Currently the main derivative DEX exchanges include, dydx, Kine, MCDEX, PERP and DERI. DYDX is the market dominant with more than 2 Billion USD trading volume daily account for more than 50% of the market share. This number increased more than a hundred times in the year of 2021.The total trading volume daily of the Derivative DEX is around 3 Billion by the end of year 2021.
So what are the reasons the trading volume of Derivative DEX increased more than a hundred in 2021? Why does the increase slow down? Is there any more potential in the future? These are the questions we are interested and we will discuss in this article.
There are several reasons that the trading volume of Derivative DEX increased dramatically. Firstly the initial daily trading volume is in only in millions in early 2021. It was so small in this market comparing with ,for example, 60 billion daily trading volume from Binance derivative platform. DYDX is the early player. The product is designed and built by an experienced team with some key members from Coinbase. DYDX has a centralized order book with market makers provide liquidity with little spread. The trading experience is comparable with main centralized exchanges like Bitmex, Bybit or Binance. The advantage is that traders don’t have to deposit their margin into a centralized exchange wallet for custody. The margin goes directly from the traders’ wallets to the smart contracts. It solves the issue of custodian trust problem and avoid deposit or withdraw issues and many other potential risks. And there is a token reward for trading with DYDX currently. That are the reasons why DYDX could quickly grow even if it has a higher trading fee than centralized exchanges and a lack of variety of trading pairs.
The Kine exchange is also an interesting DEX also with a centralized solution for the price feed for the settlement. The price comes from the centralized exchanges. It gives the advantage for the market efficiency. While most other derivative DEX is using a decentralized solution for price feed, centralized price feed is an advantage at this stage before we have super efficient chains with almost 0 gas fee and super fast execution period.
The reason that the growth of derivative DEX slow down is that DEX still needs better improvement against their CEX competitors. The main disadvantages currently are higher fee rate and lack of variety of trading pairs. The market does not only need innovation on the product design, but also on the ecosystem and marketing solutions. The realization of permissionless derivative DEX is not easy, the goal of LP and trader protection and the achievement of good trading experience will need an innovative design of the product itself. But when it is achieved, it will trigger a future development of derivative DEX.
The potential market size in the coming few years will be at least 100 times from here, which will go beyond 200 billion USD trading volume per day, which is not so ambitious because Binance derivative is already having a daily trading volume almost 100 billion USD. The market moves fast. Welcome to the crypto world.
TripleFi is a new advanced derivative DEX. We will not only implement the centralized solution of price feed, but also a variety of innovation is used including price shift mechanism, protection of LP pool and potential arbitraging designs. And all of these innovations will be introduced soon to the market.
By TripleFi Research Team
