Original Title: "From Traditional Replication to Innovative Leaps, Can Backpack Seize Future Opportunities in Cryptocurrency Derivatives?"

Original Author: ZHIXIONG PAN, ChainFeeds

Over the past week, veteran cryptocurrency exchanges Kraken and Coinbase have successively announced major acquisition news, with both aiming to make strong forays into the derivatives market: Kraken acquired NinjaTrader for $1.5 billion, while Coinbase is in talks for a multi-billion-dollar acquisition of Deribit. These two transactions not only represent the giants' strong intention to enter the derivatives business, but also reflect the increasingly prominent strategic value of the cryptocurrency derivatives market.

Since the emergence of Bitcoin, spot trading has been the primary means of interaction for crypto assets. However, as the market has expanded in size and diversified its participants, simple buying and selling can no longer meet the complex needs of risk management, investment, and speculation. Just as derivatives are crucial in price discovery, risk hedging, and leveraged trading in traditional financial markets, the crypto space also needs derivative tools to improve market efficiency, increase capital utilization, and provide diversified strategies for professional traders. Over the past decade, the cryptocurrency derivatives market has undergone significant transformation from nothing to something, from the periphery to the mainstream. Its development can be roughly divided into four stages: the derivative inception brought by OKCoin (v0), the rise of perpetual contracts introduced by BitMEX (v1), the industry's capital utilization improvement led by FTX (v2), and the interest-bearing derivatives with automatic lending pioneered by Backpack (v3).

Each advancement in technology and product has brought about the evolution of capital efficiency, trading experience, and risk control mechanisms, profoundly affecting the industry landscape. In parallel with the evolution of centralized exchanges (CEX), the decentralized finance (DeFi) derivatives field has also rapidly risen, with projects like dYdX, GMX, and Hyperliquid exploring various innovations under on-chain contract models.

This article will systematically review the development history of these four stages and, in conjunction with the sub-line evolution of DeFi derivatives, discuss the practical significance and profound impact of product innovations in each stage. By reviewing history, we can also gain a clearer insight into the future direction of the cryptocurrency derivatives market.

Stage v0 (2014–2015): The Dawn of Cryptocurrency Derivatives

· Stage Characteristics: Initial transplantation from traditional futures to cryptocurrency futures

Prior to 2014, cryptocurrency trading was mainly confined to spot transactions. Due to Bitcoin's high volatility, miners and long-term holders faced hedging risks, while speculators were eager to use leverage to seek higher returns. In 2014, OKCoin (later rebranded as OKEx/OKX) pioneered the transplantation of traditional futures' margin system, expiration settlement, and clearing mechanisms into Bitcoin trading, introducing Bitcoin futures products. This allowed holders to hedge against the risk of future price declines on exchanges and provided speculators with high-leverage opportunities. Subsequently, exchanges like Huobi also followed suit to launch similar contracts, and cryptocurrency derivatives began to take the stage of history.

Platform Representation

The v0 phase featured OKCoin/OKEx and Huobi's coin-margined futures contracts as typical examples: weekly or quarterly settlements with fixed expiration dates, similar to traditional commodity futures. For miners and investors, this was the first directly usable risk hedging tool; for speculators, it also meant being able to leverage smaller capital for larger gains.

Market Impact

The fixed expiration date design at the time was not flexible enough in the extremely volatile crypto market. In the event of a sudden and extreme market swing, traders could not freely adjust their positions before expiration. In addition, early risk management was imperfect, and socialized losses due to liquidation were common: once leveraged positions were liquidated due to market volatility, resulting in insufficient margin, profitable accounts would be deducted to fill the deficit, which led to much user criticism. Nevertheless, the v0 phase laid the foundation for crypto derivatives and accumulated experience for subsequent innovations.

v1 Phase (2016–2017): Rise of Perpetual Contracts and Market Boom

· Phase Characteristics: Perpetual Contracts + High Leverage = Explosive Growth

The market demanded more flexible and efficient derivatives. In 2016, BitMEX introduced the Bitcoin perpetual swap contract, the most significant innovation being the absence of an expiration date, with the contract price anchored through funding rates instead. In this way, both long and short positions could hold positions in a "never-expiring" model, reducing the pressure to roll over positions near futures expiration. BitMEX also increased leverage up to 100x, sparking keen interest among traders. During the 2017 crypto bull market, trading volume of perpetual contracts surged, with BitMEX at one point setting a staggering record for daily trading volume. At this time, Bitcoin perpetual contracts were widely imitated by the industry and became one of the most popular products in crypto history.

