Derivatives are used to transfer risk from one person to another in financial markets. You can think of derivatives as insurance contracts on the variation of a value, expressed as an underlying asset. This underlying asset can be something such as the price of ether in USD.
The logic of a derivative contract is actually quite simple: on one hand, a lot of people, companies, and institutions are looking for a risk-free financial environment, where there is no significant variation in the price of specific assets. On the other hand, individuals, companies, and institutions are looking for financial variations because they want to speculate on and benefit from them.
For example, a company that supplies rice will want to ensure that the price of rice will not be overly costly in 2018. The company wants predictability and is willing to pay a fee for it. On the other side, traders will want to speculate on the price of rice and will not care whether the price goes up or down, only that it will change a lot (following their predictions). Traders are actively looking for volatility.
So there are two kinds of actors in the derivatives market: the person who wants to hedge, i.e. cover their risk, and the person who wants to be moreexposed to risk, i.e. the speculator. The speculator is counterparty to the hedger and literally takes the hedger’s risk.
In practice, the hedging party will neither lose nor gain money during the duration of the derivative contract, and the speculator will either lose or gain more than if they did not enter into the contract.
Blockchain Smart Derivatives Trading
The main benefits of Taurus will become quickly apparent to those who keep track of ICOs and blockchain start-ups. The project is not a cryptocurrency exchange but rather a base layer protocol that enables exchanges in the derivatives market. What is special about Taurus is that its protocol can serve any independent app and its transactions are not limited to cryptocurrencies but can be used for any kind of asset. Taurus is also open source and 100% distributed.
How it Works
- It is not an exchange on its own. It is rather a market-maker protocol with native support for centralized and decentralized exchanges. The use of smart contracts eliminates the need to rely on a broker to trade assets. Reducing reliance on an intermediary reduces the risks and costs of derivatives trading.
- It is not limited to cryptocurrencies but can be used for trading any kind of asset. The protocol is built on the Ethereum blockchain and works in a peer to peer network distributed via off-chain and on-chain protocols.
- The hybrid off-chain orders, on-chain settlement model enables any type of asset (not only crypto) to work on the platform and makes the protocol capable of powering any centralized or decentralized exchange.
The protocol works using dualsig peer to peer contracts which are created, signed and shared off-chain. It allows any entity to issue contracts secured by asymmetric cryptography. A user (buyer or seller) creates a signed smart derivative using the protocol, which specific conditions and a set expiration date. The contract can then be shared. Anyone can take the contract, negotiate conditions, and sign it using the Taurus0x platform. After both parties have signed the contract, it goes to the ethereum blockchain and is executed when the conditions are met. Each transaction is stored forever on the blockchain, which allows exchanges to match orders and verify and publish transactions.
According to the whitepaper, the Taurus v1 platform and the Taurus0x API Service will be released in the third quarter of 2018. During this time, the project will also start pursuing exchange partnerships. Taurus0x’s plans for 2019 include the release of an iOS and Android app early in the year and the release of Taurus v2 in the second quarter, along with DAO development and cross-chain development.
The project will soon be launching on Betanet. The platform will be fully functional and ready at the time of the beta launch, which is set for July 3rd, a few days before the token generation event. The first round of the main token sale will run from July 7 to July 26 with a 20% discount. 10,000 TAUR tokens will sell for 1 ETH (not including discounts). The total supply will be 250,000,000 TAUR. The hard cap is 20,408 ETH.
This is an interesting project because of the versatility of its products. The exchange protocol Taurus0x is developing is not limited to cryptocurrencies. It can be used for trading any kind of asset. The protocol will also work with centralized and decentralized platforms. The diversity of use cases for the Taurus0x platform bodes well for the success of the project.