1/Crypto derivatives are poised to be one of the big growth stories of 2022
As the industry matures and infrastructure grows to facilitate ensuing demand we expect breadth & volume of derivative products to grow substantially
Full @JumpCryptoHQ thesis:
bit.ly/3nnOtMF
As the industry matures and infrastructure grows to facilitate ensuing demand we expect breadth & volume of derivative products to grow substantially
Full @JumpCryptoHQ thesis:
bit.ly/3nnOtMF
2/ Today, most crypto derivatives volume is concentrated in centralized perp futures exchanges
Centralized options venues, as well as decentralized venues across futures and options remain relatively nascent
Centralized options venues, as well as decentralized venues across futures and options remain relatively nascent
3/ We expect two factors that have been gathering steam over the past year to drive growth over the next twelve months:
i) Rise of relevant infrastructure
ii) Increased participation from organized players
i) Rise of relevant infrastructure
ii) Increased participation from organized players
4/ To better understand the importance of the latter, it is helpful to understand why institutions use derivatives to a greater extent than spot in traditional financial markets
5/i)Capital efficiency: Long as potential drawdown is < leverage factor derivatives are more capital efficient
ii)Tax efficiency: 60% of gains on derivatives are taxed as long-term regardless of duration
iii)Hedging: Hold long-term cash position while hedging against volatility
ii)Tax efficiency: 60% of gains on derivatives are taxed as long-term regardless of duration
iii)Hedging: Hold long-term cash position while hedging against volatility
6/ As this participation ramps, we expect an increasing portion of volume to reflect on centralized options venues, which currently represent <2% of overall derivatives volume, supported by two key pieces of infrastructure:
7/ i)New breed of more sophisticated exchanges
ii)OTC liquidity aggregation networks like @tradeparadigm that offer guaranteed settlement against KYC'd counterparties
ii)OTC liquidity aggregation networks like @tradeparadigm that offer guaranteed settlement against KYC'd counterparties
8/ In addition to centralized options volume, we expect to see meaningful growth in decentralized derivatives, which currently make up <1% of overall volume, led by a different cohort of participants
We expect this growth to be driven by three factors:
We expect this growth to be driven by three factors:
9/i) Rise of low-cost/high speed L1s: Low barriers to trade + lower margin of error in strategies. This is true particularly for options
ii)Composability+cross-chain adoption: As connectivity grows and liquidity becomes less siloed, more projects will build atop core primitives
ii)Composability+cross-chain adoption: As connectivity grows and liquidity becomes less siloed, more projects will build atop core primitives
10/ iii)Growth of Decentralized Options Vaults (DOVs) which democratize access to implied vol driven organic yield + scalable way to manage non-linear risk
@ribbonfinance ($300M TVL), @friktion_labs (~$100M TVL), @ThetaNuts (~$55M TVL) have already demonstrated meaningful demand
@ribbonfinance ($300M TVL), @friktion_labs (~$100M TVL), @ThetaNuts (~$55M TVL) have already demonstrated meaningful demand
11/ We believe we are at the precipice of tremendous growth in the crypto derivatives market over the coming months and are excited to back some of the top projects enabling this growth.
If you are building in this space, my DMs are open
If you are building in this space, my DMs are open
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