The State of Decentralized Derivatives Trading: Research #05
You’ve been waiting for it — and here we go! Welcome to our new article in a series of research pieces devoted to the state and the progress of decentralized derivatives trading protocols. Even though the Christmas mood is here, we keep monitoring the progress of our derivatives colleagues and share the most important insights with you. Let’s start!
In this bi-weekly research, we will disclose the updates of the following protocols:
Derivatives trading on Solana
Before we start, it is worth noting the article by Messari, published at the beginning of November, in which they conducted research on the development of perpetual markets on various blockchains. According to the article, the DEX Perpetual trading volumes on the Solana blockchain are still very far from the trading volumes of the largest Ethereum protocols such as dYdX and Perpetual Protocol:
Nevertheless, the trading volumes on Solana are growing rapidly which indicates the growing demand for derivatives trading on the chain:
Such growth rates are associated with the cheapness of transactions, the absence of the need to transfer money between Layer 1 and Layer 2, which is too expensive for small-volume traders on Ethereum, and a full-fledged on-chain order book that can be implemented on Solana.
The Mango forum is discussing the purchase of PsyOptions and the merger with Mango. If the community supports the proposal, the PsyOptions team will receive an offer in the form of a large package of MNGO tokens with vesting for a period of about 5 years and $1.5 million USDC for employee salaries for the next year.
Additionally, the Mango team is developing a mechanism for blocking tokens for up to 5 years (or more). The longer the period for which the user “freezes” tokens, the higher the Voting Power. This mechanic has proven itself very well in the Curve protocol, where more than 50% of the protocol tokens are locked with an average term of 3.5 years, however, freezing CRV not only gives more votes in Governance, but also increases profitability for the user who has locked tokens.
Serum is actively burning SRM on a weekly basis, and during the last week only, the protocol burned SRM worth over $700,000.
Bonfida has published an article about Serum Core (Asset Agnostic Orderbook or AOB), below are the highlights:
- The problem with the old version of the Serum order book was the ability to work only with SPL tokens, therefore, it was impossible to implement trading perpetuals and other instruments, which are not based on SPL tokens.
- The new version (AOB) has revised its logic and added the ability to trade any assets, even if there is no token.
- In the near future, the protocols on Solana will be able to use the Serum order book to sell their products in the field of futures, options, etc.
RiskSwap plans to utilize Serum’s AOB for its derivatives trading, so we keep an eye on the progress of the Serum team in terms of this new order book model.
dYdX remains the top 1 derivatives DEX in terms of trading volumes. Its market share is 12% among all DEXes and 95% among DEXes that offer perpetual contracts. The team has also launched a content contest with a rewards pool of $200,000. The contest includes both some sophisticated and regular tasks on search engine optimization of content.
Due to an error in the platform’s new smart contract, $2 million of user funds could have been stolen, but the exploit was discovered by a white hacker who managed to transfer funds to an escrow wallet. As a result, users were not harmed and were able to withdraw their funds.
Last but not least, they hold a promotion campaign by compensating for the cost of gas for new traders with a deposit of $1,000 or more and for users who have already traded on the platform who deposit $2,000 or more.
Ribbon Finance, powered by Opyn, has launched a pool for selling covered call options on stETH — a derivative that is a futures contract on ETH locked in ETH 2.0 from the Lido protocol. Opyn itself continues to develop perpetual options.
Several aggregator protocols develop solutions for basis-trading (a market-neutral strategy aimed at obtaining funding by buying (selling) the underlying asset and selling (buying) perpetuals) on different DEX derivatives from their interfaces. If the feature is popular with users, it will help reduce the average net funding value, which is good for traders.
RiskSwap continues improving its alpha version of perpetuals trading. In the near future, the protocol will release leverage, liquidations mechanism, order book and funding to the perpetuals alpha. Additionally, the team has integrated the Wormhole bridge that allows transferring assets between Ethereum, Solana, Terra, Polygon and BSC. The Wormhole bridge enables users to migrate assets between all these blockchains to maximise profit-making opportunities with the lowest gas fees.