The recent deterioration in market conditions has made some people begin to look forward to next year's bull market and the arrival of the BTC halving. However, many people have also discovered that starting from the first round of bull market, the growth rate of BTC has been significantly reduced in each round of bull market. In the last round of bull market, The increase is only a maximum of 20 times. Price fluctuations of hundreds and thousands of times have become a thing of the past. However, more and more people are pinning their hopes of getting rich on cryptocurrency. There is no other reason. The low return rate of other markets makes it less attractive. .
At the same time, the wealth creation effect is often related to the issuance and speculation of various currencies. Instead of paying attention to the changes brought about by blockchain technology, people are actually more inclined to speculate on the wealth effects brought by tokens, from ICO market financing to The popularity of DeFi has in turn driven the development of NFT and chain games. So what direction should we focus on in the next bull market is a hot topic of discussion in the long bear market.
Although we cannot predict the tipping point of the next bull market, but to change the way of thinking, we can predict which sector in the bull market will have development prospects in the future. In this way, we can improve our awareness before the bull market arrives, and we can also seize the corresponding opportunities. opportunities.
So judging from the current market narrative direction, decentralized derivatives after DeFi may be an important direction?
Why decentralized derivatives?
In fact, the hype of the crypto market is also based on the traditional financial market. For example, the traditional market has IPO, the cryptocurrency market has ICO, the traditional market has financial product trading, the crypto market has decentralized trading, the traditional market has deposits and loans, and the crypto market also has . In the last bull market, with AMM Swap liquidity mining and deposit and loan products as the main breakthrough points, cryptocurrency ushered in a bull market, which then extended to multiple tracks. Then according to the logic of traditional financial markets, the focus of the next bull market should not be lack of decentralized derivatives.
The derivatives market includes many types, such as leveraged contracts, options, etc. The focus that has attracted much attention is leveraged investment. We all know that the growth rate of the cryptocurrency bull market is constantly decreasing. Although the wealth creation effect is still very high compared to the traditional financial market , but it has declined compared to the previous bull market, and the market attracts funds because of its attractive wealth creation effect. Therefore, leveraged derivatives will inevitably flourish in a certain period of time. According to the current situation in the currency circle, The development progress of derivatives is very likely to usher in a wave of development in the next bull market.
Of course, when comparing centralized derivatives, contract trading has existed in the early days of the currency circle. At the same time, from 2017 to 2019, many mainstream centralized exchanges have opened contract leverage trading, perpetual trading, options trading, etc. These have cultivated many leek traders for the market. Of course, in the early days, these derivatives transactions were high-risk, and triggered some bad negative news, such as forced positions and liquidated positions, etc., which made people afraid of contracts, but 20 years later , many exchanges have reduced malicious liquidation events under extreme market conditions, and the market has also seen a lot of strategic trading and arbitrage trading through derivatives. Therefore, the centralized derivatives market has developed relatively maturely.
Similarly, decentralized derivatives have also begun to develop during the hot period of DeFi. Some decentralized derivatives trading platforms such as DYDX and GMX have also ushered in development, attracting the attention of institutions and investors. In addition, these leveraged derivatives are built on DeFi products on the Internet also provide investors with relatively high rates of return. Therefore, overall, the decentralized derivatives market is still in the early stages of development, similar to the DeFi market in 2019.
Liquidation and profits, risk is crucial
For leveraged derivatives, many people's first impression is that they are risky, especially since the currency circle is constantly trading 24/7, so it is easier to test the patience and energy of speculators. This is why many people do not play leveraged contracts. reason.
However, in mature financial markets, derivatives are often more participated by institutions. The threshold for ordinary retail investors to participate in the derivatives market is higher, so it is naturally not easy to make profits. Of course, another factor is that many people have increased their leverage ratio to extremely high levels, and in the decentralized derivatives market, there is currently no innovative product that can solve this problem. Therefore, this is also the reason why the decentralized derivatives market currently fails to do so. What really developed.
In addition, projects on the chain generally have incentives to encourage everyone to trade on the blockchain instead of a centralized exchange, just like DeFi. Therefore, derivatives may also usher in a corresponding window of time and opportunity.
Of course, everyone's risk preferences are different, so if the decentralized derivatives market develops, users can also consider other ways, such as investing in corresponding project tokens, rather than actively participating in derivatives transactions. Of course, the problems that the decentralized derivatives market needs to solve before this are mainly technical issues and incentive issues.
It is easy to understand that the technical problem is the cost of transaction and the speed of confirmation, because real-time transactions on the chain itself need to complete the transaction confirmation in a short time. If the time is longer, it may cause the on-chain transaction confirmation to fail, thus affecting the experience. Currently, Layer 2 The development provides the underlying technical foundation for it. Layer 2 has attracted the attention of users due to its low transaction cost and fast speed. At the same time, there are many popular Layer 2 chains in the market, which can theoretically meet the needs of the market, such as GMX. On the Arbitrum chain, DYDX is also building its own chain to meet users’ trading needs.
The incentive problem is the next issue that needs to be solved. Generally, this problem will be solved in the early stage of the bull market. The current trading liquidity mining strategy has not yet been generally recognized by the market in on-chain derivatives, so innovation is still needed here. Different project parties will use different incentives to attract users in the early stages of the bull market, rather than in the bear market. In the end, the market will choose a method recognized by multiple participants from multiple measures to detonate the market. DeFi’s liquidity mining is this method. was pushed to the stage of the last bull market.
Summarize
Some people say that derivatives are harmful to people, causing many people to be separated or desperate. In fact, derivatives are just a tool, but they amplify the greedy desires of investors, and the market is therefore full of various manipulations and harvests. Of course, derivatives are just a tool. We also look forward to whether derivatives can change people's inherent perceptions and bring about different innovations when they encounter blockchain. However, it is undeniable that this market will not disappear, and once blockchain innovation solves After the negative issues surrounding derivatives, it may be possible to gain public acceptance.