Dec 13, 2021
AntiMatter — Why Structured products is the core to decentralized derivatives
The revolution of decentralized finance opened a variety of financial components to retail by breaking down high participation thresholds. In this article we will analyze decentralized derivative development from the perspective of DeFi and discuss how Antimatter plans to position itself in this ecosystem.
The Story
Decentralized finance ecosystem is forming a production line structure that mimics the traditional finance structure. We start with pre-market price discovery (IDOs) spot trading (AMMs) and lending and borrowing (over-collateral loans) and gradually move towards derivatives. Currently many projects including AntiMatter are innovating new models and infrastructures not yet seen in traditional finance.
The Dilemma
Decentralized spot exchanges and over-collateralized lending and borrowing products have a sizable amount of retail users while, centralized derivatives market is mostly composed of institutional actors. For example, Bybit and Derbit get most of their liquidity from institutions. The Dilemma is that projects working on DeFi derivatives are trying to turn institutional retail friendly products. However most of the retail aren’t equipped with the skill to provide liquidity for DeFi derivatives and institutions are not willing to pour liquidity into DeFi derivatives platforms with new models. So making an institutional product friendly for unequipped retail is hard.
The Misunderstanding
Many decentralized derivatives platforms use TVL as the measurement of success, yet it is not the most accurate measurement. A decentralized derivatives measure of success is a dynamic market, meaning the success of a platform should be determined by the order book depth, the execution and price movement during extreme market conditions. All these lead to market makers. If a decentralized derivative market has a solid set of market makers, then the trade will be efficient. The most successful DeFi derivatives platform, DYDX has large groups of market makers to facilitate the market making it the best decentralized derivative exchange. The newly created AMM models are innovative, but lack market making incentives without liquidity mining. However, market makers should make their money from trading and market movements, instead of passively parking capital in a pool. So we think the use of liquidity mining is a cheap short term way to boost TVL and isn’t a measurement of success.
A More Retail-Focused Derivative Products
In what way should DeFi derivatives grow? AntiMatter has experimented and researched the subject and we believe structured products should be the first step into DeFi derivatives.
Structured products are pre-packaged investments that normally include assets linked to interest plus one or more derivatives. Structured products offer retail easy access to derivatives. There are a few reasons:
- Most DeFi users are retailers which have a good amount of financial knowledge but aren’t sophisticated traders. They can participate in easy-to-understand structured products without huge barriers for entry.
- Structured products are a gateway for institutions to get retail liquidity into institutional trading in a natural way.
The long term goal for AntiMatter is to build an infrastructure for efficient DeFi derivatives with low barriers of entry. Our short term goal is to build products on top of existing environments to let the DeFi community be involved in derivatives in an easier way. We believe structured products are the gateway for this to happen.
AntiMatter’s first structured product ‘Dual investment’ is currently undergoing internal testing and will be launched soon. Stay tuned for the launch.
