How Do Smart Contracts on a Blockchain Automate Financial Derivatives?
Smart contracts are self-executing contracts with the terms of the agreement directly written into code. They can automate the execution of derivative agreements, such as options or swaps, by automatically triggering payments or asset exchanges when predefined market conditions (like price feeds) are met, eliminating the need for a trusted intermediary.
Glossar
Smart Contracts
Function ⎊ Smart contracts are self-executing agreements with the terms of the agreement directly written into lines of code, residing on a decentralized ledger.
Market Conditions
Volatility Correlation ⎊ Market Conditions, specifically the prevailing level of realized and implied volatility for the underlying crypto asset, are the primary input for pricing options and setting margin requirements for futures contracts.
Blockchain
Architecture ⎊ A blockchain represents a distributed, immutable ledger system, fundamentally designed to record transactions across a network of computers.
Options
Hedging ⎊ The primary strategic application of these instruments, allowing market participants to offset potential adverse price movements in their underlying crypto holdings.