On the Feasibility of Decentralized Derivatives Markets

TL;DR

This paper introduces Velocity, a decentralized derivatives market on Ethereum, demonstrating its feasibility, discussing implementation challenges, and analyzing smart contract security in financial applications.

Contribution

It presents Velocity, a novel decentralized derivatives trading platform on Ethereum, and evaluates security and development challenges of smart contract-based financial systems.

Findings

Velocity successfully enables decentralized derivatives trading.

Security validation confirms Solidity contract robustness.

Development challenges highlight areas for future improvement.

Abstract

In this paper, we present Velocity, a decentralized market deployed on Ethereum for trading a custom type of derivative option. To enable the smart contract to work, we also implement a price fetching tool called PriceGeth. We present this as a case study, noting challenges in development of the system that might be of independent interest to whose working on smart contract implementations. We also apply recent academic results on the security of the Solidity smart contract language in validating our codes security. Finally, we discuss more generally the use of smart contracts in modelling financial derivatives.