2020 is the first year of the explosion of Defi, and there have been relatively clear leading and first-tier projects in lending and AMM tracks. The derivatives track is a bit lonely, and only SNX carries the banner of synthetic assets.
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1. Decentralized derivatives are yet to explode
2021 is bound to be the year when DeFi derivatives trading protocols explode.
Compared with centralized derivatives, the DeFi derivatives protocol has the following five advantages:
1) There is no centralized exchange operator, and the cost will be lower in the long run;
2) Access without permission makes it anti-censorship, no one can control, change and close the transaction agreement;
3) Users hold their own funds, and there is no counterparty risk;
4) There is no license for trading varieties, and any asset with a public price feed can be traded;
5) No withdrawal limit or transaction size limit.
At this stage, the field of derivatives mainly includes three vertical types: synthetic assets, contracts (leveraged and perpetual), and options.
As of the end of 2020, the derivatives space is still dominated by synthetic assets. From the data, the overall lock-up value of derivatives in the third quarter increased by 160% compared with the second quarter, reaching $293M, and the proportion of the total lock-up value of DeFi dropped from 15% at the beginning of the quarter to 7% at the end of the quarter. More obvious than lending and DEX.
However, the contract market is expected to become the breaking point of decentralized derivatives in 2021.
The volume of derivatives in the traditional financial market is more than ten times that of the spot, and the transaction volume of derivatives on the digital asset centralized exchange also successfully exceeded the spot in the third quarter. Related to this, the status of decentralized derivatives, especially various contracts in the DeFi ecosystem is currently relatively weak.
In the third quarter, against the background of the vigorous development of DeFi, the fierce competition of spot DEX and the monopoly of leading projects, more and more DEXs are focusing on the decentralized contract market, and the types of decentralized derivative products are constantly enriched. The spot DEX platform dYdX launched the Ethereum perpetual contract in August following the launch of the Bitcoin perpetual contract in June; DerivaDEX received investment in early 2020, and its business blueprint includes the perpetual contract market, options and synthetic assets.
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2. Huge market space for decentralized derivatives
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3. Multiple projects in the field of decentralized derivatives market
We divide the current popular projects in the industry into two categories according to whether the core function - trading function has been launched: the trading function has been launched and the trading function has not been launched. The following is an overview of the two types of projects:
1. The transaction function has been launched:
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4. Core indicators for evaluating decentralized derivatives projects: capital utilization rate
How to evaluate a decentralized derivatives trading agreement?
Fund utilization rate is a core indicator for reference.
The commonality of decentralized exchanges is that they all require various forms of lock-ups. Lock-ups provide the project with the necessary liquidity, insurance, backend and counterparties. Therefore, the lock-up structure is very important to the success of a project, and the lock-up amount is an important indicator of the success of the project. It can reflect popularity. Projects that are sought after by the market are often accompanied by extremely high lockups. For example, Uniswap is such a successful case. At the same time, the core business indicator of each decentralized exchange is trading volume, which is the lifeblood of the exchange, and the same is true for decentralized derivatives projects.
We organically combined these two data and came up with the concept of capital utilization rate. Although each exchange has unique and innovative business, this indicator can give us a good frame of reference for horizontal comparison. For decentralized projects with high capital utilization, every dollar locked by users and liquidity providers can bring higher transaction volume and transaction fee sharing, which is more meaningful for ecological participants. And if the capital utilization rate is low, generally speaking, it reflects that the project still needs to further polish the product to promote the organic growth of transaction volume and further increase of users. Otherwise, simply locking positions will not bring direct meaning.
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5. Introduction of key projects
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1） dYdX
dYdX is a decentralized trading platform led by a16z and Polychain, which supports lending, spot, leveraged and perpetual contract transactions. Currently, dYdX supports the following main functions:
Trading: spot trading, up to 5 times leverage trading, and up to 10 times perpetual contract trading;
Borrowing: ETH, DAI and USDC are supported, the initial pledge rate is 125%, and the flash loan function is also supported.
dYdX can be described as one of the earliest decentralized leveraged trading platforms in the DeFi field. Its lending business and perpetual contract trading volume have grown significantly this year.
