Intro

Taking a new and innovative top-down approach to our research, we are covering what we consider the key sectors for 2022. The areas we believe will outperform this year, and beyond. If you missed them, make sure to check out Want the Sauce and Show Me The Money, where we break down our logic and the sectors we’re covering.

Below you’ll find an update on what we’ve covered so far, any updates, and what’s coming next.

TL:DR

• AIDROP INFO...
• Derivatives are estimated to be worth a whopping $1 QUADRILLION GLOBALLY.
• They’re coming to crypto, but the market is inefficient and skewed massively to centralised exchanges.
• DeFi allows the democratication of finance, and previously impossible things, like getting access to institutional grade investment product with $30 (and earning better returns that they do in TradFi).
• Overview and links to our report series, giving you an insight into how to take advantage of this oversized opportunity.
• Our winners, with deep dives and target valuations.

DeFi Derivatives 5 Part Series

Derivatives are a vital part of traditional financial markets. Yet, in crypto, they are massively underused, with huge inefficiencies and mispricing. This gives us a great opportunity. In this report series, we look into how we can take advantage of it.

It is the journey of all financial markets, they begin with the basics, and as they grow, complex and useful tools such as derivatives take centre stage. They allow hedging and leveraging positions to enhance returns and reduce risk.

DeFi democratises access to institutional-grade investment opportunities, previously only accessible to the ultra-wealthy and elite.

Not only this, it improves them, allowing efficiencies and returns that would be impossible in TradFi, even for the most influential players.

Be sure to read our article for more details on Why DeFi is so Damn Impressive.

Is This Sector Going to the Moon in 2022?

In the first report of the series, we look into the $1 quadrillion sector that is derivatives, and consider the mass of opportunities in this new and growing market. Considering current derivative use in crypto vs TradFi and the CeFi to DeFi split to help us identify key opportunities.

Futures and options are the main focus, we give an overview of each, before digging into how underused DeFi derivatives are at the moment.

If you’re in the same camp as us, you know there is a transition coming as people migrate from CeFi to DeFi for a variety of reasons, including regulatory scrutiny, innovative offerings, reduced bureaucratic red tape and greatly improved transparency (plus revenue share with token holders, democratised protocol ownership and governance, and much more).

This hasn’t happened yet, and leaves the door wide open for early investors like you and me. Institutions and major crypto funds know this, with top tier VCs taking a keen interest in options protocols this year.

Don’t Lose the Option

Getting into options, we consider the huge equities options boom that took place in 2020 fuelled by Robinhood and retail traders. Is this coming to crypto soon? We think so.

You may be wondering what makes options so special, and why TradFi loves them so much. Well fear not, that’s covered in the report.

Of course, we look at the CeFi and DeFi environments, for example, how Deribit (a centralised exchange) currently captures 88% of BTC and 96% of ETH options. You guessed it, we think it’s time for a shake-up.

Did someone say 500-1,000x?! Check out the report and you can see what we’re referring to.

DeFi seems to be DeFi’ing gravity in the options market. Even still, the growth is outstanding, and there's plenty more coming.

Oh, and we discuss some top picks! Note, these were our initial top picks, and we later dove into the details, deciding our one true winner (as discussed in the final report – The $1 Quadrillion Bet).

80% APY!? Is it Sustainable?

This is where we get into what is only possible in DeFi. Discussing DeFi Option Vaults (DOVs), which allow anyone to access returns from extremely complex options selling simply by depositing into a pool. We look into how this is possible, and what it means for crypto and DeFi.

Our winner here is Friktion, which you’ll see we’ve also done a deep dive on.

Psst, it includes details on how to qualify for a potential airdrop, so be sure to check it out.

Leaping into the Future(s)

Next up, futures. If you’ve ever been rekt by leverage, you know about these bad boys. Maybe you didn’t know it at the time, but every time you trade with leverage on Binance, FTX, or anywhere else, you’re trading the crypto native innovation that is perpetual futures (perps).

In the report we look at futures in crypto, how they work, how they’re used, and why crypto folk love them so much.

Of course, the report wouldn’t be complete without a peek into the CeFi and DeFi futures market, and our top picks in DeFi futures.

The $1 Quadrillion Bet

The conclusion, in this report we look at all the knowledge and information gathered in the last 4 reports, and consider what it means for the sector.

Perhaps most interesting, though, is our detailed look into our sector winners. The protocols we think have the most potential going forward. We break down why we’re bullish on them, give you price targets for the next 12-24 months (including breaking down the logic and calculations we did to get these valuations), present technical analysis on them, and talk about what we want to see going forwards.

Our DOV winner is Friktion, and we gave you a video detailing how you could qualify for an airdrop. This has now been as good as confirmed by the Friktion team (so that was a serious alpha leak!). More details on how to qualify for the airdrop, and the protocol as a whole, in the deep dive below.

