Could Derivatives Trading Be A Risk To Crypto Investors?
There has been an increase in the number of users that operate on derivatives DEXs, which is as a result of a surge in the number of retail investors that have chosen to go into derivatives trading as well as decentralized exchanges DEXs, the action is partly as a result of the laws in the United States and China. The Bitcoin (BTC) whales have gradually started moving into the derivatives, as there has been a rise in the number of interests being bought in the derivative contracts.
It has led to an increase in the trading proportion for derivative protocols daily, thereby permitting them to take over centralized finance platforms such as Coinbase for a while. In the long run, it has garnered the interest of retail investors, considering the fact that it has made them yearn to move towards derivatives trading in decentralized finance (DeFi).
Although, without having proper knowledge on how derivatives function, newly incorporated investors are likely to jump out of derivatives trading as fast as they jumped in.
Are Derivatives In DEXs Worth The Risk?
Derivatives in DeFi usher in the benefits and drop the conventional finance’s ineffectiveness. Needless to say, the crypto industry is quite a complex one, and such may also be the case for Derivatives on DEXs; notwithstanding, retail investors have learned how to carry out the trades by themselves. Investors on Derivatives DEXs need knowledge and some guidance on DeFi and how to navigate the platform when they get into derivatives for the first time.
As of 2020, the DeFi application user experience was considered outdated compared to other centralized exchange counterparts. Now for them to have a new set of users, particularly the ones who have had an experience with centralized exchanges, the protocols have to focus on simplicity and the user experience by tutoring new users into protocols, then the users should be given space in which they use to comprehend the program, and that encourages them to stay.
Otherwise, the bad reviews left by users of derivatives from the past might deter future traders from going into derivative trading and in DeFi altogether.
From the view of a user, derivatives are basically just a tool to achieve a specific goal; it might involve hedging one’s existing positions or basically accessing leverage. What can be done as derivative protocol developers is to provide a clear and precise explanation regarding the user interface as well as the risks that come with derivative trading, for example, provision of tooltips to clarify complicated functions on the application site for new users, hosting onboarding calls twice a week to offer guidance to new users on how to utilize the platform as well as answering any concerns they might bring to the table.
Asides from that, possessing a testnet with which users can trade with paper may act as a way for them to get used to the platform and trading experience before inputting real money into the protocol. The DeFi protocol isn’t meant to be a barrier to trade derivatives; if the users are well educated and adequately schooled on the risks.
Is DeFi Paving Way For Derivatives Trading?
The majority of new investors are not well informed in DeFi derivatives, and due to this, protocols are working on ways to embrace the new investors in a manner that will not be too hard for them to handle the platform. For derivative trading nowadays, there is more educational content, whether on YouTube or Twitter, so basically, it is easier and quicker to learn more about the relative trading index now than as in 2020.
The Better The Experience, The Quicker The Adoption
An extra effort has been put into figuring out various methods by which the usability of the protocols can be enhanced; lack of usability is one of the hindrances to the adoption of cryptocurrency. By verifying usability and making it simple and easy to understand, users can get on board easily, thereby promoting a quicker acceptance of derivative trading. As of now, most existing derivative protocols are incredibly user-friendly.
They allow new investors to get in and immediately begin trading without inconveniences. However, not every protocol adopts user experience as their priority, thereby resulting in several investors not being able to reliably assess the value of the derivative product and the risk. This causes the government to create more laws as regards derivatives. If there is no positive user experience for retail investors, it may generate a negative review of derivatives trading.