Platform Representation

· BitMEX: Rapidly seized market dominance with perpetual contracts, employing an insurance fund and forced liquidation mechanism, significantly reducing the probability of client profit loss socialization.

· Deribit: Launched crypto options products in 2016; although early trading volume was limited, it provided new derivative strategy options for institutions and professional traders, foreshadowing the rise of the options market.

· Traditional Institutions Enter: At the end of 2017, CME and CBOE introduced Bitcoin futures, gradually bringing crypto derivatives into the regulated spotlight.

Market Impact

The emergence of perpetual contracts propelled crypto derivatives into a boom, with derivative trading volumes even surpassing some spot markets during the 2017 bull market, becoming a crucial venue for price discovery. However, the combination of high leverage and high volatility also triggered a cascade of liquidations, leading to exchange outages or forced liquidations, sparking user controversies. This reminded platforms that, while innovating, they must strengthen their technology and risk management. Meanwhile, regulators also began to pay closer attention to high-leverage crypto derivatives.

Phase 2 (2019–2020): Unified Margin and Multi-Asset Collateral

· Phase Characteristics: From "Is there a new product?" to "How to improve capital efficiency"

After the bear market in 2018, derivatives regained popularity in 2019, and market demand shifted towards improving trading efficiency, fund utilization, and product diversity. After FTX launched in 2019, it pioneered the introduction of a "Unified Margin Account": users could participate in various derivative trades using the same margin pool, with stablecoins serving as collateral. Compared to the previous model where each contract required separate margin and cumbersome transfers, this greatly simplified operations and improved capital turnover efficiency. FTX also enhanced its risk-sharing mechanism, alleviating the long-standing issue of "socialized losses."

Representative Platforms

FTX: With stablecoin settlement and cross-margin, it gained favor among professional traders; it launched leverage tokens, MOVE contracts, and numerous altcoin futures, offering a rich product line.

Binance, OKEx, Huobi: They also upgraded, introducing USDT-margined perpetual futures or unified accounts, with more mature risk control compared to the v1 phase.

Market Impact

Phase 2 witnessed further expansion and mainstreaming of the derivatives market, with trading volumes continuing to rise, and institutional funds entering the scene in large numbers. As the compliance process progressed, the trading volumes of traditional financial platforms like CME also saw significant growth. Although this phase reduced issues like socialized losses, during the extreme "3/12" market event in March 2020, several exchanges still experienced flash crashes or temporary outages, highlighting the importance of risk management and upgrading matching systems. Overall, the key feature of Phase 2 was the "Unified Account + Stablecoin Settlement," combined with new product offerings, making the crypto derivatives market more mature.

Phase 3 (2024–Present): Automated Lending and the New Era of Yield-Bearing Derivatives

· Phase Characteristics: Further enhance fund utilization, with margin no longer "idle"

Building on unified margin, there was still a long-standing issue: idle funds in accounts usually do not generate any returns. In 2024, Backpack proposed the "Automated Lending" and "Interest-Bearing Perpetuals" mechanism, merging margin accounts with lending pools. Specifically, idle funds in accounts and floating surpluses can be automatically lent to users in need of leverage, earning interest; in case of floating losses, interest must be paid. This approach allows exchanges to not only act as matching platforms but also perform lending and interest management functions. Coupled with Backpack's recently launched point system, users are more likely to receive passive income of various risk preferences.

In addition, in March 2025, two long-standing U.S. exchanges, Coinbase and Kraken, also accelerated their expansion into derivatives trading. Kraken acquired NinjaTrader for $1.5 billion; Coinbase negotiated the acquisition of Deribit, which was valued in the early part of the year in the range of $40 billion to $50 billion. The accelerated expansion of large compliant crypto exchanges into derivatives exchanges also means that there is still a huge opportunity in this space.

