Derivatives in DeFi: Present and Future

Power Perpetuals

Power perpetuals are part of the asset class of perpetuals that are currently only tradable on DeFi venues. Simply put, a power perpetual is just a perp that is indexed to some exponential power of the underlying asset. So, for a power perpetual on BTC, you can get a derivative that represents BTC², BTC³, or BTC^p for some power represented by p. The payoff is similar to perpetuals, as the relative difference between the mark price and the index price will determine whether the longs or shorts are making money and whether downward or upward pressure is applied to adjust the mark price. For power perpetuals this fee is known as a premium yield to resemble the power perp’s options-like exposure.

Figure 1. Numerical description of multiple power perpetuals and their price movements

Structured Products in DeFi: DOVs

For clarity, structured products are financial investments that are pre-packaged and sold to investors. These products can include a wide variety of underlying financial instruments, such as assets, derivatives, and investment strategies themselves.

Figure 2. Top DOVs by TVL.

Panoptions: A Theoretical Case for Uniswap v3 Concentrated Liquidity Options

Panoptions are also a new proposal, created by the Panoptic Protocol, which aims to offer options on liquidity through Uniswap liquidity providers, or LPs, with no expiration date. The protocol allows LPs to sell calls or puts on their concentrated liquidity and earn fees like the rates determined by Uniswap v3. These options give users the ability to create any payoff curve they deem fit by purchasing options at different ticks of concentrated liquidity.

Figure 3. Panoptic options payoff curve variations.
Figure 4. Panoptic options fee accumulation for ITM, ATM, and OTM options

Conclusion

Despite the conditions of the bear market and a decline in overall market confidence in cryptocurrencies, crypto derivatives remain strong and continue to grow in popularity.

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