First Mover: Binance's New DeFi Futures Let Crypto Traders Bet on Decentralization

Binance's new "DeFi Index Futures" show the push by centralized crypto exchanges to cash in on this year's frenzy in so-called decentralized finance.

AccessTimeIconAug 26, 2020 at 1:43 p.m. UTC
Updated Sep 14, 2021 at 9:48 a.m. UTC

Market Moves

The fast-growing realm of decentralized finance – semi-autonomous exchanges and lenders erected from interconnected systems of digital tokens and coding atop the Ethereum blockchain – is one of the hottest corners of the crypto industry this year, with $7 billion of value locked, a 10-fold increase over the start of 2020.  

Now, the big centralized crypto exchanges are finding a way to cash in on the mania, introducing indexes tied to the fate of "DeFi" tokens and new futures contracts and other types of derivatives. For traders, these indexes provide a way to speculate on decentralized finance without going all in on any single project.

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The latest announcement comes from Binance, the world's largest cryptocurrency exchange. 

The company plans to offer "DeFi Index Perpetual Contracts," listed on Binance Futures, according to a press release Wednesday. The contracts will be denominated in the dollar-linked stablecoin tether and offer traders leverage up to 50 times their money down.    

The "fully synthetic derivative product enables greater access to decentralized finance," Binance said in the release. 

Ahem. Never underestimate crypto exchanges' creativity when it comes to adapting Wall Street-style financial engineering for use on the so-called digital rails. 

FTX's DeFi Index Perpetual Futures have mostly gone up since launching in mid-June.
FTX's DeFi Index Perpetual Futures have mostly gone up since launching in mid-June.

Binance's new contracts might be an early entrant in what could potentially become a crowded field.

Earlier this week, the exchange FTX announced a futures index tracking the top 100 liquidity pools on the decentralized exchange Uniswap. FTX had already launched its own DeFi Index in June

“We've seen large demand from customers to get exposure to a broad base of DeFi products,” CEO Sam Bankman-Fried told CoinDesk's Zack Voell in a private message.

Binance's DeFi index consists of 10 tokens associated with DeFi, several of which rank among the year's best performers. They include Chainlink's LINKCompound's COMPKyber's KNCAave's LENDZRX's 0x and MakerDAO's MKR

In an example of the speculative fervor, tokens associated with the phenomenon now have a combined market value of $12.7 billion, more than the amount of money locked into the underlying platforms, according to the website DeFi Market Cap.

"DeFi is still the big hype, with many coins still flying high," the Norwegian cryptocurrency analysis firm Arcane Research wrote Tuesday in a weekly report.

Messari, a crypto-markets research firm, has compiled its own list of 30 tokens associated with DeFi. On average, they're up 13-fold in 2020.

It almost makes bitcoin's 56% year-to-date gain look like dead money.  

Top 10 DeFi tokens by market capitalization.
Top 10 DeFi tokens by market capitalization.

Bitcoin watch

BitMEX sell liquidations.
BitMEX sell liquidations.

Bitcoin’s latest price drop has a silver lining: It has forced out weak hands in the derivatives market and potentially opened the doors for a more sustainable rally to recent highs. 

  • Bitcoin is currently trading near $11,400.
  • Tuesday's 3.7% price drop triggered sell liquidations – the forced unwinding of long trades – worth nearly $50 million in perpetuals (futures with no expiry) listed on cryptocurrency exchange BitMEX, according to data source Skew.
  • “The positives of last night's move was that it cleared out a lot of the weak leverage longs,” Singapore-based QCP Capital said in a Telegram post, in reference to the perpetuals liquidations. 
  • Following Tuesday’s price drop, the cost of holding long positions in BitMEX perpetuals, known as the “funding rate,” has normalized.
  • A high funding rate discourages new investors from entering the market and existing holders from boosting their long positions.
  • “The unsustainably high funding rate has been pushed back to its typical baseline levels of 11% annualized,” QCP Capital said. 
  • The funding rate had jumped to highs above 60% in annualized terms on Aug. 18, when bitcoin broke above $12,000.
  • As a result, stronger buying pressure may emerge, leading to a re-test of recent highs above $12,000. 

– Omkar Godbole

Token Watch

Aave (LEND): Decentralized lender passes MakerDAO to become No. 1 in DeFi rankings (CoinDesk)

Wrapped bitcoin (WBTC): Fees on Ethereum blockchain are so elevated that BitGo is scouting for partners for new sidechain. (CoinDesk) 

Ether (ETH): More than $1 billion of ERC-20 tokens vulnerable to "fake deposit exploit." (CoinDesk)  

PAX Gold (PAXG): Crypto exchange Binance lists the gold-linked digital token as precious metal trades around $1,900 an ounce. (Paxos)


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