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DEX Brief No. 24

Hot take on derivatives DEXs, Clipper adds veSAIL, and more.

Written by

The Shipyard Team

Published on

November 2, 2023

Top of Mind at Shipyard

  • Derivatives DEXs are the most obvious opportunity in DeFi. There’s an implied $1B revenue opportunity if DeFi derivatives catch up to DeFi spot market share. 
  • What’s holding DeFi back? It hasn’t figured out how to support leveraged long-tail tokens.
  • DeFi market actors have different desires for exposure than in CeFi markets. Solving this will require thinking from first principles and a lot of math, but therein lies opportunity.

There seem to be new derivatives DEXs every week. That’s probably because it’s the most obvious opportunity in DeFi. Degens clearly want 100x leverage, and rumors are that Binance earns the supermajority of its revenue from its 200+ derivatives markets. However, DeFi is less than 2% of total perps volume, whereas DeFi penetration of spot trades is close to 20%. Clearly, DeFi hasn’t nailed derivatives. And whoever does will win big. GMX and dYdX together do $100M in annualized revenue. That implies a $1B revenue opportunity If DeFi derivatives catch up to DeFi spot market share.

So what’s holding DeFi back? We believe it’s that DeFi hasn’t figured out how to support leverage on long-tail tokens. GMX only supports 9 tokens. dYdX supports 37, but liquidity gets very thin very quickly. We think the reason is obvious–no one in DeFi wants to go short! That means there will never be enough long capacity. It is hard to imagine any amount of capital efficiency or optimizations solving this fundamental issue. 

CEXs have been able to address this problem because the exchanges maintain centralized control of opaque liquidation, price feed, and risk management engines that enable them to control the tail risk of short exposure in longtail markets (this is arguably manipulation, but since when has that ever stopped them :). This is impossible in DeFi because of its transparency and auditability.

We believe puts and perps are instruments that found product-market fit in CeFi but don’t fit DeFi market structure, no matter how ‘capital efficient’ markets that use them become. Instead, DeFi market actors have different desires for exposure. This requires thinking from first principles and a lot of math, which is hard. But therein lies opportunity.

- Shipyard CEO, Mark Lurie

Below DEX

AdmiralDAO has implemented veSAIL!

veSAIL came about in response to a governance proposal calling for a SAIL staking program. The new veToken of AdmiralDAO enables SAIL holders to grow their holdings without ever relinquishing their voting power. veSAIL provides an opportunity to maximize your returns on any SAIL you’ve earned, and gives governance participants a vested interest in managing the DAO.

How it Works 🛠️

Stake your SAIL in the veSAIL escrow account to receive veSAIL. The exchange rate between veSAIL and SAIL changes over time, depending on how much additional SAIL (for rewards) resides in the redemption contract. Currently, there is no required lockup period, so you can convert your veSAIL back to SAIL at any time to reap your rewards. 

Maximize your SAIL returns with veSAIL

The best way to maximize your SAIL earnings is to first farm SAIL on Clipper, then stake your harvested SAIL in the veSAIL escrow account. The formula is simple: LP in Clipper’s farming pools –> Earn SAIL –> Stake your SAIL for veSAIL  –> Earn more SAIL –> Repeat.

Around DeFi

  • Derivatives DEX, Bluefin’s v2 goes live on the Sui network, adding the ability to trade without a crypto wallet and more. 

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Community Updates

Written by

The Shipyard Team

Published on

November 2, 2023

March 29, 2024

What are stablecoins used for?, Clipper expands to Base, the latest AdmiralDAO proposals, and more.

February 28, 2024

A positive omen for DeFi derivatives, Clipper's new facelift, the latest AdmiralDAO proposals, and more.

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