A Comprehensive Understanding of the Six Major Directions and Underlying Development Logic of the DeFi Derivatives Market

This article is an original piece by Chain Catcher, authored by Gu Yu and Echo.

DeFi derivatives are considered one of the most promising markets in DeFi, including six major directions: synthetic assets, options, prediction markets, perpetual contracts, insurance, and interest rate derivatives. What are the development logics of these derivative directions? What are the representative projects? In this article, Chain Catcher will provide a comprehensive description of the DeFi derivatives landscape.

Derivatives have always been one of the most important parts of the global financial market, providing investors with diversified income avenues and playing an indispensable role in hedging market risks. Their market size is often dozens of times that of the spot market.

In contrast, the cryptocurrency derivatives market is still in a very early stage, with most of the market dominated by centralized exchanges like Binance and FTX. With the large-scale development of DeFi in recent years and the popularization of market education, necessary conditions have been provided for the development of derivatives in the DeFi space, which have already fully demonstrated their advantages.

Tushar Jain, managing partner at Multicoin Capital, summarized some advantages of DeFi derivatives protocols, such as:

1) No centralized exchange operators, leading to lower fees in the long run; 2) Permissionless access; 3) Censorship-resistant features, meaning no one can shut down the exchange; 4) No counterparty risk, as users hold their own funds; 5) No withdrawal limits or trade size restrictions; 6) No unilateral changes to the exchange rules; 7) Any asset with a public price feed can be traded.

Currently, the types of DeFi derivatives mainly include synthetic assets, options, prediction markets, perpetual contracts, insurance, and interest rate derivatives. Their development logic and competitive landscape are becoming increasingly clear, with numerous investment institutions competing to position themselves. The following sections will provide detailed introductions to these directions.

1. Synthetic Assets

Synthetic assets are crypto assets that are tokenized from one or more assets/derivatives. In the early DeFi ecosystem, synthetic assets were represented by stablecoin DAI and cross-chain wrapped asset WBTC. Since then, synthetic assets based on real-world stocks, currencies, precious metals, and more have become increasingly rich, and they have now become an important part of the DeFi ecosystem.

The concept behind synthetic assets is to provide investors and traders with exposure to various asset classes without requiring them to hold the underlying assets or trust custodians.

Currently, DeFi users can create any supported synthetic asset by depositing a certain amount of collateral through synthetic asset protocols like Synthetix and UMA. However, these assets are not pegged to real crypto or physical assets; their prices are primarily provided by off-chain oracles like Chainlink. If the asset price drops significantly and losses reach a certain proportion, the system will liquidate the collateral.

Compared to the initial assets, synthetic assets enhance the composability of on-chain assets while building a bridge to the trillion-dollar traditional financial market, enriching the investment choices for DeFi users.

On one hand, synthetic assets can lower the barriers for DeFi users to invest in certain real-world assets. For example, investing in US stocks or gold often requires users to submit complex verification materials to open an account, especially for foreign investors. DeFi synthetic assets allow users to invest in and trade these real-world assets easily and conveniently, optimizing their investment portfolios.

On the other hand, more and more DeFi projects are starting to use synthetic assets to establish business models that meet users' diverse risk hedging and yield enhancement needs. For example, UMA has launched tokens that track Ethereum volatility, call option tokens, and Charm has introduced 2x leveraged tokens for ETH, helping users hedge risks or increase leverage to meet their diverse needs.

Currently, the main synthetic asset protocols in the DeFi ecosystem include Synthetix, UMA, Mirror, Linear, among others. Additionally, protocols like Crafting, Duet, and Coinversation also have a certain influence in the synthetic asset space.

1) Synthetix

Synthetix is currently the most well-known synthetic asset protocol in the Ethereum DeFi ecosystem. It started as a stablecoin project similar to DAI called Havven, which was renamed and shifted to the synthetic asset track at the end of 2018. Its total locked value is $1.7 billion.

Synthetix mainly has two products: Synthetix.Exchange for trading synthetic assets and the DApp Mintr, which allows SNX holders to mint and burn synthetic assets. Synthetix currently supports synthetic fiat currencies, cryptocurrencies (long and short), and commodities, and plans to support synthetic stocks, futures, and leveraged products in the future.

Synthetic assets in Synthetix are collateralized by the Synthetix token SNX, with a collateralization ratio of 750%. When users lock SNX in a smart contract, they can issue synthetic assets and redeem SNX by burning synthetic assets.

