The defi space is growing rapidly with loads of new projects with amazing use cases both in the defi space and off-chain too. In this post, we are going to dive into the world of Defi Derivatives and its advantages to investors:

What are Defi Derivatives

A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset or set of assets. The value of the contract is determined by the performance of the underlying asset, this underlying factor can be an asset(real-life assets, bonds, commodity, or stocks.

Types of Derivatives

1.Forwards
2.Futures
3.Options
4.Swaps

Derivatives are very important financial instruments that can be hugely beneficial, if properly utilized, Derivatives can provide a number of financial benefit for investors like:

• Derivatives can be used to insure against price movements, which is primarily known as hedging. As a secondary asset since its value is linked to the underlying assets, it can be used to guard against sudden price hikes and downturn thereby protecting the trader from losing his investments, It allows risk to be transferred from one investor to another pertaining to the price of the underlying asset.

• it also serves as a valuation tool for the underlying assets. For instance, the spot price of a forwards contract can give an idea of the unit price of the commodity.

• Derivatives can provide investors with access to hard to get assets or hard-to-trade assets and lower interest rates on loans. So Derivatives arm investors with the power to participate in different markets and assets.

Defi Derivatives can be referred to provides a decentralized method of tieing cryptos and other decentralized assets to underlying assets. Defi space has incorporated projects that have created better ways of valuing underlying assets and the creation of assets tied to real-world assets.

Thanks to the advent of smart contracts, tokenized derivatives can be created without the need for a third party. Counterparty agreements are programmatically encoded, drastically reducing the risk for malicious activity. This trend has allowed retail investors to take advantage of opportunities previously restricted to those with brokerage accounts or specialized knowledge.

Synthetix

Synthetix is a decentralized synthetic asset issuance protocol allowing users to mint, hold and trade a diverse range of derivatives including fiat currencies, commodities, and stocks, as well as for cryptocurrencies like BTC, MKR, and LINK and other defi tokens and coins. Synthetix allows for permissionless synthetic asset creation tied to the value of real-world assets. investors holding or traders trading snx(native token)are able to gain buy or sell options to all assets on the platform.

In Synthetix, synthetic assets are known as Synths and are held as collateral in the protocol. This provides value and liquidity to the underlying assets. The Synthetix protocol serves as a channel for the DeFi ecosystem as it provides increased accessibility to traditional financial assets as well as a wider range of more sophisticated trading strategies for investors who wish to invest in hard to get assets. The Synthetix protocol rewards traders who stake their funds on various parts of the Synthetix ecosystem, like the on Uniswap and Curve for sETH and sUSD pools those providing liquidity on the network.

The Synthetix Network has two main assets SNX (the native token) and Synths (the synthetic assets, like sUSD. In order to participate in the minting of synths in the Synthetix protocol users have to lock their SNX on the network and Synths are thereby minted at the current collateralization rate. sUSD are the primary minted coins in the Synthetix network the serve as a stable coin in the program.

Stakers who lock their Snx on the network get rewarded for locking their tokens and participation in minting new synths in the protocol. stakers earn rewards based on the fees generated by the Synthetix.Exchange. Seeing as all Synths are traded on the Synthetix Exchange, the more Synths minted and used on the block, the more fees SNX stakers stand to earn from trading fees.

importance of Synthetix.

The Synthetix protocol arms defi investors with the ability to participate in the Derivatives and other traditional markets in a decentralized manner. investors are able to tap into an already developed market aggregating hundreds of trillions in total value. With that, Synthetix provides a mechanism for these assets to live on Ethereum in a decentralized and permissionless fashion.

With Synthetix, anyone in the world can gain exposure to Apple or Tesla stock without having to deal with the high frictions of financial regulations and other cryptocurrency-related assets. Investors can buy any of these assets through a fully decentralized way and this is surely an opportunity a defi investor with sufficient collateral wouldn't neglect.

Dapps built on the Synthetix protocol

• Mintr- This is the native dapp for almost every action carried out by investors on the Synthetix protocol. Mintr provides an intuitive user interface user where SNX holders can perform a wide range of different actions including minting and burning Synths, managing their collateralization ratio, earn fees generated from the exchange, unlocked staked SNX, an more. So this dapp could be considered as an engagement platform for synth holders. Uses can also connect to Mintr via web3 wallets like metamask, Ledger, Trezor, and Coinbase Wallet.

• Synthetix Exchange- provides a user-friendly trading ground for all synth holders. They can buy and sell their tokens here seamlessly.

Conclusion

The Synthetix protocol offers derivatives and other synthetic assets to DeFi users, effectively providing access to a range of specialized trading strategies. Given that traditional financial markets aggregate hundreds of trillions in value, Synthetix has an expansive market for tokenizing those assets on Ethereum blockchain in a decentralized manner.

This post was made in response to #steemcryptochallenge, week-2- diving into Defi.