Derivative platforms are essential to DeFi, which lets people speculate, trade, and hedge financial instruments without going through middlemen. With the arrival of 2024, the DeFi ecosystem is experiencing tremendous growth, with derivative platforms significantly influencing its dynamics. In this article, we will explore the top DeFi derivative platforms of 2024.
Understanding DeFi Derivatives
Derivatives are financial contracts whose value derives from the performance of an underlying asset, index, or entity. In traditional finance, derivatives encompass futures, options, swaps, and forwards, facilitating risk management and investment strategies for market participants.
DeFi derivatives replicate these functionalities in a decentralized ecosystem, leveraging blockchain technology and smart contracts to automate processes and eliminate intermediaries. Smart contracts, powered by platforms like Ethereum, enable the creation and execution of derivative contracts without a central authority.
Benefits of DeFi Derivatives
Decentralized finance (DeFi) derivatives offer several benefits, contributing to the growth and innovation within the DeFi space. Here are some of the key advantages:
- Accessibility
- Transparency
- Security
- Flexibility
Accessibility
DeFi derivatives democratize access to financial markets, allowing users worldwide to participate in trading and investment activities without geographic or institutional barriers.
Transparency
Transactions on DeFi platforms are recorded on a public blockchain, ensuring transparency and immutability. Users can verify the integrity of transactions and the performance of smart contracts in real time.
Security
Cryptographic rules and decentralized consensus mechanisms protect DeFi derivatives, lowering the risks of counterparty default and central points of failure.
Flexibility
DeFi derivatives offer various financial instruments and customizable parameters, enabling users to tailor their trading strategies to suit their risk preferences and investment objectives.
Top DeFi Derivative Platforms in 2024
Here are some of the top DeFi derivative platforms making waves in 2024:
- Synthetix
- Perpetual Protocol
- dYdX
- Hegic
- GMX
- Lyra
- Ribbon Finance
- UMA
Synthetix
Synthetix is a derivatives liquidity protocol that accounts for over 60 percent of the total value locked in synthetic DeFi assets, according to DefiLlama.
The platform allows you to create and access synthetic assets that expose you to tokenized real-world assets on the Ethereum blockchain.
The native token of the Synthetix protocol is SNX. To collateralize an asset on Synthetix, you need to buy SNX tokens, which, once locked in a smart contract, can be used to generate synths.
The value of SNX locked will need to remain at par or above 750% of the value of the respective synth created according to protocol rules.
Synthetix allows users to trade synths with little to no slippage and offers liquidity for several assets. Synthetix users can also stake SNX tokens and gain additional benefits, such as earning a portion of network trading fees and newly minted SNX tokens.
Perpetual Protocol
Perpetual Protocol introduces an innovative approach to decentralized perpetual swaps, offering a decentralized trading platform for perpetual contracts without the need for centralized counterparties.
Built on Ethereum, Perpetual Protocol leverages virtual automated market makers (vAMMs) to facilitate seamless trading experiences while minimizing slippage and optimizing capital efficiency.
Perpetual Protocol empowers users to hedge against price volatility and capitalize on market opportunities with unparalleled ease and efficiency by enabling permissionless and censorship-resistant trading of perpetual contracts.
dYdX
dYdX is a decentralized crypto derivative protocol that offers multiple-margin trading and perpetual contracts for traders.
The bulk of dYdX’s crypto margin trading products is based on the Ethereum blockchain. The protocol has also incorporated a layer-2 scaling solution based on Starkwire’s StarkEx scalability engine.
The scaling solution allows dYdX users to enjoy low-cost and instant transactions on the protocol.
The native token of the dYdX exchange is DYDX. This is an ERC-20 governance token that allows you to participate in the dYdX governance process and receive discounts on trading fees when using the platform.
DYDX token holders are allowed to propose protocol changes and earn a profit through staking.
The protocol supports derivative trading on leverage and enables users to allocate funds in their trading accounts. Presently, dYdX offers a maximum of 25x leverage on synthetic assets with no expiry date.
Hegic
Hegic is an on-chain options trading protocol on the Ethereum blockchain that simplifies complex financial instruments.
The platform offers hedge contracts and Ethereum-based liquidity pools. A hedge contract is an on-chain, option-like contract that enables holders to trade an asset at a specific price and obligates sellers to buy or sell an asset at a certain period.
