Derivio: Decentralized Derivatives Trading on zkSync | TKX Weekly

4 min readApr 3

Although DeFi has grown extremely fast since 2020, it is still in a very early stage compared to traditional finance market. The derivative market is still relatively small in DeFi. However, with the rise of DeFi and the increasing demand for decentralized derivatives, the derivative market in DeFi is expected to grow significantly in the coming years. Today, we will explore Derivio, which aims to be at the forefront of this growth by offering a platform that provides traders with a range of synthetic derivatives for trading.

Intro

Derivio is a platform that provides a variety of synthetic derivatives for cryptocurrency traders and operators. Its goal is to offer risk-adjusted rewards with smart leverage and deep liquidity pools. Derivio offers perpetual futures, options, interest rate derivatives, and stablecoins. The platform’s vision is to enable effective management of operational risks in the crypto space and to build an ecosystem of on-chain derivatives for all levels of expertise. Derivio prioritizes simplicity and a wide range of market offerings for retail and institutional participants of varying needs and experience levels with DeFi.

Development

Derivio has two phases of development. The first phase focuses on order structured derivatives, including perpetual futures and digital options, for trading various markets such as tokens, forex, NFTs, commodities, metals, energy, etc. The primary goal of this phase is to provide deep liquidity, robust execution, and low price impact for traders, as well as offering liquidity providers a market-neutral market-making abstraction.

The second phase will concentrate on higher-order structured derivatives, such as autocallables, which provide exotic passive investment opportunities. These derivatives will prioritize fair pricing, open auction, and access.

Trading

Derivio’s phase one offers traders perpetual futures and digital options across various markets such as tokens, forex, NFTs, commodities, metals, and energy.

Perpetual Futures

Derivio offers traders a wide range of perpetual futures trading options across various markets, including popular crypto pairs, stablecoins, and exotic tokens, with up to 50x leverage. Traders can open positions using any asset in the pool as collateral, and the platform operates with a universal margin system that treats all tokens equally. This means that traders can take long or short positions on any market, with equity and PnL accounted for in the short token. The liquidity pool remains aggregated, avoiding fragmentation, and traders can swap from or into any other token in the pool.

Digital Options

Derivio offers digital options as a unique and intuitive tool for traders to hedge risks and adjust their exposure structure. With 29 tradable markets, including cryptocurrencies, forex, and commodities, traders can choose any expiration period between 5 minutes and 24 hours. They can open a position using any asset in the pool as collateral.

Derivio uses a dynamic long-short ratio-based payout curve to ensure fairness between traders and balance the risk for the liquidity providers (LPs). The payout calculation is based on the percentage of long positions at each block, and measures are put in place to mitigate the impacts of potentially harmful circumstances. Derivio’s digital options offer limited profit and stop-loss to prevent unexpected losses due to market fluctuations and can carry out limited hedging while holding currency positions.

Liquidity Pool

Derivio offers two DeFi Super Derivatives Vaults (SDVs) — DLP-M (Main) and DLP-B (Blue Chip) — in phase one. The liquidity pools are protected by Derivio’s market-neutral liquidity design, which is especially effective during volatile market conditions. Derivio generates sustainable yield from all trading activities, providing liquidity providers with market-neutral market maker benefits, high capital efficiency, and risk optimization.

Composition

DLP-M (Main) — 33.333% ETH, 16.667% BTC, 30% USDC, 10% USDT, 10% DAI
DLP-B (Blue Chip) — 8% AAVE, 8% CRV, 8% LINK, 8% UNI, 8% APE, 20% ETH, 24% USDC, 8% USDT, 8% DAI

Super Derivatives Vaults (SDVs) solves the problem of liquidity fragmentation across derivative types/markets/collaterals and allows for extreme capital efficiency and yield generation for liquidity providers.

Market neutral liquidity

Derivio offers market-neutral liquidity for its Super Derivatives Vaults (SDVs) by using algorithmic strategies to self-rebalance and protect liquidity providers (LPs) in uni-directional or volatile market conditions. This allows for a wide range of markets to be introduced while optimizing risk and generating organic market-making yield. Derivio achieves this by using programmable market-neutrality for liquidity pools in perp & options trading, and by introducing novel dynamic payout curves for digital options.

Final Thoughts

Derivatives market is indeed still have lots of room to growth, but this market is also very competitive. I think Derivio’s advantages are 1) teams has deep understanding of derivatives 2) in phrase two — Derivio will bring in exotic derivatives product such as autocallables which is quite unique in the market. Now Derivio is on their testnet, it’s worth to have a try on their trading platform.