In the traditional financial trading circle, the trading volume of derivatives is often higher than that of the spot market. In recent years, although the volume of the encrypted financial market is still small compared with the traditional financial market, the trading volume of the encrypted derivatives market is growing rapidly. Therefore, the upside of cryptocurrency derivatives is considerable, and it is a very potential track.
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Crypto Derivatives VS Traditional Financial Derivatives
Since its birth, financial derivatives have been regarded by investors as an effective tool to reduce market investment risks and stabilize trade exchange rate fluctuations. The value of this type of derivatives depends on the changes in the value of their underlying financial assets, such as exchange rates, interest rates, commodities and stocks, etc. The market conditions of these factors will determine the rate of return of these derivatives.
The form of traditional financial derivative products is as follows: the buyer and the seller sign a contract, which will indicate the type, price, quantity, delivery time and place of the transaction, etc., and will be executed within the specified time after the contract becomes effective. The contracts of most financial derivatives are standardized, so most derivatives are traded on centralized exchanges.
The common feature of most financial derivatives is that they need to pay margin, but investors can trade in full as long as they pay a certain percentage of margin. Therefore, financial derivatives transactions have leverage attributes. Common financial derivatives include financial forwards, financial futures, financial options, financial swaps and credit derivatives.
In the encrypted financial market, there are futures contracts, options contracts and other products similar to traditional financial derivatives, and on this basis, innovative financial derivatives such as perpetual contracts combined with blockchain technology have been developed. The underlying logic of digital currency derivatives is the same as that of traditional derivatives. It is a derivative product related to digital assets based on digital currency or index.
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Dinghaishenzhen in the field of encrypted derivatives: perpetual contracts
At present, the most popular and dominant product in the encrypted derivatives market is the perpetual contract. In the traditional investment concept, the contracts used by investors have a fixed delivery period, and once the delivery date is reached, settlement and delivery must be made. As an innovative financial derivative, the perpetual contract has no delivery date. Therefore, in the transaction of perpetual contract, users can hold positions indefinitely.
As the most popular derivative in the encryption market, perpetual contracts are naturally popular for a reason. The perpetual contract is similar to a guaranteed asset market. Its price is close to the price of the underlying reference index. As long as the contract is not liquidated, investors can hold it forever. At the same time, the perpetual contract introduces a funding fee mechanism, and through the funding fee mechanism, the price of the perpetual contract is always anchored to the spot index. Therefore, unlike traditional contracts, the price of perpetual contracts generally does not deviate too much from the spot price.
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Dark Horse of Crypto Derivatives: Leveraged Tokens
For cryptocurrency investment, it often takes a lot of time and energy to avoid liquidation. But the emergence of leveraged tokens gives them a chance to relax their investment, because leveraged tokens will never be liquidated. As the trading volume of leveraged tokens continues to rise, leveraged tokens have gradually become a strategic product line for major exchanges. At the moment when the market reaction of leveraged tokens is gradually increasing, the listing of leveraged tokens has almost become the standard configuration of first-line exchanges, and the appearance of a dark horse in the derivatives track is gradually emerging.
Leveraged tokens refer to tokens with leverage function, which can provide leverage multiple rewards for price changes of encrypted currency assets. As a leveraged trading tool, leveraged tokens have basically the same advantages as ETF (Exchange Traded Fund). Compared with cryptocurrency leveraged investment products such as perpetual contracts, leveraged tokens have a lower investment threshold and do not require a deposit. Going deeper into its biggest attraction is that leveraged tokens do not have the risk of liquidation.
The reason why leveraged tokens have become popular in recent years is first of all that they can reduce risk exposure when losing money, thereby greatly reducing the liquidation probability and liquidation risk. Second, the process of buying leveraged tokens is the same as normal transactions on the spot market, and no deposit is required. Finally, it can also automatically adjust the leverage ratio to maintain the required leverage ratio at a certain level, so as to obtain more profitable positions in trending markets.
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Since 2020, the epidemic has had a huge impact on the global economy, and the global financial landscape seems to be quietly changing. People's demand for innovative financial instruments is surging, so the influence of perpetual contract products in the encrypted investment industry is gradually expanding, and they are gradually entering the mainstream market. Encrypted derivatives are based on the model of traditional financial derivatives, using encryption technology to make targeted improvements based on the characteristics of encrypted currencies, and are on the road of rapid iterative development. Emerging encrypted derivatives such as leveraged tokens have brought investors a brand-new investment experience, which is bound to usher in greater development opportunities in the next few years.