At the same time, Synthetix provides liquidity for its synthetic assets through a dynamic debt pool and rewards users who provide liquidity to the debt pool through an inflationary economic model.

2) UMA

UMA is an open-source infrastructure for deploying and executing synthetic assets on Ethereum, enabling developers to quickly and easily build synthetic tokens that can track any price.

One of the main differences between UMA and Synthetix is that collateral and debt exposure are isolated in UMA, while they are aggregated among all LPs in Synthetix. This reduces the liquidity of individual synthetic asset markets but also lowers user risk.

Additionally, UMA has developed a decentralized oracle service to manage and execute UMA contracts and proposed "no price feed," which minimizes the use of on-chain oracles to reduce the frequency and attack surface of oracle attacks, primarily by introducing two participants: "liquidators" and "disputers," essentially creating a game-theoretic mechanism.

3) Mirror

Mirror is a synthetic asset protocol based on the Terra ecosystem, allowing users to mint and trade synthetic tokens for stocks, futures, and exchange-traded funds, with its flagship product being synthetic US stocks. It has rapidly developed since the beginning of this year, with a total locked value reaching $1.65 billion, on par with Synthetix.

Users can mint synthetic US stock assets through over-collateralization with Terra stablecoin UST or mAsset, with a minimum collateralization ratio of 150% for UST and 200% for mAsset. It currently supports minting almost all mainstream US stock assets while allowing these tokens to be traded on Uniswap and Terraswap.

2. Options

Options are rights that give the buyer the right to buy or sell a certain quantity of the underlying asset at an agreed price within a specified time. In traditional finance, options are divided into commodity options and financial options, widely used for hedging and risk management to protect against the downside of holding the underlying asset and the upside of future asset purchases, playing an important role in the global economy.

For example, in the cryptocurrency space, if an investor has bought ETH and wants to enjoy the gains from holding ETH while avoiding losses from ETH's decline, they can buy put options on ETH to hedge against spot risk. If ETH drops, they can exercise the option and sell ETH at the strike price to avoid the risk of spot decline. Alternatively, selling put options on ETH means that if the ETH price drops, the put option price will rise, and the profit from the option spread will offset the losses from holding the spot.

Of course, options products also have a strong speculative nature, and users can fully utilize their implied volatility for speculative arbitrage.

Since 2018, the three major centralized exchanges have gradually introduced simplified options models, but it wasn't until last year, after the DeFi sector exploded, that decentralized options projects began to emerge. Currently, they are mainly divided into standardized options similar to traditional financial markets, such as Opyn and Siren; and simplified options trading, where users only need to choose direction, quantity, strike price, and holding time to create an option. These types of options projects include Hegic, Charm, and FinNexus, making it easier for cryptocurrency users to utilize options tools.

Currently, the main players in the DeFi options space include Opyn, Hegic, Charm, Opium, and Primitive. On May 13, Paradigm research partner Dave White and FTX co-founder SBF jointly proposed eternal options, equivalent to perpetual contracts in the options market, providing traders with long-term options exposure, which may become the next breakout point in the options market.

Compared to the size of the options market in traditional finance, the DeFi options market is still very small. Currently, in the crypto market, the centralized options project Deribit accounts for over 80% of the market liquidity for crypto options, and liquidity remains the biggest challenge faced by decentralized options projects.

1) Opyn

Opyn is a decentralized options protocol based on Ethereum, launched on the mainnet in June 2020. Opyn's options products are similar to traditional financial options with T-shaped quotes, allowing options to be bought or sold only at fixed delivery times and strike prices.

Opyn's liquidity is provided by an AMM based on Uniswap, with different liquidity pools maintaining specific options trading pairs. These liquidity pools are primarily managed and operated by the Opyn team, with a current locked amount of $33 million.

The Opyn v2 version includes improved margin utilization, automatically exercised currency options at expiration, non-leveraged call options, cash-settled European options, allowing yield-bearing assets (such as cToken, aToken, yToken) to be used as collateral and earn yield, flash options minting without collateral, operator functions (allowing users to delegate control of their vault to third-party smart contracts), and using oracles to settle option prices.

Currently, Opyn has completed two rounds of funding totaling $8.86 million, with investors including Dragonfly Capital, 1kx, Synthetix founder Kain Warwick, Aave founder and CEO Stani Kulechov, and Compound CEO Robert Leshner, and has not yet issued a token.

