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While the crypto market continues to boom like never before -- commanding a market cap of over $2.3 trillion at the time of writing - it is important to realize how much of it is driven by spot markets and otherwise such as futures contracts, options, derivatives, and other financial instruments.
While novice crypto investors might not pay a lot of attention to the futures market, their significance cannot be understated.
As FTX crypto exchange CEO Sam Bankman-Fried recently said, the crypto derivatives market is largely ‘misunderstood’ and has indeed helped in the creation of the market and aided in providing the required liquidity to the order books.
Indeed, the global derivatives market plays a pivotal role in maintaining the status quo of the international financial system and the global economy as a whole.
As a financial instrument, derivatives provide a number of benefits as they enable the exchange of future risks. In addition to enabling businesses to hedge against the uncertainty of future prices, derivatives also foster investments and, in turn, play a key role in the price discovery of an asset.
The same argument can be extended to crypto derivatives as they help investors shield themselves against the market’s infamous volatility while also enabling investors to make healthy profits by speculating future prices of digital assets.
In this article, we will discuss two leading crypto derivatives platforms -- Synthetix ($SNX) and dYdX ($DYDX).
The Synthetix platform is the brainchild of Australia-based Ethereum developer Kain Warwick who foresaw the need for an efficient crypto-native derivatives platform that leverages all the benefits of blockchain technology and smart contracts.
In simple words, Synthetix is an Ethereum-based decentralized finance (DeFi) protocol that allows its users to bet on the future price of digital assets, stocks, currencies, and other commodities in the form of ERC-20 tokens called ‘Synths.’
These Synths can be used to gain exposure to the underlying asset without actually holding the said asset. For instance, holding sAPPLE would give the user exposure to the price of the Apple stock without actually owning the said stock per se.
It is worthy of note that Synthetix initially started as a stablecoin project dubbed Havven but quickly underwent a rebranding and widened its scope shortly before its mainnet launch in February 2019.
Synthetix has a native token called $SNX which is primarily used to provide collateral against Synths that are issued. Because Synthetix requires a continual inflow of accurate price-feeds from the real world to determine the price of the underlying security, the protocol uses decentralized oracles.
Synthetix follows on-chain governance as it was transitioned into three different decentralized autonomous organizations (DAOs) in 2020.
These DAOs, namely protocolDAO, grantsDAO, and synthetixDAO have their own functions that comprise of but are not limited to, controlling protocol upgrades, funding community proposals, and funding entities that advance the network’s development.
According to data on DeFi Pulse, Synthetix is currently the leading crypto derivatives trading platform with more than $1.75 worth of assets locked in the protocol. The platform’s native token, $SNX currently trades at $10.71 with a market cap of over $1.8 billion.
Similar to Synthetix, dYdX is a decentralized crypto spot, derivatives, futures trading platform built on Ethereum but one that aims to provide advanced trading to users like those typically found on centralized exchanges such as Binance, Huobi, Coinbase, and others.
Founded in 2017 by Antonio Juliano, a former Coinbase and Uber engineer, dYdX is one of the most advanced decentralized, open-source, and non-custodial DeFi protocols today.
A major feature of dYdX is that it offers users to trade perpetual contracts on Layer-2 scaling solution StarkWare that is focused primarily on enabling cross-margined perpetual contracts.
By using the StarkWare-based trading platform, users can enjoy a plethora of benefits such as significantly lower gas fees which, in turn, leads to lower trading fees and minimum trade sizes.
For the uninitiated, StarkWare’s zkSTARKS technology is essentially a form of zero-knowledge rollup technology that vastly increases dYdX’s trade settlement capacity without compromising on the security borrowed from the Ethereum blockchain.
dYdX recently released their governance and utility token $DYDX amid high anticipation which quickly sent the project among the top 200 projects by realized market cap on CoinGecko. What’s remarkable is that the $DYDX token was airdropped to the platform’s early users based on different eligibility criteria.
At press time, $DYDX trades at $10.09 with a market cap of more than $478 million.
To conclude, while both Synthetix and dYdX protocols primarily aim to cater to the needs of the ballooning crypto derivatives products demand, their approach to the same is quite different.
While Synthetix boasts of being one of the earliest DeFi protocols in existence with a considerable time having spent as a DAO, dYdX recently received a massive financial impetus worth $65 million from several influential crypto VC firms including Paradigm Investments, 3AC, CMS Holdings, and others.