The Evolution of Encryption Derivatives: From Primitive Futures to Comprehensive Innovation in Interest-Bearing Contracts

In the past week, two well-established encryption exchanges have sparked a wave of acquisitions in the derivation market: a well-known exchange acquired NinjaTrader for $1.5 billion, while another large exchange is negotiating a multi-billion dollar acquisition of Deribit. These two significant transactions not only demonstrate the industry’s giants’ firm commitment to the derivation business but also indirectly reflect the increasingly strategic value of the encryption derivation market.

In the early days of Bitcoin, spot trading was the main way to interact with encryption assets. However, as the market expanded and participants diversified, simple buy and sell transactions could no longer meet investors’ needs for risk management, leveraged trading, and diverse investment strategies. Just as derivatives play an indispensable role in price discovery and risk hedging in traditional financial markets, the encryption field also requires derivation tools to optimize market efficiency, improve capital utilization, and provide traders with a diversified operational space.

Over the past decade, the encryption derivation market has undergone a tremendous transformation from non-existence to prominence, with its development process divided into four key stages: the introduction of early futures (v0), the rise of perpetual contracts (v1), the innovation of unified margin (v2), and the latest yield derivation model (v3). Each iteration of products and technologies has significantly enhanced capital efficiency, trading experience, and risk control mechanisms, reshaping the industry landscape.

With the evolution of centralized trading platforms, the decentralized finance ( DeFi ) derivation field is also rapidly developing. Projects such as dYdX, GMX, and Hyperliquid are carrying out diversified innovations under the on-chain contract model. This article will systematically outline four major development stages, analyze the practical value and far-reaching impact of product innovations at each stage in conjunction with the parallel evolutionary path of DeFi derivations, and attempt to look ahead at the future direction of this market.

Phase v0 ( 2014～2015 ): The beginning of encryption derivation.

Stage Features: Preliminary Transition from Traditional Futures to Encryption Futures

Before 2014, cryptocurrency trading was basically limited to the spot market. In the face of Bitcoin’s high volatility, miners and long-term holders needed to hedge risks, while speculators were eager to obtain higher returns through leverage. In 2014, a well-known trading platform was the first to introduce the margin system, expiration delivery, and clearing mechanism of traditional futures into Bitcoin trading, launching the first Bitcoin futures product. This allowed holders to hedge against the risk of future price declines and provided speculators with the opportunity for high-leverage operations. Subsequently, other trading platforms followed suit and launched similar products, bringing encryption derivation into the historical spotlight.

Representative Platform

The v0 stage is characterized by contracts settled in cryptocurrency: it features fixed delivery days on a weekly or quarterly basis, similar to traditional commodity futures. For miners and investors, this is the first risk hedging tool that can be used directly; for speculative traders, it also means the ability to leverage small investments for higher returns.

Market Impact

The design of fixed expiry dates appears to lack flexibility in the volatile encryption market. When extreme market conditions arise, traders cannot freely adjust their positions before expiry. In addition, the early risk control systems were not sufficiently refined, and cases of liquidation distribution occurred frequently—once severe market fluctuations led to certain leveraged accounts being liquidated and margin calls triggered, the platform would deduct earnings from other profitable accounts to cover the losses, causing dissatisfaction among users. Nevertheless, this stage laid the foundation for crypto derivation, accumulating valuable experience for subsequent innovations.

Phase v1 ( 2016～2017 ): The rise of perpetual contracts and market explosion

Phase Characteristics: Perpetual Contract + High Leverage = Exponential Growth

The market has a strong demand for more flexible and efficient derivation products. In 2016, an innovative trading platform launched the Bitcoin perpetual swap contract (Perpetual Swap), which innovatively eliminated the expiration date and instead adopted a funding rate mechanism to anchor the relationship between the contract price and the spot price. This allows traders to hold positions in a “never delivery” mode, avoiding the pressure of rolling over contracts as futures approach expiration. The platform also increased the leverage to 100 times, which sparked great interest among traders. During the 2017 encryption bull market, the trading volume of perpetual contracts soared, setting astonishing single-day trading volume records. At this time, Bitcoin perpetual contracts were widely imitated in the industry, becoming one of the most popular products in cryptocurrency history.

