Derivatives

Derivatives are financial contracts whose value derives from the price of an underlying asset rather than from owning the asset itself. In crypto, the main derivatives are futures, perpetual futures, and options, and together they account for the majority of crypto trading volume — considerably more than spot trading.

For example, a trader who expects ETH to fall can short an ETH perpetual contract, profiting from the decline without ever borrowing or holding ETH. A miner worried about a price drop before selling next month's production can hedge with futures, locking in an effective sale price today.

Derivatives serve three broad purposes: speculation (leveraged bets on direction or volatility), hedging (offsetting risk in existing holdings), and price discovery (aggregating market views into forward-looking prices). They also introduce risks absent from spot markets: leverage and liquidation, counterparty exposure to the exchange or protocol, and funding costs. A common misconception is that holding a crypto derivative is a way of owning the coin; a derivative position is a contractual claim whose payoff tracks the price, and it grants none of the properties of the asset itself — no self-custody, no staking, no use on-chain.