Author: Zhixiong Pan Source: ChainFeeds

In the past week, Kraken and Coinbase, two established crypto exchanges, have announced major acquisitions, with both parties intending to enter the derivatives market in a big way: Kraken acquired NinjaTrader for $1.5 billion, and Coinbase negotiated a multi-billion-dollar acquisition of Deribit. The two transactions not only represent the strong will of the giants for the derivatives business, but also reflect the increasingly prominent strategic value of the crypto derivatives market.

Since the advent of Bitcoin, spot trading has been the main way to interact with crypto assets. However, as the market size expands and participants diversify, simple buying and selling can no longer meet the complex risk management, investment and speculation needs. Just as derivatives are crucial in price discovery, risk hedging and leveraged trading in traditional financial markets, the crypto space also needs derivatives to improve market efficiency, expand capital utilization, and provide professional traders with diversified strategies. Over the past decade, the crypto derivatives market has undergone a huge transformation from scratch and from the edge to the mainstream. Its development can be roughly divided into four stages: the start of derivatives brought by OKCoin (v0), the rise of perpetual contracts launched by BitMEX (v1), FTX leading the industry to improve capital utilization (v2), and Backpack's first interest-bearing derivatives with automatic lending (v3).

Every advancement in technology and products brings about the evolution of capital efficiency, trading experience and risk control mechanisms, and profoundly affects the industry landscape. In parallel with the evolution of centralized exchanges (CEX), the field of decentralized finance (DeFi) derivatives has also risen rapidly. Projects such as dYdX, GMX, and Hyperliquid have launched a variety of innovations under the on-chain contract model. This article will systematically sort out the development process of these four stages, and combine the branch evolution of DeFi derivatives to discuss the practical significance and far-reaching impact of product innovation in each stage. By reviewing history, we can also have a clearer insight into the future direction of the crypto derivatives market.

V0 stage (2014-2015): the beginning of crypto derivatives

Stage characteristics: initial transplantation from traditional futures to crypto futures

Before 2014, cryptocurrency trading was mainly limited to spot. Bitcoin is highly volatile, and miners and long-term holders face the need to hedge risks, and speculators are also eager to use leverage to seek higher returns. In 2014, OKCoin (later renamed OKEx/OKX) took the lead in transplanting the margin system, maturity delivery and clearing mechanism of traditional futures into Bitcoin trading and launched Bitcoin futures products. This allows holders to hedge the risk of future price declines on exchanges, and also provides speculators with opportunities for high leverage. Subsequently, exchanges such as Huobi followed suit and launched similar contracts, and crypto derivatives began to enter the historical stage.

Representative Platforms

The v0 stage is typified by the coin-based delivery contracts of OKCoin/OKEx and Huobi: weekly or quarterly delivery, fixed expiration date, similar to the traditional commodity futures model. For miners and investors, this is the first risk hedging tool that can be directly used; for speculators, it also means that they can leverage greater returns with smaller capital.

Market Impact

The fixed expiration date design at that time was not flexible enough in the extremely volatile crypto market. If the market fluctuated violently, traders could not freely adjust their positions before expiration. In addition, the early risk control was not perfect, and the allocation of positions often occurred: once the market fluctuated violently, causing some leveraged positions to be liquidated and the margin to be insufficient, the income of the profitable account would be deducted to fill the deficit, which was criticized by many users. Nevertheless, the v0 stage laid the foundation for crypto derivatives and accumulated experience for subsequent innovations.

V1 stage (2016-2017): The rise of perpetual contracts and the explosion of the market

Stage characteristics: perpetual contracts + high leverage = explosive growth

The market needs more flexible and efficient derivatives. In 2016, BitMEX launched the Bitcoin Perpetual Swap contract. The biggest innovation is that there is no expiration date, and the contract price is anchored by the funding rate. In this way, both long and short parties can hold positions in a "never delivery" mode, reducing the pressure of shifting positions when futures are close to delivery. BitMEX also increased the leverage multiple to 100 times, which aroused great interest among traders. In the 2017 crypto bull market, the trading volume of perpetual contracts soared, and BitMEX once set an astonishing single-day trading volume record. At this time, Bitcoin perpetual contracts were imitated by the industry and became one of the most popular products in the history of cryptocurrencies.

