# Reimagining On-chain Derivatives - Michal Cymbalisty - Channel: [ETH Warsaw](https://streameth.org/eth-warsaw) - Date: 2025-10-07 - Duration: 24:35 - Watch: https://streameth.org/watch/yt-VuqHIPnzwm0 - YouTube: https://www.youtube.com/watch?v=VuqHIPnzwm0 ## Description As a founder of Domination Finance, I am at the forefront of reimagining what can actually be traded on-chain. We have built the world's first and only perp DEX for trading market dominance, not price. We are first movers. As both the data curators and inaugural exchange to trade dominance, Domination Finance will inevitably become synonymous with dominance. Just as Uniswap = DEX, Compound/AAVE = money markets, and for normies, Bitcoin = crypto. Being the first mover is one the few sustainable ways to create a brand moat and cult community. Just as our team has already weathered multiple cycles, the derivative class we are introducing will do the same. Dominance trading is equally viable in bull, bear, or crab markets. This gives it endless staying power and cycle agnostic relevance while enabling a new way to directly express fundamental views, especially non-directional ones, that are relevant for investors. 🧜🏻‍♀️ ETHWarsaw is a series of educational and entertaining events for an active community of blockchain builders, developers and enthusiasts with focus on Ethereum-related tech. Once a year, we organize a large conference and hackathon for the community in the center of the Polish capital with speakers from the best web3 projects and participants from all over the world. Follow ETHWarsaw on social media for the latest updates! X (Twitter): https://twitter.com/ETHWarsaw LinkedIn: https://www.linkedin.com/company/ethwarsaw Telegram chat: https://t.me/joinethwarsaw See you all at our events in Warsaw 🙌🏻 ## Transcript awesome what's up everyone I'm Michael from domination finance and we're reimagining onchain derivatives in a little bit different of a way than you guys are used to bear with me I'm going to give a super quick primer on dex's amm's order books just to give everyone good working knowledge obviously ax is a peer-to-peer swap Market built on a blockchain used to exchange crypto for another one and I would say it was really def true use case um I don't know when everyone got into the industry but dex's have been around actually before un swap uh ether Delta was probably the first one and they used what was called an order book so ether Delta was 2016 2017 era ux was [ __ ] but order books are how they function and it's actually how all centralized exchanges work so you pretty much have list of open you know buy and sell orders by price and then order matching systems execute trades and obviously based on how that's done determines the efficiency and robustness of an exchange centralized exchanges really really good at doing that it's why everyone was on binance ponia binex back then ether Delta was doing this on chain and it kind of sucked cuz gas was expensive no one used it there was huge slippage and uh for those of you not familiar this is what it looked like and uh these are 6-hour candles by the way so you can see the slippage is pretty atrocious uh and it was really an unusable experience but it kind of paved the way for what I would call true defi which was really obviously Unis swap with the amm but it didn't start there automated market makers are obviously the style we're kind of used to seeing today they're a little bit different than order books which is kind of ironic cuz centralized exchanges still operate on order books and we're seeing onchain exchanges go there but Unis swap really took off creating bonding curves right they managed the price by increasing the swap rate every time a token's removed from the pool and it was really cool cuz anyone can participate obviously back in 2020 2019 this is why everyone got excited the history of amm though people think it's unisa but it was actually Bor I don't know if any ogs remember it they paired every single token that was created against BNT so kind of the thing where we looked at and we're like all right damn ethereum's volatile there's impermanent loss they took it one step further and paired it with their altcoin so people really didn't love that but obviously it paved the way for UNIS swap V2 and that's where we get the constant product obviously this has kind of kickstarted a huge High time frame trend of more and more volume moving to dexes from centralized exchanges both spot and derivatives quite obvious stuff right so diving into derivatives for those of you that don't know it's effectively a financial instrument that is derived from the value of an underlying asset index or rate that's let people speculate on things without necessarily needing to hold them right I want to speculate on oil it's really annoying if I need to custody the barrels it's good for speculation hedging if you hold an asset and obviously leverage trading which is probably the most common use case it's hands down the most common way I would say to trade in crypto most volume even on centralized and decentralized exchanges is coming through derivatives around 70% based on the recent month and as we see onchain has really taken off in the last 2 years back here in like late 21 I would say it was only really dydx and we've obviously had an influx of users and actually broke 300 billion in March of this year when markets were hot but this is probably going to be up into the right and a primer on pers this is the most common type of derivative you see if you guys are Traders you'll be super familiar with it it's obviously