Decentralized perpetuals are a type of derivative contract that allows traders to speculate on an asset’s future price without settling their position. These contracts have become increasingly popular in cryptocurrency, as they offer traders greater flexibility and leverage than traditional spot markets.
In November 2021, open interest in decentralized perpetuals hit an all-time high of 1.53B. However, according to StockApps.com, its’ open interest has sharply declined, dropping 65% since its peak to 0.57B in June 2023. This is attributed to the crypto market downturn of 2022, which saw open interest plummet from 1.53B to a low of 0.28B in October 2022 before gradually recovering as of June 2023.
The collapse of FTX stirred huge waves in the crypto space, tanking crypto markets. However, this is expected to catalyze the adoption of decentralized protocols.
StockApps financial analyst Edith Reads comments, ” Decentralized perpetuals are expanding and establishing their footing in the crypto space. Platforms like Dydx and GMX are becoming more and more popular as they offer better leverage in crypto trading. Decentralized perps offer seamless trading, giving crypto users what they want “
Why did Decentralized Perpetuals see a decline in their open interest?
The recent buzz around meme coins in April lured the attention of many crypto fanatics and investors. Memecoins gained massive traction, causing fallout on other crypto platforms, including decentralized platforms.
Bitcoin also captured the interest of many crypto users from the start of 2023 by restoring the store-in-value properties and launching the BRC-20 tokens. Bitcoin stocks bounced back, driving a two-year record high in crypto activity, causing many to focus on investing in it.
The Overview of Decentralized Protocols
Dydx, the leading decentralized exchange, claims a 58.9% share of trading volumes and controls about 50% of open interest as of June 2023. Dydx is expecting a significant rise in its open interest in Q2’23 with the launch of Dydx V4. DYdX V4 is based on Cosmos SDK and designed to feature a fully decentralized, off-chain order book and a matching engine capable of scaling orders of magnitude more than any existing blockchain can support.
GMX comes in second after Dydx, with its share of open interest at 30%. It has seen significant growth in its trading volumes in the last six months, from 9.3% to 16.3%. Gains Network, Kwenta, and Level Finance are also catching-up, with the big shots with their aggregate OI standing at 18 %
Decentralized perpetuals are growing significantly. Despite the decline in their open interest, the tables are expected to turn in their favor in the coming months. The launch of new services like Dydx V4 will certainly drive the growing interest in DeFi tokens.