The MetalSwap Insight series aims to provide specific analysis on topics of interest for the MetalSwap dApp, with the goal of offering valuable insights to our community. In the last episode, titled “State of DeFi Derivatives” we broadly analyzed the world of financial derivatives in crypto, distinguishing between centralized and decentralized environments and examining the daily trading volumes.
We concluded that perpetual instruments are currently dominating the market, while solutions like options and hedging swaps are yet to see their explosive growth.
Hedging Swap Analysis
In today's article, we will focus on an analysis of hedging swaps; we will examine the trading volumes from both centralized and decentralized perspectives and compare them with other derivative instruments like perpetuals and options. Without further ado, let's begin this important analysis.
CEX Hedging Swap
In the traditional financial world, hedging swaps, which are expiration financial instruments used primarily in the commodities market, generate incredible annual trading volumes in the order of trillions of dollars. However, this has not yet happened in the crypto world, where this type of instrument only manages to collect much smaller trading volumes.
OKX is the leader in the crypto CEX delivery sector (i.e., futures contracts with expiration), with an average daily volume of 350/400 million dollars. This is followed by Binance, Bybit and BingX, all three with an average daily volume of around 150/200 million dollars for each trading day.
We can already compare these volumes with those collected by the perpetual instruments in the centralized context. As we analyzed in the last episode, Binance is the leader in the area of traded perpetuals, with a daily volume exceeding 52 billion dollars. This, compared to the 150/200 million dollars traded in the delivery sector, demonstrates just how much perpetuals are dominating the market.
DEX Hedging Swap
Analyzing the volumes of hedging swaps within decentralized finance is extremely simple since MetalSwap is the only dApp offering this service. To get an overall overview of the dApp's trading volumes, one can analyze the Dune dashboard dedicated to MetalSwap, where very interesting metrics such as the number of open swaps and the liquidity deposited within the dApp can be discovered.
Why Expiration Contracts are Used for Commodities
Now, let's try to understand why an instrument like hedging swaps is mainly used in the commodities world and why it has not yet reached trading volume levels in the crypto
ecosystem that are even comparable to those in traditional finance. Hedging swaps are the favored instrument in the commodities sector because they provide guarantees for specific time periods. Thanks to their expiration mechanism, traders can enter into contracts specific to their needs and hedge against the market volatility.
The main reason this type of derivative instrument has not yet gained its market share in the crypto world is simply because on-chain representations of commodities are still at a primitive stage, with only a few tokenizations available and almost all focused on gold representation.
To date, there are few solutions that bring the representation of some commodities on-chain, with practically only GOLD through solutions like Paxos or Tether offering a good alternative compared to traditional possession.
MetalSwap is ready to host many more commodities within its dApp as soon as the decentralized world provides adequate and secure representations of them.
-The DeFi Foundation
✎ What is MetalSwap?
MetalSwap is a decentralized platform that allows Hedging Contract 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 Hedging Contract we enable hedge swap transactions through the use of Smart Contracts, AMM style.
It's great to Hedge the Risk of Price volatility with MetalSwap dApp !