The Future of DeFi Derivatives

DeFi Derivatives Trading Has Untapped Potential

DeFi brings a lot of diversity to our economy, but one specific sector of DeFi that will continue to see prolonged, exponential growth in 2023 is the derivatives market, and even more specifically options trading. The reasons for crypto options' high probability of growth in the new year can be pinned to massive yet-unrealized potential for trading in both retail and institutional capacities. If we learn to read the markets, make smart use of the data at our disposal and overcome a few speed bumps along the way, options will certainly drive the next era of DeFi to higher highs than ever before.

DeFi options marketplaces on DeFi Llama.

So, what’s holding the options market back from achieving this growth in the here and now?

According to the author, one big issue is that traders do not always know the price significance of what appears to be important news. But, this is precisely what options are for, even if using them as volatility trades.

I think it has more to do with finding the best algorithms to make options, or pseudo-options, both reactive and attractive and robust.

In crypto, we don't necessarily know what it looks like when an encryption algorithm breaks. When someone tweeted that Vitalik Buterin had died, ether (ETH) temporarily “crashed” on the “news” before swinging right back. With such fast-moving tech, there are numerous events and forks that are necessary and common, and yet people don't know how they will affect the market.

But this has always been the case, whatever the speed of tech. I recall many years ago working in gold futures, with news feeds coming through a telex machine. The same market-moving fake news existed then too - the death of some head of state, such as the Ayatollah Khomeini, would move the market for a few minutes, then lurch back again.

Perhaps the most famous fake news was the announcement to the London Stock Exchange that Britain had lost the Battle of Waterloo; the Rothschild clan cleaned up on that "knowledge asymmetry"! Two stories seem to have commingled in their retelling - make up your own mind.

And yes, DeFi needs new products that are stable and secure. Many already exist, but need to push aside the swap-pool-ponzi-farms.