What new highlights does the decentralized derivatives newcomer Fufuture have?
Although DeFi's performance in this bull market has not been outstanding, its resilience, market prospects, and return rates are still worth looking forward to.Author: Fufuture
Market Prospects of Derivatives
Data source: DeFiLlama
Currently, the DeFi market still has significant growth potential and is far from the expected market scale.
The decentralized finance market is estimated to be $46.61 billion in 2024, and it is expected to reach $78.47 billion by 2029.
According to data compiled by CoinMarketCap:
There are a total of 500 spot DEXs in the market, which is about twice the number of spot CEXs.
However, there are only 16 derivatives DEXs, which is less than one-sixth of the derivatives CEXs.
In CEXs, the trading volume of derivatives is seven times that of spot trading.
However, in DEXs, the trading volume of derivatives is on par with that of spot trading.
The trading volume of DEXs is only 11.8% of that of CEXs, indicating significant potential for derivatives DEXs.
What is a Centralized Exchange (CEX)
Centralized exchanges (CEXs) are similar in nature to financial institutions like banks, where trading is managed by the internal systems of the centralized exchange. Users need to deposit funds into the exchange account, with the exchange acting as the manager of the funds.
Advantages of centralized exchanges:
Interactivity: CEXs often provide a smoother experience.
Regulation: The introduction of KYC certification aims to prevent fraudulent activities.
Margin trading: Allows users to borrow funds to increase profits.
Disadvantages:
Fund security: Users' assets are stored in CEXs, exposing them to risks such as hacking and fund misappropriation.
Limited token selection: Tokens available for trading can only be selected from within the CEX, which may not meet users' trading needs.
Fees: Users need to pay various fees.
What is a Decentralized Exchange (DEX)
Decentralized exchanges (DEXs) are an important component of the DeFi space, designed to allow users to trade cryptocurrencies directly using blockchain and its algorithms without the need for intermediaries. This significantly increases the security and anonymity of user funds, addressing issues such as hacking that are prevalent on centralized platforms.
In traditional financial systems, trading is managed by intermediaries, making the process opaque. In contrast, DEXs rely on smart contracts to automatically execute agreements, resulting in a highly transparent trading process and flow of funds.
Advantages of decentralized exchanges:
Security: Eliminates the risk of hacking, as users manage their private keys.
Transparency: Public trading, allowing anyone to verify on the blockchain.
Token selection: DEXs may offer a wider range of tokens.
Permissionless: Open to any wallet user without the need for KYC certification.
Fees: Generally lower fees.
Disadvantages:
Complexity: May be more difficult for novice users to navigate.
Trading speed: The speed of transactions on DEXs depends on the on-chain execution speed.
Functionality: DEXs often have fewer features than CEXs, such as margin trading or fiat-to-token purchases.
Types of DEX
The three most common types of DEXs include order book DEXs, automated market makers (AMMs), and DEX aggregators.
Automated Market Makers (AMM):
AMM is a popular DEX model. Unlike order book systems, AMMs use algorithms to complete market-making for users. Users earn a portion of trading fees by providing liquidity. The price of assets in an AMM is determined algorithmically based on the ratio of tokens in the pool. AMMs are characterized by efficiency, transparency, and low maintenance costs, while lowering the barriers to entry for market-making. Although AMMs provide instant liquidity, liquidity providers also face risks such as slippage and impermanent loss.
Order Book DEX:
Order books facilitate trading by matching buy and sell orders in the market, and they can also support limit orders. Order books are ideal for liquidity markets, as they can reduce slippage risk. However, when liquidity is insufficient, it becomes more challenging to execute trades and there are risks of front-running.
DEX Aggregators:
Use algorithms to find the best trading paths, reducing trading costs.
Types of Decentralized Derivatives
Futures Contracts
Decentralized futures contracts have a fixed expiration date. Perpetual contracts are designed to simulate the trading experience of traditional futures contracts but do not have an expiration date or mandatory delivery requirements. They are the most common type of DeFi derivative contracts.
However, perpetual contract DEXs need to address the performance limitations of blockchains. The further development of the perpetual contract market requires solving two core issues: low liquidity and high latency on-chain. High liquidity can reduce slippage, making the trading process smoother and minimizing user losses; low latency allows market makers to quote tighter prices, enabling quick trade execution and enhancing market fluidity.
