DeFi Derivatives — A Simple Guide

By Zild | Zild Finance | 23 Sep 2020

Hi everyone, CEO Zild Alex Nikolaev is here. Today we will talk about decentralized finance derivatives, discuss main concepts and consider popular platforms. Let’s start!

Derivatives are a popular form of financial instruments in the traditional financial market. Developers have been successful in bringing derivatives to the world of DeFi, and this is possible because of the adaptability of decentralized finance. It is also one of the best features of DeFi that it allows to bring financial instruments from the traditional financial markets and adapt it for DeFi.

As of today, derivatives have made itself to be one of the topmost DeFi segments. DeFi Pulse states that a total of $694.4 million is locked up in the DeFi derivatives applications now. Synthetix maintains a stronghold over the DeFi derivatives market with an 88.72% dominance.

DeFi Derivatives — What are Their Types?

There are two types of DeFi derivatives, and these are asset-based Defi derivatives and event-based DeFi derivatives. There’s a popular term for event-based derivatives that the cryptocurrency world would easily recognize — predictions market.

#1. Asset-Based Derivatives

Asset-based derivatives are a popular form of DeFi derivatives. In this type of derivatives, the value of the derivative is based on the underlying asset. It can be a major cryptocurrency like the Bitcoin, Ethereum, or any other financial assets.

#2. Event-based Derivatives or Prediction Market

The prediction market is different from the asset-based derivatives market. In asset-based derivatives, the underlying asset is always a financial one, whereas, in the prediction market, an underlying asset is an event. Here, People bet on outcomes of an event, and the events can be of varying types such as presidential elections, ETH 2.0, among many others.

Use Cases of DeFi Derivatives

The DeFi derivatives have tremendous potential, and the kind of flexibility that DeFi derivatives offer is rarely seen in the financial world. Tokenized derivatives will play a game-changer role as it offers permissionless and automatic execution. Let’s take a look at some of its use cases.

  • Protection From Price Volatility

DeFi derivatives protect users from price volatility. How is it possible? Well, a user is free to purchase an asset at a specific date and time in the future through DeFi derivatives.

Let’s say a user decides to purchase a fixed number of cryptocurrency at a cost per token of $10 after six months from now through the DeFi derivatives contract. Now on the pre-decided date, the price of the token is $25. But the user will still receive the tokens that the user purchased through DeFi derivatives at $10. It is how DeFi derivatives work.

  • Profit From Price Speculation

Are you good at speculating prices? Then you should check out DeFi derivatives. You can make quite a profit on DeFi derivatives applications if you are good at price speculations. You can profit in two ways through DeFi derivatives — The first is through speculating the prices of a financial asset, and the second is through speculating on the outcome of an event.

Leaders in the DeFi Derivatives Segment

Synthetix is the de-facto leader in the DeFi derivatives market today. But few others are also worth mentioning. We will have a look at other players that are currently leading in the DeFi derivatives market along with Synthetix. Let’s start with Synthetix first.


You can bet on a variety of assets through Synthetix like stocks, currencies, metals, among others. All this is possible because of synths as they bring the real world asset into the Ethereum blockchain. A Synth is a short-form for Synthetic Asset. As Synth brings the real-world assets into the Ethereum blockchain, it also has a property that a typical ERC20 token has.

But you should know that it doesn’t give you a right over the real-world asset even if you own a synthetic version of it on Synthetix. Let’s say you own a synth of a particular stock. The value of the synth and the real world stock would be the same, but you won’t have the rights similar to the actual real-world stockholders.

Nexus Mutual

Are smart contracts perfect and have no vulnerabilities? We hope that was true but smart contracts have their share of issues. That’s why Nexus Mutual has brought insurance for DeFi investors. What Nexus Mutual does is technically a part of insurance, but they cannot call their service as insurance because of legal reasons. It’s also true that there’s a difference between Nexus Mutual mutual and the age-old insurance industry.

We cannot deny the importance of the traditional insurance industry as it has benefited lots of people in their critical needs. Yet they, too, are like banks as they aim to maximize their profits. That’s nothing wrong with it as that’s what businesses do, and insurance companies are here to do business. But insurance from an objective of maximizing profits can be a hindrance in fulfilling the client’s needs. Nexus Mutual has taken it upon themselves to solve this issue through blockchain and smart contract technology.

We believe that you must have already understood that Nexus Mutual is an insurance mutual. It means that it is owned by its policyholders. That’s how insurance mutuals operate. Whatever profits that they generate during the business are given back to the policyholders or used to further the company’s development objectives. The sole purpose of Nexus Mutual is to provide insurance against the failure of smart contracts.


Erasure is a DeFi platform that is built on Ethereum blockchain and IPFST, where a user can find stock-trading data. You can make predictions on Erasure, stake NMR tokens, Erasure’s native tokens, on the platform, and also build a track record that is also verifiable.

You can also access DApps on Erasure like ErasureBay and Quant, which uses Erasure for time-stamping stock picks in its stock-picking tournament. It reveals the picked stocks at later dates as this helps build a reputation score.

It all started with Numerai as that’s where Erasure Protocol has its roots. Numerai is a San Francisco-based hedge fund, and its founder is one of the Forbes 30 Under 30 Finance 2017 — Richard Craib. They successfully raised $1.5 million in April 2016. They again received funding later in 2016, and this time they raised $6 million in their Series A funding round.

Opportunities Galore!

DeFi is gaining tremendous traction this year, and many DeFi projects have been very successful. We are sure that you must be regretting that you missed buying the tokens from the current leading DeFi protocols in its heyday.

We have good news for you. Zild Finance is a DeFi project that is going to change the DeFi lending space for good. How? We are bringing unsecured loans to DeFi lending along with a revolutionary concept of reputation score. Check our website for more information: Zild.Finance

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ZILD is Protocol of mutual decentralized wealth. ZILD attracts and partners with independent developers who help us build unique and valuable ecosystem of services and applications. Zild is an independent financial system that combines the models of traditional financial instruments into a single infrastructure based on public blockchains and smart contracts. Users are allowed to get a loan in different cryptocurrencies, as well as grant a loan in cryptocurrency and earn interest, at the same time they g

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