According to their site, users of Hegic have traded over 11,000 options contracts worth +$1.2 billion in total cumulative volume in the past two years.
The Hegic protocol has its ERC-20 native utility token known as HEGIC. The token is used to distribute settlement fees to token holders and quarterly disbursements of transaction fees accrued by the platform. HEGIC holders can also participate in the governance of the protocol and get a discount when purchasing contracts.
The protocol is unique because its ETH pool is non-custodial, and the liquidity providers can earn rewards in ETH.
All the ETH deposited in the pool is used to sell ETH call options. Holders of these call options can exchange their DAI tokens for ETH at the strike price after expiry. Hegic’s DAI pool is for DAI liquidity providers and is used to sell ETH put options.
GMX
GMX is a decentralized perpetual exchange that enables you to trade several crypto assets with up to 30x leverage directly from your wallet.
The exchange aggregates different price feeds to determine when liquidations should happen, keeping a trader’s position safe from temporary wicks.
GMX is the native utility and governance token of the GMX protocol. GMX token holders get up to 30 percent of the protocol’s generated fees. On the other hand, GLP is the liquidity provider token. Up to 70 percent of the platform’s fees accrue to GLP token holders.
GMX supports low swap fees and zero-price impact trades. A multi-asset pool that supports trading on the platform includes market making, asset rebalancing, leverage trading, and more.
In return for providing liquidity to the platform, liquidity providers earn fees from their activities. Decentralized oracles and TWAP pricing from top decentralized exchanges support dynamic pricing on the platform.
Lyra Protocol
Lyra Protocol is an option automated market maker (AMM) that enables traders to trade cryptocurrency options against a liquidity pool.
The platform is based on Ethereum’s layer-2 solution and optimism. It operates as a decentralized options exchange that gives traders access to these types of crypto markets, thereby offering them low fees and almost instant transactions.
LYRA is the native token for the Lyra protocol and, as described in LEAP-26, is designed to reward protocol users and long-term Lyra loyalists with governance tokens.
Staking LYRA provides several incentives, including staking rewards, vault rewards, trading rebates, and LYRA/ETH liquidity pool rewards. The LYRA token enables an autonomous council to govern the Lyra protocol.
The platform has two user categories: liquidity providers and options traders. Liquidity providers deposit the sUSD stablecoin into an asset-specific market maker vault (MMVs), and this liquidity is used to create buy and sell options markets for the asset the vault is based on.
Ribbon Finance
Ribbon uses derivatives like options to generate risk-adjusted yields. Users just deposit their assets, and smart contracts handle the rest.
The Ribbon protocol is based on the Ethereum blockchain but is also available on Solana and Avalanche. It enables developers to design arbitrarily structured products through a combination of decentralized derivatives. These structured products use several derivatives to achieve specific risk-reward outcomes, such as enhancing yields, speculating on market volatility, and more.
The Ribbon DAO is in charge of managing the Ribbon protocol. RBN is the native governance token of the Ribbon protocol. RBN can also boost rewards for staked vault tokens and earn holders a share of protocol revenue.
The Ribbon protocol makes participating in robust high-yield strategies easy by simplifying them into one-click deposit vaults and providing a clear user interface. This helps users understand how their profits fluctuate based on prevailing market conditions.
UMA
UMA is a decentralized Ethereum-based protocol that aims to make financial markets universally accessible, censorship-free, and unrestrained by any pre-existing social and financial capital. That way, UMA is highly aligned with Ethereum’s objectives.
UMA offers an optimistic oracle that provides data to smart contracts using a “verification mechanism” to submit accurate feeds. The UMA protocol has a governance token contributing to voting on proposals, price requests, and dispute resolution.
UMA’s Oracle system provides data for several projects, including a cross-chain bridge, insurance protocols, prediction markets, and custom derivatives. UMA’s Oracle also supports Outcome Finance, a DAO tooling platform that supports KPI options, success tokens, and optimistic governance.
Comparison of Top DeFi Derivative Platforms in 2024
In this section, we will give a comparative analysis of the top DeFi derivative platforms based on the following criteria:
- Platform Focus
- Underlying Technology
- Native Tokens and Governance
- Trading Instruments and Leverage
- User Incentives and Rewards
Platform Focus
Synthetix
Primarily focuses on creating and trading synthetic assets representing real-world and crypto assets.
