AI and Tokenization Storm the $12T Derivatives Market—Banks Scramble to Keep Up

Wall Street’s sleeping giant—the derivatives market—just got a double shot of disruption. AI-driven trading algos are slicing through latency like a hot knife, while blockchain tokenization unlocks 24/7 settlement. Guess who’s left holding the legacy infrastructure bag? (Looking at you, bulge brackets.)

Hedge funds quietly onboard AI ’co-pilots’

Quant shops now deploy machine learning models that predict counterparty risk 83% faster than human teams. The kicker? These systems self-correct using real-time Fed speech analysis—no Bloomberg terminals required.

Tokenization hits escape velocity

JP Morgan’s blockchain division just processed $1B in tokenized derivatives daily volume. Meanwhile, DeFi protocols like dYdX eat traditional clearinghouses’ lunch with atomic settlements. The old guard’s response? A ’strategic review’ (read: panic room session).

The irony? Banks spent decades overengineering derivatives—only to get disrupted by tech they dismissed as ’toys.’ Maybe next they’ll short innovation itself.

A combination of tariff-induced market volatility and secular tailwinds could propel global derivatives markets to record-level trading volumes in 2025.

Approximately 70% of the 263 derivatives market participants taking part in recent research from Crisil Coalition Greenwich anticipate continued growth in trading volumes.

“As volumes grow and new regions become more integral to the derivatives market structure, operational risk increases, and capacity challenges become more pronounced,” says Stephen Bruel, Senior Analyst on the Market Structure & Technology team at Crisil Coalition Greenwich and author of How firms will manage the growing derivatives market. “The industry will need new solutions to help manage this rapid growth.”

Continued growth in derivatives trading volumes is expected to be fueled in part by persistently high levels of market volatility. Despite some reduction in tariff related tension, lingering trade uncertainty and geopolitical conflicts are expected to keep volatility and investor hedging needs high.

If projections for continued growth prove correct, the industry will need to increase capacity to handle increased trading volumes. Market participants believe innovative technologies might be the key to expanding capacity and when asked which tools will be most instrumental in increasing industry capacity, 35% of study participants name GenAI, and nearly a third tokenization in collateral management.

“Derivatives workflows can be notoriously complex, and AI applied to processes such as reconciliations could alleviate some of the burdens,” says Stephen Bruel.

How firms will manage the growing derivatives marketanalyzes growth trends in the global derivatives market, examining the key drivers of growth in terms of region and asset class, and discussing new opportunities for expansion in crypto assets. The report also reviews steps the industry can take to handle growing capacity, including a look at how AI and tokenization can help, and how the industry can approach challenges and potential constraints like the regulatory treatment of capital.

Source: Crisil Coalition Greenwich