Crypto options trading startup banks $3.5m from BitMEX parent, others

Singapore-based crypto options trading platform Sparrow has raised US$3.5 million in a series A round led by HDR Group, the parent company of crypto exchange and derivative trading platform BitMEX.

The round also saw participation from VC firms Signum Capital, Du Capital, and FinLab EOS VC, according to a statement.

Photo credit: Andre Francois / Unsplash

Launched in 2019, Sparrow offers bitcoin (BTC) and ether (ETH) options settled by smart contracts, or self-executing contracts that have the terms of the agreement between buyer and seller directly baked into lines of code. This automates the settlement of contracts and makes the process more transparent for the parties involved.

The company said it plans to use the new funds to accelerate platform development. This includes creating new wealth management products and services as well as improving financial reporting tools for its users, the company told Tech in Asia.

In May, Sparrow launched a mobile web experience to enable users to easily trade options on the go. It aims to follow it up with the launch of smartphone app experiences “pretty soon,” the company shared.

What problem is it solving? According to Sparrow, customized options can be too complex and risky for the average user. This is why only high-net-worth individuals or professionals usually have access to them.

“Typically, option trading systems are closed in nature and require trust in the counterparty or a clearing house. Liquidity is also limited because the customization tends to be bilateral in nature instead of multilateral,” the company explained.

With its products, Sparrow looks to make options trading more accessible to anyone by offering trading tools tailored to the needs of professionals and beginners alike.

What’s the opportunity? The crypto derivatives market has seen rapid growth in the past few years, Sparrow said. Citing data from crypto data analytics firm Skew, Coindesk reported that the growth of Bitcoin options trading has been outpacing that of the cryptocurrency’s futures and swaps market.

“We see a lot of untapped opportunities and potentials in the nascent crypto options market, especially as traders seek more sophisticated tools to hedge their positions and manage risks,” Sparrow said.

However, with a growing demand comes the rise of more service providers. The startup said it has seen a recent increase in exchanges offering options apart from Deribit, the largest exchange by options trading volume. These include more traditional exchanges such as OKEx, Binance, and FTX.

Sparrow added, however, that the increase in competition is welcome to the budding crypto options, as it can help the ecosystem grow faster.

How is the startup different? To stand out, Sparrow designed its offerings to be easily accessible. The startup said that 90% of trades on its platform are placed using its simplified interface.