Thread by @stader_bnb

Welcome back to #Scholofstaking!

Decentralized derivatives are taking the #DeFi world by storm!

But what exactly are they? 🤔

Let's find out in today's session 📚

🧵👇

Let's start with the basics: What are derivatives? 💼

They're financial contracts based on the future price of assets like stocks, cryptos, & commodities.

But how do they work, and why should we care? 📈

They're financial instruments traded on DEXs, deriving value from underlying assets like stocks & commodities.

& they're important because…

They help investors hedge risks, increase returns via leverage, & diversify portfolios.

Are there any risks? 📉

Due to their advanced nature, derivatives can carry inherent risks that magnify losses.

So, it's crucial to understand the potential exposure before diving in.

Now, let's explore decentralized derivatives in crypto. 🌐

Decentralized derivatives trade on blockchain-based protocols & can be tied to various asset types, such as stocks.

They offer a transparent, trustless environment. A feature missing in TradFi, giving unfair edge to institutions.

But how do they differ from TradFi derivatives?

With DeFi, users can retain control of their assets & keys, easily move between protocols, & enjoy low barriers to entry.

All thanks to Derivatives based DEXs, which are just a niche of DEXs.

But how do Derivative DEXs work, & what makes them stand out?

Derivative DEXs use blockchain to facilitate transactions, maintain security, & ensure immutability.

Smart contracts enable seamless execution, while oracles provide accurate price tracking.

But without any central entity in control, who makes the decisions? 🏛️

Answer👇

Decentralized governance models allow users to participate in decision-making, often via native tokens.

These tokens can also be used as collateral or incentives.

Let's dive into the types of decentralized derivatives in crypto. 📚

There are 3 types of decentralized derivatives

👉Futures contracts
👉Options contracts
👉Synthetic assets.

Let's explore them one by one

Futures contracts allow traders to benefit from future price movements.

They are essentially an agreement to buy or sell an asset at a predetermined price & date in the future.

Decentralized futures can be either perpetual or have a fixed expiration date.

Up next, Options 📅

Options contracts give the holder the right to buy or sell an asset at a specified price by a specified date.

They can be used to hedge risks or benefit from the future price movements of an asset.

Moving on…

What are synthetic assets? 🎭

Synthetic assets are essentially tokenized derivatives that use blockchain to replicate their underlying assets’ value & even some characteristics, such as inflation.

They can represent stocks, metals, altcoins, & more.

What challenges do DeFi derivatives face? 🚧

Risks include complexity, volatility, liquidity concerns, & user-friendliness issues.

Additionally, security risks such as smart contract vulnerabilities exist.

The next obvious question is

How can you minimize these risks? 🔐

Always do your own research (DYOR) to investigate the platform’s team, derivative types, & smart contract security.

Enough talk about the present though, let's move forward

So, what does the future hold for DeFi derivatives? 🚀

As blockchain technology advances, we can expect more DeFi derivatives to emerge.

But before trading, consider your experience & risk appetite.

Remember: Knowledge is power! 🧠 Make informed decisions & keep learning as you explore the exciting world of DeFi derivatives.

Ready to dive into the world of decentralized derivatives? 🌊

Have questions or insights to share?

Join the conversation with other DeFi enthusiasts in @stader_bnb's awesome community! 💬

docs.google.com/forms/d/e/1FAI…

This ends our thirteenth session!

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& make sure to go through our previous lessons as well!

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