For leveraged trading, dYdX adopts the order book mode for matching. For perpetual contract trading, the price index is taken from the price index of each centralized exchange.
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2） DerivaDEX
DerivaDEX is a decentralized contract trading protocol invested by Polychain Capital, Dragonfly Capital, Coinbase Ventures and other funds. The founder is a former DRW senior trader, and its consultants include well-known programmer Phil Dalian and blockchain consulting agency Gauntlet.
At present, there is such an impossible triangle in the decentralized derivatives exchange in the early stage of development: performance, autonomy and security.
DerivaDEX solves this dilemma with trusted hardware and a unique architecture. Its characteristics are:
DerivaDEX uses a trusted execution environment to resist single points of failure and censorship issues;
DerivaDEX adopts an open order book and on-chain settlement components to provide a high-performance and efficient experience;
The liquidity mining model used by DerivaDEX can incentivize people to participate in the governance and operation of DerivaDEX.
Currently, the insurance mining launched on DerivaDEX encourages users to use pledge funds for insurance funds, so that the ever-growing insurance funds can provide users with risk protection. The trading protocol is scheduled to go live in the first quarter of 2021.
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3） Injective
URL:https://injectiveprotocol.com/
Injective was incubated by Binance Labs, and the founders have backgrounds in traditional finance and blockchain.
The Injective protocol is mainly composed of three parts: the Injective chain, the Injective derivatives protocol, and the Injective DEX. The Injective chain is built based on Cosmos, and plans to achieve high TPS and low gas fees. It uses a verifiable delay function (VDF) to eliminate transaction cheating and bad transaction behaviors such as front-running transactions.
At present, 11 perpetual contract trading pairs have been launched on the Injective test network, and 1 delivery contract will be launched soon. There are more types of products in the current decentralized derivatives trading platform.
The Injective Derivatives Protocol is a completely decentralized peer-to-peer derivatives protocol that supports perpetual swaps, contracts for difference (CFD), etc., on which users can freely create and trade any derivatives market.
Injective DEX is developed based on the Injective chain and uses the order book model to match transactions. Nodes maintain a decentralized order book and get 40% of the transaction fee. Users can place and cancel orders for free. Injective's spot trading is based on the 0x protocol.
Injective adds a market maker to the traditional derivatives trading model. The market maker deposits a margin into the smart contract and maintains a certain pledge rate, while buyers can buy and sell contracts with the market maker. The price of the contract is taken from other exchanges that have listed the token through the oracle machine, and is weighted and averaged according to the trading volume.
Injective has issued a platform token price INJ, which can be traded on multiple exchanges.
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1） Opyn
URL:https://opyn.co/#/，
Opyn is invested by funds such as Dragonfly.
Opyn is an order book-based on-chain options platform built on the general option protocol "Convexity Protocol", which is positioned to provide insurance services for users through option transactions.
The convexity protocol has a large degree of extensibility - allowing developers to create options with various parameters, such as: 1) European and American options; 2) call or put options; 3) underlying assets; 4) collateral types, etc. .
Currently, Opyn mainly provides protective put options on ETH and insurance on Compound storage assets USDC and DAI. Opyn recently launched the v2 version, its features include:
The option is automatically exercised when it expires;
Support for cash-settled European options;
Support the use of income-generating assets (such as cToken, aToken, yToken, etc.) as collateral and earn income;
When a user purchases an option product on Opyn, the user actually obtains an oToken representing the option product, and can trade this tokenized option product on Uniswap.
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2） Hegic
Hegic is a very characteristic DeFi options product. In April 2020, the V1 version of the agreement was launched; on September 9, 2020, HEGIC tokens were issued through the bonding curve contract; in October 2020, the V888 version of the main network was launched.