Perpetual Protocol
Specializes in decentralized perpetual swaps, offering a platform for perpetual contracts without centralized counterparties.
dYdX
Offers multiple-margin trading and perpetual contracts for traders, focusing on scalability and low-cost transactions.
Hegic
Specializes in on-chain options trading, simplifying complex financial instruments through Ethereum-based liquidity pools.
GMX
Provides decentralized perpetual exchange for trading various crypto assets with leverage and emphasizes security against temporary wicks.
Lyra Protocol
Offers an automated market maker (AMM) for trading cryptocurrency options against a liquidity pool, providing low fees and almost instant transactions.
Ribbon Finance
Utilizes derivatives like options to generate risk-adjusted yields and simplifies high-yield strategies into one-click deposit vaults.
UMA
UMA aims to make financial markets universally accessible through decentralized Ethereum-based protocols, focusing on governance and data provision.
Underlying Technology
Ethereum-based
Synthetix, Perpetual Protocol, dYdX, Hegic, Lyra Protocol, Ribbon Finance, and UMA are all built on Ethereum, leveraging its smart contract capabilities and network effects.
Layer-2 Solutions
dYdX incorporates a layer-2 scaling solution based on Starkware’s StarkEx scalability engine for low-cost and instant transactions.
Native Tokens and Governance
Synthetix
The native token for Synthetix is SNX. Governance and collateralization are two of its primary uses.
Perpetual Protocol
The PERP token is the native token on the Perpetual Protocol network. You can use it to make deposits and withdrawals on the trading market, and it also acts as gas for protocol transactions.
dYdX
The native token for dydx is DYDX. You can use the token for governance and fee discounts.
Hegic
The native token, HEGIC, is used for settlement and governance.
GMX
Native tokens GMX and GLP serve governance and liquidity provision.
Lyra Protocol
LYRA is the native governance token of the Lyra Protocol. It enables the governance of the Lyra DAO and aligns interests between various stakeholders.
Ribbon Finance
The Ribbon Finance token (RBN) is the governance token of the Ribbon Finance protocol. Voting on decisions about the protocol and revenue sharing takes place using the token.
UMA
The native token, UMA, is used for governance and voting on protocol proposals.
Trading Instruments and Leverage
Synthetix
Synthetix offers synthetic assets with minimal slippage and low transaction costs.
Perpetual Protocol
Perpetual Protocol specializes in perpetual swaps without expiry dates.
dYdX
dYdX provides multiple-margin trading and perpetual contracts with up to 25x leverage.
Hegic
Hegic offers on-chain options trading for Ethereum and ERC-20 tokens.
GMX
GMX allows trading with up to 30x leverage directly from wallets.
Lyra Protocol
Lyra Protocol provides an option AMM for trading cryptocurrency options against a liquidity pool.
Ribbon Finance
Ribbon finance utilizes derivatives like options to generate risk-adjusted yields.
UMA
UMA facilitates decentralized Ethereum-based protocols for various financial applications.
User Incentives and Rewards
Synthetix
Synthetix offers staking rewards and network trading fees for SNX holders.
dYdX
dYdX provides fee discounts and protocol governance for DYDX token holders.
Hegic
Hegic distributes settlement fees and transaction fees to HEGIC token holders.
GMX
GMX shares protocol fees with GMX and GLP token holders.
Lyra Protocol
Lyra Protocol offers incentives such as staking rewards, trading rebates, and liquidity pool rewards for LYRA holders.
Ribbon Finance
Ribbon Finance allows RBN holders to boost rewards and earn a share of protocol revenue.
UMA
UMA empowers UMA token holders with governance and voting rights.
Conclusion
As we navigate the complex landscape of decentralized finance in 2024, derivative platforms continue redefining traditional financial intermediation paradigms, offering users unprecedented access, efficiency, and autonomy in managing their financial assets and risks.
From Synthetix to dYdX, Perpetual Protocol to Hegic, and UMA, these top DeFi derivative platforms exemplify the transformative potential of blockchain technology in reshaping global financial systems.
As the DeFi ecosystem continues to evolve and innovate, these platforms stand as beacons of progress, driving the principles of decentralization, inclusivity, and financial sovereignty for users worldwide.