you can keep it open perpetually because it doesn't have an expiration date as long as you're not liquidated and obviously the funding and borrow rates have an influence there use to balance oi just to make sure people can actually get filled at a reasonable rate and this is what we're kind of seeing in the industry right now so the reason I kind of prefaced amm and Order books is we're actually seeing a combination of all these models coming on chain obviously I think order books are going to be inevitable for the long long term on chain and with recently hyper liquid kind of stealing a lot of M share and a lot of volume it's kind of being The Proven thesis but a lot of these other models create some really cool pair so obviously order books are still super constrained by gas prices you want to be able to have bit ass spreads you want to have market makers or Market Mak strategies adjust dynamically and cheaply if it's happening truly on chain it's going to be really damn expensive so that's why it's really really hard to have this on like lower performant lower throughput chains having fully onchain order books there I don't know if will ever happen just because the frequency at which market makers or automated strategies need to adjust it will not work but we're seeing some really really cool Solutions um obviously in the likes of salana and especially injective hyper liquid and dydx with their app chain Model A couple of these other ones though provide some really really cool use cases obviously spot amm and like using Leverage is really cool because you can use something like gearbox to actually get like spot leverage in a truly decentralized fashion which is all really damn cool and you have a bunch of these other you know obviously aggregators in play and then Oracle based derivatives which let us trade some really cool things as long as there's a price feed available obviously there you're still dealing with the task of having fragmented liquidity cuz you pretty much either need to do what GMX V2 was doing where you have a pool po pair or you aggregate it all under the hood which is really common in like VM and Oracle based models baskets of assets kind of introduce the same impermanent loss solution but all of this really comes down to the fact that we've reached the state where the innovation in derivatives is taking place and how liquidity is provided which don't get me wrong is really damn important I just think there's a lot of people that are doing that really really damn well and we're going to reach a breaking point where it's going to become kind of a Chicken or the Egg Match it's going to be a fee race to zero cuz Traders are going to go where it's cheap and they can get filled with the lowest slippage and liquidity mol's volume is still happening on BTC and eth and those derivatives and there's only a handful of places you know forget the airdrop hunting forget the points forget the farming the games they're just going to go either to a centralized exchange or to something now realistically hyper liquid dydx and trade for the low because they're getting filled really well every single thing it seems redundant because it honestly is like I said most volumes on BTC and eath that's what we're seeing and we have the liquidity models and oracles constraining what they can even offer so like how do derivatives evolve from here and I think that's where what we're doing at domination Finance comes into play so at a super high level we're introducing the concept of dominance trading I would also say for a lot of crypto we've been porting tradire web 2 into web 3 right rwas we're tokenizing treasuries you know a money markets on chain Unis swap the stock exchange on chain this is something where I had the inklings of it from my past time outside of crypto but I realize is really applicable in both places so from a high level you can speculate on the market share not the price that gives it Market agnostic durability it's relevant when there's upward PA downward PA crab markets cuz you're literally betting on a project assets tokens dominance right so what does that look like obviously Bitcoin dominance might come to mind as I was talking through for most of you it's where I actually got the idea cuz I saw this charted all the time but you couldn't trade it anywhere Traders on Twitter were referencing it they were talking about macro Cycles portfolio rotations referencing this metric but no one actually did it and I like to joke that this stems from like literally sixth grade algebra like it's bitcoin's market cap over total crypto but the use case is damn cool because you have dominance moving when Bitcoin doesn't and vice versa Bitcoin can move a lot and dominance will creep forward which provides some obviously really cool hedging opportunities so this bucket is what I call market cap dominances we're going to be launching with the top five by market cap and I would say it's comfortably the currently most commonly referenced type of dominance pair really simple calculation you have the assets market cap over total crypto this seems super rudimentary so like why has no one done it it's because this total market cap comes with a lot of differing opinions in the space you go on coin Gecko and coin market cap and trading view you're going to see a significantly dominance different dominance everywhere because trading few is doing like 125 that they snapshotted when they listed it coin gecko is doing every single coin they support where whereas coin market cap is doing every coin they support and binance even has like a bastardized