Atomic Swaptions: Cryptocurrency Derivatives
This addresses the need for decentralized derivative trading in cryptocurrency markets, offering a novel protocol for participants seeking trustless financial instruments.
The paper tackles the problem of enabling trustless exchange of cryptocurrency derivatives like options and futures by proposing atomic swaptions, which extend atomic swaps without requiring oracles, and also introduces margin contracts for leveraged and short positions.
The atomic swap protocol allows for the exchange of cryptocurrencies on different blockchains without the need to trust a third-party. However, market participants who desire to hold derivative assets such as options or futures would also benefit from trustless exchange. In this paper I propose the atomic swaption, which extends the atomic swap to allow for such exchanges. Crucially, atomic swaptions do not require the use of oracles. I also introduce the margin contract, which provides the ability to create leveraged and short positions. Lastly, I discuss how atomic swaptions may be routed on the Lightning Network.