A follow-up on the smart contract
- DONs in Futures and options
As we said in our previous thread/post that DONs aim to offer the oracle resources with strong confidentiality, integrity, and accountability
With The DONs application, developers can create efficient off-chain data for their smart contract
Decentralized oracle nodes aid the functionality of how advanced financial instrument goes about their operation
These DONs serve as a main source of trusted feeds to decentralized Options i.e derivatives
- The role of DONs in options and Futures
Before looking at how DONs help in scaling the functionality of some stablecoin
Let's look at the meaning of futures and options:
What are futures: A future is a derivative agreement that involves the sale of something at a forward date with a predetermined price known as the forward price.
One can either go long or short on an asset & the person who agrees to go long on a contract is the person who agrees to buy the item in question and pays the forward price
While the person who agrees to go 'short' on the contract is willing to sell at the forward price.
What are Options: Options are Financial security sold from one investor to another i.e there is an agreement between two parties.
The buyer of an option pays a premium for the option writer or the person selling it in exchange for payment, which creates a window for the buyer to buy or sell a specified asset from or to the other party at a predetermined price in the future.
The way it works is, the seller promises the buyer that so long as the option is valid they will take the other side of the future buy or sell at a specified price to the underlined security.
A way to buy a share from the options side is called a 'call' and an option to sell a share is called a 'put'.
So with the implementation of derivatives in the Defi ecosystem, users can hedge their exposure to different cryptocurrencies in a more predictable format.
Decentralized Options in particular needs DONs to fetch in price feeds to support the functions of the contract.
- How DONs achieve the Oracle function for decentralized Option
Decentralized Options like @Opyn, @Gamma, @Polysynth, @Sheild, @FinNexus, @Pheonix, @Buffer_finance, @Twindex, @Risq_protocol use chainlink DONs to fetch in some data feed to achieve the following:
i. To ensure the platform's solvency
ii. Integrate real-time data to determine liquidation
iii. To dynamically help in setting the funding rate to maintain a net-neutral exposure
DONs can achieve each of the above-highlighted functions through the below simple process
- First Data is pulled from centralized and decentralized exchanges like @Binance, @coinbase, @Uniswap, @shushiswap
- The aggregated data is then received by the chainlink network nodes and aggregated, which then delivers it to on-chain data price feeds
- This process is achieved in a backward and forward format
So with the support of decentralized Oracle nodes, Decentralized futures can maintain a functional system that gives its users better exposure to the market.
