Top 5 Decentralized Derivative Exchanges of the Crypto Industry

Traders can profit by going long and if the price gets increased. If the trader had bought a token at a lower level and sold it at a higher level, they earned a profit. Traders can also profit by going short if the price gets decreased. If the trader had short-sold a token at a higher level and closed the position at the lower level, they earned a profit.

Both centralized and decentralized Derivative Exchanges systems accept crypto derivatives for trading. Exchange owners can use the potential of cryptocurrency Derivative Exchanges to expand their reach to investors or traders.

A crypto derivative trading exchange has more advantages than Spot Margin trading, and it gives you access to markets that would otherwise be closed to you. We'll look at the top five Decentralized Derivative Exchanges in this article.

dYdX

dYdX is a decentralized Derivative Exchanges based on the Ethereum network that provides users with critical financial instruments like perpetual, margin, spot trading, and lending and borrowing.

It provides off-chain order books with the on-chain settlement, allowing traders to short-sell tokens, raise exposure by longing with leverage, or collect interest on deposited tokens to move rapidly.

It uses a layer 2 solution i.e Starkware, with the help of Starkware there is no need to trust a centralized exchange while trading, giving it the security and transparency of a decentralized Derivative Exchanges combined with the speed and use of a centralized exchange.

dYdX Mechanics

The dYdX Perpetual is a decentralized derivative, non-custodial margin instrument that provides a synthetic exposure to a wide range of assets. The quotation asset for all perpetual markets is USDC, and the collateral is stored in USDC. By default, cross-margining is employed, which means that one account can create many positions with the same collateral.

Separate accounts (sub-accounts) under the same user can be used to create isolated margins. The liquidation engine may automatically terminate accounts whose total value falls below the minimum maintenance margin requirement. Positions are closed at a price, and the insurance fund absorbs any profits or losses.

Funding

Funding payments are exchanged by long and short traders to keep the price of a perpetual contract close to the underlying price. Long traders will generally make payments to short traders if the perpetual trades are at a premium to the index. In contrast, short traders will often make payments to long traders if the perpetual trades at a discount to the index.

The platform's native utility token, DYDX, is used in the following functions:

Protocol Incentivization: DYDX tokens are awarded to users based on their trade volume on the dYdX platform.

Staking: Users can stake DYDX tokens in the Safety Module to get DYDX token staking incentives.

Note that staked DYDX may be sliced due to a shortfall event, such as solvency of exchange, smart contract hack, or other circumstances that have resulted in a shortfall by the dYdX governance. Transaction fees are reduced for DYDX token holders based on their DYDX ownership.

Network governance suggestions can be submitted and voted on by DYDX token holders. The Governance Forum allows anyone to engage, create off-chain DRCs, and suggest changes. Use this template to make a DRC (available on our Github).

Governance

Governance forums at forums. dydx community fuel the dYdX Governance Process, which is confirmed by dYdX Improvement Proposals ("DIPs"). The initial step in the governance enhancement process is to create off-chain dYdX Request for Comments (DRCs).

The Governance Forum allows anyone to engage, create off-chain DRCs, and suggest changes.

GMX

GMX is a decentralized derivative and spot exchange that allows you to trade assets on the blockchain without the need for an account, KYC, regional restrictions, or exorbitant centralized Derivative Exchanges fees.

The exchange currently supports both the Avalanche network and Arbitrum, an Ethereum-based layer 2 scaling solution, with ambitions to add more chains in the future. Users can use up to 30x leverage and complete swaps to buy or sell assets in the GLP pool. The pool is made up of high-quality crypto-assets that differ by network.

Mechanics of GMX

Traders on the Arbitrum network's GMX platform can swap assets in ETH, BTC, LINK, UNI, and several stablecoins. They can also use leverage to trade these assets in both directions.

For example, when a trader enters a long position on Bitcoin, he rents out the upside from the Arbitrum GLP pool.

When a trader enters a short on Bitcoin, the upside of the Stablecoins vs Bitcoin is rented out from the Arbitrum GLP pool. Traders on the Avalanche network's GMX platform can transfer assets between ETH, BTC, AVAX, and stablecoins. They can also use the assets in the pool to leverage trade these assets in both ways.

When a trader enters a long position on Bitcoin, he rents out the upside from the Avalanche GLP pool. A trader takes out the upside of the Stablecoins versus Bitcoin from the Avalanche GLP pool before launching a short on Bitcoin.

