Derivatives – Weekly fundamentals #66

Oskari Tempakka

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A walkthrough of the most interesting charts and trends in crypto, with a focus on key business drivers and protocol fundamentals.

This week’s newsletter focuses on the derivatives market sector, which has a designated dashboard on Token Terminal. Let’s dig in!

Crypto derivatives are contracts that derive their value from an underlying asset. They allow investors to speculate on the price of an asset without directly owning or interacting with it.


  • Derivatives protocols allow crypto market participants to access complex financial instruments. Crypto derivatives make up a diverse market sector with protocols that allow users to trade perpetual contracts, options contracts, interest rate swaps, and more.
  • Perpetual contracts are the single most popular trading instrument in crypto. Since the invention of XBTUSD perpetual futures by Arthur Hayes, BitMEX co-founder, in 2016, perpetual futures have become an irresistible attraction for traders. The popularity stems from the leverage these contracts offer combined with their time-resilient exposure to cryptoassets. Notably, on June 7th, 2023, the daily trading volume across centralized and decentralized perpetual exchanges exceeded $240b.
  • Decentralized derivatives exchanges have seen a steady increase in activity since 2021. Although still dwarfed by their centralized counterparts, decentralized derivatives exchanges such as dYdX, GMX, Synthetix, and Gains Network have been gaining popularity. The success of these decentralized exchanges has spawned a large number of new competitors and forks. An additional factor stimulating growth within this market sector has been the bankruptcy of major centralized exchanges such as FTX. These downfalls have resulted in significant capital movements toward onchain derivatives exchanges.


The daily trading volume and fees over the past 180 days for the top projects in the derivatives market sector are visualized below.

Scope of analysis

  • The derivatives dashboard features 28 projects. There are numerous derivatives projects not yet listed on Token Terminal, so the dashboard can only give an indicative analysis of the market sector. Currently, our dashboard does not cover activity on non-EVM chains such as Solana.

Chart analysis

  • Over the past 180 days, trading volumes and fees on derivatives protocols have maintained consistency. While dYdX and GMX led the sector for both metrics in Q1 2023, Synthetix and Level Finance began capturing market share during Q2.
  • The level of activity aligns closely with broader market trends. Trading volumes for BTC and ETH - which are generally the largest markets for derivatives protocols - have maintained a steady pace across both centralized and decentralized exchanges over the past six months. As the largest markets for derivatives protocols, BTC and ETH trading volumes can often serve as a measure of overall sector activity. For example, on dYdX alone, BTC and ETH recorded trading volumes of over $56m and $86m respectively over the last 180 days. In contrast, the combined trading volume for all other markets on the platform amounted to just $36m in the same timeframe.
  • Derivatives protocols gain momentum during periods of sustained market volatility. Higher volatility leads to more speculation on asset prices, as traders can potentially generate larger profits with less upfront capital. As derivatives protocols are a premier vehicle for speculation, higher market volatility is conducive to increased activity within this sector. Trading volume and fees for the derivatives market sector peaked between Q4 2021 and Q1 2022, a period of extremely high volatility in the crypto market.

  • Onchain perpetual exchanges facilitate more activity than options exchanges. The top three fee-generating perpetual exchanges (GMX, dYdX, Level Finance) generated over $82.5m in fees over the past 90 days, 700% more than the $10.2m generated by the top three fee-generating options exchanges (Lyra, Hegic, Premia).
  • Perpetual exchanges offer leveraged exposure to markets and a more intuitive trading experience compared to options exchanges. Perpetual exchanges allow users to take on higher risk for greater potential returns through leveraged trading, with protocols such as Gains Network offering up to 150x exposure to certain assets. Also, the options trading experience is generally more complex than that of perpetuals, which raises the barrier to entry for options trading.
  • Emerging options exchanges are deploying simplified trading products to attract a wider user base. A prominent example is Buffer Finance with its flagship binary options product. This product streamlines the complexity of options trading, allowing traders to merely speculate on whether the underlying asset's price will be higher or lower than the opening price after a predetermined time period. Since launching on January 31st, 2023, Buffer Finance has generated over $664k in fees, roughly the same amount as Metavault.Trade (a more established derivatives protocol) over the same time period.

