🤜Liquidity Issues: Obstacles to the Development of On-chain Derivatives Track

On-chain derivatives are regarded as one of the important directions for the development of blockchain finance. However, the development of the on-chain derivatives market faces many obstacles, one of the most important ones is liquidity. This problem has also been fully reflected in the collapse of FTX in the Defi ecosystem and the Cefi ecosystem, and even the bankruptcy of the Silicon Valley Bank of the United States was also caused by this problem.

①Few market participants: Due to the short development time of the on-chain derivatives market, there are only a few market participants, resulting in insufficient transaction depth and relatively low liquidity.

②Poor liquidity of assets: In the on-chain derivatives market, the liquidity of assets is relatively poor, and the cost and time of transactions are higher than those in traditional markets, making it more difficult for participants to trade in the on-chain derivatives market.

③High volatility: Since the assets in the on-chain derivatives market usually have high volatility, the transaction risk is high, which also makes it more difficult for participants to establish liquidity in the market, such as the FTX collapse.

④ Few arbitrage opportunities: Due to the low liquidity of the on-chain derivatives market, there are fewer arbitrage opportunities, making it more difficult for participants to maintain market liquidity through arbitrage.