DERIVIO : THE LEADING-EDGE DERIVATIVES PLATFORM ON NEAR
In late 2022, decentralised exchanges (DEXes) enjoyed over 50% of exchange inflows compared to centralised counterparts, gaining them an unprecedented chunk of market share (source, Chainalysis). The reason? The collapse of FTX and Celsius, alongside a series stringent regulations ensuing as a consequence. This cocktail of factors has accelerated DeFi into the spotlight as of late.
Among the top DeFi projects lies Derivio — a fully decentralised derivatives ecosystem and liquidity platform built on zkSync and NEAR.
TL;DR
- Derivio is a derivatives platform platform built on zkSync and NEAR focused on catering to the needs of both retail and institutional-grade traders by offering structured derivatives that are customisable to suit your risk appetite
- Derivio aims to stand out with market-neutral liquidity, a balancing mechanism and risk management strategy that enables the liquidity pool to always automatically adjust and converge to a market-neutral state during volatile market conditions, while generating organic yield
- Derivio is currently live on Testnet!
Derivio: Twitter, Website, Medium
Building The Future of DeFi Derivatives and Mass Adoption
Derivatives trading should be much more than leveraged speculation. For the DeFi derivatives market to be truly scalable, it has to eventually make the pivot into risk management. This is the line of thought driving the Derivio team as they focus on building the next-generation derivatives ecosystem that caters to the needs of both retail and institutional-grade traders.
To accomplish this, Derivio has opted for a structured derivatives ecosystem powered by an oracle-based derivative model (ODM). Structured derivatives are designed to be customisable to suit your risk appetite. The appeal here lies in giving users explicit granular control over hedging strategies and risk management, flexibility, and sustainable leverage, all in a capital-efficient environment.
In ODM, all position opening and closing prices are determined by an oracle feed, while the liquidity pool is the market maker and a defacto counterparty to active traders. In essence, ODM guarantees zero slippage no matter the order size and liquidity depth, instant liquidity, and the prevention of settlement problems in high volatility conditions.
Why zkSync and NEAR?
zkSync is an EVM-compatible zkRollup with account abstraction. Essentially, zkRollups act as Layer-2 scaling solutions that increase throughput on Ethereum Mainnet by moving computation and state-storage off-chain, promoting trust minimisation and censorship resistance, while inheriting Ethereum’s security and finality.
NEAR Protocol also focuses on scalability and user experience (UX), having converging attributes like zero-knowledge proofs, low fees, fast finality, and robust security to satisfy the demands of Derivio’s architecture. Meanwhile, NEAR Protocol stands distinct as a full Open Web Stack, called the Blockchain Operating System (bOS).
Illia (root.near) (🇺🇦, ⋈) on Twitter: "So NEAR is a full open web stack with a new category introduced by the BOS:Blockchain Operating SystemNear Discovery (featured gateway: https://t.co/c8DD42fePy)NEAR Social (contract)NEAR Onboarding (Fast Auth)NEAR Data (Query API)NEAR Protocol (still an L1) / Twitter"
So NEAR is a full open web stack with a new category introduced by the BOS:Blockchain Operating SystemNear Discovery (featured gateway: https://t.co/c8DD42fePy)NEAR Social (contract)NEAR Onboarding (Fast Auth)NEAR Data (Query API)NEAR Protocol (still an L1)
Changing the Narrative with Market-Neutral Liquidity
It should be noted that structured derivatives are high-risk, high-return investments. The GMX attack via AVAX exploitation earlier this year (2022) exposed the weakness of ODM-based DeFi platforms, i.e., slippage manipulation.
This is where Derivio aims to stand out with the implementation of market-neutral liquidity. Market-neutral liquidity is a balancing mechanism and risk management strategy that enables the liquidity pool to always automatically adjust and converge to a market-neutral state during one-sided and volatile market conditions, while generating organic market yield.
The innovative mechanism kicks in when traders drive the market into extreme conditions, triggering arbitrage opportunities in the opposite direction for the liquidity pool. Derivio’s market-neutral liquidity is based on a funding rate strategy that is calculated using a long-short ratio (LSR) and borrow rate to safeguard the oracle and the liquidity pool:
- When the market is skewed and asset utilization is high, the funding rate adjusts and imposes an extra cost to discourage slippage manipulation.
