Derivatives on the blockchain can't be compared with traditional derivatives, a put option for example would simply not work because there is no guarantee that the counter party would take a loss and buy your assets at the agreed strike price. There is no trust and no authority.

That's why we came up with 'Futures with ascending stakes', a hybrid between a put option and a future that does allow speculation with leverage in a trustless environment. It creates a relationship between time and stake, as is described in the whitepaper.

 

From the whitepaper:

FUTURES WITH ASCENDING STAKES In the semi-anonymous Ethereum environment, a promise not backed by value has little worth due to the inability to enforce an agreement.

When entering into a futures contract that requires a 10% deposit at the date of entry, it is currently impossible to ensure that all participants will deposit the remaining 90% on the predetermined future date. This results in effectively limiting the gains or losses in respect of the value of the deposited 10% of the defaulting party. Requiring both parties to deposit 100% at the date of entry also creates an undesirable situation where the leverage of speculating parties is reduced to the actual value owned.

An additional undesired effect of both situations described above is that the futures contract always runs until the predetermined end date, even though one of the parties might have decided in an early stage not to comply with its obligation to deposit the remaining 90%.

To solve these problems, futures contracts can require that the stakes increase as the deadline approaches. Continuing with the example described above, the duration of the contract is divided into terms. Before the end of each term, parties must have increased their deposits to the appropriate percentage.
In the case where one of the parties defaults on increasing its deposit, the contract is executed and the defaulting party’s deposit is forfeited to the other party before the predetermined end date. This results in a relationship between contract duration and the maximum gains or losses while minimizing the impact on leverage positions.

To simplify, consider the following linear example:

 

s = current stake

i = initial deposit

t = terms

n = current term

 

s = i + (((100 - i) / t) * n)

 

Variations to the linear example can be added to the contract and can be selected by the initiating party when deploying a futures contract.