  • Blockchains (L2) are the most popular platforms for derivatives protocols to deploy on. Arbitrum and Optimism, both Layer 2 blockchains, are host to 13 and 9 derivatives protocols respectively, when looking at the protocols listed on Token Terminal.
  • Blockchains (L2) boast rapid transaction speeds, low gas fees, and high security, making them ideal environments for derivatives protocols. The necessity for high transaction speed is particularly critical for protocols offering leveraged trading, ensuring that executed prices align with traders' expectations. Furthermore, reduced gas fees lessen the costs that derivatives protocols bear when they fetch asset prices from oracle services like Chainlink or Pyth Network.
  • We anticipate a growing trend of both emerging and established derivatives protocols choosing to launch on blockchains (L2) such as Arbitrum and Optimism. This is evident in the rising popularity of newer derivatives protocols on L2s. For instance, Vertex Protocol and Rage Trade rank as the 20th and 33rd highest gas-consuming projects on Arbitrum over the past 90 days. Moreover, leading derivatives protocols that were initially based on blockchains (L1) are also planning to launch on blockchains (L2). A notable example is Level Finance, the largest perpetual exchange on BNB Chain, which recently launched its LVL token on Arbitrum on May 31st, 2023.


Some of the most interesting trends for projects in the derivatives market sector are visualized below.

  • dYdX and GMX hold a dominant position in the derivatives market sector in terms of both trading volume and fees. Over the past 180 days, dYdX has processed $179.2b in trading volume, outstripping GMX by over four times, which registered $42.3b. Despite its lower trading volume, GMX generated $83.6m in fees during the same period, nearly doubling dYdX's fees of $43.5m.
  • The discrepancy in trading fees between GMX and dYdX, despite the latter's larger trading volume, is due to the difference in their fee structures. GMX charges a standard trading fee of 10 bps of the notional trading volume. dYdX, on the other hand, employs a volume-tiered fee structure that exempts traders with less than $100k in 30-day notional volume from any fees. Also, dYdX’s maximum fee rate only goes up to 5bps of notional volume. Moreover, dYdX has distributed $45.7m in DYDX token incentives to its traders over the past 180 days. In comparison, GMX has distributed $10.6m in esGMX incentives to stakers and liquidity providers over the same time period.
  • GMX’s success has spawned a large number of forks. One of their largest forks, Mummy Finance, facilitated over $1.5b in trading volume over the last 180 days. To combat losing market share, GMX passed a governance proposal to create a GMX Labs entity and place their smart contracts behind a license. GMX also plans to launch synthetic asset trading to allow access to more diverse markets, and their custom AMM product X4.
  • The upcoming version of dYdX (v4) is designed as an independent app-chain utilizing the Cosmos SDK. This app-chain operating model empowers dYdX to customize their network according to specific needs, such as accommodating higher throughput, removing gas fees, mitigating MEV, and fostering decentralization. Within this model, all validators on the dYdX app-chain will manage offchain order books. They will only commit trades that have been successfully filled via their order-matching engine, enhancing dYdX's capacity to handle an increased number of orders. As per the current schedule, dYdX v4 is set to launch in September 2023.
  • Perpetual exchanges leveraging Synthetix's liquidity infrastructure are gaining momentum, evidenced by Kwenta's trading volume of ~$4.8b in May 2023. Synthetix, a synthetic asset protocol, enables SNX stakers to create synthetic assets that mirror the price of an underlying asset, whether it be gold, stocks, or other cryptoassets. Kwenta capitalizes on the synthetic asset liquidity provided by Synthetix to facilitate leveraged perpetual trading. In May 2023 alone, Kwenta generated $1.8m in fees, representing ~0.04% of its trading volume. Furthermore, trading volumes surged by 103% compared to April, highlighting the accelerating momentum of these Synthetix-based perpetual exchanges.
  • The drivers behind this activity on platforms like Kwenta can be largely attributed to two key factors: competitive trading fees and OP token incentives. Unlike GMX, which charges a standard fee of 10bps on the notional volume, Kwenta typically charges a $2 flat fee alongside 2-10bps of notional volume. Furthermore, Synthetix's incentive program plays a crucial role, with 4.9m OP rewards offered over a 20-week period to encourage trading.
  • Synthetix recently passed their SIP-2002 governance proposal, which offers revenue kickbacks to integrated futures protocols based on their trading volume. Following this, we anticipate more derivatives protocols to launch on Synthetix's liquidity infrastructure. An example of this is Polynomial Protocol, which has already processed more than $125m in trading volume since debuting its flagship futures trading product, Polynomial Trade, on March 27th, 2023.

