On-chain derivatives are set to become the next big growth sector in the decentralized finance (DeFi) space, says Henrik Andersson, the chief investment officer of Australian crypto investment firm Apollo Capital.
In a wide-ranging interview with Cointelegraph, Andersson said he thinks the increasing popularity of decentralized spot trading will inevitably lead to outsized demand for decentralized derivatives.
“The first decentralized spot exchanges were launched roughly six years ago. Decentralized perpetuals and futures trading is much newer, so there is a high growth opportunity to be had with on-chain derivatives.”
Andersson explained decentralized spot exchanges have continuously gained market share from centralized exchanges — a trend that has only increased since the collapse of FTX in November last year.
During May’s memecoin frenzy, daily trading volume on decentralized exchanges (DEXs) such as Uniswap evenbriefly eclipsed that of mainstay centralized crypto exchanges like Coinbase.
Months later on June 7, trading volumes on DEXs again surged, going well over 400% following the SEC’s crackdown on Binance and Coinbase.
“In the last year we’ve seen Uniswap trade more daily volume than Coinbase and if you look at the overall market share [of DEXs], it’s still small, but it’s gaining ground,” Andersson said. “On a monthly basis, we’re doing over $50 billion in spot volume on DEXs.”
In June, futures trading accounted for nearly 80% of the entire crypto market’s trading volume across centralized exchanges. Andersson said he sees this futures-heavy trend being replicated in DeFi as well, and lauded on-chain derivatives as the “best product-market fit” the DeFi space has seen in years.
“Most of the volume is in futures, so there’s an even greater growth opportunity for on-chain derivatives.”
Outside of decentralized derivatives, Andersson also mentioned two emerging market sectors that have piqued his interest in recent weeks.
The first is NFTFi — blending nonfungible tokens (NFTs) and DeFi — that allows investors to rent, borrow and fractionalize NFTs as well as create derivative and prediction markets based on them.
Describing the nascent sector as having a “strong investment narrative,” he claimed DeFi investors will inevitably end up utilizing NFTs for a wider range of functions.
The second emerging theme is LSDFi, which bootstraps the utility of Liquid Staking Derivatives (LSD) tokens such as Lido staked ETH…
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