Contango aims to unlock $13B DeFi derivatives

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Contango aims to unlock $13B DeFi derivatives

Contango aims to unlock the $13B DeFi derivatives industry using money market protocol as a middleware.

Contango, a team leveraging web3 money markets to launch derivatives products, announced on October 4 the launch of futures contracts built on top of Aave, the leading DeFi lending protocol.

The new product, dubbed cPerps or Contango Perps, utilizes recursive or 'looped' lending positions via Aave flash loans to create leverage positions. To increase a user's credit capacity, they frequently use borrowed assets as collateral.

Contango said it never takes the other side of traders, nor does the lending market's liquidity providers.

Contango joins an emerging generation of DeFi protocols seeking to disrupt centralized web3 incumbents with competitive decentralized products.

While initial decentralized exchanges were solely responsible for spot trades, DEXes now provide advanced features such as leverage, limit orders, and orderbook-based trading.

Contango's founder, Robert Cameron, added that the project will soon launch similar integrations with other money market protocols such as Compound, Spark, MakerDAO, and Morpho. Aouane said Contango could unlock a DeFi derivative market valued at $13B once deployed across multiple protocols.

Contango claims that the funding rates associated with recursive lending are less volatile than the fees found on centralized derivative exchanges.

The Contango team cited an internal study by the Contango team that showed that cPerps fees have historically trended lower than the funding rates on Binance, the biggest centralized exchange, and dYdX, the leading decentralized derivatives protocol.

The fees for USDT,USDC, and DAI have topped double-digits in 2023, but funding rates on Aave have experienced periods of significant volatility this year.