# Derivatives On-Chain

**Published by:** [Lista DAO](https://blog.lista.org/)
**Published on:** 2026-07-14
**URL:** https://blog.lista.org/derivatives-on-chain

## Content

Dev did not show up to the kissaten on Sunday. He texted Moolah, who tried calling him afterwards only to get an answer hours later at four in the afternoon - I'm fine, can we move it to Monday, just rough weekend, which we both knew, instantly, meant he had lost money. Not the kind he liked to admit to in public. The kind that needed twenty-four hours of sitting quietly before he could face other people. We met on Monday at a different café - a smaller one Moolah had picked, off a side street near Sendagi, where the window seats looked out into a narrow alley with a single plum tree just barely beginning to bloom. The first real signs of spring. The thaw had come and gone and come again. The plum tree was unhurried. A small white-eyed bird was doing something in its branches that I would not have been able to identify even if Moolah had told me. Dev arrived ten minutes after we did. He looked thinner. He was carrying his laptop in one hand and a take-away coffee in the other. There was, I noticed even before he sat down, no debris in the coffee. Whatever had happened, he had been careful enough about that coffee to keep it clean. The details told me a great deal. "Tell me what you did," Moolah said, before he had even taken his coat off. He sat down. He took a long breath. He told us. "I was trading perps," he said. "Perpetual futures. On a DeFi exchange. With ten-times leverage for two months. I did okay for the first six weeks, made about four thousand dollars. I felt very good about myself. Last week the market moved against me twice in three days, and I doubled down both times, and on Friday afternoon I got liquidated. I lost most of what I had made, and about three thousand dollars on top." He looked at his coffee. "I want to learn how to not do that again." Moolah was quiet for a long moment. Then she said, very gently, "I'm going to teach Priya what derivatives are, and you can listen, and at the end you can tell us what you've learned. Is that all right?" "Yes." She turned to me. "A derivative," she said, "is a contract whose value is derived from the price of something else. You don't own the underlying thing. You own a bet on its price. Or an insurance against its price. Or a promise about its price. The underlying could be a stock, a currency, a commodity, a token, or even numbers like the spread. The derivative is a paper layer on top. It moves with the underlying, but you don't own any of the underlying." "Like betting on a horse without buying the horse." "Yes. Or owning an umbrella for rain that hasn't fallen yet. Or buying a thermometer you can gamble on. Derivatives have been around in some form for thousands of years. There were grain futures in Mesopotamia. There were silver futures in Roman trade. There was the Dojima Rice Exchange in Osaka in the seventeenth century, which is generally credited as the first proper futures market. Long before they were called derivatives. Long before any of this." "And on-chain?" "The same instruments, brought to the blockchain. Three main categories. Perpetual futures. Options. Synthetic assets. We will go through each. Dev - do you want to explain perps, since you have just paid the tuition?" Dev managed a small, tired smile. "Yeah. Okay. A perpetual future - a perp - is a contract that lets you bet on the price of something with leverage. Say ether is at three thousand dollars. I think it's going up. I open a long position with ten times leverage. I post three hundred dollars as collateral, and the contract gives me exposure to three thousand dollars of ether. If ether goes up to thirty-three hundred, I make three hundred dollars - a hundred percent return on my collateral. If it goes down to twenty-seven hundred, I lose three hundred. My collateral is wiped out. I'm liquidated." "Why is it called perpetual?" "Traditional futures contracts have an expiration date - you settle on a specific day. Perps don't expire. You can hold the position forever. To keep the price of the contract aligned with the spot price of the underlying, the protocol uses something called a funding rate. If the perp price drifts above the spot price - too many longs - the longs pay a small fee to the shorts every few hours. If the perp drifts below - too many shorts - the shorts pay the longs. The funding rate is the rubber band that keeps the contract tied to reality." "Clever." "It's clever. It's also" - he paused - "the most addictive instrument I have ever used. Because there's no expiration, there's no natural exit point. You hold the position. You watch the price every five minutes. Every uptick is dopamine. Every downtick is dread. With ten-times leverage, every five percent move is a fifty percent change in your collateral. The brain was not built for this. I lasted six weeks before I made a stupid decision and another two days before I made a stupider one." "What did you do that was stupid?" "I was wrong about a price move. The market went against me. I was down forty percent on my collateral. Instead of closing and accepting the loss, I added more collateral, which let me hold the position