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Derivatives are one of the most sophisticated and mature instruments in the financial market. One of the most exciting things about DeFi is that it allows developers to recreate traditional financial instruments in a decentralized context. The DeFi derivatives market has garnered a lot of steam.
As per DeFi Pulse, DeFi derivatives applications have >$500 million locked up, with Synthetix being the clear market leader. If properly executed, DeFi derivatives can bring a whole new class of investors and institutions. But before we do so, let’s look into the definition of financial derivatives.
In finance, a derivative is a contract that derives its value from an underlying entity's performance. The contract specifies the exact conditions under which two parties can transact with each other. These conditions include: