Imagine launching your broker app and effortlessly finding a section dedicated to on-chain perpetuals. No centralized exchange account needed, no hassle of transferring funds to a custodian. It's just you, a self-custody wallet, and a swift confirmation. This concept has evolved from a mere idea into a tangible product roadmap.
eToro has recently taken a bold step by leading a $12.5 million funding round for Extended, a platform focusing on on-chain perpetuals with significant market engagement and transaction volume. Notably, their strategy includes integrating these perpetuals into Zengo, the self-custody wallet acquired by eToro. This development indicates a merging of broker functionalities with decentralized finance (DeFi) derivatives, directly within the app.
The Broker's Bold Move Towards DeFi
This shift is noteworthy as it highlights that brokers are eager to tap into DeFi’s most sought-after product: perpetual swaps.
For years, perpetual swaps have been fundamental to crypto trading, mostly navigating within centralized exchanges. DeFi has innovated these concepts using smart contracts, oracles, and advanced automated market makers (AMMs). As a result, several on-chain platforms have managed to scale sufficiently. Now, the distribution networks are gradually awakening. If broker applications begin directing their user base to self-custodied on-chain perpetuals, the distinction between retail trading platforms and DeFi derivative services will rapidly diminish.
Shifting Power Dynamics in Trading
The focus is shifting from custody concerns to order flow control. The entities that manage the user interface and the wallet will dictate how liquidity is directed within perpetual contracts.
eToro’s latest investments align perfectly with market needs: the demand for derivatives remains robust, regulators are still wary of the hazards posed by centralized exchanges, and wallet technology has finally reached a point of usability for mainstream consumers. Extended claims to have managed over $245 billion in cumulative trading volume and hosts more than 100 perpetual markets. These figures, highlighted during their funding announcement, provide brokers a solid foundation to build upon.
The Evolution of Perpetual Futures
Perpetual futures originated as products designed for centralized exchanges, known for offering leverage, constant funding, and competitive markets that captivated traders with their efficiency and availability. DeFi has successfully mirrored these principles while introducing unique trade-offs. Where centralized exchanges rely on risk engines, DeFi leverages smart contracts, collateral vaults, and open-access funding mechanisms. Instead of standard APIs, users interact with decentralized applications (DApps), DEXs, and cross-chain bridges.
Brokers are becoming increasingly interested due to three critical aspects: distribution channels, product offerings, and favorable economics. Perpetuals check all these boxes effectively; users already utilize broker apps to trade spot tokens or stocks, the addition of derivatives enhances the product lineup, and potential profits can be generated through order routing and spread financing. Importantly, on-chain solutions permit brokers to sidestep direct custody of user funds, minimizing both operational risks and compliance burdens. In this new model, brokers act more as an interface or route, rather than taking on the role of a principal.
As this landscape evolves, it's clear that on-chain perpetuals are set to redefine trader experiences, fundamentally altering how these products are perceived and utilized.
