Instructors: Andreas Park
Commercial Paper/T-Bill like securities
1 ETH = 150 DAI
collateralization ratio 125%
seller
buyer
supplies 1 ETH collateral today
mints (=borrows) 100 yDAI to be repaid in 1 year
y
receives 92 DAI today
pays 92 DAI today
y
receives 100 yDAI
repays loan with 100 DAI
deposits yDAI and receives 100 DAI
seller
buyer
Scenario 1: ETH \(\ge\)125 DAI
deposits 100 yDAI
withdraws 100 DAI
receives balance of 1 ETH - 100 DAI
What does the seller own (ignore keeper fee)?
seller
buyer
Scenario 2: ETH falls to <125 DAI
keeper
closes undercollateralized position \(\to\) sells 0.8 ETH for 100 DAI
receives 100 DAI early
receives balance
of 0.2 ETH
Futures-like securities
Perpetual futures on Bitcoin on dYdX
Perpetual futures on dYdX
Example
Date: Oct 27, 2021
Example
Scenario: ETH \(\downarrow\) 7.5% to 1,850
1 ETH=
1,850 USDC
1,800 USDC
\(\frac{1,850}{1,800}-1=2.78\%\)
Scenario: ETH \(\uparrow\) 10% to 2,200
1 ETH=
2,200 USDC
1,800 USDC
\(\frac{2,200}{1,800}-1=22\%\)
Options for the trader
What will happen
long balance
(what you will get)
short balance
(what you owe)
margin
1 ETH=
2,000 USDC
2,000-200
=1,800 USDC
\(\frac{2,000}{1,800}-1=11\%\)
Beginning
Smart Contract Derivatives with Synthetix
Note: this screenshot is from June 2021; the equity synths have since been removed
Smart Contract Derivatives with Synthetix: how does it work?
Example for Synthetix
assets
price
quantity
fraction of debt
BTC
ETH
USDC
10,000
1,000
1
2
20
20,000
total debt: 60,000
33% of 60,000=20,000
33%
33%
2 sBTC
20 sETH
20,000 sUSDC
minted
gain/loss
Example for Synthetix: prices for ETH and BTC up
assets
price
quantity
fraction of debt
BTC
ETH
USDC
20,000
5,000
1
2
20
20,000
total debt: 160,000
33%=53,333
2 sBTC
20 sETH
20,000 sUSDC
minted
gain/loss
33%=53,333
33%=53,333
40,000-53,333
=-13,333
100,000-53,333
=46,667
20,000-53,333
=-33,333
you effectively bet that your position outperforms the pool
Example for Synthetix: prices for ETH and BTC down
assets
price
quantity
fraction of debt
BTC
ETH
USDC
5,000
500
1
2
20
20,000
total debt: 40,000
33%=13,333
2 sBTC
20 sETH
20,000 sUSDC
minted
gain/loss
10,000-13,333
=-3,333
20,000-13,333
=7,777
33%=13,333
33%=13,333
10,000-13,333
=-3,333
main product:
BTC perpetual futures contract
initial margin =
amount of collateral needed to be posted
maintenance margin =
amount of price movement after which collateral needs to be replenished
Source: Harvey, Ramachandran, and Santoro (2020)
ETF-like securities
Securities Creation: Tokensets
idea: create new mutual fund like asset
Securities Creation: Tokensets