Options Contracts
Options refer to standardized contracts that allow users to buy or sell a certain asset at a specific price within a specific time frame.
Perpetual options are an innovative financial product that, like perpetual contracts, do not have an expiration or settlement date, allowing users to hold positions indefinitely. Compared to contract trading, options trading eliminates the risk of liquidation for buyers and limits losses.
Fufuture uses perpetual options trading, which is very user-friendly for traders while addressing liquidity and latency issues caused by on-chain performance limitations.
How to Use Fufuture to Enhance Trading Security and Enjoy the Trading Experience ?
- Project Introduction
1) What is Fufuture
Fufuture is the world's first decentralized coin-based perpetual options platform, aimed at reducing the risks associated with DeFi derivative trading. It is built on a decentralized trading network guided by the concept of Nash equilibrium, combined with the industry's top dual liquidity pool mechanism, creating a new type of options product in the DeFi industry—coin-based perpetual options.
One of the core functions of the Fufuture protocol is the coin-based decentralized perpetual options.
Fufuture supports all tokens as collateral, including cryptocurrencies and tokenized assets. The Fufuture platform allows users to trade derivatives using perpetual options, supporting leverage from 25 to 500 times. The project is built on major public chains and currently supports BNB Chain, Base, Polygon, OPBNB Chain, and Arbitrum.
The project features zero slippage, no liquidation, high leverage, and high liquidity, allowing options traders to enjoy a truly limited loss and unlimited profit experience, effectively lowering the entry barriers and unknown risks in the DeFi space, setting a new benchmark for the DeFi industry—creating a low-risk, high-security DeFi derivatives track.
2) Product Architecture
1) Main Trading Model
Unlike the trading types available in the market, the decentralized derivatives protocol Fufuture uses a P2DP (Peer to Dual Pools) decentralized liquidity mechanism. This mechanism replaces the single liquidity pool of automated market makers (AMMs) with a model that combines private and public liquidity pools. Orders are first executed through an on-chain random order matching algorithm using oracle prices and a specific private pool. Only when the liquidity of the private pool is insufficient will the order be transferred to the public pool, which acts as a reserve liquidity pool. The former requires higher capital strength, quoting ability, and position management, typically serving institutional market makers, while the latter is open to all users. This new liquidity mechanism successfully addresses the three major issues of AMMs.
Orders are primarily executed through an on-chain random order matching algorithm that uses prices from oracles and a specific private liquidity pool. Orders are only transferred to the public liquidity pool when the private pool's liquidity is insufficient, with the latter serving as a reserve pool. This innovative liquidity approach successfully resolves three major challenges associated with AMMs:
1. Reducing Counterparty Risk
Each private liquidity pool has an independent wallet address, making order details clear and visible. This helps calculate position risk and conduct external hedging. Since private liquidity pools bear most of the counterparty risk, the risk transferred to the public pool remains minimal. The public pool acts as a single liquidity pool open to anyone, diversifying risks and returns, thereby reducing the counterparty risk borne by individual users.
2. Deeper Market Depth
By obtaining prices from oracles, the dual liquidity pool model ensures that both private and public pools contribute to market liquidity. The liquidity pool provides 10x leverage (10% margin rate), effectively amplifying market depth and optimizing capital utilization.
3. Reducing Impermanent Loss
Compared to AMMs, the difference between prices provided by oracles and market prices is significantly smaller, leading to a substantial reduction in temporary losses caused by arbitrage trading.
2) Core Innovations
- Limited Loss, Unlimited Profit
Fufuture's perpetual options use predetermined funding fees to maintain investors' positions at fixed intervals, helping to limit potential losses.
- Eliminating Forced Liquidation Risk
Fufuture's perpetual options allow traders to only pay daily funding fees to maintain their positions, shielding them from the pressures of market fluctuations.
- Coin-Based
Allows traders to trade any digital asset, with any on-chain token usable as collateral for BTC/ETH index trading.
- Zero Slippage Trading
With its proprietary high-performance order matching system, Fufuture ensures zero slippage trading, guaranteeing that execution prices perfectly align with traders' expectations, enabling them to execute their trading strategies precisely.
- High Leverage Trading
Fufuture's perpetual options platform offers users leverage ratios from 25X to 500X, creating greater benefits combined with limited losses.