pair that trades as an index so instead of trading as 58% it trades as like 2,232 which is also such an abstract thing to make dominance so what we're doing is obviously not only having built an exchange but we're actually curating all of the data at a 10 millisecond latency with our own custom methodology that we want to make industry standard cuz that's something that's missing from being able to get this thing on order books we we've already talked with some market makers and obviously this is something that's never been traded no one's done this the only way to do it is via a pool which is why I broke it down that way but long term we hope to be the source of Truth and introduce a brand new way to trade in crypto and out so market cap may not be that exciting but I guess sector dominances you can call them are are where we've heard a lot of interest from our discussions behind the scenes we can effectively invent index like exposure to categories within crypto right like let's say you want to be long AI on its dominance or market share you can create a basket of coins right whatever render to aash and Peg that against the whole crypto market so you don't even need there to be upwards price movement like let's just say they dropped less you would have done great if you were long memd you would have made a bunch of money even though USD prices could be down 70% so it creates some really cool opportunities to adapt to any narrative across any cycle all you need is to pretty much have like an agreed upon numerator and denominator and you can create dominance of anything which our Oracle already has the capabilities to do we can plug in any type of data on both sides calculate it stream it real time and have it tradeable in our exchange so it really is unlocking the speculation of a lot of uninvestable or non-traditional asset classes one people have really like tier that we've talked to is tether's dominance of stable coins for example so you would have tether's market cap over a basket of other Stables whatever take the top six you you don't even need to bet on a dpeg you can literally bet on stable coin flows so it's really cool because you don't really need stable coin insurance but you can be betting that you know Athena's market cap is going to grow even though you know their price may have dropped 80% while their market cap tripled which is something we literally saw play out so it really tightens the loop between speculation and fundamentals and let's People BET on market share directly of underlying metrics here are a couple you actually already see on on defi Lama like this is hidden in plain sight across the board you can have you know chain link dominance of total value secured or pith or Redstone etc etc there's sometimes limited ways to really get financial upside when wanting to be speculative on the tech right like for example with pith I could have been bullish on them for four years and what I would need to have done is use pith power daps that's not really great I would love to have had a way to go wait I really like what they're doing it's different than chain link this is going to be a more used standard in the industry and I want to be able to Long their market share of the fun fundamental metric they're improving and obviously you can use stuff like tvl transaction count etc for ethereum l2s and things along those lines and as I briefly mentioned no one's really done this yet because it's not provided by any existing oracles as a founder of a perex I'll tell you the Playbook and why there's so many Forks you guys probably saw come out you go you Fork GMX or gains network based on the type of model you want you go with chain link pith Redstone Etc AK your Oracle and then just slap on all these fees into your exchange and you're trading what the Oracle offers there's not that much leg work that needs to be done it's actually really low hanging and I think most people could Fork a perex in like one to two weeks if you're a relatively seasoned developer and then the other is that on the dominance calculations that exist in the industry there's a really large discrepancy as I mentioned between coin gecko coin market cap trading view Etc AK there's no data standard for this type of metric so what we've done was obviously thought of the derivative class this is something that is hidden there in plain sight and that Traders are actually utilizing as an indicator but not able to trade directly which we're going to change we built our own Oracle to calculate and publish this stuff real time at a 10 millisecond latency and incubated the perex which is actually the way users will interact with it this will probably be the first place to trade it onchain um longterm we do hope to open up the data for other people to integrate and build other cool products like options prediction markets Etc but this is our Live Test night right now as you see it mimics the feel of an onchain or centralized exchange hopefully you've got stop losses take profits leverage sliders this is how people will get accustomed to trading dominance you can't really have it be an abstract form and obviously it kind of plays Into The Narrative of most activity is on BTC and eth so we could probably expect some trickle through on this side and obviously you guys may be thinking like oh dominance doesn't really move that much the appeal really changes just based on what this number is everyone knows Traders chase that so if you guys want you can follow us on Twitter check out our testet today um we'll probably be launching on mainnet late October early November