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Blockchain's Application in Processing Financial Derivatives

by Markus Paulson-Luna

Introduction

Blockchain technology has been a major disruptor in today's finance landscape. It has transformed cross-border payments, challenged fiat currency, enabled decentralized exchanges, and promises to do much more. Major financial institutions such as the HKEX and ASX are now exploring its value in post-trade processing due to its ability to maintain a secure, accessible, trustworthy ledger. It is Adventum Technology's view that the next area for blockchain to disrupt is financial derivative processing.

Adventum Technology will present a decentralized system for writing and trading financial derivatives using Stellar's decentralized ledger protocol. We will showcase the following:

Improvements Blockchain Enables over Traditional Derivative Market Infrastructure
  • Decreased Market Friction:
    The incumbent derivatives market has a large amount of friction due to the numerous middlemen required to provide market access, facilitate trades, and lower counterparty risks. CME, a large derivative marketplace, charges $.725 to clear a derivative. Our protocol processes derivatives for less than $.0001.

  • Increased Market Accessibility:
    Market accessibility is an issue in derivative markets. Investors outside of rich countries often do not have efficient market access. Building our solution on a decentralized ledger means anyone with an internet connection can use it.

  • Increased Market Flexibility:
    Stellar's custom asset solution combined with the flexibility of our solution enables users to write derivatives with any underlying asset. This is revolutionary for over-the-counter derivatives markets.

Methods we use to process financial derivatives
  • Holding Accounts:
    We utilize a smart contract protocol to create and manage holding accounts. These accounts are used to hold margin or underlying deposits to reduce counterparty risk.

  • Preauthorized Transactions:
    We utilize Stellar's preauthorized transactions feature to facilitate derivatives without the need for a third-party intermediary.

  • Lock and Key Assets:
    We make our derivatives tradeable with a unique custom asset solution. Users issue cryptographic tokens that serve as "keys" for derivative contracts and represent contract ownership. This makes our derivatives tradeable on any number of decentralized or traditional exchanges.

For more information on the solution we plan to present please see our website: http://optionblox.com/

Intermediate

Markus Paulson-Luna

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