Definition of Derivatives : A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset (like a security) or set of assets (like an index). Common underlying instruments include bonds, commodities, currencies, interest rates, market indexes, and stocks.
Introduction To Derivatives
Derivatives are inherently secondary securities as their value is derived from the value of the primary security that they are linked to. In and of itself, traditional derivatives have no value. Example of derivatives commonly include futures contracts, forward contracts, options, swaps and warrants.
Thanks to the advent of smart contracts, tokenized derivatives can be created without the need for a third party. Counterparty agreements are programmatically encoded, drastically reducing the risk for malicious activity. This trend has allowed retail investors to take advantage of opportunities previously restricted to those with brokerage accounts or specialized knowledge.
The following are 2 of the more successful DeFi derivatives protocols:
SYNTHETIX
Synthetix is a decentralized synthetic asset issuance protocol allowing users to mint, hold and trade a diverse range of derivatives including fiat currencies, commodities, and stocks, as well as cryptocurrencies like BTC, MKR and LINK.
With Synthetix, anyone in the world can gain exposure to Apple or Tesla stock without having to deal with the high frictions of financial regulations. Moreover, traders have a way to easily access a basket of crypto assets in both long and short form.
The Synthetix Network features two main assets: SNX (the native token) and Synths (the synthetic assets).
TL;DR : Gain exposure to a range of derivatives like Apple or Tesla stock using crypto assets.
AUGUR
Augur enables users to create and participate in prediction markets for the outcome of almost any event, ranging from sports games to election results.
In addition to enabling users to bet on the outcome of world events, Augur also provides a means of crowd-sourcing insightful data surrounding the likelihood of such outcomes occurring.
As a decentralized, permissionless prediction market, Augur removes middlemen and enables global participation. Smart contracts handle user funds and payouts, rather than a centralized system or group of people.
Although all purchases of prediction market shares are made in ETH, Augur also has its own native token.
TL;DR : Augur is a DeFi prediction and betting market built on Ethereum.
