An Overview of the Defi Ecosystem: Derivatives is the Blue Ocean.
DeFi, short for decentralized finance, including financial services like lending, derivatives, payment, etc. based on decentralized infrastructure.
It has been a hot topic for a few months, which led to a fiery market atmosphere, reminding people of the bullish market in 2017.
Meanwhile, Uniswap has become the central project of the entire industry. In the past two months, its transaction volume has increased by nearly 100 times, and its 24-hour transaction volume has reached 74 million USD. Its unique automated market maker (AMM) enables users no longer need a counterparty, which is quite attractive for altcoins: investors no longer have to worry about not being able to buy or sell.
Not only did projects like UMA, BZRX, etc. choose to launch in Uniswap, but many of the projects from centralized exchanges also choose to launch in Uniswap, which have received new market attention because of Gem Hunting attributes. Examples of this abound. After Ampl, Bitfinex’s IEO project in 2019, opened liquidity mining on Uniswap on June 24 this year, the public discovered the value of its “Split Game”, which brought about a 40-fold increase in market cap just in one month. After listing on the Uniswap, TPT, the token of Tokenpocket rose by a maximum of six times in two days.
We divided DeFi projects into 8 tracks, including Lending, DEX, Oracle, Cross-chain Transactions, Stable Currency Exchange, Derivatives, and Stablecoin/Payment and released a 2020 Mainstream DeFi Overview.
The lending sector is undoubtedly the fastest growing in this round of DeFi wave. COMP is dominating, and LEND has risen 130 times. However, due to the Matthew effect of its capital pool, the three giants of MKR, LEND, and COMP occupy 90% of the market share. However, Bzrx, after being attacked by Flash Loan, its protocol locked position is now only 558,060 USD which is only one-thousandth of Maker.
However, due to the complex structure of derivatives, there are still very few users in the derivatives track compared with the Lending track, even if its market is vast, making it difficult to realize commercialization on the blockchain. The decentralized options platform FinNexus (FNX) announced last week that it would move part of FNX token supply to Ethereum and launch on the Uniswap. As one of the derivatives projects, FinNexus may be one of the few projects in the market whose value is still in a depression. The target of FinNexus is Dydx, a liquidity pool. More precisely, it is aimed at the Dydx track and armed with SNX mode.
dYdX and Derivatives, a Blue Ocean Track
dYdX, the current leading project of dex derivatives, invested by a16z, its 24h transaction volume of the entire network is 3.92 million USD, which is only less than Uniswap.
The vision of dydx is to create a derivatives protocol to move traditional financial instruments to the blockchain. Currently, Margin Trading is the main application. dydx fully contracted Margin Trading of traditional finance. Several core links in Margin Trading, such as Lending and Leverage, Margin Custody, Transaction Matching, and Clearing, have all moved to the blockchain.
- Margin Contract: responsible for the business logic of margin trading.
- Proxy Contract: responsible for completing the transfer of various assets on behalf of users.
- Vault Contract: As a storage vault, it helps users custody assets in margin trading.
The dydx transaction matching is based on the 0x protocol. From the current product interface, it has basically realized a similar trading experience as Binance DEX or IDEX. However, in terms of the depth of the order book, there is still a big gap between the centralized exchange and the current daily trading volume is still only 3.92 million USD. (Only 1% of Binance Future). Matchmaking and AMM have their own advantages. But the biggest drawback of matching transactions is that when liquidity is not good, it will inhibit traders’ desire to trade. This is why many altcoins have very limited transaction volume on the second and third-tier exchanges, and they become active after listing on AMM’s Uniswap exchanges.
Also as a project of the derivatives track, FinNexus’s goal is to create a decentralized financial asset agreement. The first goal is to decentralize all aspects of traditional financial assets. From the current situation, FinNexus starts from options and the V1 decentralized options product that has been launched has achieved the decentralization of the entire operation logic of options, including the option creator pledged the margin on the blockchain, and the option expires in the price future guarantee exercise, transaction matching and other processes.
The second edition of FinNexus options is built with a similar concept. The option writer will disappear forever from option products and will be replaced by a pool that provides value guarantee and liquidity.
Because of the long exercise period of options and strong trading expertise, even a large number of options products in the US stock market are lacking in liquidity.
After the introduction of the liquidity pool mechanism, within the pool value range, the liquidity of options is unlimited, and the types of options that can be created are also unlimited. This model not only replaces the middleman but also solves the problem of insufficient liquidity of option products.
Dydx currently has no public token plan, but the blue ocean market for derivatives is just in the ascendant. FNX cuts into options and adopts a more advanced AMM mechanism. After Uniswap is launched, as the second new star to appear on the DeFi derivatives track, it undoubtedly has a huge first-mover advantage.
FNX and SNX - Maximizing Token Value Capture Model
FinNexus learns SNX’s model in product and token design.
SNX is a capital synthesis platform with a market cap of up to 416 million USD. As a project of the entire DeFi sector, it is only less than the Top two Lending projects (Market Cap of MKR is 591 million, Market Cap of LEND is 496 million).
In addition to SNX entrenching the big track of synthetic assets, the value capture model of its products and tokens is also the engine of pumping.
The SNX model has three cores.
1. SNX has asset attributes and needs to be pledged to obtain synthetic assets.
2. High inflation requires everyone to hold SNX, and the inflation requirement is a 750% pledge line, forcing everyone to pledge.
This mechanism is no longer a governance token for SNX token holders. SNX not only perfectly captures the value of Synthetix, but also achieves a long-term and permanent value entanglement with the value of the ecology.
The second version of FinNexus’s options product, which will be launched in August, will also use a similar token value capture model according to the official description in the community and AMA documents. Specific technical documents have to wait for the official announcement.
According to the information currently officially released by FinNexus, the circulation of FNX is 12.5 million, with a market cap of 4.03 million USD at a price of 0.323 USDT.
In conjunction with the release of the product V2 and the token embedding model in August, the value of FNX will truly usher in a bright period under the dual boost of product and liquidity. Among the many DeFi projects with a valuation of tens of millions, it is undoubtedly a potential project that has not yet been discovered.