Evolution of the Encryption Derivation Market: From Spot Trading to Smart Financial Ecology

In the past week, two established encryption exchanges have reported significant acquisition news: Kraken acquired NinjaTrader for $1.5 billion, while a certain trading platform is negotiating a multi-billion dollar acquisition of Deribit. These two transactions not only reflect the strong strategic intent of giants to lay out the derivation market but also highlight the increasing strategic value of the encryption derivation market.

Since the birth of Bitcoin, the way of interacting with encryption assets has undergone a significant transformation from simple Spot buying and selling to complex derivation tools. As the market scale expands and the participants diversify, simple buying and selling transactions can no longer meet the diverse needs of risk management, investment, and speculation. Just as derivations play a core role in price discovery, risk hedging, and leveraged trading in traditional financial markets, the encryption field also needs完善的 derivation tools to improve market efficiency, expand capital utilization, and provide professional traders with diverse strategy options.

In the past decade, the crypto derivatives market has undergone a huge transformation from scratch and from the fringe to the mainstream, and its development trajectory can be divided into four main stages: the initial (v0) derivatives, the rise of perpetual contracts (v1) The unified margin improves the (v2) of capital utilization, as well as the current (v3) of automatic lending and interest-bearing derivatives. Every product and technology innovation has brought significant improvements in capital efficiency, transaction experience and risk control mechanism, and profoundly reshaped the industry landscape. In parallel with the evolution of centralized exchanges, the field of decentralized financial derivatives has also risen rapidly, with projects such as dYdX and GMX exploring new models of on-chain contracts.

By systematically sorting out these four major development stages and the evolution of the DeFi derivation branch, we can more clearly grasp the development context and future trends of the encryption derivation market.

Phase v0 ( 2014～2015 ): The Beginning of Encryption Derivation

Phase Characteristics: Preliminary Transition from Traditional Futures to Encryption Futures

Before 2014, cryptocurrency trading was mainly limited to the Spot market. Bitcoin was highly volatile, and miners and long-term holders faced a demand for risk hedging, while speculators hoped to gain higher returns through leverage. In 2014, a trading platform was the first to introduce the margin system, expiration delivery, and clearing mechanism of traditional futures into Bitcoin trading, launching Bitcoin futures products. This allowed holders to hedge against future price declines while providing speculators with high-leverage trading opportunities. Subsequently, other exchanges also launched similar contracts, and encryption derivation thus took the historical stage.

Representative Platform

The v0 stage is characterized by coin-based settlement contracts: weekly or quarterly deliveries, with fixed expiration dates, similar to traditional commodity futures. For miners and investors, this is the first directly usable risk hedging tool; for speculators, it means being able to leverage greater returns with smaller capital.

Market Impact

The fixed expiration date design appears inflexible in the highly volatile encryption market. When the market experiences sudden changes, traders are unable to freely adjust their positions before expiration. Additionally, the early risk control systems were inadequate, leading to instances of liquidation sharing: once market fluctuations cause some leveraged positions to be liquidated and margins to be insufficient, profits from accounts may be deducted to cover the losses, causing dissatisfaction among users. Despite these issues, the v0 phase laid the foundation for encryption derivation, accumulating valuable experience for subsequent innovations.

Phase v1 ( 2016～2017 ): The Rise of Perpetual Contracts and Market Explosion

Phase Characteristics: Perpetual Contracts + High Leverage = Explosive Growth

As the market evolves, traders demand increasingly flexible and efficient derivatives. In 2016, BitMEX launched the Bitcoin Perpetual Swap (Perpetual Swap), and the biggest innovation was the removal of the expiration date and the use of funding rates to anchor the contract price. This allows both long and short sides to hold positions in the “never deliver” mode, eliminating the pressure of rolling positions when futures are close to delivery. BitMEX has also increased leverage to a staggering 100x, which has sparked a lot of interest among traders. During the 2017 crypto bull market, perpetual contract trading volume skyrocketed, with BitMEX setting a record for single-day trading volume. The Bitcoin perpetual contract quickly became an imitation product in the industry and became one of the most popular financial instruments in crypto history.