Representative Platform

• An innovative trading platform: Quickly occupying the market high ground with perpetual contracts, adopting an insurance fund and forced liquidation mechanism, significantly reducing the probability of clients’ profits being shared.

• Deribit: Launched in 2016 with encryption options products, although the early trading volume was limited, it provided institutions and professional traders with new derivation strategy choices, heralding the rise of the options market.

• Traditional financial institutions entering the market: At the end of 2017, CME and CBOE launched Bitcoin futures, allowing encryption derivations to begin entering the regulated spotlight.

Market Impact

The emergence of perpetual contracts has driven the rapid expansion of the encryption derivation market, with trading volumes of derivations even surpassing some spot markets during the bull market of 2017, becoming an important venue for price discovery. However, the combination of high leverage and high volatility has also led to a chain reaction of liquidations, with some trading platforms experiencing system outages or forced liquidations, sparking user controversies. This serves as a reminder that platforms must strengthen their technical infrastructure and risk control capabilities while innovating products. Meanwhile, regulatory agencies have also begun to pay attention to the potential risks of high-leverage encryption derivations.

v2 Phase ( 2019～2020): Unified Margin and Multi-Asset Collateral

Stage Characteristics: From “Are there any new products” to “How to improve capital efficiency”

After the bear market in 2018, the derivatives market became active again in 2019, with user demand shifting towards improving trading efficiency, capital utilization, and product diversity. In 2019, an emerging trading platform was the first to introduce the concept of “unified margin account”: users can participate in various derivatives trading using the same margin pool and use stablecoins as universal margin. Compared to the previous model of depositing margin for each contract separately and frequently transferring funds, this greatly simplified the operational process and improved capital turnover efficiency. The platform also optimized the tiered clearing mechanism, alleviating the long-standing issue of “loss sharing.”

Representative Platform

• An innovative platform: Quickly favored by professional traders due to its stablecoin settlement and cross-position margin mechanism; it also launched leveraged tokens, MOVE contracts, and numerous altcoin futures, with a very rich product line.

• Multiple mainstream trading platforms: have successively carried out system upgrades, launching USDT-based perpetual contracts or unified account functions, with a risk control system more mature and improved than in the v1 phase.

Market Impact

The v2 phase witnessed further expansion and mainstreaming of the derivation market, with trading volume continuing to grow and institutional funds pouring in at this time. With the progress of compliance processes, the trading volume of encryption derivations on traditional financial platforms has also significantly increased. Although this phase reduced issues such as liquidation sharing, during the extreme market conditions of “312” in March 2020, multiple trading platforms still experienced abnormal price fluctuations or temporary outages, highlighting the importance of upgrading risk control systems and matching engines. Overall, the greatest feature of the v2 phase is the “unified account + stablecoin settlement” model, combined with a rich new product line, making the encryption derivation market more mature and professional.

v3 Phase ( 2024 - Present ): The New Era of Automated Lending and Earning Derivations

Stage Characteristics: Further improve capital utilization rate, margin is no longer “idle”

On the basis of unified margin, there remains a long-term pain point: idle funds in accounts usually do not generate returns. In 2024, Backpack proposed the “Automatic Lending (Auto Lending )” and “Interest-Bearing Perpetuals (” mechanisms, which organically combine margin accounts with lending pools. Specifically, idle funds and floating surpluses in the account can be automatically lent to users in need of leverage, thus earning interest; if there is a floating loss, the corresponding interest rate must be paid. This innovation allows the trading platform to not only serve as a matching venue but also to play a role in lending and interest management. Coupled with the recent points mechanism launched by Backpack, users have the opportunity to earn passive income with various risk preferences.

In addition, in March 2025, two major established trading platforms are accelerating their layout in the derivation business. One of them acquired NinjaTrader for $1.5 billion; the other is in talks to acquire Deribit, which had a valuation in the range of $4 to $5 billion earlier this year. The rapid layout of derivation business by large compliant trading platforms indicates that this sector still contains significant opportunities.

Representative Platform

• Backpack: Its perpetual contract will treat unused margin and floating profits as “lendable funds,” generating interest income for holders, while users holding positions with floating losses will automatically pay interest to the lending pool.

• The platform uses a dynamic interest rate model to respond to market fluctuations; the floating profit from positions can be partially withdrawn and continued to be lent out, achieving a dual revenue model of “simultaneously going long and short while earning interest.”

• The Backpack plan supports multi-asset collateral and cross-chain asset integration, further expanding the utilization of funds.

Market Impact

The perpetual interest mechanism enhances capital efficiency once again. If successfully implemented on a large scale, it could become the next trend in industry development. Other trading platforms may consider introducing similar functions or collaborating with DeFi protocols to provide additional returns on margin funds. However, this model places higher demands on the platform’s risk control and asset management capabilities, requiring refined management of lending pool liquidity and control of chain risks in extreme market conditions. Furthermore, compliance operations have become more important; if a platform experiences an imbalance in asset management, it could amplify systemic risks. Nevertheless, the innovations of the v3 phase undoubtedly bring new forms to the encryption derivation market, further strengthening the integration of trading and financial functions.

DeFi Derivation Branch: Diverse Decentralized Exploration

As centralized trading platforms continue to evolve, the decentralized derivation field has also formed a parallel development path in recent years. Its core goal is to achieve trading functions such as futures and options without the need for trusted intermediaries through smart contracts and blockchain technology. Providing high performance, sufficient liquidity, and comprehensive risk control under a decentralized architecture has always been a core challenge in this sector, prompting various projects to present diversified solutions in technical design.

dYdX was originally based on the hybrid model of order book and on-chain settlement provided by the Ethereum L2 StarkEx. Later, it completed the migration to the Cosmos ecosystem V4, attempting to further enhance decentralization and transaction processing performance on its own chain. GMX, on the other hand, took a different path, using the automated market maker )AMM( model, where users trade directly with liquidity pool counterparts, sharing risks and obtaining profits through liquidity providers to realize perpetual contract functions. Hyperliquid established a dedicated high-performance blockchain to support order book matching, executing all matching and clearing on-chain, striving to combine the speed of centralized exchanges with the transparency of decentralization.

These decentralized platforms have attracted a portion of users who prefer self-custody due to stricter regulations or concerns about asset security. However, overall, the trading volume of DeFi derivation products remains far smaller than that of centralized platforms, mainly limited by liquidity depth and ecosystem maturity. As technology continues to improve and more funds enter the market, decentralized derivation products may find a balance between performance and compliance, potentially forming a deep complementarity with centralized platforms and further enriching the overall landscape of the encryption market.

Integration and Future Outlook

Looking back at the development of encryption derivation from v0 to v3, each stage revolves around technological innovation and efficiency improvement:

• v0: Porting the traditional futures framework to the encryption field, but both flexibility and risk control systems are relatively basic;

• v1: The birth of perpetual contracts has greatly increased market liquidity and participation enthusiasm, with derivation beginning to dominate the price discovery mechanism;

• v2: Unified margin, multi-asset collateral, and diversified products further enhance capital efficiency and trading professionalism;

• v3: Integrate lending and interest-generating functions into the trading system to maximize capital efficiency.

The parallel DeFi derivation track is also exploring feasible paths for decentralized trading through various technical solutions such as order books, AMM, and dedicated chains, providing self-custody and trustless trading options.

Looking ahead, the development of encryption derivation may present the following major trends:

1. The integration of centralization and decentralization: Centralized platforms may place more emphasis on transparency or launch on-chain derivation services, while decentralized platforms will focus on improving transaction speed and liquidity levels.

2. Risk Management and Compliance: As the trading volume increases, the requirements for risk control systems, insurance fund mechanisms, dynamic clearing processes, and regulatory compliance will continue to rise.

3. Market size and product diversification: More asset classes and complex structured products will gradually emerge, and the derivation trading volume is likely to further surpass the spot trading scale.

4. Continuous Innovation: New products such as automatic interest generation mechanisms, volatility derivations, and even AI-integrated prediction contracts may emerge. Platforms that can be the first to launch innovative products that meet market demands are likely to gain an advantage in the new round of competition.

Overall, the encryption derivation market is steadily maturing and diversifying. Through continuous innovation in technology, models, and compliance, it will be better able to meet the diverse needs of institutional and individual investors, becoming an important sector with significant vitality and development potential in the global financial system.