uh and that's how we're reimaging derivatives not by how liquidity is provided by but what you can actually trade one slide back yeah no worries awesome awesome really interesting chat though I think there's some really cool things that could be done with this does anyone have any questions yes um this obiously de nothing with exchanges right yeah like eventually yes though hopefully so then you might run into BMR territory Benchmark right right that that's that's the only thing kind I'm I'm I'm a bit great genely can get it good hedge as well for certain instances I'm just um kind of worried about the calculation part right right is there like an independent data provider for you or can or you guys so we're doing it now but we've looked at others right and what we're doing now is we're we're going in direct from websocket from a lot of exchanges centralized and decentralized and doing the top 200 well and we actually know so it's not that easy I'm afraid right that's why we have three math professors kind who do that stuff right um the the outliers are there like especially if you go like like C Kraken and and and and the rest of the market have it like ear this year right we're crack for a whole half a day trades five% off bloody Bitcoin right of the market so I'm just more will you publish them like uh like uh paper kind of how you determine it so it's kind of yeah yeah yeah our methodology is going to be transparently in the docs yeah because that that's the only thing I mean I think for to get trust in these type of things and that's why most exchanges take an extal data Prov provider the reason because like it can't be manipulated for sure for sure so that's that's that's the only thing otherwise the product per se is phenomenal right it's clearly clearly something that that that that makes sense but I would still kind of I would at least have you consider for sure oh no for sure it it's a super iterative process right and it's one of those things where there is no standard right like I wish there was some cut off and we could see some redundancy across like some of these data aggregators cuz that's where we stem stemmed from and had our MVP and we've talked with like coinx ET I mean for finite tokens Bitcoin doable but like if something that all the time then it's get but what you can do and that's kind of what people do when they do build derivatives or or perks on on like you can have a cut off and have as you said the 200 which could be tricky to kind of keep up if if you Al yeah that we cover yeah yeah I so what we're doing now is we're cross referencing with coin gecko for like Supply and other providers there but we have like a heartbeat on the circulating Supply where then cross references the 200 and then what we're pulling in and does like a full 200 match but you need a cut off right that's why we chose to go with a cut off and it's weird because it's one of those things where you think there would be like hard opinions on what is total crypto market cap but it's not cuz like as you guys know at kico coin Geo and coin market cap their percentage is different by different by a lot cuz it's just based on what they list like it's just blinking and and with all the respect to the to these two right they are like retail to as intial like Bloomberg is not going to work with coin us because we actually built for like the next step of this whole yeah more than happy to have chats in that direction cuz also I've talked with I think I've actually talked to someone from your team we've talked with like the tii coin metrics like more more institutional grade but yeah no one was doing it no no I agree I don't think we do it per se we could do it because we we have the IND make a cut but we are that's why we struggle to publish Market because where do you cut it right right yeah yeah so that discussion we're super open to and obviously like on this side we would love to be the brand affiliation for The Trusted source of the data and how we're publishing it is decentralized we've built out like an oracle Network under the hood to which is kind of annoying but had to be done right because you can't stream the single Source you guys can be institutional grade if we're only going from Kao single Source like God for B your websocket or API goes down like the Oracle kapo which is tough as well we have or yeah yeah yeah perfect yeah 100% love that though love that yeah what's the architecture of the per it's uh so it's like the VM liquidity Vault right because market makers don't have strategies to offset their risk most market makers when you're going on the institutional side will have like multiple venues they'll be able to hold spot go short here there's no underlying spot like this doesn't exist so anyone can comeing we'll probably have a couple vaults for mainnet but maybe like a yield acur stable or like a wrapped eth variant and then LPS deposit that and Traders use the same thing to trade so you we can spin up as many vaults as we want but we'll probably concentrate liquidity in one or two yeah it's super similar to like gains network if you're familiar with them based on um yeah very similar to gains like super similar in that sense it's one liquidity pool which Services all the trading and then the way you do risk parameterization is you kind of limit how much like exposure you have per pair in relation to the pool stuff like that so there's a bunch of like Risk profiling that goes into these models but yeah it's the tldr um you were saying that you are trying to like move from thread F to defy and you also mentioned basically