Representative Platform

Backpack: Its interest-bearing perpetual contract considers unused margin and floating profits collectively as "lendable funds," providing interest income to holders, while users holding positions with unrealized losses automatically pay interest to the lending pool.

The platform uses a dynamic interest rate model to respond to market fluctuations; unrealized profits from positions can be partially withdrawn and continue to be lent out, enabling "earning interest while longing and shorting simultaneously."

Backpack plans to support multi-asset collateral and cross-chain assets to further expand the coverage of funds.

Market Impact

The interest-bearing perpetual mechanism further enhances capital efficiency and, if successfully implemented, may become the next industry trend. Other exchanges may consider introducing similar features or collaborating with DeFi protocols to provide returns on margin funds. However, this model requires higher platform risk management and asset management standards, necessitating fine-tuned management of lending pool liquidity to control chain reaction risks in extreme market conditions. In addition, compliance and prudent operation are also crucial; if a platform experiences imbalance in asset management, it could amplify risks. Nevertheless, the exploration in the v3 phase undoubtedly brings a new form to the crypto derivatives market, further strengthening the integration of trading and financial functions.

DeFi Derivatives Branch: Diversified Exploration by dYdX, GMX, Hyperliquid, and Others

While centralized exchanges (CEX) continue to evolve, decentralized derivatives (DeFi) have also formed a parallel development trajectory in recent years. Its core appeal is to achieve futures, options, and other trading functions through smart contracts and blockchain technology without requiring trust in intermediaries. How to provide high throughput, ample liquidity, and robust risk management in a decentralized architecture has always been the challenge of this track, prompting various projects to present diversification in technical design.

dYdX initially relied on the Ethereum L2 StarkEx to provide a hybrid model of order book and on-chain settlement and later completed the migration to Cosmos ecosystem V4, attempting to further enhance decentralization and matching performance on its own chain. GMX took another path, using an automated market maker (AMM) model where users trade directly against the liquidity pool, allowing liquidity providers to share risks and earn rewards to enable perpetual contract functionality. Hyperliquid established a dedicated high-performance blockchain to support order book matching, placing both matching and clearing on-chain, aiming to achieve both CEX-level speed and decentralized transparency.

These decentralized platforms have attracted users who prefer self-custody due to tightening regulations or asset security concerns. However, overall, the transaction volume of DeFi derivatives is still much smaller than that of CEX, mainly limited by liquidity and ecosystem maturity. With improved technology and more funds entering the space, if decentralized derivatives can strike a balance between performance and compliance, they may complement CEX and further enrich the overall landscape of the crypto market.

Integration and Future Outlook of CEX and DeFi

Looking back at the evolution of crypto derivatives from v0 to v3, each stage has revolved around technological innovation and efficiency improvement:

· v0: Transplanting traditional futures frameworks to crypto, but with relatively rudimentary flexibility and risk management;

· v1: The advent of BitMEX perpetual contracts significantly increased liquidity and popularity, with derivatives beginning to dominate price discovery;

· v2: Unified margin, multi-asset collateral, and diversified products further enhanced fund utilization efficiency and professionalism;

· v3: Backpack integrated lending and interest-bearing functions into the exchange, attempting to maximize fund efficiency.

In parallel, the DeFi derivatives track is also exploring the path to decentralized trading through various solutions such as order books, AMM, dedicated chains, providing self-custody and trustless options.

Looking ahead, the development of crypto derivatives may follow several major trends:

· Centralization and Decentralization Integration: CEX becoming more transparent or launching on-chain derivatives, DEX enhancing matching speed and liquidity.

· Risk Management and Compliance: The larger the transaction volume, the higher the requirements for risk control, insurance funds, dynamic liquidation, and regulatory compliance.

· Market Size and Product Diversification: More asset categories and more complex structured products will emerge, with derivatives potentially surpassing spot trading volume.

· Continuous Innovation: Mechanisms such as automatic interest-bearing like Backpack, volatility derivatives, and even AI-integrated prediction contracts all have the opportunity to emerge. Those who can first develop products that meet the demand may stand out in the new round of competition.

Overall, the crypto derivatives market is gradually maturing and diversifying. Through innovation in technology, models, and compliance, it will better meet the diverse needs of institutions and retail investors, becoming a more vibrant and promising sector in the global financial system.

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