Exotic Markets Bringing Derivatives & Structured Products to Solana Ecosystem

Crypto-based Derivatives and Structured Products on the Solana Blockchain

Exotic Markets, a DeFi platform based on the Solana Blockchain, is bringing crypto-based derivatives and structured products to the Solana blockchain. The protocol offers numerous distinct trading strategies and payoffs for the largest variety of underlying tokens, enabling investors to hedge, earn income, and convey directional opinions. Exotic raised $5 million in a private deal headed by Multicoin and Ascensive Assets in January 2022. Alameda Research, Animoca Brands, Morningstar Ventures, and Solana Capital were among the other notable investors in the round.

The TVL (total value locked) in DeFi protocols rose tremendously from mid-2020 to mid-2021, reaching over $100 billion, but growth has since slowed. Many investors rush to crypto to seek enormous profits because of low-interest rates in the real world. The first wave of “yield farming” provided liquidity to farm governance token rewards in a passive manner providing an alternative source of income during the time of Covid. While these tactics may provide significant profits, most of them are not long-term since token incentives will ultimately run out.

Understanding Crypto based Structured Products

Investors need to discover alternate techniques to boost profits in the long run. Fortunately, DeFi has progressed, and there are now several procedures for managing risk and reward using classic financial instruments such as futures, options, and swaps. DeFi Protocols, which have generated “real” returns, has seen a steady increase in assets deposited.

Structured Products are investment products that often comprise interest-bearing assets and one or more derivatives. Structured products are intended to meet highly specific risk-return goals and may be attached to any underlying asset or basket of securities. As a result, structured products provide individual investors with simple access to derivatives, with the ability to combine a number of assumptions into a single instrument serving as the main draw.

Buyers and sellers of structured goods can freely connect on an open and transparent marketplace thanks to single products. The potential payoffs will be enormous, and the company plans to bring solutions that have never been seen before in DeFi.

The protocol provides a variety of structured notes with various properties, such as:

• Crypto deposited as notional or invested as premium: SOL, BTC, USDC.
• Duration of the contract or when the structured product will expire: days, 1 month.
• Underlying the optionality, the structured product will be observed to define final pay-out: SOL/USDC, BTC/USDC, a basket of several cryptos... Possibilities are endless on Exotic thanks to its flexibility from the start.
• Optionality of the note: Vanilla Call, Vanilla Put, Double Digital, Single Digital, Call Spread, Put Spread. Kick-in/out barriers. All will be clearly explained on the UI and this documentation. Once again, possibilities are endless on Exotic thanks to its flexibility from the start.

This allows the protocol to offer a wider range of products than any other DeFi structure product in existence today. Thousands of transactions per second can be processed on the Solana blockchain, while gas expenses are merely a fraction of a penny for each transaction. Exotic’s decentralized mentality is very ideally linked with Solana.

What are Crypto Derivatives?

Any cryptocurrency token may be used as the underlying asset in crypto derivatives trading. Two parties sign a financial contract to speculate on the price of a cryptocurrency at a later period. The parties agree on a selling/buying price for the cryptocurrency on a specified day, independent of market pricing, during the initial phase of the contract. Consequently, by buying the currency at a lower price and selling it at a higher one, investors may benefit from changes in the underlying asset’s price.

Based on data from 42 exchanges, the cryptocurrency derivatives market’s trading volume for the third quarter of 2020 was $2.7 trillion, according to Tokeninsight’s Cryptocurrency Derivatives Exchange Industry Report. This is a 25.1 percent increase from the previous quarter and a 159.4 percent increase year-over-year from the third quarter of 2019, illustrating the massive growth in crypto-derivatives in recent years.

Depending on the terms of a contract, crypto derivatives might be one of the following types:

Futures: A futures contract is a legally binding agreement between two parties to buy or sell an underlying asset at a future price and date. On a controlled exchange, the contract is immediately executed.

Options: With an options contract, a trader has the opportunity, but not the obligation, to buy or sell an underlying asset at a specified future date and price.

Perpetual contracts: in contrast to futures and options have no expiry or settlement date. Traders may leave their positions open forever in particular conditions, for example, if the account contains a certain quantity of a cryptocurrency.

Swaps: A swap is a contract between two parties to exchange cash flows later based on a formula. They are similar to forwards in that they are OTC (over-the-counter) contracts that are not traded on exchanges.

Cryptocurrency derivatives may be exchanged on both controlled and decentralized platforms. Exchange operators might utilize cryptocurrency derivatives exchanges to reach out to new investors. A crypto derivatives trading platform is more flexible than spot margin trading, and it provides users access to markets that you wouldn’t have access to otherwise.

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