Central Clearing of Crypto-Derivatives in a Decentralized Finance (DeFi) Framework: An Exploratory Review

Sumit Kumar

Abstract


The embrace of cryptocurrencies by institutional investors is well underway. The futures market has already had a significant impact on this industry. Digital asset exposure may go up while the risk of loss is reduced by using derivatives. Decentralized finance and crypto-derivative trading are the focus of this article. We analyzed the function of a central clearing house (C.C.P.) and Exchange for Derivatives, especially Cryptocurrency derivatives. We mapped some critical attributes of DeFi (Decentralized Finance) to the concept of decentralized Exchange. In the light of this analysis, we reviewed an existing Cryptocurrency derivatives exchange that is trying to become a decentralized exchange. We studied dYdX, a major decentralized crypto-derivative exchange. We assessed its core purpose as a crypto-derivative exchange to investigate the positive aspects of the D.C.E. (Decentralized Crypto-derivative exchange). Decentralized crypto-derivative exchanges have considerable problems in terms of liquidity and market-making, and we determined that different incentive schemes by these exchanges have successfully overcome these issues. By linking additional trading nodes and boosting the trust of traders and investors, we believe these exchanges may be made more efficient.

Keywords: CeFi, DeFi, Crypto-Derivatives, Decentralized Crypto-Derivative Exchange, Blockchain, Smart Contract.


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