Representative Platform

• BitMEX: Quickly dominated the market with perpetual contracts, using an insurance fund and forced liquidation mechanism, significantly reducing the risk of clients’ profits being shared.

• Deribit: Launched its encryption options products in 2016. Although early trading volumes were limited, it provided new derivation strategy options for institutions and professional traders, and signaled the rise of the options market.

• Traditional institutions entering the market: At the end of 2017, CME and CBOE launched Bitcoin futures, gradually bringing encryption derivation into the view of regulated markets.

Market Impact

The emergence of perpetual contracts has driven a surge in encryption derivation trading volume, even surpassing the scale of some spot markets during the bull market in 2017, becoming a key venue for price discovery. However, the combination of high leverage and high volatility has also triggered a chain reaction of liquidation risks, with some exchanges experiencing system outages or being forced to liquidate positions, causing disputes among users. This serves as a reminder that platforms must enhance their technical infrastructure and risk control capabilities while innovating products. Meanwhile, regulatory agencies have begun to closely monitor the development of high-leverage encryption derivations.

v2 Phase ( 2019～2020): Unified Margin and Multi-Asset Collateral

Stage Characteristics: From “Is there a new product?” to “How to improve capital efficiency”

After experiencing the bear market in 2018, the derivation market began to heat up again in 2019, with market demand shifting towards improvements in trading efficiency, capital utilization, and product diversification. A certain trading platform launched in 2019 was the first to introduce the “unified margin account” model: users can use the same margin pool to participate in various derivation trades, with stablecoins serving as universal margins. Compared to the old model where each contract required separate margin deposits and cumbersome transfers, this greatly simplified the operation process and improved capital turnover efficiency. The platform also improved the tiered clearing mechanism, effectively alleviating the long-standing “loss-sharing” issue that troubled users.

Representative Platform

• A certain trading platform: With settlement in stablecoins and a cross-margin system, it has won the favor of professional traders; it has launched leveraged tokens, MOVE contracts, and a wide variety of altcoin futures, making the product line extremely rich.

• Multiple mainstream trading platforms: have also successively conducted system upgrades, launched USDT-based perpetual contracts or unified account systems, and the risk control level has significantly improved compared to the v1 phase.

Market Impact

The v2 phase witnessed further expansion and mainstreaming of the derivation market, with trading volumes continuously increasing and institutional funds entering in large numbers. As the compliance process advances, trading volumes on traditional financial platforms have also significantly increased. Although this phase has reduced issues such as liquidation sharing, during the extreme market conditions of “312” in March 2020, several exchanges still experienced severe price fluctuations or temporary outages, highlighting the importance of upgrading risk control systems and matching engines. Overall, the biggest feature of the v2 phase is “unified accounts + stablecoin settlement,” combined with a rich array of innovative products, driving the encryption derivation market towards maturity.

v3 Phase ( 2024 to present ): The new era of automatic lending and interest-earning derivation

Stage Characteristics: Further enhance capital utilization, margin no longer “sleeps”

On the basis of unified margin, there is still a long-term pain point: idle funds in accounts usually do not generate returns. In 2024, Backpack proposed “自动借贷(Auto Lending)” and “生息永续合约(Interest-Bearing Perpetuals)” mechanisms, integrating margin accounts with lending pools. Specifically, idle funds in accounts and floating surplus can be automatically lent to users in need of leverage to earn interest; if there are floating losses, interest rates must be paid. This model makes the exchange not only a matching place but also takes on the functions of lending and interest management. Combined with Backpack’s recently launched points mechanism, users have the opportunity to earn passive income with various risk preferences.

In addition, in March 2025, the two major established exchanges in the United States also accelerated their layout in derivation trading. One exchange acquired NinjaTrader for $1.5 billion; another giant is negotiating to acquire Deribit, which had an estimated valuation of between $4 billion and $5 billion earlier this year. The active expansion of derivation business by large compliant exchanges also indicates that this sector still has significant growth potential.

Representative Platform

• Backpack: Its perpetual contract will unify unused margin and floating profits as “lendable funds,” bringing interest income to holders, while users with floating loss positions will automatically pay interest to the lending pool.

• The platform uses a dynamic interest rate model to respond to market fluctuations; floating profits from positions can be partially withdrawn and continue to be lent out, achieving a dual income model of “trading while earning interest.”

