Auction Type Resolution on Smart Derivatives

TL;DR

This paper introduces an auction-based resolution mechanism for smart derivatives to facilitate dispute avoidance and improve liquidation processes in OTC markets, addressing practical and contractual challenges.

Contribution

It proposes a novel auction type resolution framework for smart derivatives, enhancing dispute resolution and liquidation procedures in decentralized markets.

Findings

Defines an auction resolution method for smart derivatives

Addresses dispute avoidance in OTC derivative markets

Proposes practical implementation for liquidation processes

Abstract

This paper proposes an auction type resolution for smart derivatives. It has been discussed to migrate derivatives contracts to smart contracts (smart derivatives). Automation is often discussed in this context. It is also important to prepare to avoid disputes from practical perspectives. There are controversial issues to terminate the relationship at defaults. In OTC derivative markets, master agreements define a basic policy for the liquidation process but there happened some disputes over these processes. We propose to define an auction type resolution in smart derivatives, which each participant would find beneficial.