Derivative products are growing rapidly in modern finance. The global market is gigantic and, according to BIS estimates, is an unimaginable $ 700 trillion. The DeFi derivatives sector, on the other hand, is only $ 911 million. So the growth potential is enormous. Which projects could dominate the world of decentralized derivatives in the future?
Today we’re taking a look at the five largest DeFi platforms. When it comes to the legitimacy and maturity of various financial instruments, derivatives have proven time and again to be a crucial piece of infrastructure necessary for the long-term growth of any asset class.
In terms of cryptocurrencies such as Bitcoin (BTC) and Ether (ETH), the introduction of Bitcoin futures offered an important option for institutional investors to hedge against risk.
What are DeFi derivative platforms?
A derivative is a contract between two or more parties whose value is based on an agreed underlying financial asset (securities, commodities …) or a group of assets (such as an index). Common base instruments include bonds, commodities, currencies, interest rates, market indices and stocks.
In addition, derivatives are inherently secondary securities in that their value is derived from the value of the primary security to which they are linked. Examples of derivatives are usually futures contracts such as futures, options or swaps.
Thanks to the emergence of smart contracts , engineered derivatives can be created. This makes it possible to conclude derivative contracts without a third party. This trend has enabled retail investors to take advantage of financial instruments that are normally only available to those with brokerage accounts or specialist knowledge.
The derivatives market in the Ethereum DeFi sector is still very small and many projects are still in the early stages of development.
Below we take a look at the five largest DeFi derivative projects
5. Erasure: Total Value Locked $ 3.6 million
Numerai has developed the Erasure Protocol, a decentralized data marketplace for forecasting markets. In addition, Erasure allows you to upload forecasts and build a reputation for them over time by using cryptocurrencies such as Numeraire (NMR) or DAI.
Users who make predictions submit them with a time stamp for which they store NMR. This gives them the opportunity to buy access to encrypted forecast feeds and to rate the forecasts of other participants. Reliable forecast sources can be developed based on historical performance.
To try out Erasure, take a look at Erasure Quant. Erasure Quant can be used to upload signals and potentially receive cash for stock forecasting. Or you can on ErasureBaybuy or sell the predictions of other participants. The aim of Erasure is to build up reliable sources of information on a variety of topics over time.
4. dYdX: Total Value Locked $ 39.1 million
dYdXis the largest decentralized derivatives exchange on the Ethereum blockchain. With their margin deposit, users can leverage their speculations on falling or rising prices by a maximum of five times. There is a trading fee of 0.05 percent to 5 percent.
It is also possible to lend assets on the DeFi-DEX at a variable interest rate that depends on the supply and demand of the platform. Five percent of all interest payments from borrowers are set aside for the record to fund an insurance pool. The rest of the interest payments are paid out to people who make their capital available on dYdX. Currently, the DeFi protocol supports trading pairs for ETH, DAI and USDC.
3. Hegic: Total Value Locked $ 50.5 million
Hegic is an on-chain peer-to-pool options trading protocol built on top of Ethereum. The protocol enables users to use call and put options on Ethereum or tokenized Bitcoin. In addition, users can make liquidity available on Hegic.
This makes it possible to earn money from the trading volume of the Hegic platform. In addition, due to the liquidity stored in the option contract itself, Hegic options can be exercised at any time during the holding period of a contract.
This means that Hegic trade options yourself or participate in the success of the platform as a liquidity provider.
2. Nexus Mutual: Total Value Locked $ 86.2 million
Nexus Mutualis an open source platform through which users can insure their risks in the decentralized finance sector. For this reason, Nexus Mutual offers all DeFi investors an opportunity to lower their investment risks in the emerging Ethereum industry.
With the help of smart contracts, investors can protect themselves against bugs or hacks in the DeFi sector. In addition, Nexus Mutual owns a native platform token called NXM.
This benefits from the success of the protocol in three different ways. On the one hand, it is possible to stake NXM in contracts that you consider safe, for which you receive rewards in return. In addition, NXM is used as a governance token by voting on various updates of the protocol and receiving rewards for this. NXM can also be obtained for assessing DeFi platform risks.
1. Synthetix: Total Value Locked $ 766.1 million
Synthetix is a protocol for the issuing and trading of synthetic assets. The platform is considered the inventor of synthetic assets and helps users to map the value of various on-chain and off-chain assets such as crypto currencies, fiat currencies, stocks or commodities.
This makes it possible, for example, to participate in price increases of listed companies via the Ethereum blockchain.
Synthetix has two different tokens: SNX and Synth. SNX is the primary native token issued by the DeFi platform and available for trading. Thus, various synthetic products can be created by storing SNX.
The synth generated then track the price of the corresponding asset and so, for example, sETH stands for ETH and sGold for gold. The synths produced can either be held or traded on the Synthetix exchange.
The ratio between the value of the secured SNX and the value of the synthetic synth must be more than 750 percent for the security of the protocol to be guaranteed. Debtors receive the trading fee from the Synthetix exchange as a reward by staking SNX.