Top Derivative Marketplaces and Protocols to Watch in 2021
Derivatives have the potential to upend an economy if created and manipulated en masse - just consider what mortgage-backed securities did to the global economy around 2008. The fact stands that most people outside of finance may not even understand what derivatives are.
Derivative trades allow investors to make speculative bets on how the value of a specific asset, whether it is a stock, bond, market index, or other type of security or asset, will move. They can formalize their bet through several different types of trades (swaps, options, etc.), each of which fall under the broader category of a derivative transaction.
The derivative is the contract that governs such a bet, and these contracts are executed within derivative marketplaces. These markets generally need to accommodate a more complex array of transactions than those that simply allow buying and selling of assets. Therefore, those markets that allow derivative trades have their own designation: derivative markets.
Derivative markets are among several aspects of the decentralized finance (DeFi) sector turning heads. Prevailing sentiment among pro-DeFi camps is that the more the DeFi sector can offer the same basic tools as centralized finance, the more competitive the space may be as a whole.
The more similar the decentralized and centralized financial sectors become (fundamental differences aside), the more legitimate DeFi could become in the eyes of heavyweight investors.
Certain decentralized derivative markets have attracted more investment than others. Large investments bolster a platform’s liquidity, preventing slippage for users, but are not the only criteria that make DeFi derivative markets worthy of attention.
Those who want to know which decentralized derivative markets may be worth checking out as an investment vehicle in 2021 and beyond should consider the following DeFi products.
Note: Not every project listed here is decentralized since we consider the centralized derivate platforms and protocols also worth paying attention to as blueprints for decentralized platforms to follow.
Looking at the Future of Decentralized (and Centralized) Derivative Markets
Before getting into blockchain-powered derivative markets and protocols, we must first note that some of the largest cryptocurrency exchanges offer derivative trading capabilities. They are not all included in this list, but you can learn more about those exchanges in our list of the Top Decentralized Exchange Projects to Watch in 2021.
Synthetix is a decentralised synthetic asset issuance protocol powered by the Ethereum blockchain. The mechanism for engaging in derivatives contracts on the Synthetix platforms is the Synthetix Network Token (SNX). A platform user can put up SNX tokens for a contract (like a futures contract, swap, or option). The SNX tokens that the user provides for a contract serve as the collateral for their desired synthetic asset. A synthetic asset is the tokenized version of a real-world asset. In this way, Synthetix allows its users to bet on the future of real-world commodities in their tokenized form through derivative trades.
Synthetix currently has more than $1 billion invested through its protocol. It allows users to engage in many types of derivatives contracts linked to several different asset types.
Hegic features as a peer-to-peer interface for trading derivative options using the Ethereum blockchain. The platform accommodates two cryptocurrencies, Ethereum (ETH) and Wrapped Bitcoin (WBTC), with which users of the platform can place either put or call options for supported assets. The relative success of such put or call options are subject to variable conditions that hinge upon the movement of the asset’s price. Make a quick Google search for more information on how puts and calls work.
Hegic has a current market cap of over $44 million, making it a project of note in the landscape of DeFi derivative marketplaces.
One of the few truly decentralized derivative marketplaces today, Futureswap offers decentralized futures contracts in a marketplace governed by those who take part in the Futureswap ecosystem. Built on the Ethereum blockchain and “run completely on smart contracts”, two stated benefits of Futureswap are transparency and simplicity. Users can engage in contracts with up to 20x leverage on any ERC-20 token.
While dYdX (financially backed by venture capital giant Andreessen Horowitz) is primarily an exchange, it belongs on this list of decentralized derivative projects for a few reasons. For one, dYdX founder Antonio Juliano has written about dYdX’s intent to offer a wide range of derivative trading protocols to its user base in at least one white paper dating back to 2017. Second, the Bitcoin Perpetual Contract feature of dYdX which went live in May 2020 further augments users’ ability to bet on the future of certain cryptocurrencies through derivative contracts.
dYdX has received significant investment in recent months aimed at further scaling the platform, which is another indicator it is a project worth monitoring.
Bybit is a derivatives exchange based in Singapore that recently turned heads through a partnership with German professional soccer club Borussia Dortmund. This is not some last-ditch publicity stunt by a futures trading exchange that has no other bullets left in its metaphorical chamber — Bybit is a leader in the market with a 24-hour trading volume trending towards $2.5 billion.
Though there is a lack of specificity in terms of what the Dortmund-Bybit partnership will involve, fans of the international soccer scene can expect an increased exposure to Bybit in some capacity in 2021. Although it is a centralized exchange, those actively monitoring the landscape of decentralized derivative exchanges are sure to hear more about Bybit as it incorporates more elements of decentralization.
FTX is a cryptocurrency derivatives exchange with a 24-hour trading volume of nearly $1.4 billion as of writing. Some sales pitches for the exchange include “up to 101x leverage”, “deep orderbooks”, “tight spreads”, and futures contracts on a variety of different currencies and protocols. FTX also differentiates itself by dangling unique prizes to investors, including but not limited to shares in Apple, Tesla, Pfizer, Google, and Alibaba as well as a Tesla Model S.
BitMEX is a decentralized exchange offering leveraged and perpetual trading contracts, and has one of the largest daily trading volumes of any decentralized derivative exchanges with nearly $2 billion at last account. BitMEX may be worth watching in 2021 not just because of the significant volume locked into its contracts, but also for the not-so-positive press it has recently received.
BitMEX leadership has been charged with illegally operating within the United States as well as various other charges. Those charged are facing potential prison time. The development of those litigations would be enough to make BitMEX an exchange worth watching, but its impact as a billion-dollar market and recently finished acceleration of their User Verification Programme makes an even stronger case for it.
BitZ offers both regular exchange services (token swaps, dollar-for-token swaps) but also offers perpetual futures contracts, which is why it makes its way on this list. Users can engage in contracts betting on the future of ETH, BTC, LTC, ATOM, BCH, EOS, XRP, and PAXG. BitZ was founded in 2016 currently has a 24-hour trading volume of approximately $2.5 billion.
Pods is a decentralized options trading protocol built using the Ethereum blockchain. Though it is still in beta, Pods exemplifies the DeFi mantra by being decentralized. The landscape of fully-decentralized derivative trading platforms and protocols is relatively sparse, so we’d be remiss if we did not mention Pods as a project to look out for in 2021.
Singapore-based Phemex is, in part, a futures trading platform that provides a way for traders to interface with the market. They can hedge against various market factors or earn or lose money based on how accurately they predict the amount that the value of an asset rises or falls over a certain period of time—the core premise of futures trading. Phemex allows users to engage in such contract trades with 14 different cryptocurrencies and certain assets, including gold. At last count, Phemex has approximately $795 million in 24-hour trading volume combined between spot trading and derivatives trading. Since most of the trading volume comes from the derivatives side, Phemex is easily among the most popular derivatives exchanges offering DeFi products.
BTSE Exchange (or just BTSE) allows users to make derivative trades with cryptocurrency, fiat currency, and stablecoins. It offers other defining features like the BTSE debit card,in case you want to make your stake in the BTSE Exchange easily-accessible as a means of payment.
The BTSE Futures 2.0 feature allows users to collateralize their futures contracts with assets of a different sort than what they are trading. For example, one can fund their margin for a BTC future with dollars, yen, or another type of asset rather than Bitcoin. The BTSE Exchange has a current trading volume (as of writing) of approximately $528 million.
Another of the true decentralized derivative projects on this list, FinNexus Protocol For Options (FPO), will offer different types of options trades. They will base it on the multi-asset single pool pooled liquidity model, and will offer investors the opportunity to earn tokens by providing liquidity to the derivatives marketplace.
Bingbon is an exchange that allows users to “long” or “short” various cryptocurrencies. These sorts of contract trades make any exchange a derivative exchange, as they allow investors to capitalize not on where the price of an asset is now, but where where it may head to in the future. Bingbon users can wager on the future of 13 different cryptocurrencies against the dollar-tied USDT. As of writing, Bingbon has a 24-hour trading volume just shy of $469 million.
Deribit is self-labeled as a “Bitcoin future and options exchange”, though users can trade with Ethereum as well. Though offering perpetual contracts, futures, and options for only the two most popular cryptocurrencies (ETH and BTC) may seem somewhat limited compared to other options, there are very legitimate legal reasons they may have done this. It is also abundantly clear upon visiting the Deribit platform that their leadership is all about compliance, which may go hand-in-hand with a relatively limited slate of offerings.
With derivative exchanges like BitMEX facing serious legal trouble, the conservative Deribit approach may prove wise in 2021 and beyond. With a surge in recent activity on the platform, investors seemingly agree.
Futures contracts are a central part of what exchange ZBG offers users. Based in Hong Kong, ZBG states that it aims to serve as a trading platform for “innovative” tokens, and has a 24-hour trading volume of more than $680 million at the time of writing. It offers traditional exchange services in addition to its futures contract feature.
With a 24-hour trading volume of more than $29 million, BaseFEX is certainly worth paying attention to even if it is not the biggest fish in the pond as of now. Fish grow, and the customer base that BaseFEX has managed to attract is nothing to sneeze at. It has attracted thse users by offering them the ability to trade futures contracts involving BTC, ETH, XRP, BCH, LTC, EOS and BNB. By its own billing, its pull factors include the ability to leverage trades up to 100x, as well as strong customer service and security. Not fancy, but BaseFEX may get the job done if you are looking to place a futures contract.
Chicago Mercantile Exchange (CME) Group
The CME Group goes far beyond your standard crypto derivatives trading platform, as it offers futures contracts on everything from soybeans to crude oil and market indexes. That said, it does offer futures and options contracts on Bitcoin. If you choose to hedge the future of Bitcoin on CME Group’s platform, be warned that you may find yourself venturing into contracts on something you never intended to (soybeans?).
Disclaimer: the Vega Protocol is in the invite-only, test-network stage. Though it’s not yet live, this list details projects to keep an eye on in 2021, so why not monitor this protocol designed to facilitate “end-to-end margin trading”, among other DeFi use cases?
No, we aren’t talking about the Silk Road. Opium Network is a protocol that “allows for creating, settling, and trading any decentralised derivative”. Still relatively young, the Opium network currently offers users the ability to both create and trade decentralized derivatives. It will be worth monitoring whether Opium Network can increase its market share in 2021.
Make sure to keep an eye out for moves from these and other derivative exchange marketplaces and protocols in 2021!