Decentralized exchanges aren’t ready for derivatives

Decentralized exchanges aren’t ready for derivatives

DEXs conceivably hold great promise for the future of derivatives trading, but not at the cost of security, speed and availability for all.

If the words “derivatives trading” conjures up images of men in suits with disheveled white sleeves rolled up to the elbows and exacerbated expressions on their faces — like something out of The Big Short — then the word decentralized exchanges (DEXs) must conjure up, well, nothing. 

There are no offices, no floor traders waving papers and certainly no men in suits. DEXs are managed automatically or semi-automatically with the involvement of platform participants in the process of making mission-critical decisions. DEXs are a bulb of a system that is sprouting groundbreaking opportunities for many, but they are not yet suited for the soil of derivatives trading in this season of the crypto market.

The technological gap

The technology isn’t available right now to have a proper options market on a DEX with the level of sophistication that you find in the traditional space. Current offerings, therefore, suffer from capital inefficiencies, poor pricing and added risk for traders. Instead of tech first, the people must be put first and the tech layered in as it matures, providing decentralization in progressive components. The

The future is accessible for everyone

Cryptocurrency is a massive financial literacy project. Take, for instance, the subprime mortgage crisis in 2007. The problem was not that complicated derivatives tools, like tranches or CMOs, were inherently wrong, it was the fact that there was no transparency or audibility of the products that were being sold. Unseen risks resided in the system that no one knew existed and then it collapsed. With crypto, everything in the entire financial stack is fully transparent and auditable in real-time. Out of necessity, people learn about margin systems, lending systems and other traditional and complex concepts that were otherwise unappealing or unavailable to them.

Centralized crypto exchanges know that anyone can learn, audit and shift their assets to another platform if they’re not satisfied, which holds exchanges accountable. Unlike banks, users can withdraw their assets directly to the blockchain. Exchanges need to do right by the user, lest they go elsewhere. In a DEX, this is a glaring accountability gap. If something goes wrong, who is behind there to help fix the mess?

This is especially important when you consider that, according to a report by crypto research company Messari, DeFi protocols have lost about $284.9 million to hacks and other exploit attacks since 2019. At this point in time, the decentralized insurance industry only covers a fraction of the total value locked (TVL) in DeFi, which represents the sum of all assets deposited in DeFi protocols earning rewards, interest, new coins and tokens, fixed income, etc.

With new DeFi hacks popping up in crypto in what feels like every other day, centralized exchanges or custodians that can offer greater peace of mind through insurance and counterparty risk are the smoothest on-ramps for the industry.

Decentralization is the end goal

Of course, decentralization is the end goal. Users controlling their own assets is ideal. Directionally, this is where the industry is headed, but we can’t ask that users jump in before the tech is ready at their expense. The onus is on technologists to get decentralized technologies where they need to be first. DEXs conceivably hold great promise for the future of derivatives trading, but not at the cost of security, speed and availability for all.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Tom Howard, business development and growth at PowerTrade, is a product geek, founder and angel investor obsessed with reinventing money and finance. As an early investor in cryptocurrencies and founding partner of blockchain investment group Taureon, Tom has seen it all from the booms and busts to the massive challenges users face when trying to use cryptocurrencies as electronic cash. As co-founder of DeFi Nation and formerly co-founder of Mosendo, Tom brings his immense knowledge of decentralization to the crypto derivatives world.

  • Bitcoin
  • Ethereum
  • Tether
  • Cardano
  • Polkadot
  • Binance coin
  • Dogecoin
Scan to Donate Bitcoin to 194astnfvj2nr6izGJFwG9ebRqNU7ynQYY

Donate Bitcoin to this address

Scan the QR code or copy the address below into your wallet to send some Bitcoin

Scan to Donate Ethereum to 0xe5853a1d08b3ea0bb69276b0e40cdf858968d822

Donate Ethereum to this address

Scan the QR code or copy the address below into your wallet to send some Ethereum

Scan to Donate Tether to 0xe5853a1d08b3ea0bb69276b0e40cdf858968d822

Donate Tether to this address

Scan the QR code or copy the address below into your wallet to send some Tether

Scan to Donate Cardano to DdzFFzCqrhsu1xWeeGai3gbgsbrFP26zPaVrCJqqF286carQJmAkTitRQSUCLhYLpKCotroRRNpKj7YcnAJQqpSfsHHdj8nUaitPvH4j

Donate Cardano to this address

Scan the QR code or copy the address below into your wallet to send some Cardano

Scan to Donate Polkadot to 155rGKVEanCxpi5EqGh8yh1AkGpm6bVUa7RQNydA38KzbhNu

Donate Polkadot to this address

Scan the QR code or copy the address below into your wallet to send some Polkadot

Scan to Donate Binance coin to bnb136ns6lfw4zs5hg4n85vdthaad7hq5m4gtkgf23

Donate Binance coin to this address

Scan the QR code or copy the address below into your wallet to send some Binance coin

Tag/Note:- 105346725
Scan to Donate Dogecoin to DKN9sscVgSBVyG7f9PYJq2D3BhWK5ffUmK

Donate Dogecoin to this address

Scan the QR code or copy the address below into your wallet to send some Dogecoin


Credit: Source Link

Comments are closed.

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Read More

Privacy & Cookies Policy
WP Twitter Auto Publish Powered By : XYZScripts.com