setting the stage for what might become a transformational period for the industry. Event contracts, barely visible only a few years ago, are now one of the industry’s fastest growing segments. And tokenisation, which was virtually unheard of only a decade ago, now seems poised for mainstream adoption.

“The final outcomes in all cases are unknown, of course, but the impact of these and the other items cited by our study participants will be critical to the future of the derivatives market,” he writes.