Representative platforms

• BitMEX: With perpetual contracts, it quickly occupied the market high ground, adopted insurance funds and forced liquidation mechanisms, and greatly reduced the probability of customer profits being shared.

• Deribit: In 2016, it launched crypto options products. Although the early trading volume was limited, it provided new derivative strategy options for institutions and professional traders, and also foreshadowed the rise of the options market.

• Entry of traditional institutions: At the end of 2017, CME and CBOE launched Bitcoin futures, which gradually brought crypto derivatives into the regulatory field of vision.

Market Impact

The emergence of perpetual contracts has led to the explosion of crypto derivatives. The trading volume of derivatives even surpassed some spot markets in the bull market of 2017, becoming an important place for price discovery. However, the combination of high leverage and high volatility also brought about a chain reaction of liquidation. Some exchanges experienced downtime or forced liquidation, which caused controversy among users. This reminds platforms that they must strengthen technology and risk control while innovating. At the same time, regulators have also begun to pay more attention to high-leverage crypto derivatives.

V2 stage (2019-2020): unified margin and multi-asset collateral

Stage characteristics: from "are there any new products" to "how to improve capital efficiency"

After the bear market in 2018, derivatives heated up again in 2019, and the market demand shifted to focus on trading efficiency, capital utilization and product richness. After FTX went online in 2019, it took the lead in introducing a "unified margin account": users can use the same margin pool to participate in a variety of derivatives transactions, and use stablecoins as universal margin. Compared with the previous model of separate deposit and transfer for each contract, this greatly simplifies the operation and improves the efficiency of capital turnover. FTX has also improved the hierarchical clearing mechanism to alleviate the long-standing problem of "sharing losses".

Representative Platforms

• FTX: With stablecoin settlement and cross-position margin, it is favored by professional traders; it has launched leveraged tokens, MOVE contracts and many altcoin futures, with a very rich product line.

• Binance, OKEx, Huobi: They have also been upgraded and launched USDT-based perpetual contracts or unified accounts, and their risk control is more mature than that of the v1 stage.

Market Impact

The v2 stage witnessed the further expansion and mainstreaming of the derivatives market, with trading volume continuing to rise and institutional funds entering the market in large numbers at this time. As the compliance process progresses, the trading volume of traditional financial platforms such as CME has also increased significantly. Although this stage reduces problems such as liquidation sharing, during the extreme market conditions of March 12, 2020, multiple exchanges still experienced plug-ins or temporary downtime, highlighting the importance of risk control and matching system upgrades. Overall, the biggest feature of the v2 stage is "unified account + stablecoin settlement", coupled with the enrichment of new products, making the crypto derivatives market more mature.

V3 stage (2024-present): A new era of automatic lending and interest-bearing derivatives

Stage features: Further improve fund utilization, margin is no longer "sleeping"

On the basis of unified margin, there is still a long-term pain point: idle funds in the account usually do not generate income. In 2024, Backpack proposed the "Auto Lending" and "Interest-Bearing Perpetuals" mechanisms to integrate margin accounts and lending pools. Specifically, idle funds and floating surpluses in the account can be automatically lent to users who need leverage to earn interest; if there is a floating loss, interest rates must be paid. This allows the exchange to not only be a matchmaking venue, but also to play the role of lending and interest management. Combined with Backpack's recently launched points mechanism, users are more likely to obtain passive income with a variety of risk preferences.

In addition, in March 2025, the two major established exchanges in the United States, Coinbase and Kraken, also accelerated the layout of derivatives trading. Kraken acquired NinjaTrader for US$1.5 billion; Coinbase negotiated the acquisition of Deribit, which may be valued at US$4 billion to US$5 billion earlier this year. The accelerated layout of derivatives exchanges by large compliant crypto exchanges also means that there are still huge opportunities in this track.

