Crypto.com Expands to Memecoins with New Derivatives Listings

Crypto.com is making significant waves in the US cryptocurrency landscape by expanding its offerings and challenging regulatory actions. The exchange recently introduced derivatives contracts tied to popular memecoins like PEPE, FLOKI, ELON, and BONK, bringing new products to its regulated platform. At the same time, Crypto.com has filed a lawsuit against the US Securities and Exchange Commission (SEC), challenging the agency’s regulatory approach. 

Crypto.com’s Nadex Lists Derivatives for Popular Memecoins Including PEPE and FLOKI

Crypto.com’s North American derivatives exchange, Nadex, has introduced derivatives contracts tied to a group of popular memecoins. According to an Oct. 7 filing with the United States Commodity Futures Trading Commission (CFTC), Nadex now offers contracts tied to PEPE and FLOKI, two of the most recognized memecoins in the crypto space. In addition to these, derivatives contracts linked to Dogelon Mars (ELON) and BONK have also been listed, further diversifying the exchange’s suite of cryptocurrency products.

This development marks a significant expansion for Nadex, which is known for providing regulated derivatives contracts in North America. The introduction of contracts based on PEPE, FLOKI, ELON, and BONK highlights the growing popularity of memecoins in the cryptocurrency ecosystem. These digital assets, initially driven by online communities and social media trends, have now made their way into the more structured and regulated environment of derivatives trading.

With a combined market capitalization nearing $7 billion, according to CoinMarketCap data, these memecoins have become increasingly prominent. The move by Nadex to offer derivatives tied to these tokens shows the shift from speculative trading on decentralized exchanges to more formalized financial instruments on regulated platforms.

The new memecoin derivatives join Nadex’s existing suite of cryptocurrency products, which includes contracts tied to major blockchain tokens like Bitcoin (BTC) and Ethereum (ETH). Notably, the memecoin contracts are structured as “touch bracket” contracts, a type of hedging instrument that pays out if the underlying token’s spot price touches a predetermined ceiling or floor before the contract’s expiration.

These contracts are particularly well-suited for highly volatile markets like cryptocurrency. According to a filing by Nadex, “Touch Bracket Contracts are not only quite popular in markets with high volatility, such as the cryptocurrency markets, but due to their unique structure, inherently minimize the possibility of contract manipulation.”

This structure appeals to traders looking for regulated ways to hedge their positions in the often unpredictable world of cryptocurrencies. By tying the contracts to the real-time spot price of volatile assets, Nadex offers traders an opportunity to profit from market movements while reducing the risks associated with traditional derivatives.

The proliferation of cryptocurrency derivatives on regulated US exchanges has been increasing rapidly in recent years. Established trading platforms, such as the Chicago Mercantile Exchange (CME), have already been offering crypto derivatives products, and now Nadex is following suit by expanding its offerings beyond mainstream tokens like Bitcoin and Ether to include the more speculative memecoins.

In September, the US Securities and Exchange Commission (SEC) authorized Nasdaq to list options tied to BlackRock’s highly anticipated Bitcoin exchange-traded fund (ETF), the iShares Bitcoin Trust (IBIT). Although the options are still awaiting approval from other regulatory agencies, including the CFTC, this development is another indicator of the growing acceptance of cryptocurrency derivatives in traditional financial markets.

According to Nadex, trading volumes for its cryptocurrency contracts—tied to Bitcoin, Ether, and Litecoin—have surged in 2023, surpassing 28 million contracts. The exchange attributed this growth to the increasing demand for diverse and regulated cryptocurrency derivatives products. The memecoin contracts are expected to add to this momentum by attracting a new wave of traders who are interested in these high-risk, high-reward tokens.

Self-Certification and Regulatory Compliance

One of the key aspects of Nadex’s memecoin contract listings is that the exchange operates under a self-certification process. This means that derivatives exchanges can list products they believe comply with existing regulations without needing explicit approval from regulators before launching the contracts. While this process allows for more flexibility in listing new products, it also places a greater responsibility on exchanges like Nadex to ensure that their offerings meet the necessary legal and regulatory standards.

Despite this, Nadex continues to emphasize its commitment to expanding its cryptocurrency derivative offerings within a regulated framework. In its Oct. 7 filing, the exchange noted, “The Exchange continues to expand its cryptocurrency commodity derivative product offerings to meet public demand for diverse and regulated products.”

While Nadex is making waves in the world of cryptocurrency derivatives, another derivatives exchange, Kalshi, has been expanding its roster of political event contracts. On Oct. 7, Kalshi introduced event contracts for betting on US election outcomes after winning a significant legal battle against the CFTC in September. The exchange has since added new contracts, including one that allows traders to bet on whether New York City Mayor Eric Adams will resign after facing bribery charges.

While Kalshi’s focus is on political event contracts, the broader trend of expanding derivatives offerings in new and unconventional markets mirrors Nadex’s efforts in the cryptocurrency space. Both exchanges are pushing the boundaries of what can be traded in regulated markets, offering traders more opportunities to hedge their bets on a wide range of assets and events.

