🤑Challenges

The Contemporary Situation of On-Chain Speculation

The Current State of On-Chain Speculation is like a bustling stock exchange, where crypto traders and investors gather to buy and sell digital assets, with each transaction recorded on a public ledger for all to see.

The continuous, round-the-clock nature of the relatively young crypto markets, coupled with their inherent unpredictability, has transformed them into a favored arena for speculation. This trend is particularly accentuated by the ease with which new tokens can be created by virtually anyone, anywhere. In this landscape, derivatives have emerged as pivotal instruments, empowering traders to engage in speculative activities involving the price direction of assets (whether long or short) using leverage. Historically, perpetual futures, commonly known as "perps," have dominated crypto speculation. These derivatives stand out for their lack of a fixed maturity date or expiration.

However, despite their prevalence, perps have faced limitations when it comes to retail adoption due to their intricate nature. Moreover, market makers, crucial providers of liquidity in both spot and derivatives markets, have traditionally shown reluctance to participate in perpetual futures markets linked to assets with low liquidity. This reluctance is attributed to various constraining factors.

One pressing concern is the susceptibility of illiquid markets to price manipulation, not only in the associated derivatives but also in the manipulation of the periodic funding rate, potentially leading to forced liquidations. As a result, trading perpetuals linked to assets with limited liquidity profiles has often been deemed excessively risky for market makers and liquidity providers.

Furthermore, market makers and liquidity providers have gradually distanced themselves from these markets, wary of becoming the holders of dwindling altcoins and their associated illiquid derivatives. The consequence has been a confinement of market makers to a select few assets, constricting their overall involvement in the market.

The proposed remedy to these issues is the introduction of 0xFutures.