2) Hegic

Unlike Opyn, Hegic's decentralized options trading aims to simplify the options trading process and lower the entry barrier for ordinary investors. Hegic currently only supports WBTC and ETH as underlying assets and trades American options, allowing traders to exercise at any time before expiration.

On Hegic, users only need to select the underlying asset, contract direction, position size, strike price, and expiration date to establish a buy option. After selection, Hegic will display the premium to be paid and the break-even point for the transaction.

Selling options is created by depositing funds into Hegic's liquidity pool. Users only need to deposit ETH or WBTC in Hegic to form a liquidity pool, and the funds in the pool will automatically sell call or put options, becoming the buyer's counterparty and assuming the risk of selling options while enjoying the returns.

3) Charm

Charm is a decentralized options protocol based on Ethereum that launched its mainnet in January this year. In March, Charm completed a seed round of financing from Divergence Ventures, DeFiance Capital, and Delphi Ventures. Charm offers cash-settled European options.

Compared to other options projects, Charm's uniqueness lies in its liquidity solution, which introduces a prediction market AMM to create liquidity. The system's liquidity maintenance does not require users to contribute options assets for trading. This liquidity model can be viewed as a bonding curve, generating different option tokens through this curve mechanism and determining their prices through multivariable functions.

The price sum of the aforementioned liquidity mechanism is within a small range, meaning that liquidity-providing users will suffer relatively small losses in the worst-case scenario. This presents a lower risk for liquidity providers compared to options traded on markets like Uniswap that adopt AMM.

Charm Options v0.2 allows a single liquidity pool to power multiple options with different strike prices, partially addressing the issue of liquidity fragmentation. However, liquidity can only be shared between designated options with the same strike price and expiration date, making liquidity a key issue for options projects.

3. Interest Rate Derivatives

Interest rate derivatives have been a hot topic in the DeFi industry this year, primarily focusing on developing different types of derivative products based on the interest rates of crypto assets to meet DeFi users' varying needs for predictable returns.

Generally speaking, interest rate derivatives are derivative products based on interest rates, commonly used by institutional investors, banks, corporations, and individuals as hedging tools to protect themselves from the impact of market interest rate fluctuations. Due to the volatility of borrowing rates often posing additional risks to investors, and most investors having a low-risk appetite, the interest rate derivatives market in traditional finance has become the largest derivatives market.

However, currently, the yield mechanisms of DeFi lending protocols and yield aggregators are mostly floating yields, and related interest rate derivative products are not rich, making it difficult for investors to effectively control risks. Therefore, as more traditional funds with low-risk preferences enter the market, fixed rates and their derivative markets will be favored by these funds.

Currently, several fixed-rate protocols have emerged in the DeFi market, providing users with fixed-rate lending products in the form of zero-coupon bonds. After depositing assets, users can earn returns based on their initially set rates regardless of market interest rate fluctuations, such as Notional Finance, Yield Protocol, Mainframe, and 88mph.

At the same time, interest rate derivative products have also appeared, represented by BarnBridge and Saffron, based on risk grading interest rate protocols, allowing users to choose different yield products based on their risk preferences, including yield-fixed priority products and lower-tier products with higher interest rate volatility.

These products do not provide lending functions themselves but rely on generating yields from other DeFi protocols. However, since the integrated DeFi protocols only offer floating rates, there may be instances where profits fall short of expectations. The solutions for these protocols often involve slicing yields and risks, allowing high-risk-tolerant investors to take on the risks of low-risk-tolerant investors, thus ensuring fixed returns.

The interest rate market is also one of the main forms of interest rate derivatives, represented by Horizon Finance, Swivel Finance, and Benchmark. These protocols allow the future yield of assets to be traded as the ability to trade assets/tokens, enabling lenders and LPs to swap floating yields for fixed yields.

1) BarnBridge

BarnBridge is a tiered derivatives protocol launched at the end of 2020, using fixed interest rates and volatility to mark product risks. The project deposits user assets into various protocols to generate yields, then grades them into two types of yield derivatives: priority and subordinate products, allowing users to choose different yield products based on their risk preferences.

Currently, BarnBridge has a total locked value of approximately $770 million, with main products including Smart Yield Bond, a fixed and floating rate product guaranteed by DeFi yields, and Smart Alpha Bond, a derivative tool that can hedge against market price fluctuations of any ERC20 token.