- Dual Liquidity Pool Mechanism
By diversifying risks between "public liquidity pools" and "private liquidity pools" among professional market makers and ordinary market makers, it maintains market liquidity and stability, creating a fairer and more transparent trading environment for participants.
- Decentralized Blockchain Network Based on Non-Cooperative Game Theory
Based on Nash equilibrium, it shapes a completely non-cooperative game theory decentralized blockchain network. This makes Fufuture an essentially risk-free, secure, stable, and open sustainable options trading market.
- Accurate Pricing
Utilizing mathematical concepts such as stochastic processes, volatility, and partial differential equations, it achieves an approximate pricing error margin of only 0.05‰.
By combining these elements, the Fufuture platform can provide a safe, efficient, flexible, and fair trading environment for financial derivatives enthusiasts worldwide.
3) Trading Rules
Traders have no minimum capital requirement for opening positions, which is the lowest trading scale in all DeFi, allowing for leverage trading from 25 to 500 times. The Fufuture platform currently supports over 140 trading pairs and will support more tokens as collateral for BTC/ETH indices in the future.
4) Project Status
Fufuture is the world's first decentralized coin-based perpetual options trading platform.
Since launching the long-tail asset onboarding plan in April, the current TVL has exceeded $12 million.
Since its launch at the end of November 2023, the cumulative trading volume on the Fufuture platform has reached 62 million BTC and 100 million ETH.
II. FUFUTURE Token Model
1) Ecosystem and Community 50%
Business Cooperation 10%
Foundation 35%
Advisors 5%
2) Token Usage
The uses of the FUFUTURE token mainly include the following two points:
1) Fee Buyback and Burn
As the platform's token, FUFUTURE, like Binance Coin (BNB), uses a portion of the platform's fee profits for buyback and burn of governance tokens.
2) Staking
Stakers can obtain tickets by staking governance tokens, while also assessing fee rankings. Holding a ranking allows for governance token rewards, which can be withdrawn at any time.
III. Latest Developments and Future Potential
- Fufuture Version Upgrade
In the current Fufuture V1 version, trading has been fully decentralized, currently supporting perpetual options trading. The V2 version will undergo comprehensive optimization, adding features such as limit orders and real-time updates of oracle prices.
Fufuture uses coin-based options products, targeting a user base of 540 million cryptocurrency holders worldwide. The characteristics of options products, such as no liquidation risk and low losses with high profits, greatly enhance the win rate and retention rate of trading users.
- Fufuture's Contribution to the Industry
The perpetual options product addresses the issue of excessively high trading risks in the financial derivatives industry, providing a low-risk, high-return trading product for global financial derivatives enthusiasts.
For long-tail assets, the Fufuture platform offers a risk-free perpetual options platform for free trading, reducing the circulation of project tokens in the secondary market, increasing the commodity attributes of project tokens, and boosting their prices.
The Fufuture team is an ambitious group, mentioning in the white paper that Fufuture's core values transcend mere financial products or services. Fufuture aspires to create not just a tool but a transformative force capable of reshaping the landscape of the DeFi space.
IV. Funding Rates
Fufuture's premium fees fluctuate with BTC/ETH volatility, ranging between 1% and 1.7%. When market fluctuations are severe, the premiums charged will also adjust accordingly.
Summary
- Huge Potential Market
The potential market for perpetual contracts and derivatives is much larger than that for spot trading. Based on Fufuture's TVL and trading volume over the past two months, the perpetual options project on the Fufuture platform has a very large user base.
- High Return Rates
The return rates for derivatives are often higher than those for spot trading, thanks to the high leverage of options trading.
- High User Retention Rates
The new trading concept may change the future landscape of derivatives trading. Current trading data shows that about 30% of users choose to stay on the Fufuture platform to continue trading perpetual options.
- Empowering Long-Tail Assets
Effectively reduces the circulation of project tokens in the secondary market.
- Flexible Funding Rates
Balances the trading fees for both parties, allowing for relative profit margins for both sides.
Fufuture has already launched coin-based perpetual options and will also introduce coin-based perpetual contracts, futures, standard options, and other financial products in the future, supporting trading pairs for commodities, foreign exchange, indices, etc. Fufuture is committed to leading the decentralized derivatives track, providing tools for global real enterprises to hedge risks and helping global industrial clients avoid price and exchange rate fluctuations.
