Crypto trading firm QCP Capital is now trading around $1 billion a month in options on decentralized derivatives platforms.
That's according to Simon Nursey, head of derivatives at Singapore-based QCP Capital, who spoke on Wednesday at an industry conference in Lisbon.
“For us, we’ve been quite taken aback by the explosion in the DeFi options space. We’ve always felt it was a difficult problem to solve: getting derivatives on-chain. But now it’s not experimental, or a test, or anything like that, it’s a very significant part of our business,” Nursey said. “We’re turning over about $250 million a week of DeFi crypto options through the various vault projects that are out there. And this is up from zero just a matter of months ago,” he added.
Options are a common instrument on Wall Street that provide traders the option to buy or sell an underlying asset at a certain price before a set date. They can be useful as a mechanism to hedge or speculate on a given asset. In the DeFi world, a number of projects—including SIREN Markets and Hegic—have sprung up that allow traders to trade a similar type of contract that trades on a blockchain. Elsewhere, projects like dYdX and Perpetual Protocol offer trading in DeFi perpetual swaps.
The market typically sees billions of dollars trade hands on a given day, according to data from The Block Research.
Part of what is fuelling activity on these platforms are the arbitrage opportunities traders can capture. The lack of liquidity on certain platforms leads to differences between funding rates on decentralized and centralized trading platforms, according to CMS Holding's Joe DeTommaso.
He noted that, “I think as we see liquidity get into this space, that’ll start to dry up.”
Jacob Palmstierna, head of business development at GSR, agreed but pointed out that these platforms tend to offer higher yields, which could attract more capital. He said that we’re “going to see tons more liquidity moving that way and even faster rises in decentralized derivatives and options.”