Fees

The exchange fees are completely dispersed back to GMX and GLP holders. 70% of these platform fees will be allocated to GLP holders, while 30% will be distributed to staked GMX holders. Holders of Staked GMX earn 30% of the fees collected by Arbitrum and Avalanche Exchanges.

The Arbitrum GLP token holders will receive 70% of the GMX (Arbitrum) platform fees in ETH. In comparison, holders of the Avalanche GLP token will receive 70% of the GMX (Avalanche) platform fees in AVAX because the GLP token is unique on each of these networks.

Perp Protocol

Perpetual System is a decentralized Derivative Exchanges that uses a Virtual Automated Market Maker to exchange perpetual contracts for any asset (vAMM). The initiative hopes to establish new financial instruments by democratizing Futures and other crypto-asset derivatives.

Furthermore, Perpetual Protocol is just a collection of programs (smart contracts) that operate on the Ethereum blockchain and were created to interact and duplicate derivatives market services. This implies Perpetual Protocol users don't have to trust a specific institution or group of people to execute trades; all they have to believe is that the code will run as intended.

Perpetual Protocol was influenced by Uniswap, a successful decentralized exchange, and Synthetix, a synthetic asset derivative platform. On the other hand, it isn't designed for spot trading or obtaining exposure to real-world assets; instead, it's built for leveraged trading, and short holdings, with little slippage.

Perpetual Protocol uses a virtually automated market maker (vAMM) and a collateralization vault. These structures are intended to settle trades and provide anybody with access to sophisticated financial instruments such as perpetual contracts.

The platform's native utility token, PERP, is utilized for the following purposes:

Token holders can vote on the next token listed on the platform or influence the protocol's direction with their tokens.

Tokens can be staked on the protocol in exchange for staking incentives and a share of transaction costs. Each virtual market has a backstop provided by the speakers.

Governance

The core developer team currently manages the protocol's governance to make the decision-making process quick and fluid. On the other hand, the team has drawn a clear plan to hand over protocol governance to the community. Future upgrades, such as on-chain governance voting, bug bounty programs, and ecosystem grants will be detailed in the plan.

Members of the community will be able to suggest and discuss governance proposals in the near future.

Mango Market

Mango provides a single platform for lending, borrowing, swapping, and derivative trading of crypto assets through a robust risk engine. It is based on the Solana blockchain and uses Serum DEX for spot margin trading, while permanent futures are transacted on the Mango order book.

MNGO holders are responsible for governing the Mango DAO.

Mango is a tremendously vital tool, here are some tips to help you get the most out of it. Borrowing/lending and leverage trading share collateral. If you deposit funds into your Mango account, those funds will generate interest and be available as collateral for leveraged trades or borrowing.

For derivative trading, funds are automatically borrowed. If you want to trade with leverage, place an order for the amount you wish to. If the required capital is more significant than your deposits, funds will be borrowed to cover the position (as long as account health is eligible). To avoid taking on a borrow or leverage position when trading in spot markets, uncheck the margin box in the trade form.

Mango Perpetual futures offer up to 20x leverage on Mango's order book and 10x spot margin trading on Serum DEX. All traders earned the highest Serum fee tier from a liberally deposited MSRM.

Gains Network

Gains Network has created gTrade, the most liquidity-efficient, powerful, and user-friendly decentralized derivative trading platform.

Its synthetic architecture is 100 times more capital efficient than any other platform, and it allows for very-low trading fees, a wide variety of leverages (150x leverage on cryptos and stocks, 1000x leverage on forex), and any assets/pair (cryptocurrencies, forex, stocks, and soon many more).

The entire protocol focuses on the ecosystem's ERC20 and ERC721 utility tokens (GNS and ERC721) (NFTs). The GNS and NFTs are intended to be used actively inside the platform. Gains Network’s entire trading architecture is based on the backing of GNS by DAI vault through burning and minting, and GNS NFTs fuel the bots that execute limit orders and liquidations.

Without the GNS token, the first product, gTrade, would not exist. The GNS/DAI liquidity is responsible for the collateralization of the DAI vault liquidity. It is at the heart of its synthetic design. The premise is simple: when traders win, GNS tokens are produced, and when traders lose, GNS tokens are burned. Until yet, nearly a quarter of the supply has been burned due to gTrade's organic deflation.

It began as the $GFARM2 Ethereum token, distributed evenly in an ETH pool and a GFARM2/ETH LP pool. The development and government funds received 5% of the token distribution (10 percent total). Later, it was bridged to Polygon and split 1:1000 with $GNS.