In 2017, many traders and investors flocked to cryptocurrencies because they were drawn to the type of returns that are not available in the traditional, less volatile markets. However, volatility is inevitably associated with risks and opportunities.
However, cryptography offers many possibilities that go beyond traditional tools. Programmable tokens and smart contracts enable the automation of trading and investment tools, making them more understandable and accessible for retail users of all risks.
The race for innovation in central finance
The FTX Derivatives Trading Platform was the first central exchange to pioneer the use of leverage tokens, allowing users to take margin risk without having to manage margins, liquidations, or collateral. The leveraged tokens come from perpetual exchange swap contracts and act as tradable ERC-20 tokens that can be withdrawn and traded.
They return the remaining balance every day and can also recover based on the user’s trading activity. These are high risk instruments that are suitable for traders looking for higher risk for volatility.
If imitation is the subtlest form of flattery, FTX can comfort the fact that Binance is jumping on the lever cart relatively late. After Binance listed the FTX leveraged tokens for the first time, it suddenly switched and removed them, citing user confusion as the reason. Just a few weeks later, the stock exchange giant announced that it would launch its own version of its leveraged tokens.
Even so, FTX is determined to continue providing innovative trading solutions to cryptocurrency users. An example of this is the MOVE contracts, which are essentially a nested options strategy with centralized liquidity to speculate on the volatility of Bitcoin (BTC).
Instead of managing two options contracts at the same exercise price and expiration, MOVE contracts allow users to access a more complex type of investment in a user-friendly and understandable format.
Synthetic assets and other derivatives thrive at DeFi
Due to their immaturity and experimental nature, decentralized finance applications suffered several notable setbacks in 2020, including bZx and Balancer. However, DeFi’s booked value has skyrocketed and will soon hit the $ 7 billion mark.
Much of this popularity is due to the rapid pace of innovation; B. on the fertile layers of the ecosystem with more sophisticated products than credit groups, insurance instruments and decentralized autonomous organizations that issue stable currencies.
Aave is an example of an app that raised the ranking on MakerDAO’s popularity. The main reason is the ability to get quick loans where a loan is borrowed and repaid in a single blockchain transaction. Their demand fueled the practice of increasing returns – managing funds through a range of DeFi applications for maximum returns.
It is worth noting, however, that there are currently some restrictions on derivatives on DeFi platforms. Overloads of Ethereum and gas fees could pose a threat to the further expansion of DeFi DApps as the network continues to grapple with the complexity of an Ethereum 2.0 upgrade. In addition, Vitalik Buterin himself warned the merchants of the dangers of growing plants.
For professional traders, the volatility of cryptocurrency coupled with an increasingly impressive range of trading products is tempting to say the least. As more and more analysts and traders carry out due diligence for the burgeoning derivatives market, it is to be expected that the flood of products will continue in parallel with the increased interest.
Simplify investments to avoid risk
For the average risk averse investor, passive investing is usually the ideal risk-modifying method to long-term investing in the crypto space. With strategies like the average dollar cost in Bitcoin and Ether (ETH), users may be exposed to an asymmetric calling option going forward.
However, building up a single crypto-asset carries the risk of further downturns in the event of price disruptions such as the “Black Thursday” in March. Attempts to offset this risk led the innovators at Central Finance and DeFi to develop more passive investment vehicles.