- During highly volatile market conditions, traders may exploit the liquidity pool by concentrating positions in one direction and draining the pool; in this scenario, Derivio implements a block-based dynamic funding curve to ensure traders pay the funding rate before pulling out their orders, consequently protecting the pool.
The Derivio Product Suite
The Derivio product suite includes solutions for both traders and liquidity providers (LPs). The platform covers multiple markets such as long-tail tokens, FX, NFTs, and commodities, with different payout curves and deep liquidity. Derivio’s simple UX makes it easy for traders to navigate the platform.
1— Perpetual Futures
On Derivio, perp positions can be opened with any asset in the pool as collateral. The Derivio perps market offers 13 tradable markets across basic, stablecoin, and exotic assets, including:
- USDT, MIM, DAI, FRAX, FEI, and LUSD, (with a max leverage of 100x)
- CRV, APE, UNI, AAVE, LINK, LDO, SAND, MANA (with a max leverage of 10x)
- BTC, ETH, NEAR (with a max leverage of 50x)
2 — Digital Options
To put it simply, a digital option is a type of contract that allows traders to make a simple bet on whether the price of something will be above or below a certain level within a set time. Digital options prevail in intuitively managing risk and adjusting exposure so that you don’t suffer more loss than expected during huge market fluctuations. Options can also be used to hedge currency positions. Any commodity with a price feed can be traded on digital options.
The payout for Derivio’s digital options (depicted above) is based on an Adaptive Payout Curve that follows the LSR of the market-neutral liquidity mechanism. It has a curve of +95%. This can go up to +400% during one-sided market conditions and during LSR unbalances, making it one of the best payout curves amongs current DEXs.
3 — Liquidity Providers (LPs)
Liquidity providers are essentially market markers in a highly capital-efficient environment with risk optimization. LPs share in the revenue (PnL & trading fees) paid by derivatives traders, and are protected by Derivio’s market-neutral liquidity mechanism.
For LPs, Derivio offers capital protection and real yield. The platform uses market-neutral strategies and algorithmic protection to provide risk-adjusted pools with an attractive APR. Derivio offers Liquidity-as-a-Service index vaults that are used to generate yields. Initially, there are four index vaults: DLP-M (Main), DLP-B (Blue Chip), DLP-S (Stable Coin), and DLP-V (MetaVerse).
4 — Zero-coupon bonds and interest-rate products
Liquidity providers on Derivio automatically own a share of the market-neutral index. This is a potential high-yield investment but also comes with high risk. The zero coupon bond and interest rate markets allow you as a liquidity provider to maintain control of your portfolio while earning yields from fees and market making. They also form the building blocks of advanced DeFi investments that provide leverage without the risk of liquidation, such as:
- Leveraged yield farming —Liquidity providers can leverage their market making yields to earn more.
- High capital efficiency — Principal-protected passive investments are low-risk, high capital efficiency staking investments for passive income.
- Index fixed-rate and variable-rate market — By swapping their yields from variable to fixed rate, liquidity providers can convert their future yield instantly into stablecoins to manage their exposure to index volatility.
- Delta-neutral yield farming
Derivio’s balanced approach to both traders’ and liquidity providers’ needs creates and enhances a lucrative win-win cycle; LPs provide liquidity, which attracts more traders, resulting in higher fees, which, in turn, attracts more liquidity providers.
Derivio ∎ | Testnet Live on Twitter: "Be sure to check out the longer explanation in our whitepaper if you're looking for a more in-depth breakdown on how these concepts work.https://t.co/KPIJ5YKwjghttps://t.co/3gKfJ86piG / Twitter"
Be sure to check out the longer explanation in our whitepaper if you're looking for a more in-depth breakdown on how these concepts work.https://t.co/KPIJ5YKwjghttps://t.co/3gKfJ86piG
Derivio Testnet is Live!
Make sure to explore Derivio’s recently launched testnet, you can also give feedback to the team via their Discord community channel!
The forward-thinking team at Derivio is laying the foundations for the next-generation of DeFi products, one that is specifically tailored for mass adoption. And at NEARWEEK, we eagerly anticipate this future blooming into fruition…
Written by Beet
Edited by @achildhoodhero
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DERIVIO : THE LEADING-EDGE DERIVATIVES PLATFORM ON NEAR was originally published in NEAR Protocol on Medium, where people are continuing the conversation by highlighting and responding to this story.