Representative Platforms

• Backpack: Its interest-bearing perpetual contract treats unused margin and floating profits as "lendable funds", bringing interest income to holders, and users holding floating loss positions automatically pay interest to the lending pool.

• The platform uses a dynamic interest rate model to cope with market fluctuations; the floating profit of positions can be partially withdrawn and continued to be lent, realizing "long and short while collecting interest".

• Backpack plans to support multi-asset mortgages and cross-chain assets to further expand the scope of funding.

Market Impact

The interest-bearing perpetual mechanism further improves capital efficiency. If successfully implemented, it may become the next round of industry trends. Other exchanges may consider introducing similar features or cooperating with DeFi protocols to provide returns for margin funds. However, this model requires higher risk control and asset management of the platform, and requires refined management of lending pool liquidity to control chain risks under extreme market conditions. In addition, compliance and prudent operation are also crucial; if the platform is unbalanced in asset management, it may amplify the risk. However, the exploration of the v3 stage undoubtedly brings a new form to the crypto derivatives market and further enhances the integration of trading and financial functions.

DeFi derivatives branch: dYdX, GMX, Hyperliquid and other diversified explorations

While centralized exchanges (CEX) continue to evolve, decentralized derivatives (DeFi) have also formed a parallel development trajectory in recent years. Its core appeal is to realize futures, options and other trading functions without trusting intermediaries through smart contracts and blockchain technology. How to provide high throughput, sufficient liquidity and perfect risk control under a decentralized architecture has always been a challenge in this field, and it has also prompted various projects to diversify their technical designs.

dYdX initially provided a hybrid model of order book and on-chain settlement based on Ethereum L2 StarkEx, and then completed the migration to Cosmos Ecosystem V4, trying to further improve the degree of decentralization and matching performance on the self-built chain. GMX takes another path, using the automated market maker (AMM) model, where users and liquidity pools trade directly against each other, and realize the perpetual contract function in a way that liquidity providers share risks and obtain returns. Hyperliquid has established a dedicated high-performance blockchain to support order book matching, putting all matching and clearing on the chain, and striving to have both CEX-level speed and decentralized transparency.

These decentralized platforms have attracted some users who prefer self-custody due to tightening regulations or asset security considerations. However, the overall trading volume of DeFi derivatives is still much smaller than that of CEX, mainly due to liquidity and ecological maturity. With the improvement of technology and the entry of more funds, if decentralized derivatives can strike a balance between performance and compliance, they may complement CEX in depth and further enrich the overall pattern of the crypto market.

The integration of CEX and DeFi and future prospects

Looking back on the journey of crypto derivatives from v0 to v3, each stage revolves around technological innovation and efficiency improvement:

• v0: The traditional futures framework was copied to crypto, but the flexibility and risk control were relatively preliminary;

• v1: The birth of BitMEX perpetual contracts greatly improved liquidity and popularity, and derivatives began to dominate price discovery;

• v2: Unified margin, multi-asset collateral and diversified products further improve the efficiency and professionalism of fund use;

• v3: Backpack integrates lending and interest-bearing functions into the exchange, trying to maximize fund efficiency.

The parallel DeFi derivatives track is also exploring feasible paths for decentralized trading through various solutions such as order books, AMM, and dedicated chains, providing self-custody and trustless options.

Looking to the future, the development of crypto derivatives may show several major trends:

1. The integration of centralization and decentralization: CEX is more transparent or launches on-chain derivatives, and DEX improves matching speed and liquidity.

2. Risk management and compliance: The larger the transaction scale, the higher the requirements for risk control, insurance funds, dynamic liquidation and regulatory compliance.

3. Market size and product diversification: More asset categories and more complex structured products will emerge, and derivatives may further exceed spot trading volume.

4. Continuous innovation: Automatic interest-bearing mechanisms similar to Backpack, volatility derivatives, and even prediction contracts combined with AI are likely to appear. Whoever can be the first to make products that meet the needs may stand out in the new round of competition.

In short, the crypto derivatives market is gradually becoming mature and diversified. Through innovations in technology, models, and compliance, it will better meet the diverse needs of institutions and retail investors and become an important sector with more vitality and potential in the global financial system.