The Hegic team is currently anonymous, with the main founder using the pseudonym Molly Wintermute.
Based on the AMM model rather than the order book model, Hegic currently supports American options, allowing users to exercise options at any time within the time limit.
Hegic is more flexible than similar products, users can design 1-day, 7-day, 14-day, 21-day, 28-day expiration time and any exercise price. When a user purchases an option, the total cost required is to pay the option premium (premium) and a fixed 1% settlement fee (settlement fee).
Hegic uses a special simplified option pricing model whose implied volatility (IV) needs to be manually updated by the developer (Molly) based on information from skew.com.
In addition, Hegic has designed a liquidity pool. Liquidity providers (LP) provide liquidity through pledged assets, and when users buy options, they use the liquidity pool as the seller of options. When exercising the contract, the liquidity pool provides When the buyer makes payment and does not exercise the contract, the option premium (premium) will be evenly distributed to the liquidity pool. The liquidity pool also ensures that contracts can be exercised.
Hegic's liquidity pool is a two-way fund pool, and the settlement of put options and call options is completed in the same pool. If the put option loses money, the call option will make a profit. This two-way nature disperses and reduces the option risk brought about by market fluctuations to a certain extent. On December 7, 2020, the long-short ratio in the WBTC pool was 3.56, and the long-short ratio in the ETH pool reached 6.4. In this case, if the market rises unilaterally, LPs will suffer higher losses. At present, Hegic makes up for it through mining incentives.
The AMM model and simple user interface design have allowed Hegic’s locked positions and transaction volume to increase significantly in the fourth quarter of 2020, but on the other hand, LPs in Hegic’s liquidity pool take greater risks. At the same time, there are certain risks in anonymous teams. However, it remains to be observed how Hegic will develop in 2021.
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1） Synthetix
website:https://www.synthetix.io/
Founded by Kain in Australia, Synthetix is a decentralized synthetic asset issuance protocol built on Ethereum. Before founding Synthetix, Kain founded the stable currency project Havven, from which Synthetix was transformed.
The core roles in the Synthetix ecosystem: the system token SNX, the synthetic asset Synths, the stable currency sUSD, and the trading protocol Synthetix.Exchange. Its operating logic is that all synthetic asset Synths generate sUSD through the over-collateralization system token SNX, and then use sUSD to purchase Synths on Synthetix.Exchange to generate.
In addition to generating sUSD, users who pledge SNX can obtain transaction platform fee dividends and LP liquidity rewards.
The advantage of the Synthetix ecology is that it forms a tight closed loop around SNX and its derivative stablecoin sUSD. The disadvantage is that this ecology is a closed self-circulating ecology, and ecological increment will become the core issue for the sustainable development of Synthetix.
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2） UMA
website:https://umaproject.org/
UMA was founded by former Goldman Sachs trader Hart Lambur and has received investments from Bain Capital and Dragonfly.
UMA is the abbreviation of Universal Market Access. It is committed to building an infrastructure that allows users to create custom mortgage synthetic tokens, including smart contracts that do not require on-chain price feeds, support for generating synthetic assets, and a decentralized oracle system , to provide price data services for UMA's smart contracts.
Through this infrastructure, UMA allows users to create custom collateralized synthetic tokens that can track the price of almost anything. UMA tokens allow holders to vote on price data services and participate in regulating important parameters in the UMA ecosystem.
In 2020, UMA released the following important products: Yielddollar, a synthetic dollar stablecoin, collectively known as uLabs Gas Future Token, an Ethereum Gas derivative, and announced a cooperation plan with Yam.
Judging from the current product design, UMA's ecosystem is more open than Synthetix's, and the financial logic of the released products is sophisticated, but it is relatively complex and has not yet been applied on a large scale.
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Thanks to partners and DDX Chinese community volunteers Dexter, Bailong, Xiaobai, etc.;
Due to the rapid development of the industry, the selected project introductions only represent some of the popular projects, or there may be omissions. Readers are welcome to feedback and update.
