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Options are not optional. The more you invest in cryptocurrencies, the more you realize that option contracts are your best bet to hedge against the market volatility of crypto. However, there are certain challenges.
Challenge 1: Monopoly
The crypto options market is dominated by institutional investors currently, with limited participation of retail investors. Lack of understanding and a complex onboarding process are the two key reasons behind limited retail participation. But more on that later.
The monopoly of platforms is a bigger pain point for the gatekeepers of transparency and decentralization. Deribit dominates the crypto options market, with over 80% of the entire options trading happening through it.
What justifies this domination? An overwhelming majority of institutional investors trade options on Deribit.
Challenge 2: Security Challenges
Blockchain started off as a technology that was impossible to tamper with. However, the emergence of Layer 2 solutions aimed at solving the blockchain trilemma gave birth to bridges, which are one of the primary targets of security breaches.
The $28M Deribit Hot Wallet hack is a recent example of how fragile security in CeFi could be.
Challenge 3: Complex Onboarding (Expand on this)
Complicated interfaces continue to plague the DeFi ecosystem. Lack of interoperability means the inability of different chains to communicate. If you need to transfer assets from Arbitrum to Solana, you have to pay a slippage, which may go up to 2%. By the time you figure out how slippage works, your capital is already reduced by 2%.
Now imagine doing that multiple times. Clearly, existing DEXs are made for DeFi natives. How do we accommodate degens? By simplifying onboarding and introducing multi-chain support.
Challenge 4: Centralization
Deribit, Delta, OKX, and Binance are the top 4 exchanges in terms of crypto options volume. What’s common between all of them? All of them are centralized. Say hi to Monopoly again. Where do DeFi and crypto options meet? Nowhere.
Options volume in DeFi is inexistent. Self-custody of funds is a far-fetched thought, and the risk of manipulation remains.
DeFi and Crypto Options? What Needs To Change
Decentralized Finance (DeFi) is all about putting users in control of their funds, but for that to happen, you must convince users about security. Other key factors are an extremely user-friendly interface, transparency, and transaction costs.
Here’s what emerging DeFi solutions need to do to onboard more retail investors:
Simplify onboarding
Reduce gas fees substantially
Offer self custody
Offer seamless risk management
Now that we know the pain points and the potential solution that could catalyze the transition of options volume to DeFi, here’s a dive into the future.
The Road Ahead
How many exchanges offer the potential solutions stated above? Zero. So, how does one expect the options volume to move to DeFi? Because there are some emerging platforms hellbent on bringing the masses to DeFi, with options trading being the pulling factor.
Syndr is one such upcoming exchange that envisions gas-free on-chain derivatives trading. Powered by Arbitrum, Syndr aims to offer ultra-low latency ranging between 1-30 ms. This means that on-chain transactions are up for lightning-fast settlements. But how is Syndr making on-chain trading simpler for degens? Here’s the gameplan:
Extremely user-friendly UI: I tested Syndr’s UI via a special invite code a while ago, and it never felt like a DEX (decentralized exchange). It appears like a DEX with a CEX-like appearance. Thus, users transitioning to Syndr are unlikely to feel any difference UX-wise. However, it has the potential to be the simplest DEX out there in terms of UX.
Zero Gas Fees: The high gas fee is one of the primary reasons behind the limited retail volume in DeFi. Popular decentralized exchanges like GMX and Gains Network charge you up to 0.08% trade fees for opening a trade. Syndr’s gas-free DEX is bound to catalyze retail adoption of DeFi.
Self-Custody: Users on Syndr will be the sole custodians of their funds while enjoying a CEX-like experience and access to the highly lucrative crypto options market.
Social Login: The exchange is hyperfocused on eliminating roadblocks, and the social log-in feature is another step to make on-chain trading more convenient.
Portfolio Margining: Syndr will allow users to trade multiple markets with a single collateral, a first in on-chain trading. The feature will help traders reduce risks substantially.
While the existing crypto options landscape lacks a viable option for degens, Syndr emerges as a powerful alternative in the CeFi-dominated market. With zero gas fees, USD-margined everything, and features like portfolio margining, it is bound to help retail investors maximize their profits and hedge against risks by investing in options contracts.
Have a different opinion? Let’s have a discussion in the comments.