Creation of Decentralized Non-Crypto Financial Markets

  • Bitcoin is a great solution to remove intermediaries but it doesn’t support the creation of a full financial system. The reason why cryptocurrencies are being traded mostly in centralized exchanges is because decentralized finance(DeFi) doesn’t have a robust enough ecosystem (option chains, physically-settled cross-chain futures, etc).

    The massive growth in DeFi is focused on lending which is no doubt a great accelerator to driving liquidity in decentralized exchanges. However, to create stable and expansive decentralized markets, derivatives trading not limited to crypto-assets also seems vital.

    Nasdaq reported ‘total crypto derivatives trading on exchanges topped $3 trillion in 2019 with an average daily trading volume of about $8.5 billion’ in early March 2020.

    This is an indisputable indicator that users are interested in trading in crypto-derivative markets. However, there is still no decentralized platform that offers diversified derivatives markets like in traditional finance.

    Decentralized derivatives trading in DeFi is still a small market dominated by a few players offering unique yet isolated products.

    So the question is how can a DEX structure a platform for sophisticated financial instruments not limited to crypto-assets to meet users’ appetite for risk and what would be the driving force to adoption of decentralized derivatives trading?

    If markets are easy to create by anyone, would it be a strong enough attraction for traders and other market participants?

    Would the restrictions imposed by regulators to centralized exchanges be sufficient to drive traders to use decentralized exchanges?

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