Haseeb Qureshi, Managing partner Dragonfly Capital posted his opinion on the SynFutures project.

Only two things in DeFi today work at scale: spot trading and lending/borrowing. But in CeFi, derivatives are way bigger than either of those two. So why aren't DeFi derivatives taking off?

In TradFi, futures volumes eclipses spot markets, accounting for 70%+ of all trading. In DeFi, legacy derivatives DEXs like Synthetix still haven't hit product-market fit. What gives? Is the market not ready, or is there something deeper wrong with the model?

In this post, Synfutures points out some of the issues with Synthetix: https://medium.com/@mattSFT/why-synfutures-is-better-than-synthetix-in-defi-derivatives-b359b670f9f7

TL;DR:

- Divergence between the index price and actual price
- Capital inefficiency
- "Zero slippage"
- Cumbersome listing process (all listings must go through governance)

The issues here aren’t limited to Synthetix though. These are fundamental constraints for many derivatives platform. New entrants like SynFutures are now starting to take aim at these — but protocol innovation is only half the battle.

Who actually wants synthetic assets today? Most traders in DeFi are not boomers looking to build a diversified portfolio of equities. They're crypto-natives, looking for levered exposure to crypto products.

The masses aren't here yet, and as an entrepreneur, you can only build for people who are! The best derivatives protocols must target assets that crypto users want to trade TODAY.

Which means: these protocols should offer crypto-native products, should be capital efficient, but should be simple enough that they can grow into something bigger over time. SynFutures, much like Uniswap itself, makes that discovery process completely permissionless; i.e.

it is up to users—not governance—which synthetic assets get created and minted. It marries derivatives with the liquidity and flexibility of AMMs.

It’ll be interesting to see what happens in the DeFi and derivatives space over the next few months as new approaches like SynFutures come to mainnet. I believe synthetic assets will be one of the most important categories in DeFi, and we still don't really understand it.

Disclosure: Dragonfly is an early investor in SynFutures.