🤓Derivatives
Not the Calculus kind!
Last updated
Not the Calculus kind!
Last updated
We make token derivatives, all kinds of them, every which way.
Token derivatives is a broad term for any financial asset whose value is based on a token.
For example, a perpetual is a really simple token derivative because it's the value of a token times the amount of leverage chosen.
Options are another common type of derivative. It has a famously asymmetric payoff that has the upside of an underlying token, and limited downside.
The space of derivatives is massive and many of them can get infinitely more complex. On Itos, we can actually create any derivative payoff we want. We could create one that's worth $1 when ETH's price is even and worth $0 when it's odd. Or one that's worth the price of BTC rounded to the nearest thousand while earning yield. Or pre-paid forwards, rate swaps, credit swaps, butterflies, collars, and many more well-known ones.
Derivatives let investors express more complex sentiments than simply long and short because as any seasoned investor will tell you, tokens price never simply go up or simply go down. They can even add leverage and safety specifically where you want them.
While we're super excited for all the excitement RWAs will bring on chain, we also know DeFi is in need of more things to do with those assets. Even in traditional finance now, the derivatives market does much more volume than the spot market (the market that trades the asset as-is). It's hard to pin down exactly how massive the derivatives market is but analysts have estimated it to be anywhere from 10 to 100 times the size of the stock market if not more.
In DeFi right now we have
perps to make big bets on short-term upwards or downwards movements
AMMs to bet on long-term sideways price movement
But we don't have anything to bet on short term sideways movement, or bet the price will move without having to choose which way, or bet on long-term price actions while earning yield, the possibilities are endless. We want to make DeFi into that infinite playground of possibilities. DeFi should be a place where people can do things they never could in TradFi. To accomplish that we need more than just RWAs, we need to build on top of them.
And to be honest, we aren't sure what the future of DeFi derivatives look like, but we're willing to experiment and be pleasantly surprised by what's found along the way, and we hope you are too!
Insurance, Structured Notes, Interest Rate Swaps, Convertibles, Corporate Credit, Currency swaps, in traditional finance, the list of Derivatives is endless and underpins so much of the world we take for granted. By enabling DeFi's ability to organically create derivatives entirely on-chain we enable a future where DeFi sells derivatives to Traditional Finance.
That may seem like a foreign concept now, but with new technology comes the opportunity to disrupt old markets, and the structured products world is so antiquated it's ripe for disruption. It also doesn't hurt that DeFi derivatives are easier to make, cheaper, faster to acquire, and don't have counter-party risk. The cards are stacked in our favor!
