What Are the Challenges of Valuing and Pricing Derivatives Managed by Smart Contracts?

One major challenge is the reliance on oracles for real-time price feeds. The accuracy and timeliness of this external data are crucial for correct valuation, and any manipulation or delay can lead to incorrect pricing and liquidations.

Another challenge is network latency and transaction costs (gas fees) on the blockchain, which can create discrepancies between the on-chain price and the real-world market price. Additionally, the inherent volatility of cryptocurrency collateral can complicate risk and value assessment for long-term derivative contracts.