This report provides a framework for institutional investors to evaluate opportunities and risks in DeFi derivatives markets, including DEXs, decentralized perpetuals, and options protocols. While DeFi offers transparency, composability, and 24/7 access, institutions face tradeoffs around liquidity depth, smart contract risk, regulatory uncertainty, and margin mechanics. Derivatives-native protocols like dYdX, Synthetix, and Lyra enable sophisticated strategies but require counterparty and custody diligence. Institutions must assess whether the reward justifies the complexity versus CeFi alternatives, especially given concerns around MEV, oracle risk, and protocol sustainability. For firms with the infrastructure to navigate on-chain markets, DeFi presents a compelling—but nuanced—frontier for alpha generation.