Analyzing Growth & Opportunities in Crypto Derivatives
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The document analyzes the growth and opportunities in crypto derivatives, highlighting the evolution from traditional finance to DeFi derivatives and their key indicators. It discusses various derivative types, market trends, and potential strategies for growth in the sector, emphasizing the increasing market share and innovation in this area. Overall, it concludes that while crypto derivatives have expanded significantly, there is still considerable potential for development and new market players.
Analyzing Growth & Opportunities in Crypto Derivatives
- 1. Analyzing Growth & Opportunities in Crypto Derivatives January 2022
- 2. Agenda ● Intro & Growth ● Key Derivatives Indicators ● Opportunities & the Road Ahead
- 3. A quick update about ITB
- 4. Partnerships ● Domain Money, WazirX, Let’s Bit
- 5. Upcoming Ownership Release ● 5 new indicators giving deeper insights into buying/selling from holding groups ● Holders with 1, 10, 100 BTC, etc ● Several requests ● Newsletter data
- 6. Intro & Growth of Derivatives
- 7. Intro to Derivatives ● Trading contracts based on financial instruments ○ Asset (e.g. AAPL, BTC) ○ Index (e.g. SPY futures) ○ Interest rates (e.g. Treasury yield futures) ● Common types of derivatives ○ Futures - agreement to buy/sell ○ Options - right to buy/sell ○ Swaps - exchange of instruments “Derivatives are financial weapons of mass destruction.” - Warren Buffett
- 8. Use-Cases for Derivatives ● Use-cases ○ Leveraged exposure to an asset ○ Hedge against risk of underlying asset ○ Price discovery (high liquidity) ○ Arbitrage ● Highly risky
- 9. Crypto Derivatives ● Perpetual swaps ● Adapted to crypto’s nature ○ 24/7 - no expiration, non-stop trading ○ Higher leverage
- 10. TradFi, CeFi & TradFi Derivatives Attribute TradFi (CME) CeFi (Binance) DeFi (dYdX) Daily Volume (BTC) $1B - $2B $15B - $30B $2B - $4B Max Leverage 2x 20x+ 20x+ Min Order Size 0.1 BTC 0.001 BTC 0.001 BTC Denominator USD USDT, BTC USDC, USDT Composable No No Yes
- 11. Timeline for Crypto Derivatives ● 2014 - BitMex launches ● 2017 - CME and CBOE launch ● 2019 - Bitfinex, Binance, Kraken, FTX launch perpetual swaps ● Quickly surpass spot
- 12. Data Source: IntoTheBlock Growth of Crypto Derivatives ● $100B/month by late 2019 ● $25.6T in 2021 ● ~ 5x YoY
- 14. Deriving Value ● Derivatives data has become a must ● Market momentum ● Tops and bottoms ● Regardless of using derivatives or not
- 15. Volume & Open Interest (OI) ● Volume - Total amount of contracts (or $) traded ● Open Interest - Amount of outstanding positions (both long and short)
- 16. Open Interest ● Similar growth to vol (5x) Data Source: IntoTheBlock ● Higher high in November
- 17. Open Interest to Market Cap ● Growth irrespective of price Data Source: IntoTheBlock ● Insights on momentum
- 18. Turnover Ratio ● Vol / OI Data Source: IntoTheBlock ● Signs of short-term speculation
- 19. Funding Rate ● Charged to stabilize contract peg Data Source: IntoTheBlock ● Spotting potential tops and bottoms
- 20. Contango/Backwardation ● Difference between futures and spot Data Source: IntoTheBlock ● Sentiment and expectations
- 21. Opportunities & The Road Ahead
- 22. Market Neutral Strategies ● Generating yield without price exposure ● Carry trade: Long spot, short futures ● Profiting from diverging funding rates ● Arbitrage in prices
- 23. Directional Strategies ● Long/short perps or options ● Sell options (covered call, put selling) ● Structured products
- 24. Structured Product Vaults ● Automated options selling ○ Cheaper ○ Auto-compounds ○ Sustainable yield, but risky ● Ribbon Finance, Dopex, Thetanuts
- 25. Structured Product Vaults ● Covered calls - Own spot, sell out of the money futures
- 26. Status DeFi Derivatives ● Transparent look into one of most opaque industries ● Gaining traction - dYdX volume up 100x since L2 launch ● Growing number of protocols across chains ● Experimentation and user ownership
- 27. Road Ahead ● Derivatives = trading contracts ● Smart contracts unlock utility from these ● Similar path to DEXs ● Leveraging composability ● ERC-4626
- 28. Conclusions ● Derivatives are a key component of financial markets ● Crypto derivatives have grown but still have room for more ● DeFi derivatives still in their infancy ● Expect innovation and growing market share
- 30. Thank You! Questions? Lucas Outumuro Head of Research at IntoTheBlock Email: [email protected] Twitter: @LucasOutumuro