DeFi Derivatives: A Simple Descriptive Guide

By NOWNodes on The Capital

Originally published in the NOWNodes blog.

The DeFi ecosystem is booming. It is bringing more users to the crypto world. One cannot deny that DeFi is doing what ICOs did in 2018. It is bringing the spotlight back to the crypto world again. The trading element of the DeFi ecosystem plays a very important role in this growth. So, who are the main players within the trading element of the DeFi sector? These are the prediction markets, DEXs or decentralized exchanges, and derivatives.

If you compare based on core concepts, there’s not much difference between the general derivatives and DeFi derivatives. Both of the derivatives are technically a contract. It involves two or more parties in a contract, and they agree that the value of their contract would be based upon a predecided financial asset.

In DeFi derivatives, the category of underlying assets depends upon the type of DeFi derivatives. We will explore them in the later stage. In short, the financial assets and events are used as underlying financial assets in the DeFi derivatives.

The Types of DeFi Derivatives Based on the Underlying Asset

The derivatives market has further parts within it. Both of them are proving their importance in supporting the growth of the DeFi sector. These sub-parts are event-based derivatives and asset-based derivatives. The popular term for event-based derivatives is prediction markets. Many of the crypto space members know it as a prediction market.

There’s a difference between the asset type between the prediction market and the asset-based derivatives. Financial assets are underlying base assets in the asset-based derivatives. On the other hand, events are the underlying assets in the prediction market. The example of events in the prediction market is the presidential elections, weather, among many others.

DeFi Derivatives — Main Uses

DeFi derivatives have tremendous potential. The first and foremost benefit of DeFi derivatives is that it offers immense flexibility. Automatic and permissionless execution of tokenized derivative contracts is possible through DeFi derivatives. These tokens issued by smart contracts can prove to be a game-changer. DeFi derivatives have many uses, but its main uses are:

#1. A user can protect themselves from future price fluctuation through DeFi derivatives. A DeFi derivative contract allows them to buy a specific asset in the future at a fixed price if they signup for it.

#2. Benefit from the price speculation. A user can profit through speculating the future price of a financial asset or future outcome of an event.

Locked-in Value — DeFi Derivatives

DeFiPulse shows that there are eight players in the DeFi derivatives market. They are Synthetix, Nexus Mutual, MCDex, Erasure, Opyn, Augur, ACO, and Veil. At the time of writing, the total value locked in the DeFi derivatives stands at $949.4 million. Synthetix is the most dominant player in the DeFi derivatives space. Its current dominance stands at 91.9%.

DeFi Derivatives Project Ranking by DeFi Pulse

#1. Synthetix

Locked-in Value: $865.7 million

#2. Nexus Mutual

Locked-in Value: $60.3 million


Locked-in Value: $16.5 million

#4. Erasure

Locked-in Value: $5 million

#5. Opyn

Locked-in Value: $989.7K

#6. Augur

Locked-in Value: $648.1K

#7. ACO

Locked-in Value: $204.7K

#8. Veil

Locked-in Value: $52.7K


The DeFi derivatives space is ensuring long term growth and stability of the crypto ecosystem. They allow its users to go long or short on multiple assets as well as information. DeFi Derivatives offer a chance to the traditional traders to get an exposure to the world cryptocurrencies.

We can now say without a doubt that DeFi will hold a special place in the future of the global financial industry. In time, DeFi will make a space in almost all aspects of the world economy and global financial ecosystem. DeFi derivatives will prove to be a strong pillar of growth in the DeFi space.

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DeFi Derivatives: A Simple Descriptive Guide was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.

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