The fast-growing realm of decentralized finance â semi-autonomous exchanges and lenders erected from interconnected systems of digital tokens and coding atop the Ethereum blockchain â 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.Â Â
Now, the big centralized crypto exchanges are finding a way to cash in on the mania, introducing indexes tied to the fate of âDeFiâ 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 worldâs largest cryptocurrency exchange.Â
The company plans to offer âDeFi Index Perpetual Contracts,â 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.Â Â Â
The âfully synthetic derivative product enables greater access to decentralized finance,â Binance said in the release.Â
Ahem. Never underestimate crypto exchangesâ creativity when it comes to adapting Wall Street-style financial engineering for use on the so-called digital rails.Â
Related: Blockchain Bites: Major Acquisitions, Bitcoin Futures Liquidations and the SECâs New Rules
Binanceâs 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 theÂ top 100 liquidity pools on the decentralized exchange Uniswap. FTX hadÂ already launched its own DeFi Index in June.Â
âWeâve seen large demand from customers to get exposure to a broad base of DeFi products,â CEO Sam Bankman-Fried told CoinDeskâs Zack Voell in a private message.
Binanceâs DeFi index consists of 10 tokens associated with DeFi, several of which rank among the yearâs best performers. They includeÂ ChainlinkâsÂ LINK,Â Compoundâs COMP,Â Kyberâs KNC,Â Aaveâs LEND,Â ZRXâs 0xÂ andÂ MakerDAOâs MKR.Â
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 websiteÂ DeFi Market Cap.
âDeFi is still the big hype, with many coins still flying high,â the Norwegian cryptocurrency analysis firmÂ Arcane ResearchÂ 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, theyâre up 13-fold in 2020.
It almost makes bitcoinâs 56% year-to-date gain look like dead money.Â Â
Bitcoinâs 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.Â
- Bitcoin is currently trading near $11,400.
- Tuesdayâs 3.7%Â price drop triggered sell liquidations âÂ the forced unwinding of long trades âÂ worth nearly $50 million in perpetuals (futures with no expiry) listed on cryptocurrency exchange BitMEX, according to data sourceÂ Skew.
- âThe positives of last nightâs move was that it cleared out a lot of the weak leverage longs,â Singapore-based QCP Capital said in a Telegram post, in reference to the perpetuals liquidations.Â
- Following Tuesdayâs price drop, the cost of holding long positions in BitMEX perpetuals, known as the âfunding rate,â has normalized.
- A high funding rate discourages new investors from entering the market and existing holders from boosting their long positions.
- âThe unsustainably high funding rate has been pushed back to its typical baseline levels of 11% annualized,â QCP Capital said.Â
- The funding rateÂ had jumpedÂ to highs above 60% in annualized terms on Aug. 18, when bitcoin broke above $12,000.
- As a result,Â stronger buying pressure may emerge, leading to a re-test of recent highs above $12,000.Â
Read more:Â Bitcoin Drop Squeezes Out Weak Derivatives Positions â And That May Be a Good Thing
â Omkar Godbole
Aave (LEND):Â DecentralizedÂ lender passes MakerDAO to becomeÂ No. 1 in DeFi rankingsÂ (CoinDesk)
Wrapped bitcoin (WBTC):Â Fees on Ethereum blockchain are so elevated that BitGo is scouting forÂ partners for new sidechain. (CoinDesk)Â
Ether (ETH):Â More than $1 billion of ERC-20 tokens vulnerable to âfake deposit exploit.â (CoinDesk)Â Â
PAX Gold (PAXG):Â Crypto exchangeÂ Binance lists the gold-linked digital tokenÂ as precious metal trades around $1,900 an ounce. (Paxos)
The latest on the economy and traditional finance
Big companies loadÂ up on debt asÂ borrowing costs fall, even amid recession (Bloomberg)
U.S. consumer confidence unexpectedly falls to 6-year low as stimulus checks expire (Reuters)
Stimulus-induced inflation puts $40 trillion of retirement savings at risk (Bloomberg)
Tweet of the day
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BitGo Might Do aÂ Sidechain for WBTC as Fees on Ethereum Mount (CoinDesk)
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Bitcoin Lightning Startup LastBit Working With Visa to âFast Trackâ Card Payments (CoinDesk)
LastBitâs hope is to allow users to harness the Lightning networkÂ to pay for just about anything.
Japanâs First IEOÂ to Launch via Crypto Exchange CoincheckÂ (CoinDesk)
One of the largest crypto exchanges in Japan is supporting theÂ launch of the countryâs first initial exchange offering.
â Sebastian Sinclair
- Bitcoin Drop Squeezes Out Weak Derivatives Positions â And That May Be a Good Thing
- Blockchain Bites: Bitcoinâs âRich List,â Ethereumâs Volatility, DeFiâs Shakeup
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