• The Backpack plan supports multi-asset collateral and cross-chain assets to further expand the coverage of funds.

Market Impact

The perpetual mechanism of generating interest pushes capital efficiency to new heights. If successfully implemented and accepted by the market, it may become the next trend in industry development. Other trading platforms may consider introducing similar functions or collaborating with DeFi protocols to provide additional yields for margin funds. However, this model places higher demands on platform risk control and asset management, requiring refined management of lending pool liquidity and effective control of systemic risks under extreme market conditions. Furthermore, compliance operations are particularly important; if the platform’s asset management is unbalanced, it may amplify risks. Nevertheless, the exploration in the v3 phase undoubtedly brings a new form to the encryption derivation market, further deepening the integration of trading and financial functions.

DeFi Derivation Branch: Exploration of Diverse Technical Routes

As centralized exchanges continue to evolve, decentralized derivation has also formed a parallel development track. Its core concept is to achieve trading functions such as futures and options through smart contracts and blockchain technology without the need for trusted intermediaries. How to provide high throughput, sufficient liquidity, and comprehensive risk control in a decentralized architecture has always been the core challenge in this field, prompting various projects to present diverse paths in technical implementation.

dYdX initially provided a hybrid model of order book and on-chain settlement based on Ethereum L2 StarkEx, and later turned to the Cosmos ecosystem V4 to try to further improve the degree of decentralization and matching efficiency on the self-built chain. GMX has chosen a different route and adopted an automated market maker (AMM) model, allowing users to trade directly with liquidity pools, and liquidity providers can obtain returns by sharing risks, realizing the function of perpetual contracts. Hyperliquid has built a dedicated high-performance blockchain to support order book matching, and all transactions are processed on the chain, trying to combine the speed of a centralized exchange with decentralized transparency.

These decentralized platforms have attracted a segment of users who are concerned about regulatory tightening or asset security. However, overall, the trading volume of DeFi derivation remains far smaller than that of centralized exchanges, primarily limited by insufficient liquidity and lagging ecosystem development. With technological advancements and more capital entering the market, if decentralized derivation can find a balance between performance and compliance, it is expected to form a complementary relationship with centralized platforms, jointly enriching the encryption market ecosystem.

Integration Trends and Future Outlook

Reviewing the development of encryption derivation from v0 to v3, each stage revolves around technological innovation and efficiency improvement:

• v0: Introduce the traditional derivation framework into the encryption market, but the flexibility and risk control system are still in the initial stage;

• v1: The innovation of perpetual contracts has greatly increased market liquidity and activity, with derivation beginning to dominate the price discovery mechanism;

• v2: Unified margin, diversified collateral assets and product lines significantly enhance capital utilization efficiency and professional trading experience;

• v3: Integrates lending and interest-earning functions into the trading ecosystem, pursuing maximized capital efficiency and returns.

At the same time, the DeFi derivation field is also exploring feasible paths for decentralized trading through various technical solutions such as order books, AMM, and dedicated chains, providing users with self-custody and trustless trading options.

Looking ahead, encryption derivation may show the following development trends:

1. The boundary between centralization and decentralization is blurred: centralized platforms may increase transparency or launch on-chain derivation services, while decentralized platforms focus on enhancing matching efficiency and liquidity levels.

2. Upgrading Risk Control and Compliance System: As the trading scale continues to expand, the requirements for a完善 risk control system, sufficient insurance funds, dynamic clearing mechanisms, and regulatory compliance will continue to increase.

3. Market scale and product diversification accelerate: richer asset classes and more complex structured products will continue to emerge, and the derivation trading volume may further surpass the Spot market.

4. Innovation never stops: Similar automatic interest-generating mechanisms, volatility derivations, and even AI-integrated smart contract products may emerge. Whoever can be the first to develop innovative products that meet market demands may lead in the next round of competition.

In summary, the encryption derivation market is steadily progressing towards a mature and diversified stage. Through the integrated advancement of technological innovation, model reform, and compliance development, it will better meet the diverse needs of institutional and individual investors, becoming an important and dynamic component of the global financial ecosystem.