Synthetic Futures: DeFi’s Next Big Thing?
Decentralized finance, or DeFi, is disrupting the norm in financial operations. In slightly over a year, blockchain protocols have soared massively to take a significant share of some financial operations including, exchange, lending, and insurance. Before then, intermediaries enjoyed uninterrupted dominance of the traditional fiscal systems.
DeFi brings openness and transparency to the expansive finance industry through blockchain technology. Gradually taking over, DeFi protocols hold over $80 billion in total value locked (TVL) as of August 2021. While there is still much ground for DeFi to cover in the finance sector, derivatives are its next big thing!
Derivatives and Synthetic Assets
A derivative is an asset that derives its value from an underlying asset or index, like commodities, stocks, precious metals, or currencies. When the value of the derivative is tied to another asset’s value through a contract, users can trade the movement of the prices using futures.
In the crypto space, contracts to tie the asset value are replaced by derivatives known as synthetic assets. These assets provide the link for mimicking the original assets through a tokenized relationship. Similar to holding traditional asset derivatives, synthetic asset holders have exposure to the performance of underlying assets.
Scope of Derivative Trading Markets
Centralized crypto platforms have maintained their dominance in handling the majority of crypto transactions. However, the fast-rising DeFi is changing this, one product at a time. In a single case, rapid innovation in the DeFi sector propelled decentralized exchanges (DEXes) to be one of the largest DeFi protocols, accounting for nearly 10% of all spot trading volume.
In their formative stages, DEXes barely had any users, given their novelty and subpar performance compared to centralized exchanges (CEXes). However, the second and third generations of DEXes (v2 and v3) have introduced features to enhance users’ trading experience, triggering expansion and user acquisition.
Today, much of cryptocurrency derivatives are traded via centralized exchanges, as was the case in the early stages of decentralized spot trading. Some of the top platforms offering crypto derivatives include Binance, FTX, and OKEx. Drawing from the massive uptake of DEXes in under two years, synthetic futures trading on decentralized platforms is on track to go mainstream.
Endless Possibilities for DEXes
Synthetic trading is gaining traction as it offers unrestricted exposure to multiple commodities. Unlike the many risks associated with derivatives trading on CEXes, decentralized protocols provide secure, reliable, and operationally efficient trading. These protocols are proofed against bureaucratic regulations that often drag the performance of CEXes. The advancing technology in DEXes will eventually transform the trading of synthetics and make them the preferred trading platforms.
The largely volatile crypto market has created a massive opportunity for crypto traders to hedge cryptocurrency price risk and bring liquidity to the market. Beyond the crypto market, DEXes also enables users to trade in synthetic futures for multiple commodities. With DeFi, synthetic futures trading is seamless and borderless — expanding the reach to traders worldwide. This is unlike Binance and other CEXes subject to regulatory oversight, resulting in frequent interruptions in operations. CEXes’ limited market reach makes the exchanges unreliable for the highly sensitive synthetic futures trading. One DEX resolving this challenge is ENEDEX.
Synthetic Futures for Energy Products with ENEDEX
The increasing concerns for sustainable development have put pressure on activities that emit huge amounts of greenhouse gasses (GHG). From construction to transport industries, and even cryptocurrency mining, the global community aims to bring down emissions significantly. This worldwide trend has driven investment in projects focused on renewable or sustainable energy sources.
ENEDEX is a decentralized protocol that offers fast and unrestricted access to crypto-enabled trading of energy-related derivatives. A flurry of activities in the energy sector has expanded opportunities for trading futures and options tied to energy products. ENEDEX is crypto’s first dedicated decentralized protocol for trading energy product derivatives.
Unlike centralized futures platforms that favor big players in the energy sector, ENEDEX brings the futures markets closer to individual and small-scale traders. What’s more, the platform settles trades almost instantly compared to the days waiting in centralized futures exchanges. The platform offers non-custodial and peer-to-peer investor trading.
The Future of Futures Trading
Proactively involved in the push for a green future, ENEDEX creates a platform for users to trade, invest and raise funds for their energy-focused projects. The platform’s native currency, $ENE, is at the heart of trading operations.
The decentralized exchange taps into an ecosystem that will spur positive change by incentivizing industries to cut emissions and integrate sustainable energy use for their operations. For instance, with ENEDEX, one can mint a synthetic asset token to track GHG emissions for a specific industry. So, if the companies fail to cut emissions, the local communities benefit from the profits directly. Otherwise, the companies keep the profits.
There’s a lot more to come from ENEDEX. The DeFi space is constantly evolving, and with it, better features to compete against the centralized counterparts. Soon, synthetic futures trading will be predominantly on decentralized platforms, and ENEDEX is spearheading this massive shift through innovation.
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