Derivative protocols

A space to discuss the ‘Derivatives’ market sector available on Token Terminal.

What are decentralized derivatives exchanges?

Decentralized derivatives exchanges are smart contract-based derivatives exchanges that allow users to mint and trade the synthetic versions of different assets globally.

What problems do decentralized derivatives exchanges aim to solve?

Onchain derivatives exchanges bring tokenized representations of all asset classes within the reach of anyone with an Internet connection.

How do onchain derivatives exchanges solve those problems?

Onchain decentralized derivatives exchanges bring down the cost of creating derivatives to one function call. Once an asset is represented as a token onchain, it inherits the advantageous features of blockchains: global liquidity, predefined rules of operation, immutable audit trail, and open-source transparency.

Why is now the right time to build and invest in onchain derivatives exchanges?

The derivatives market was initially dominated by orderbook based solutions, most of which suffered from low liquidity. Pooled liquidity derivatives exchanges emerged to solve this liquidity bootstrapping problem, and have since gone onto facilitating tens of billions in aggregate trading volume.

What is the business model of derivatives exchanges?

The primary business model for onchain derivatives exchanges is to generate revenue by taking a cut of the trading fees paid by traders. That is, the derivatives exchange takes a portion of the liquidity providers’ revenue.

Where can I view the current and historical (financial) performance of onchain derivatives exchanges?

Derivatives dashboard: Derivatives | Markets | Token Terminal

Methodology for derivatives-specific metrics

Total value locked: collateral or margin deposited by liquidity providers into the derivatives exchange’s trading pools.
Trading volume: trading volume of the assets listed on the derivatives exchange.
Fees: total trading fees paid by traders.
Supply-side fees: share of trading fees that goes to the liquidity providers.
Revenue: share of trading fees that goes to the protocol (and its tokenholders).
Token incentives: value of governance tokens distributed to liquidity providers and/or traders on the derivatives exchange.
Daily active users: daily distinct addresses making trades onchain the derivatives exchange.

Example project documentation