2) Swivel Finance

Swivel Finance (formerly known as DefiHedge) is a fixed-rate derivatives protocol where users only need to collateralize 100% of the same type of asset (rather than the common over 100% collateralization) to borrow and trade, eliminating liquidation risks and not relying on price oracles, while allowing users to go long on interest rates with implied leverage of 10 to 100 times. In December last year, it raised $1.15 million from institutions like Multicoin Capital and DeFiance Capital.

Specifically, users can create fixed or floating rate swap quotes for any Ethereum token provided by Compound or Aave on Swivel Finance. Then, buyers can fill in the terms of the bidder, locking the funds of both the maker and the buyer until the agreed term is completed, at which point one party will return its capital and fixed yield, while the other will return the remaining floating interest.

3) Element Finance

Element Finance aims to provide users with high fixed-rate yields while maximizing capital efficiency. Users can purchase BTC, ETH, and USDC at a discount without locking in a fixed term, allowing them to easily swap between discounted assets and any other underlying assets at any time. In April this year, the project raised $4.4 million from institutions like a16z and Placeholder.

The core mechanism of the project is to split the underlying asset positions (ETH, BTC, USDC) into two different independent tokens: the principal token and the yield token. This split mechanism allows holders of these assets to sell their rights to (variable) yields in a prepaid cash manner, locking in a fixed rate over a fixed period, while buyers of these rights gain exposure to variable yield risks in a capital-efficient manner without needing to pledge collateral and worry about liquidation.

4. Prediction Markets

Prediction markets are one of the earliest application scenarios in the Ethereum ecosystem and experienced explosive growth during the last U.S. election, becoming an important component of DeFi derivatives.

Prediction markets create contracts based on events with definite outcomes at future points in time, which can be understood as a combination of lottery markets and surveys, aimed at discovering the results believed by the market. They allow anyone to bet on future events and use the odds of these bets as a credible neutral source for predicting the probabilities of these events.

Additionally, prediction markets serve as broad surveys reflecting people's attitudes toward events, which can be used to improve governance or make decisions. For example, will the ETH price exceed $10,000 on December 25, or will Atletico Madrid become the champion of La Liga in 2021?

Taking the event "Will the ETH price exceed $10,000 on July 1?" as an example, this event provides users with two investment choices: YES or NO. The prices of both can be seen as the market's probability of the event occurring, with their sum fixed at $1. If users believe the market price deviates from the actual probability, for instance, if the probability of ETH exceeding $10,000 on July 1 is higher than the 19% represented by the YES price, they can choose to buy the corresponding option and profit from it.

The speculative nature of prediction markets also determines their hedging nature, which can be used to hedge risks and derived impacts. Continuing with the event "Will the ETH price exceed $10,000 on July 1?" as an example, if you hold ETH in the real world, you can buy "NO" to hedge against the risk of ETH price decline.

Compared to centralized prediction market platforms, DeFi prediction markets have characteristics such as immutability and transparency, with low fees that eliminate counterparty risks, allowing traders to trade without worrying about platform interference.

Currently, the main prediction market projects in the Ethereum ecosystem include PolyMarket, Augur, and Omen.

1) PolyMarket

Polymarket is a prediction market project built on the Ethereum Matic sidechain, where users can bet on popular topics in the world, such as the U.S. election, COVID-19, cryptocurrency prices, and more.

Polymarket launched in June 2020 and raised $4 million in October of the same year, led by Polychain Capital, with other investors including well-known investment institutions 1confirmation, ParaFi, and notable crypto investors like Coinbase's former CTO Balaji Srinivasan, Aave founder Stani Kulechov, and Synthetix founder Kain Warwick.

Compared to other prediction market projects, Polymarket has two main features. First, the project uses Ethereum's layer two solution, Matic Network, allowing users' trading activities to be completed quickly on the Matic sidechain without needing confirmation from the Ethereum mainnet, avoiding high fees and long wait times, typically completing transactions within 20-60 seconds.

Second, users can directly use debit or credit cards to purchase USDC for betting on the project's website, eliminating the need to already own cryptocurrency and perform corresponding private key storage actions, significantly lowering the entry barrier for users.

2) Augur

Augur is a decentralized prediction market platform built on the Ethereum platform, launched in June 2015, with Ethereum founder Vitalik as an advisor to the project.

Unlike other prediction market projects, Augur uses an off-chain order book supported by the 0x protocol to enhance trading fluidity. This order book collects orders off-chain and then settles them on-chain.

3) Omen

Omen is a fully decentralized prediction market platform built on the Gnosis conditional token framework, launched on July 2, 2020. Like Augur, anyone can create prediction projects on Omen based on any question and bet on specific outcomes. Users only need to provide the predicted event, outcome, time node, category, funding for creating the market, and arbitrators to create a prediction market on Omen.

