On the Feasibility of Decentralized Derivatives Markets
This is an incremental application of existing smart contract technology to financial derivatives, primarily for developers and researchers in decentralized finance.
The paper presents Velocity, a decentralized market on Ethereum for trading custom derivative options, and PriceGeth, a price fetching tool, as a case study highlighting development challenges and security validation using Solidity results.
In this paper, we present Velocity, a decentralized market deployed on Ethereum for trading a custom type of derivative option. To enable the smart contract to work, we also implement a price fetching tool called PriceGeth. We present this as a case study, noting challenges in development of the system that might be of independent interest to whose working on smart contract implementations. We also apply recent academic results on the security of the Solidity smart contract language in validating our codes security. Finally, we discuss more generally the use of smart contracts in modelling financial derivatives.