I'm not qualified to say much about derivatives. One thing I know for sure is that it is another part of the vortex of paper-based hyper-prosperity for the 'investor class'. That and a steady increase in government spending via debt is the 'trickle down' economy functioning as intended. Actually, though, as things now stand, replacing issuing stocks with borrowing money would play into the derivatives market, since it is all about playing financial games with all kinds of debt.

If I may, you wrote, "If the option to sell was not there, I probably wouldn't invest in public companies or small startups." Lending as opposed to buying stocks would not tie money up indefinitely. All forms of lending have definite repayment schedules. Also, there is a secondary market for bonds (and other forms of lending, for that matter), so one could 'sell' at any time if one needed the money for something else (though profits would not, of course, be assured). [I only mention it because someone reading your comment might misunderstand.]