Other key highlights from the derivatives market sector

  • Cap launched Cap v4 on February 22nd, 2023, allowing traders access to diverse synthetic markets such as gold, stocks, FX, as well as other crypto pairs. Coupled with their ARB trading rewards program (with rewards up to 100k ARB per month), Cap has seen their 90-day cumulative trading volume increase by over 1,100%.
  • Gains Network launched gTrade v6.3.2 on May 16th, 2023, replacing funding fees with dynamic borrowing fees. This change reduces risks for liquidity providers and allows Gains Network to raise limits on open interest without increasing TVL.
  • Kwenta released Smart Margin v2 on April 20th, 2023. This proprietary margin engine introduces features such as limit and stop loss orders, delegate trading, and more.
  • Lyra launched on Arbitrum on February 1st, 2023. Although Lyra was originally only deployed on Optimism, activity on Arbitrum has since come to dominate, with daily trading volumes reaching an all-time high of $11.3m on May 16th, 2023.
  • MUX unveiled their Leveraged Trading Aggregator product through MUX v2 on December 5th, 2022. This allows MUX to integrate with other perpetual exchanges and offer traders the most cost-efficient liquidity routes for trading. Integrated exchanges include GMX and Gains Network thus far.
  • Premia introduced the The Premia Academy of DeFi Options on June 2nd, 2023, an educational program designed to teach options trading strategies to beginner traders.


Recent updates and improvements to the derivatives market sector on Token Terminal.

ActionBusiness impact
New listing of Pika Protocol.New listing of a large derivatives exchange on Optimism. This has increased Token Terminal’s overall coverage of the derivatives market sector.
Add liquidation data for GMX, Level Finance, Metavault.Trade, Mummy Finance, MUX, Mycelium, and Perpetual Protocol.Allows Token Terminal to provide more extensive and in-depth coverage of existing derivatives exchanges.
Remove liquidity pool depositors and withdrawers as active users for Deri Protocol, Perpetual Protocol, and UniDex.Aligns active users methodology across the derivatives market sector to only include traders.
Update ThalesAMM, SportsAMM, and ParlayAMM contracts for Thales.Allows Token Terminal to provide more accurate and up-to-date data for Thales.
Add Arbitrum treasury for Gains Network.Allows Token Terminal to provide more accurate and up-to-date data for Gains Network.
Add LGO token incentives for Level Finance.Allows Token Terminal to provide more accurate and up-to-date data for Level Finance.
Add circulating supply and market caps metrics for Hegic through on-chain sources.Migrates our data from third party APIs to onchain sources and making it more reliable.

Interview of the week

In this episode of the Fundamentals podcast, we’re joined by Rune Christensen, Co-Founder of MakerDAO – a decentralized stablecoin protocol built on Ethereum, and the first-ever DAO.

Maker recently published their Endgame plan, which is a roadmap for a significant overhaul and improvement to the governance and tokenomics of the Maker Ecosystem. Its primary aim is for the ecosystem to reach a self-sustainable equilibrium called the Endgame State.

In this episode with Rune, the mastermind behind the Endgame plan, we discuss why this overhaul is needed and how it will affect the Maker Ecosystem. We go through the details of the plan's 5 different phases: Unified branding, subDAOs, leveling the playing field for governance, incentivizing participation, and launching a new blockchain.

Listen to the episode:

00:00 Introduction
01:39 The goals and vision behind the Endgame update
07:28 Unifying branding & how it contributes to the growth and resilience of Maker?
10:13 SubDAOs: How will parallelized growth and specialization benefit the ecosystem?
15:40 How will SubDAOs fund operations?
22:02 AI tools to enhance governance processes & level the playing field
30:26 Governance participation rewards
36:52 The rationale for deploying a new blockchain
48:32 How will the Endgame roadmap position Maker in the market?

Tweet of the week

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Product tip of the week

Tips for getting the most out of Token Terminal

We added a new time window for charts: YTD.

Year-to-date (YTD) refers to the period of time beginning the first day of the current calendar year up to the current date.

The authors of this content, or members, affiliates, or stakeholders of Token Terminal may be participating or are invested in protocols or tokens mentioned herein. The foregoing statement acts as a disclosure of potential conflicts of interest and is not a recommendation to purchase or invest in any token or participate in any protocol. Token Terminal does not recommend any particular course of action in relation to any token or protocol. The content herein is meant purely for educational and informational purposes only, and should not be relied upon as financial, investment, legal, tax or any other professional or other advice. None of the content and information herein is presented to induce or to attempt to induce any reader or other person to buy, sell or hold any token or participate in any protocol or enter into, or offer to enter into, any agreement for or with a view to buying or selling any token or participating in any protocol. Statements made herein (including statements of opinion, if any) are wholly generic and not tailored to take into account the personal needs and unique circumstances of any reader or any other person. Readers are strongly urged to exercise caution and have regard to their own personal needs and circumstances before making any decision to buy or sell any token or participate in any protocol. Observations and views expressed herein may be changed by Token Terminal at any time without notice. Token Terminal accepts no liability whatsoever for any losses or liabilities arising from the use of or reliance on any of this content.

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