longer. Then I doubled my position size to recover faster. Then the market moved against me again. Then I was liquidated and the entire stack was gone in about ninety seconds." He looked at the plum tree. "I knew, the entire time, that I was making mistakes. I made them anyway." Moolah picked up. "Dev has just described the central problem of leveraged trading. The mechanics are not the hard part. The hard part is the human staring at the screen. Leverage amplifies your emotions. With no leverage, a thirty percent loss takes years to come into reality. With ten-times leverage, a three percent loss feels the same way. Your nervous system is reacting to a much smaller real-world signal as if it were enormous. Your judgment, accordingly, becomes terrible." I wrote in the notebook. Perpetual futures = leveraged bets on price, no expiration, funding rate keeps them tied to spot. The trouble is not the math. The trouble is the human. "What about options?" I asked. "Options are subtler. An option is the right, but not the obligation, to buy or sell something at a specific price by a specific date. If I think ether will be above three thousand five hundred next month, I can buy a call option that lets me purchase ether at three thousand five hundred regardless of what the actual price is. If the price ends up at four thousand, I exercise the option, buy at three thousand five hundred, sell at four thousand, pocket the difference. If the price stays below three thousand five hundred, I let the option expire, and I lose only what I paid for it - the premium." "That sounds safer than perps." "It's bounded. Buyers' loss is limited to the premium. With perps, your loss can wipe out your entire collateral. With options, the worst case is the premium evaporating. But options are mathematically more complex - pricing them requires understanding things like implied volatility and time decay - and most users, even experienced ones, don't price them correctly. On-chain options markets exist but are still small compared to perps, partly because perps are simpler and more addictive. Options are a slower, more thoughtful instrument. The market is mostly bored by them." "And synthetics?" "Synthetic assets are tokens that track the price of something without owning the underlying. A synthetic Tesla stock token. A synthetic gold token like XAUt. A synthetic euro like EURt. The protocol uses oracles - remember the messengers? - to track the underlying price, and uses collateral to back the synthetic. You can hold a token that tracks the S&P 500 without ever opening a brokerage account. You can hold synthetic exposure to assets your country won't let you own. The use cases are real. The risks include oracle failure, collateral failure, and regulatory ambiguity. Most synthetic asset protocols have struggled to find product-market fit. Some are growing. The category is interesting, and unfinished." I added the categories to the notebook. Three flavors: perps (leveraged price bets, addictive), options (bounded risk, mathematically complex, less popular), synthetics (asset exposure without ownership, regulatory gray zone). "Why does so much DeFi volume happen on derivatives?" I asked. "Because traders prefer leverage. Because perps are addictive. Because the same dollar of capital can support twenty dollars of position. The volume statistics in DeFi are misleading - most of the traded value is derivative volume, much of it speculative, much of it short-term. The actual useful volume - payments, savings, lending, real-world transactions - is a smaller slice. The casino is louder than the bank. It always has been, in every market, on every continent, in every century. The Amsterdam exchange in the seventeenth century had a lively derivatives trade in ducaton shares - fractional bets on East India Company stock - that some historians believe was a larger market than the spot stock itself. People always preferred the bet to the asset. They always will." She paused. The plum tree outside had a single pink bud unfurling. The white-eyed bird was still working on something in its branches. "I want you to remember Dev's face today," Moolah said quietly, to me. "Because most of what you read about DeFi will be about derivatives. Most of the volume, news, headlines, is people trying to do what Dev tried to do. A few succeed. Most don't. The instruments are not evil. They have legitimate uses. But they are also a casino with no closing time, and the human nervous system is not built for casinos with no closing time. Dev is fine. He will be fine. He has lost a manageable amount and learned an important lesson. Many do not get off so easily." Dev was looking at his coffee. He had still not noticed that there was, finally, a small mote of something - a fleck of plum bark, perhaps, or a piece of pollen - floating on the surface. "I'm okay," he said. "I'll be okay." "You will," Moolah said. "And next time, you will use lower leverage and control your positions well." "Maybe no leverage at all." "That would be wisdom." I closed the notebook and tucked it into my coat pocket. Outside, the plum tree's single pink bud held in the cold afternoon light. Spring was almost here. The disasters were coming.

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