Options Winner Update

At the time of writing, it was a tough choice for us between Dopex and Premia, with both offering seemingly impressive but very different value propositions. We explained that at the time, choosing a winner was too challenging.

During the deep dives, this changed.

Premia has earned the title of options winner by some margin. This is because Dopex seems less focused on options, and more focused on creating protocol owned liquidity and wading into the Curve Wars (through their own stablecoin, DPXUSD).

Also, the seeming intentionally confusing nature and lack of clear explanation of what they’re trying to achieve, and how they are going to do it, lifts many red flags on Dopex.

Check out the Dopex deep dive below for full details (note, we will be doing an update report on Dopex once they have shipped the many new products they are working).

Deep Dives (so far – many more to come)

Having looked at the sector as a whole, it’s time to get down in the details.

We take each of our winners and consider every aspect of the protocol, what risks it faces, and whether we personally would consider investing (not financial advise).

Premia

To start off our diving spree, we get digging into Premia, looking into the succession of value-add events that they have coming up, including V3 of the dApp, DOV funding (from the Premia treasury) and integration (this is a very big deal), veRPEMIA, and added blockchains and assets.

Necessarily, we play devil’s advocate, looking at what could go wrong. Covering the unique options pricing model, tokenomics, inflation, and current market cap vs fully diluted value. We present the argument for both bull and bear cases, before giving a conclusion and listing what we’d like to see from Premia going forward.

Dopex

This one caused quite a stir, resulting in TZ-Tok Chad taking to Twitter in an apparent attempt to discredit the report, despite the fact we had been in constant contact with the team and even sent them the report prior to publishing (they Tweeted before it was even out!).

I won’t go into too much detail here, as it’s all covered in the report (see the Dopex Drama section at the start!), but it’s safe to assume Dopex weren’t happy with the level of detail in the report, looking into DPXUSD and if it can keep its peg (especially prevalent now, after UST’s recent crash!), plus what could happen if it loses it.

That’s just one aspect covered in the report, we go into how they are the master of hype and maestro of memes, but is that enough? Why isn’t their liquidity being used? Diamond Pepe’s (Dopex NFTs), DPX, veDPX, rDPX, DPXUSD, synthetic assets, Dopex-Curve Wars, interest rate options and much more.

This is perhaps the most comprehensive deep dive on Dopex out there (I certainly didn’t find any that come close when researching for it). Definitely not one to miss.

Friktion

Back at it again, putting scuba divers and Tom Daley to shame with the depth and quality of our dives. This time, we’re covering Friktion.

Let’s talk about the most exciting part first. An airdrop.

That’s right, Friktion doesn’t have a token yet, and has as good as confirmed an airdrop. Not only that, we have a good idea of what you’ll need to do to qualify. Of course, we give you full details on this in the report!

We tell you what Friktion is, how it works, the team, investors, target market, blockchain ambitions and much more.

Friktion aims to be the one-stop-shop for portfolio management, catering to institutions, DAOs and retail alike. They have a range of products, which we cover, and honestly, I’m very impressed by the protocol.

If you only read one of our deep dives, this is the one to read (unless you love drama, then Dopex is the one for you).

Alpha DAO Proposals

As a result of the research conducted on DeFi derivatives, two Alpha DAO proposals were put forward. Rather than detail them here, I’ll allow you to click and read the details yourselves.

Proposal 20 was executed on the 10th May, so is still very fresh.

• Alpha DAO: Proposal #19
• Alpha DAO: Proposal #20

Crypto School Articles

To help build your derivatives knowledge, we published a series of short and sweet crypto school articles, free and available for anyone to access. See a list of what is covered below, and click on them to learn more.

• Funding Rate, Margin and Liquidations in Perps
• Power Perps and Everlasting Options
• What are Covered Calls?
• What are Options?
• Why is DeFi so Damn Impressive?

What’s Coming Up?

Continuing with the deep dives, next we are covering dYdX and GMX - this article has been updated to include links to those reports.

• dYdX

• GMX

Updates on Assets

In the articles we discuss some top picks, below is some updates on them since publishing:

Hegic

Since initially discussing Hegic I have dug into it further. It has had decreasing liquidity since inception, and no clear plans to resolve this. Until we see an answer to this growing issue, I have discounted Hegic.

Arrow

Arrow has launched a testnet trading competition, with a $25,000 prize pool. It’s a great opportunity to test out the platform but ends on June 6th, so be sure to do it as soon as possible.

Premia, Dopex and Friktion are covered in the deep dives above. Be sure to check them out for full details.

All remaining protocols have their deep dives coming up, so stay tuned for them!