Improvement Process: DeFi Derivatives Dencun Revolution


MetalSwap Improvement Process [BLOG]-2

As we approach March 13th, the day when the highly anticipated Dencun update on the Ethereum blockchain will be released, anticipation is building.

A recent article pointed out that this update, which includes the introduction of Proto-Danksharding, will improve scalability especially for Ethereum's layer 2 solutions, like Optimism and Linea, with an estimated transaction cost reduction of around 90%.

Today's article aims to specifically analyze the impact this development will have on the DeFi derivatives sector

Less fees, more operations 

Any derivative instrument, be it perpetuals or hedging swaps, inherently allows traders to expose themselves to certain assets without actually owning them.

These tools are extremely popular because they make it much cheaper to operate on them compared to the spot market, where costs exponentially increase.

Currently, in decentralized finance, opening positions on various derivatives still entails facing network costs, and this is why the derivatives sector has almost entirely moved to Ethereum's various layer 2 solutions, such as Optimism and Arbitrum, because operating on these blockchains is cheaper than on ETH's mainnet.

Despite this, especially in times of euphoria, the fees required by the various layer 2s can also skyrocket, increasing the commissions paid by traders. The transaction cost is correlated between L1 and L2 since the latter still sends some transactions to L1, from which security derives.

The higher the transaction costs required by the various layer 2s, the less incentive traders will have to open new positions on any available derivative.

The Dencun update aims precisely to improve the scalability of layer 2s, reducing this problem which will likely lead to an even greater use of derivative instruments in DeFi.

A practical example 

To open a position on the MetalSwap dApp, two on-chain transactions are required.

The first is the one-time "allowance" of the contract that will be used to open the hedging position. Currently, this has a cost on the Optimism blockchain of around 40 cents.

The second transaction, which actually opens the position within the hedging contracts, has a slightly higher cost, currently we can estimate around 80 cents.

But what will happen after the Dencun update?

If the estimates hold true, we will see a 90% reduction in fees, meaning the total cost of the two operations will be less than 15 cents and this reduction will encourage traders to open new and more positions within the dApp.

For now, all we can do is wait a few more days and discover together how this update will revolutionize the entire DeFi ecosystem and specifically the derivatives sector.


-The DeFi Foundation


✎ What is MetalSwap?

MetalSwap is a decentralized platform that brings Hedging Contracts on financial markets with the aim of providing coverage to those who work with digital asset and an investment opportunity for those who contribute to increase the shared liquidity of the project. Allowing the protection for an increasing number of operators.

With MetalSwap we enable Hedging Contracts on the DeFi field, AMM style.