In related news, Crypto.com has filed a lawsuit against the United States Securities and Exchange Commission (SEC). The exchange’s co-founder and CEO, Kris Marszalek, made the announcement on Oct. 8, sparking widespread attention within the cryptocurrency industry. The lawsuit represents Crypto.com’s pushback against the SEC’s enforcement policies, which Marszalek argues are harmful to millions of American crypto holders and the broader future of the US crypto industry.

Marszalek, addressing the public via X, stated that Crypto.com’s lawsuit was a necessary and warranted response to what he described as the SEC’s “regulation by enforcement” regime. He emphasized that this enforcement approach, rather than clear rulemaking, has caused damage to over 50 million crypto holders in the United States. The lawsuit, Marszalek explained, was designed to not only defend Crypto.com but also protect the future of the entire crypto industry in the US.

In the announcement, Marszalek highlighted the growing frustration within the crypto industry towards the SEC’s actions. “We are doing so to protect the future of the crypto industry in the US, joining a series of our peers who are actively defending themselves and taking action against a misguided federal agency acting beyond its authorization under the law,” read the company’s official statement. Marszalek also indicated that Crypto.com plans to use all regulatory tools at its disposal to push for proper rulemaking that brings clarity and stability to the industry.

The legal battle between Crypto.com and the SEC is the latest chapter in the ongoing tension between the crypto industry and US regulators. Crypto.com’s lawsuit follows its receipt of a Wells notice from the SEC, a formal notice indicating that the commission is considering enforcement action against the company. The Wells notice is part of what Crypto.com calls the SEC’s ongoing “unauthorized and unjust” regulatory campaign targeting the cryptocurrency industry.

Crypto.com’s lawsuit argues that the SEC has overstepped its bounds by attempting to regulate nearly all crypto assets as securities, regardless of how they are sold or traded. The exchange contends that this expansion of the SEC’s jurisdiction is beyond statutory limits and lacks legal authorization. In its lawsuit, Crypto.com asserts that the SEC’s actions are not only harmful but also contrary to the bipartisan indications that future administrations may take a more constructive approach to regulating the industry.

Crypto.com is not alone in its fight against the SEC. Other major players in the crypto industry have also launched legal defenses against what they view as overreach by US regulators. For many companies, the SEC’s actions have become part of the cost of doing business in the US cryptocurrency market.

“For now, improper SEC enforcement actions are part of the process of operating a legitimate and licensed crypto business in the US,” Crypto.com stated in its announcement. The company went on to note that while it is committed to compliance with US law, it believes the SEC’s actions have left it with no choice but to take legal action.

In addition to its lawsuit against the SEC, Crypto.com has also taken steps to bring further regulatory clarity to the industry. The company has filed a petition with both the SEC and the US Commodity Futures Trading Commission (CFTC) asking for a joint interpretation of the regulatory status of certain cryptocurrency derivative products. Specifically, Crypto.com seeks confirmation that some crypto products should be regulated solely by the CFTC, rather than the SEC.

This petition is rooted in the Dodd-Frank Act, which allows market participants to request regulatory interpretations regarding whether a product is classified as a “swap,” “security-based swap,” or “mixed swap.” Under this joint rulemaking process, the SEC and CFTC have 120 days to issue an interpretation or deny the request. If the agencies deny the interpretation, they must provide a rationale for their decision.

The Fight for Regulatory Clarity

Crypto.com’s legal battle is part of a broader effort within the crypto industry to secure clear and consistent regulation in the US. Currently, many crypto companies feel hamstrung by the uncertainty surrounding which regulatory bodies oversee different types of crypto products. The lack of clear regulatory guidelines has resulted in companies receiving enforcement actions from both the SEC and CFTC, sometimes over the same products.

In the case of cryptocurrency derivatives, the lack of regulatory clarity has been particularly pronounced. Crypto.com’s petition seeks to resolve this issue by urging the SEC and CFTC to work together and provide a clear interpretation of how certain products should be regulated. The exchange emphasized that its request is necessary to ensure that companies operating in the US crypto market can continue to innovate and grow within a secure and predictable regulatory environment.

The outcome of Crypto.com’s legal battle with the SEC could have far-reaching implications for the entire US cryptocurrency industry. If successful, the lawsuit could set a precedent for how crypto assets are regulated in the country, potentially limiting the SEC’s ability to classify all crypto products as securities. Additionally, if Crypto.com’s petition to the CFTC and SEC results in a clear division of regulatory responsibilities, it could pave the way for a more orderly and transparent regulatory framework for cryptocurrency derivatives.

For now, however, Crypto.com remains focused on its immediate legal challenge. Despite receiving a Wells notice, the company assured its customers that “it is business as usual” on its platform. Marszalek reaffirmed Crypto.com’s commitment to continuing its mission of bringing “crypto in every wallet” while fighting to protect the industry from what it sees as regulatory overreach.