Australian crypto investment firm Apollo Capital’s Chief Investment Officer, Henrik Andersson, believes that on-chain derivatives will become the next major growth sector in decentralized finance (DeFi). In an interview with Cointelegraph, Andersson emphasized that the rising popularity of decentralized spot trading will drive significant demand for decentralized derivatives.
Andersson pointed out that while decentralized spot exchanges have been steadily gaining market share from centralized exchanges, the trend has accelerated since the collapse of FTX in November last year. During the memecoin frenzy in May, decentralized exchanges (DEXs) like Uniswap briefly surpassed the trading volume of established centralized exchanges such as Coinbase. This trend continued in June, with DEXs experiencing surges in trading volumes exceeding 400% following regulatory actions against Binance and Coinbase by the SEC.
Futures trading accounted for nearly 80% of the total trading volume across centralized exchanges in June. Andersson predicts a similar trend in DeFi, with on-chain derivatives being the “best product-market fit” for the space in years. He sees a significant growth opportunity for on-chain derivatives, given that most of the trading volume is in futures.
In addition to on-chain derivatives, Andersson highlighted two emerging market sectors that have caught his attention recently. The first is NFTFi, which combines nonfungible tokens (NFTs) with DeFi, enabling investors to rent, borrow, fractionalize, and create derivative and prediction markets based on NFTs. Andersson believes that DeFi investors will increasingly leverage NFTs for various functions due to the strong investment narrative surrounding this nascent sector.
The second emerging theme is LSDFi, which leverages Liquid Staking Derivatives (LSD) tokens like Lido staked ETH (stETH) and Rocket Pool staked ETH (rETH). It allows investors to borrow, speculate, and hedge against their LSD tokens. The popularity of LSDs has grown rapidly following Ethereum’s Shapella upgrade, with LSD protocols surpassing DEXs in terms of total value locked (TVL).
Andersson acknowledged the need to address concerns about centralization among certain staking providers in the LSD space. He emphasized the importance of creating a more balanced array of protocols to ensure a diversified environment in which multiple protocols can offer staking services.
As DeFi continues to evolve, Apollo Capital recognizes the potential of on-chain derivatives as a significant growth opportunity. Alongside the emergence of NFTFi and LSDFi, these developments showcase the expanding landscape of decentralized finance and its potential impact on the broader cryptocurrency ecosystem.