SINGPORE, Aug. 18, 2021 /PRNewswire/ -- Derivatives products have been playing a significant role in the global finance market. As the concept of decentralization experienced rapid development and gradually gained wider recognition among users in recent years, decentralized derivatives trading has naturally become one of the most promising markets. So is it possible for decentralized derivatives exchanges to disrupt their centralized counterparts in the short to medium term? Here are some of thoughts from Sandra.
Centralized exchanges are advantageous in terms of asset custody, fairness and self-governance. According to Coingecko, Binance, OKEx, Huobi, Bybit, FTX, Bitget and BitMEX are the world's top7 derivatives exchanges. Take Binance as an example, its spot trading volume in the last 24h reached $23 billion while the derivatives trading volume hit $77.5, or 3.37 times the former.
Things are quite different in decentralized exchanges (DEX). With a combined 24-hour trading volume of $1.25 billion for Uniswap V2 and V3 and $96 million for the decentralized derivatives exchange represented by Perpetual Protocol, futures trading volume accounts for only one-fourteenth of spot trading.
However, the business development of decentralized derivatives exchanges is far from satisfying.
In today's market, decentralized futures derivatives have the largest number of project types and the most diverse solutions, mainly represented by perpetual futures, which currently fall into three major genres: AMM, order book and synthetic assets. Decentralized derivatives products face problems with performance, price discoverage, risk control and anonymity.
After all, the primary goal of a decentralized project is to meet the basic needs of users, while decentralization could be gradually achieved by engaging more institutions and diversified participants to enhance the ecosystem.
Like fresh produce in e-commerce faced with various limitations in products, technology, and channels, derivatives also find it challenging to break barriers. It is therefore not likely for decentralized derivatives exchanges to shake up the dominant position of CEXes.
However, with the development of Layer2 and other scaling solutions, their problems regarding performance, risk control, transaction cost and anonymity will be partially solved. It is fair to say decentralized derivatives exchanges will become the biggest beneficiary of Layer2 technology. From a long-term perspective, derivatives trading is still one of the most promising segments with unlimited possibilities.
