The blossoming field of decentralized finance (DeFi) is seeing a surge in demand for derivatives tied to bitcoin (BTC) and other cryptocurrencies, according to a recent CoinDesk report. This growing demand is evidenced by the recent spike in activity on Derive, a platform offering unique and programmable on-chain options, perpetuals, and structured products.
The total dollar value of crypto tokens locked (TVL) on Derive has exceeded the $100 million mark, establishing a new record. This milestone comes amid a swell in trading volume and monthly active traders on the platform.
Sean Dawson, head of research at Derive, highlighted the platform’s recent accomplishments in a statement to CoinDesk. “Derive.xyz’s latest market insights reveal remarkable growth and heightened activity, with its total value locked surpassing $100 million for the first time, amid record-setting weeks for trading volume and active traders,” he said. “Yield on all USDC deposits has reached 10% on Derive.xyz, while it hit all-time highs in notional volume at $369 million and monthly active trades at 5,416,” Dawson added.
The Derive platform consists of three main components: Derive Chain, a settlement layer for transactions; Derive Protocol, which enables permissionless, self-custodial margin trading of perpetuals, options and spot; and Derive Exchange, an order book.
The burgeoning activity on Derive aligns with the increasing demand for options tied to cryptocurrencies and investment vehicles linked to digital assets such as spot ETFs and stocks.
Options are derivative contracts that grant the buyer the right, but not the obligation, to buy or sell the underlying asset at a specified price at a future date. A call option signifies a bullish market expectation, providing the right to buy, while a put option conveys a bearish expectation, giving the right to sell.
One notable activity last week involved a whale – a large player in the crypto market – who sold BTC calls against a long position in the spot market, pocketing over $1.6 million in premium. This covered call strategy involved short positions in call options at strikes ranging from $105,000 to $130,000, set to expire in March.
If BTC remains under $105,000 by the end of March, the whale will retain the premium. However, if BTC rallies beyond $130,000, the whale’s long position in the spot market will offset any losses.
Another common strategy among traders involves using sUSDe, a reward-bearing token earned by staking Ethena’s USDe stablecoin, as collateral on Derive to borrow USDC at rates significantly lower than other lending protocols. The borrowed USDC is then used to purchase additional sUSDe, and the cycle continues. This DeFi carry trade can yield double-digit returns due to the positive spread between sUSDe’s 28% annualized yield and Derive’s current USDC borrowing rate of roughly 18%.