Omen's design aims to address the liquidity shortcomings of early prediction market solutions. Many on-chain prediction markets use traditional order books, but due to a lack of liquidity, they often have large spreads. Omen achieves liquidity through an AMM mechanism similar to Uniswap and Balancer. This provides users with the liquidity needed for on-chain trading at any time while also setting trading fees to compensate liquidity providers.

5. Perpetual Contracts

Contract products are one of the earliest derivatives to appear in the crypto market and currently have the highest trading volume among derivatives. Unlike spot trading, futures contracts are leveraged products that can profit from declines in the price of the underlying asset, and their leverage attributes amplify trading risks and profits, allowing for risk hedging against spot positions and future spot receipts.

Centralized exchanges like BitMEX, Binance, and FTX are currently the main players in the crypto market's contract products, generating significant traffic and profits. However, due to issues such as opaque liquidation mechanisms, frequent trading interruptions during extreme market conditions, and high fees, decentralized contract products are becoming an increasingly popular choice for contract users.

Currently, most contract products in the DeFi market are perpetual contracts, with well-known players including dYdX, Perpetual Protocol, MCDEX, Injective Protocol, DerivaDEX, and Futureswap.

Compared to centralized exchanges, the main challenges for DeFi contract products are insufficient liquidity and high gas fees, which exacerbate the liquidity issue. With Ethereum gas fees remaining high, the trading volume of most DeFi contract products is not significant.

However, with the gradual rollout of Layer 2 protocols, these issues can be addressed to some extent. Currently, dYdX has launched its Layer 2 product based on StarkEx, while Perpetual Protocol has introduced its Layer 2 product based on xDAI. Protocols like MCDEX and Injective have also proposed developing Layer 2 products.

1) dYdX

dYdX was founded in 2017 and is the largest decentralized contract trading platform by trading volume on Ethereum. It currently offers lending, spot, leveraged, and perpetual contract trading, having received multiple rounds of investment from institutions like a16z, Polychain, and Coinbase.

dYdX is one of the few decentralized derivatives exchanges that insist on using an order book model. In April this year, dYdX officially launched its Layer 2 solution based on StarkEx, allowing users to trade any contracts without gas fees after depositing assets, and it has recently significantly accelerated the speed of launching new trading pairs.

As of May 10, the cumulative trading volume of dYdX's Layer 2 perpetual contracts has reached $1 billion, with a total locked value of $29 million and over 9,358 unique users depositing funds.

2) MCDEX

MCDEX launched in April last year, adopting a hybrid trading model driven by an order book and AMM, providing traders with a mixed trading model of off-chain order books and on-chain AMM to meet different traders' needs while addressing the initial liquidity issues of AMM.

On May 12, MCDEX announced that its V3 version would be deployed to the Arbitrum mainnet on May 28. Previously, MCDEX released its V3 version white paper, stating that users could create any contract without permission and planned to increase support for contract markets for stocks, commodities, etc.

Recently, MCDEX also secured $7 million in funding from investors including Delphi Digital, Alameda Research, Multicoin Capital, Distributed Capital, Digital Renaissance Foundation, and Mask Network.

3) Perpetual Protocol

Perpetual Protocol is a perpetual contract protocol located on both the Ethereum mainnet and xDai, supporting perpetual contracts for various synthetic assets such as BTC, ETH, gold, and crude oil, and minimizes oracle usage by using Chainlink price feeds every hour. Perpetual Protocol is the first protocol to introduce AMM into derivatives trading, attracting many DeFi enthusiasts.

More innovatively, unlike traditional AMMs, this protocol employs a new liquidity solution called vAMM. The vAMM model does not require liquidity providers (LPs); traders can provide liquidity to each other, and the trading slippage is determined by a k value, which is manually set by the vAMM operator based on the situation.

Perpetual Protocol has received investments from well-known investment institutions such as Alameda Research, CMS Holdings, and Binance Labs.

6. Insurance

Insurance is one of the most important derivative directions in the global financial market, socializing the costs of catastrophic events so that individuals/institutions can bear potential risks.

In the DeFi space, due to the emergence of new projects and many developers being overly lax, there are frequent incidents of DeFi projects being attacked, resulting in users suffering significant losses, especially with a noticeable increase in DeFi security incidents recently, which may hinder the entry of more traditional funds into the DeFi market.

