Derivatives in the DeFi ecosystem are financial contracts whose value is derived from the performance of an underlying asset, index, or interest rate. These innovative instruments allow users to hedge against price volatility, speculate on future price movements, or gain exposure to various assets without owning them directly. DeFi derivatives platforms utilize smart contracts to automate contract execution and settlement, enhancing transparency, reducing counterparty risk, and providing a trustless environment for complex financial transactions.

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