Research Summary
This report discusses the growth and potential of crypto derivatives, particularly perpetual futures (“perps”), which make up the majority of all derivatives trading volume. The report explores the market structure for both centralized and decentralized perps, the merits and drawbacks of various decentralized exchange (DEX) designs, and the viability of decentralized perps that rely on aggregated liquidity pools. The report also anticipates that decentralized derivatives will gradually take market share from centralized exchanges.
Key Takeaways
Perpetual Futures and Crypto Derivatives
- Perpetual futures dominance: Perpetual futures are the most popular derivatives product in the crypto market, making up the majority of all derivatives trading volume.
- Centralized vs decentralized exchanges: Most perps trading occurs on centralized exchanges, but decentralized exchanges (DEXs) have emerged as viable alternatives, although their volumes and active users are still only a fraction of their centralized counterparts.
- Decentralized derivatives growth: The report suggests that decentralized derivatives will be a growth vertical that will slowly but surely take share from centralized exchanges.
Market Structure and DEX Designs
- Market structure: The report examines the overall market structure for both centralized and decentralized perps, highlighting the dominance of centralized exchanges.
- DEX designs: The report explores the merits and drawbacks of various DEX designs, particularly focusing on the viability of decentralized perps that rely on aggregated liquidity pools.
- Future DEX upgrades: The report anticipates future upgrades to existing DEXs, such as GMX v2, Synthetix v3, and dYdX v4.
Decentralized Perps and Market Potential
- Decentralized perps potential: The report suggests that decentralized perps have the potential to take a significant market share from centralized exchanges.
- Market potential: The report estimates the potential market prize for the leading decentralized derivatives exchange to be over $25B.
- DEX advantages: The report highlights the unique value propositions that only DEXs can offer, such as composability and decentralization.
Actionable Insights
- Investigate the Potential of Decentralized Perps: Given the growth potential of decentralized perps, there is a need to further explore and understand this market segment.
- Consider the Advantages of DEXs: DEXs offer unique value propositions that centralized exchanges cannot mimic. These advantages should be considered when evaluating investment opportunities in the crypto market.
- Monitor Future DEX Upgrades: Future upgrades to existing DEXs, such as GMX v2, Synthetix v3, and dYdX v4, could significantly impact the market dynamics and should be closely monitored.