Therefore, insurance is particularly important for the DeFi market. With the maturation of the insurance sector and the participation of institutional players, insurance may become one of the largest pillars of DeFi.

At the current stage, DeFi insurance is still in its early development phase, with insured assets covering less than 1% of the total locked value (TVL), and most mainstream DeFi projects have yet to purchase insurance. This is partly due to the difficulty in determining certain compensation scenarios and the capital still being insufficient to cover the funding scale of mainstream DeFi projects.

With the launch of more DeFi insurance protocols, the coverage of various insurance projects is becoming increasingly rich, and the capital in staking pools is gradually expanding, while the product forms are also becoming more diversified.

Currently, major players in this field include Nexus Mutual, Cover, Unslashed, and Opium, while projects like Nsure, Union, Armor, Umbrella, and Helmet also have a certain influence.

1) Nexus

Nexus Mutual is currently the largest insurance project in the crypto market, founded by Hugh Karp, the former CFO of Munich Re in the UK. It offers two types of insurance: one primarily for DeFi protocols that hold user funds, which may suffer from hacking due to smart contract errors, such as Uniswap, MakerDAO, Aave, Synthetix, and Yearn Finance; the other is for centralized exchanges providing insurance against fund theft or withdrawal suspensions, such as Binance, Coinbase, Kraken, Gemini, and lending companies like BlockFi, Nexo, and Celsius.

As of April, the platform supports 32 smart contracts on Ethereum, covering 74 trading pairs. The three projects with the largest insured amounts are Curve, Yearn.Finance, and Synthetix. Compared to the massive locked funds of $6.8 billion on Ethereum DeFi, Nexus Mutual's insurance scale is still relatively limited. Since its operation in May 2019, the platform has accepted 14 claims, with a total claim amount of $2,410,499 (1351 ETH + 129,660 DAI).

The specific subscription process is as follows: users register as members through the KYC process and pay a one-time fee of 0.002 ETH, after which they can purchase insurance using ETH or DAI. Nexus Mutual converts the payment into NXM tokens, representing rights to mutual capital. 90% of the NXM is burned as coverage costs, while 10% of the NXM is retained in the user's wallet. When submitting a claim, it will serve as a deposit, and if there is no claim, the amount will be refunded.

2) Cover

Cover is incubated by Yearn Finance. Compared to Nexus, Cover's projects can be established more quickly without going through cumbersome risk assessments. This is because each risk is isolated and contained within a single pool, unlike in NXM, where claims from any single protocol could erode the capital pool.

The Cover protocol has decided to set the payout ratio at 36%, and insurance buyers should be aware that purchasing insurance from the Cover protocol does not guarantee full compensation; its method of determining claim amounts is more similar to a prediction market.

The specific subscription process is similar: a market maker deposits 1 DAI, generating 1 NOCLAIM token and 1 CLAIM token. These two tokens only represent the risk of a single protocol. The tokens are only valid within a fixed time frame (e.g., six months). After six months, two scenarios may arise: if no valid claim event occurs, NOCLAIM token holders can claim 1 DAI, while the CLAIM token's value is zero; if a valid claim event occurs, CLAIM token holders can claim 1 DAI, while the NOCLAIM token's value is zero.

3) Unslashed

Unslashed is a new type of insurance protocol that offers investors a bucket-style risk-sharing model. Insurers on Unslashed can start and end policies at any time, with premiums calculated in real-time; LP providers receive premium payments in real-time, and the liquidity of funds is not completely locked, allowing for withdrawal at any time.

Unslashed Finance aims to improve capital utilization by providing structured insurance products, with each bucket containing multiple pools. Users can choose buckets with different risk characteristics, including exchange risks, smart contract hacking, stablecoin price fluctuations, and oracle price feed errors.

Unslashed announced its mainnet launch in January this year, with its first product named Spartan Bucket, covering 24 different risks. Since then, Unslashed has announced collaborations with multiple DeFi projects, including Lido Finance, Enzyme, Kyber Network, and Perpetual Protocol, with a total locked value reaching $100 million.

Although this article introduces various derivative projects by track, more and more derivative projects are beginning to expand their business boundaries, venturing into contracts, options, insurance, and other derivative directions, evolving towards comprehensive derivative protocols.

Today, these DeFi derivative protocols have embedded themselves as composable infrastructure in numerous DeFi projects, amplifying the network effects of the DeFi ecosystem while further enhancing the imaginative space for DeFi development.