Author: Riyuexiaochu, Member of the HuZiGuanCoin Team
Source: X, @riyuexiaochu
When it comes to the race that erupts in a bull market, derivatives are definitely one of them.
We can roughly divide the race into two types. One is conceptual, trading on new concepts and hype. The other is based on actual product data growth, which definitely includes trading platforms in a bull market.
Using the example of BTC’s contract trading volume in the previous bull market, it increased from 1.58 billion in March 2020 to a peak of 27.2 billion in April 2021, a direct increase of 17 times. The explosive rise of exchange platform tokens like BNB, KCS, and OKB is simply due to the surge in trading volume.
1. The potential of decentralized derivative markets
In centralized exchanges, the trading volume of derivatives has already surpassed spot trading volume. As a simple example, the 24-hour spot trading volume across all platforms is around 50 billion USD, while the 24-hour trading volume of derivatives reaches 150 billion USD. The trading volume of derivatives is about three times that of spot trading.
In the previous bull market, a significant trend was the popularity of decentralized exchanges (DEX) such as Uniswap and Sushiswap. DEXs went through a process from resistance and opposition by exchanges like Binance, OKEx, and Huobi, to passive acceptance, and finally active embrace. In just one year, Uniswap surpassed second-tier centralized exchanges in terms of trading volume and market capitalization.
Decentralized exchanges not only involve spot trading but also derivatives. However, in the previous bull market, decentralized derivative projects did not see significant development due to the lack of infrastructure. Derivatives require higher performance from public chains, and the user experience has always been significantly inferior to centralized exchanges.
However, with the development of infrastructure in this cycle and continuous innovation and product iteration in the derivatives race, users can now enjoy a better product experience.
However, from the data, derivatives are still undervalued. Taking simple data as an example, the spot trading volume is 50 billion USD, while the 24-hour trading volume of DEXs like Uniswap and Jupiter is around 7 billion USD, accounting for about 14%. In comparison, the contract trading volume on centralized exchanges is 150 billion USD. As for decentralized contract trading, it is only 8 billion USD, accounting for a mere 5%.
In terms of market capitalization, Uniswap’s daily trading volume is around 2.5 billion USD, its circulating market capitalization is 6.3 billion USD, and its fully diluted valuation is 10.6 billion USD. Dydx’s daily trading volume is 1 billion USD, with a circulating market capitalization of 1.1 billion USD and a fully diluted valuation of 1.5 billion USD. If we compare it to Uniswap’s trading volume, it is undervalued by at least 2 times.
In summary, the current trading volume of decentralized derivatives has not fully demonstrated its potential. It has at least three times the potential compared to spot trading. Moreover, with the arrival of the bull market, various types of trading volumes in the entire market may have more than 10 times the growth potential.
2. Key members of the derivatives race
In the decentralized derivatives race, the prominent names are Dydx and GMX.
Dydx is a veteran decentralized derivatives market that uses order book matching, similar to centralized exchanges. When its token went live in 2021, it made many people rich. It supports 67 cryptocurrencies with low fees, deep liquidity, and up to 20x leverage. V4 is built on the Cosmos Layer 1 public chain.
Dydx has always used a transaction reward mechanism, similar to transaction mining. Its trading volume has consistently ranked in the top three, with a daily trading volume of around 2 billion USD. Its circulating market capitalization is 1.1 billion USD, and its fully diluted valuation is 1.5 billion USD.
GMX originated from Arbitrum and its innovative feature is the use of AMM mechanism. It refers to LP pools. Unlike traditional matching trades, GMX does not have buyers and sellers as counterparties. Instead, it trades with LP pools, and LP providers can earn transaction fees and MM fees. GMX was once the leader in trading volume in 2022 and 2023 and had high expectations. However, with the emergence of excellent players in the decentralized derivatives race, GMX is often surpassed by many projects.
GMX currently has a daily trading volume of around 200 million to 500 million USD, and its circulating market capitalization is 320 million USD.
SynFutures caught our attention as the leader in trading volume. Its 24-hour trading volume is more than 300 million USD higher than the second-place Dydx.
According to data from DefiLlama, SynFutures showed significant improvement starting from March of this year. An important milestone was the release of the V3 protocol on February 29th. From the data, we can see that SynFutures’ daily trading volume remained in the range of 15 million to 30 million throughout 2023.
Starting from March 2024, the daily trading volume began to rise significantly. First, it increased to around 80 million USD, and then reached around 300 million USD in late March. Starting from April, the daily trading volume has reached the billion-dollar level, 30 to 60 times higher than last year. The highest daily trading volume reached 1.7 billion USD.
From the data, SynFutures’ daily trading volume is not the result of short-term positive stimuli. It has consistently remained at a very high level since April.
The impressive data of SynFutures prompted me to conduct a detailed study. The V3 version mainly introduced the Oyster AMM (oAMM) system specifically designed for contracts, which has two major advantages.
The first advantage is that it allows each derivative trading pair to have a separate liquidity pool, avoiding systemic risks. Similar to Uniswap V3 and Maverick, it allows liquidity to concentrate within a specific price range, greatly improving capital utilization and increasing trading depth. From the data, SynFutures’ trading volume to TVL ratio is as high as 19.48, far exceeding Dydx’s 2.68 and GMX’s 0.34.
The second major feature of SynFutures is that it allows anyone, on any EVM chain, to use any ERC-20 token as collateral and complete the entire listing process in just 30 seconds. In my opinion, this has great potential in the future.
Speaking of which, let’s talk about the reason for Uniswap’s success.
In the previous bull market, the decentralized exchange Uniswap made a significant leap forward, going from being relatively unknown to rivaling top-tier exchanges in just one year. Most people may attribute it to the inevitable trend of decentralized trading, but I don’t agree. The real reason is its ability to allow anyone to list and trade freely.
Let’s recall that before DEXs emerged, trading a token, even on a small exchange, required business development, submitting documents, and waiting for approval. Not to mention the listing fees and various requirements imposed by exchanges, the process itself took a long time. But on Uniswap, it only takes one minute to create an LP and start trading. Therefore, the emergence of DEXs brought tremendous convenience. In the bull market, numerous new projects emerge daily, and Uniswap naturally becomes the first choice.
So, in a bull market, the permissionless listing feature is a game-changer. Currently, only SynFutures possesses this feature, which could potentially take it to the next level in the future.
Conclusion:
In this bull market, it is crucial to pay attention to the derivatives race. It is certain that the trading volume in this race will increase by at least 10 times, which indicates a significant improvement in fundamentals. In the field of derivatives, there are also many competitors, with veterans like Dydx and GMX still being undervalued compared to spot trading.
Recently, SynFutures, the champion of trading volume in recent months, is also worth special attention. It has not yet launched its token, so early participants can benefit. After all, Dydx made many people rich when it went live. SynFutures, which raised over 36 million USD, is also attracting attention from top institutions like Pantera and Dragonfly.