The derivatives market is a thousand times more complex than the spot market, given its vast design space, fragmented liquidity (spatial and temporal), bursty & directional traffic, and long/short co-existence. A fair and efficient derivatives market contains a massive amount of information reflected in countless daily matches of buyer and seller, resulting in the market’s collective judgment on price & liquidity at any point in time (thank god the crypto market is 24/7/365). The most high-performance servers are needed to host such a market for centralized entities.
However, the computing & storage resources on-chain are minuscule. Achieving fair & highly liquid derivatives markets and one-click abstraction for effective derivatives market making on-chain is like putting a man into a nutshell. However, this is exactly what Derivio sets out to build.
Hamlet replies: “Oh God, I could be bounded in a nutshell and count myself a king of infinite space.
In existing oracle-based derivatives models, active traders trade against the liquidity pool. However, there are significant risks involved. This was demonstrated in September by the GMX exploit and the gTrade vault collateralization event. These problems of the black swan market crisis & structural design inefficiencies need to be solved for DeFi derivatives to take a big step toward becoming a global risk exchange machine.
The failure of derivatives’ automatic market-making is the failure of the democratization of DeFi — liquidity providers need robust automatic market-making infrastructure, while traders desire more DeFi market offerings.
The Derivio Differentiator
Derivio’s first products will be perpetual & digital options trading offered in a Liquidity-as-a-Service model with a fully decentralized architecture. We will offer a variety of derivatives & unique markets for traders. Our unique market-neutral liquidity model (a detailed deep dive into this will be released later) offers ambitious market makers a one-click abstraction for making the market over a variety of long-short derivatives markets without exposure to LP risk from sustained skewed directional market movements. With that, our institutional-grade platform promises instant trading liquidity, optimal capital efficiency, and aggregated organic yield sources.
In other words, Derivio will achieve programmable market neutrality for its liquidity pools — a liquidity provider can be thought of as running a market neutral market making strategy on perp & options trading without any complication — as simple as one click!
We want to provide the foundation for a whole range of structured derivatives so traders can gain exposure to a variety of payout curves & unique tradable markets, with conditional mechanisms that give every trader, novice or veteran, retail or professional, the kind of risk-reward they are looking for.
What’s Next
This is part 2 of a three-part Derivio introductory series — part 3 is coming soon! In the meantime, if you want to learn more about Derivio and stay up to date on project details, join our Discord and follow us on Twitter!
