Understanding crypto derivatives vs. traditional derivatives

DeFi Feb 18, 2022

Key takeaway:
Crypto derivatives and traditional derivatives are inherently similar nature of derivatives as an instrument. However, there are many differences between the two markets.


Interest in crypto derivatives is surging as the market evolutes and more and more investors begin to flock to this asset class. However, derivatives are complex financial instruments that can be overwhelming for inexperienced and uninitiated investors to manage.  As derivatives are pegged to cryptocurrencies, these instruments are made even more challenging for average investors to comprehend and thus make them more skeptical of these investments as compared to traditional derivatives that are already complex in nature.

Despite this, the crypto derivatives market has rapidly expanded. Since the first crypto derivatives (futures contracts on BTC) came to market in 2011, by May 2021, the crypto derivatives market had exceeded spot trading with a monthly trading volume of almost $6 trillion while the spot trading was under $5 trillion.


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One of the reasons behind the rapid expansion is that crypto derivatives have a lower access barrier than traditional derivatives. While inherently similar in nature, crypto derivatives and traditional derivatives have a few key differences. This article is going to focus on the differences between the two.

Crypto derivatives vs. traditional derivatives

  • Market participants: While traditional derivatives are limited to a cloistered collective of hedge funds, commercial banks, and other institutions, the current crypto derivatives are still largely driven by retail investors. Although the power is slowly shifting as more institutions set their feet in crypto derivatives, the market is still retail investor-focused, especially with the development of decentralized derivative trending DEXes.
  • Product types: As the crypto market is mostly limited to currency-based derivatives, there are only a certain number of products that exist right now. These include futures contracts, options, and perpetual contracts. In the traditional market, the number of products is endless due to the various types of underlying assets. Another reason that the crypto derivative products are limited could be because the market participants are still retail investors, who are less sophisticated compared to institutional investors. Thus, the crypto derivatives market is also tailored to the participant's profile with less sophisticated products.
  • Trading time: Unlike traditional derivative markets, crypto derivative indexes pull data from markets are that open 24 hours a day, seven days a week. This allows for longer trading periods for investors in various time zones.
  • Volumes: The volumes of crypto derivatives trading are still not comparable to traditional derivatives. The average monthly trading volume for FX derivatives alone was $13 trillion while the entire crypto derivatives trading is still in the billions.
  • Market access: Crypto derivatives offer more access than traditional derivatives. Anyone with a wallet address and asset can participate in crypto derivatives trading. With the development of DeFi, people don’t even need to give away their personal information to be a participant in the market. Given blockchain’s distributed, immutable design, crypto derivatives are easier to trade compared to their traditional counterparts.
  • Custodian requirement: Traditional derivatives markets operate using custodians or central clearing counterparties. Crypto derivatives usually require no custodians although some centralized derivative exchanges are making efforts to resemble the traditional derivative markets on this matter. Decentralized derivatives exchanges such as SynFutures eliminate central parties altogether, entirely democratize the crypto derivatives trading market, and still effectively mitigate the counterparty risk with a robust smart contract design.
  • Innovation: With the booming of DeFi, new financial projects emerge on the markets in the time scale of days. New crypto derivatives projects, either revolutionary or built on top of existing ones, are iterating quickly to best suit the market needs. In contrast, traditional derivative products are reluctant to change, resulting in few innovations compared to its crypto counterparts.

Crypto derivative still at an early stage

The global financial derivatives market plays a crucial role in providing market liquidity, creating investment optionality, and providing more ways for investors to hedge their positions. With more institutions showing interest in crypto derivatives, the market could evolve quickly. By leveraging blockchain technology to develop new financial instruments and migrate existing products to decentralized, globally accessible platforms, the crypto derivative and the traditional derivative sector are poised to converge into a more equitable, feature-rich financial ecosystem.

Discover SynFutures' Crypto Derivatives products: www.synfutures.com/.

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