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Derivatives And Margin Trading Are Shaping Up To Be The Next Big Bet In DeFi
Mapleblock Capital is betting hard on derivatives and margin trading protocols and long-term infrastructure projects. Blockchain-based DeFi has been the dark horse of the crypto industry.
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What does DeFi Mean?
DeFi stands for Decentralized Finance. This term itself is self-explanatory in that these technologies are built on blockchain technologies and offer financial instruments without depending upon intermediates like brokers, banks, or exchangers, thus transactions can be done directly between multiple parties.
There are mainly two segments of Capital Markets, the Cash segment, and the Derivatives segment. In the Cash segment when one buys a share they have to pay the entire amount to take the delivery of their shares. Whereas in the derivative segment one does not have to pay the entire amount but can buy the number of shares, and the payment can be settled in the latter days. Margin trading has a massive market in the derivative segment as in margin trading, as one has to pay only the margin value of that particular share and not the entire value. The margin varies for a different share in the derivative segment. This is because margin depends upon the aspect such as volatility etc.
It can be seen that derivatives and margin trading have taken a boom since the Covid pandemic started. Hence creating a very large investment platform. This has caught the eye of many investment and financial organizations, thus interesting them to invest in DeFi technologies. As DeFi, derivative segment and margin trading is the new financial evolution.
Mapleblock on DeFi:
Mapleblock Capital is betting hard on derivatives and margin trading protocols and long-term infrastructure projects. Blockchain-based DeFi has been the dark horse of the crypto industry. While the media focused on million-dollar jpegs, celebrity involvement, and retailers buying digital real estate the DeFi market continues to show growth and interest from bigger players. The total transaction volume on decentralized exchanges crossed over 2 trillion USD as per data from ‘The Block Research’, a massive 858% increase has been seen from the previous year.
This sets the backdrop for the growth of new DeFi primitives in the derivatives and margin segment to drive even more trading activity. In traditional finance, the derivatives market is much larger than its traditional counterparts. With the increasing speed of innovations in the blockchain space, lower Texas Instruments Incorporated cost, and higher speed, we are likely to see similar market dynamics play out in cryptos. The volatility in crypto also makes derivatives trading lucrative as it creates the possibility for higher returns.
VCs bet on derivatives products
Venture Capital firms have already started taking note of this trend with the success of dydx and perpetual protocol in 2021. Mapleblock Capital is one such firm that has backed several derivatives protocols and plans to add more to its portfolio in 2022. Mapleblock backed Primex Finance in their most recent strategic raise, alongside other prominent investors. Primex is a cross-chain margin trading protocol to generate income for lenders via an organic source of yield as well as enable borrowers to trade bigger positions. Primex combines DEX trading and DeFi lending to optimize swaps across ecosystems and provide a better user experience.
Dmitry, Co-founder of PrimeX Finance said “We are excited to have such great support from the world’s leading DeFi-focused investors like Mapleblock” Our mission is to bridge the gap between traditional finance and DeFi by building a new truly decentralized and open trading infrastructure”.
With TVL growing across DeFi protocols, the sustainable yield opportunities are reducing. Most DeFi protocols are generating yields via native token incentives which are not long term sustainable. At Mapleblock, the team believes that in the longer term DeFi winners will be, protocols with sustainable yield generation alongside incentives for adoption.
Other protocol innovations being developed by the Primex Finance team are an AI-based trader scoring solution and risk management solution. As adoption for on-chain derivatives trading picks up more volume Primex will be battle-tested and ready to offer leverage to this new wave of DeFi traders.