Henrik Andersson, shining light on the potential of decentralized derivatives, highlights this sector’s potential to drive the next growth wave in decentralized finance (DeFi), especially given the increasing scrutiny on centralized exchanges.

The Chief Investment Officer of Apollo Crypto, an Australian crypto investment firm, Andersson brings attention to on-chain derivatives’ imminent rise in the DeFi landscape. In a comprehensive discussion with Cointelegraph, he put forth his belief that the increasing interest in decentralized spot trading will naturally create a substantial demand surge for decentralized derivatives.

“Decentralized spot exchanges made their debut nearly six years ago, while decentralized perpetuals and futures trading are quite recent. Hence, there’s immense growth potential for on-chain derivatives,” Andersson observed.

He further noted the continuous growth in market share experienced by decentralized spot exchanges, taking away from centralized ones. This shift has only accelerated since the downfall of FTX in November of the previous year.

The trading volumes on decentralized exchanges (DEXs) such as Uniswap even temporarily surpassed those of established centralized crypto exchanges like Coinbase during May’s memecoin mania. Furthermore, DEX trading volumes witnessed over a 400% surge following the SEC’s clampdown on Binance and Coinbase in June.

Andersson further commented, “Despite the comparatively small, yet growing market share of DEXs, we’ve seen Uniswap frequently outperform Coinbase in daily trading volumes. Every month, DEXs handle over $50 billion in spot volume.”

Andersson anticipates a replication of the futures-heavy trend currently prevalent in centralized exchanges, in the DeFi space as well. He endorses on-chain derivatives as the “optimal product-market fit” seen in DeFi in recent years.

Apart from decentralized derivatives, Andersson highlighted two burgeoning market sectors that have recently caught his attention.

One of these sectors is NFTFi, which amalgamates nonfungible tokens (NFTs) with DeFi. This enables investors to rent, borrow, and fractionalize NFTs and even establish derivative and prediction markets based on them.

The second theme that has piqued his interest is LSDFi, which leverages liquid staking derivative (LSD) tokens such as Lido Staked ETH (stETH) and Rocket Pool ETH (rETH). This enables investors to borrow, speculate, and hedge against their LSD tokens.

In the aftermath of Ethereum’s Shapella upgrade, LSDs have experienced rapid popularity growth. They have even surpassed DEXs in terms of total value locked (TVL), according to data from DefiLlama.

“All of us in the space would like to see not just more protocols themselves but a more diversified environment altogether,” Andersson concluded.