DeFi derivatives are financial instruments that derive their value from an underlying asset or index in the decentralized finance (DeFi) ecosystem. They are essentially contracts that allow traders to speculate on the future value of the underlying asset without actually owning it.

There are several types of DeFi derivatives, including futures, options, and perpetual swaps. Each of these instruments has its own unique characteristics and trading strategies.

Futures: A futures contract is an agreement between two parties to buy or sell an asset at a specific price and time in the future. In DeFi, futures contracts are settled in cryptocurrency and traded on decentralized exchanges (DEXs). Traders can take long or short positions on futures contracts, depending on whether they think the price of the underlying asset will rise or fall.

Options: An options contract gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price and time in the future. In DeFi, options are traded on DEXs and settle in cryptocurrency. Options can be used to hedge against price fluctuations or to speculate on future price movements.

Perpetual Swaps: A perpetual swap is a type of derivative that allows traders to take long or short positions on an underlying asset without an expiry date. In DeFi, perpetual swaps are settled in cryptocurrency and traded on DEXs. They are similar to futures contracts, but without a specific expiration date. The price of the perpetual swap is tied to the price of the underlying asset, and traders can leverage their positions to increase their potential profits (and losses).

DeFi derivatives are often traded on automated market makers (AMMs), which use algorithms to set prices based on the supply and demand for the underlying asset. Trading fees on DEXs are typically lower than on centralized exchanges, making them a popular choice for DeFi traders. However, because they are decentralized, there is no central authority to regulate or oversee the trading of DeFi derivatives, which can create additional risks for traders.