this derivative you can have derivative on anything that you have have a stable data and you are making this derivative on parameter metric uh are like institutional players from thread five from currenty interested in the this kind of trading instrument because like they used to they're using uh derivatives on token prices but I I I didn't heard hear that anybody like use yeah yeah well you can't trade it anywhere literally that's the thing that's you're like U my question is uh your position and you are like hoping for um retail users right now not the like yeah it's going to be a combo of both like we we speak to some like institutions that are heavy heavily active on chain obviously it's starting there so any institution that's only on centralized exchanges kind of goes out but we've gotten a lot of like it's like retail and I would call like sophisticated onchain institutions that come in and even then for like larger whales or institutions to get filled like it kind of needs to be a flywheel where you can take a relatively large position with low slippage right so it's chicken or the egg to start um especially for something brand new But ultimately the bet is yeah that this type of trading will take off at the point we're going to start as the Monopoly of it centralized or decentralized hopefully can get the data provision as robust and Industry standard as possible we would love this thing to be on like binance and byit perss in two years like that would be awesome right like it's a chance to create a brand new way to trade that isn't something where I looked at you know the stock market I went oh this would be super cool to trade in crypto like it was like this market share concept makes a lot of sense and people do it subconsciously people already reference this metric to rotate why not give the ability to speculate on it directly any other questions T you mentioned like five first instruments that you plan to launch with yeah yeah yeah it's very simple it's just the top five coins by market cap so all right and then I understand that the next iteration might be like indexes for subsections of the market yeah like AI mes sure yeah lots of things to do as well though you know you could do like Leo's dominance of Stak deth jitto's dominance of Stak Soul really anything we can get the data curated for in a trusted enough fashion that there's you know desire for um we would love to have trade which is why we hope to get Buy in longterm from the community right cuz like governance is a meme but like here if you have a really good idea like eventually we want people to be able to come in in kind of like Mad Lib style dominance and then you could just trade exactly what you create so the model is roughly following by index isn't that sense sure yeah it's a good can and will you publish like like a weight that composition as well or yeah that's all very possible yeah the beauty of it being in crypto you can have that real time right yeah and public real time as well and once once you like what you don't have in you have in traditional Finance you have like S&P calculations that's that's once a day right and this thing can be real time yeah visible to everyone which is sweet more transparent methodology Yeah you mentioned Dev based indexes but would do you expect to be counterparty this indexes uh on the on the actual exchange it's like a badge on a protocol default or heck sure so how do you expect to price these derivatives because try to imagine find counterparty yeah so the counterparties are the LPS here here um which obviously is offset with like borrow fees to P really huge premum and like to their liquidity providers unless Traders are losing right really badly which most do over time like that's the whole reason exchanges make money if Traders didn't lose historically exchanges would be out of business a lot of the time right so so the p&l charts um tend to go that way but yeah obviously it's going to be the first party to incentivised right and this is going to come later and it's going to have a lot of risk where we're only going to expose let's say .5% of the Vault so you take it in steps based on per pair Performance Plus that there should be a natural deviation between the the index ultimately and and reality like it is you know traditional ETFs and someone like a citadel whatever kind of would just go there and yeah yeah and for crypto Market C why you can't use just for example top 100 coins because it's a very distribution yeah we're doing top 200 that's exactly what we're doing so we're it too yeah because it's much more simpler because I expectation not so big between 100 and 200 to like 250 it actually is larger than You' think but yeah that's why we didn't go you know top thousand because then it doesn't matter and you're just increasing like the computational intensity of everything you're doing and realistically part of the thought process here was have it mirr trading view more or less similarly cuz it's the reference that people are already charting right so you want when you're introducing something so new like a brand new way to trade trade you want at least there to be a sense of familiarity which is why you want the exchange to feel very similar right from a interface standpoint but we also honestly want the index to Mere trading view similarly esque just so there's not a huge discrepancy right because that's where people are going to do dominance ta right now but that's all like more psychological user components right awesome thanks so much now it's lunch time if um if we turn sorry another round of call like