Carbon emissions are a crucial issue today. One proposed way to handle them is by issuing carbon credits to companies. These credits govern how much carbon companies can emit and can be traded between companies, so that they are used most efficiently. Using OptionBlox, with the help of a carbon credit anchor, companies could trade derivatives on their carbon credits.
Xiao is an executive at a major battery producer. Business is booming, and she wants to expand operations, however, her company needs to continually purchase more carbon credits to do so. As a result, future carbon credit price increases are a risk for this expansion. Xiao does some research and discovers OptionBlox. She realizes she can use our product to purchase carbon credit call options, hedging her company against the risk of carbon credit price increases. Her company purchases the calls and goes ahead with the expansion.
OTC derivatives are useful for all businesses. However, in order to enter an OTC derivative contract, the interested party must find a counter party and facilitating party. This creates issues for unsophisticated parties lacking relationships with these entities. A recent paper published by the IMF found that the OTC derivative market suffers from price discrimination. Unsophisticated parties lack market accessibility, and as a result, they pay larger spreads than sophisticated parties. OptionBlox solves this problem by removing facilitating parties from the equation, and by enabling derivative trading on an distributed ledger. This makes it much easier for unsophisticated parties to find a counter party, and eliminates their need to find a facilitating party.
Adam is a citizen and resident of Vietnam. He owns a clothing factory and most of his revenue is received in USD. However, most of his expenses are paid in Vietnamese Dong(VND). He would like to hedge against exchange rate fluctuations by entering an OTC USD:VND future. However, he is not a large enough client to have connections with foreign banks or facilitating parties in the derivatives market. To make things more difficult, foreign currency exchange is illegal in Vietnam. Adam finds out about OptionBlox and realizes it is the answer to his problems. Using OptionBlox, he enters into an OTC USD:VND future with a western bank that also wants to hedge against exchange rate fluctuations. Because he did not have to find a facilitating party, and had access to a wide range of counter parties, the spread he payed using OptionBlox was small. The distributed nature of the application also allowed him to circumvent local currency controls.
A primary concern for cryptocurrency holders is volatility. OptionBlox enables users to utilize financial derivatives to hedge against cryptocurrency volatility. OptionBlox's capability of supporting any asset pair means it supports a wide range of cryptocurrencies. In addition, OptionBlox's efficiency and accessibility results in lower fees and tighter spreads than competing solutions.
Latera is an investor. He believes in Stellar's future and wants to hold XLM. However, the volatility of cryptocurrency is a major deterrent. He comes across a tool called OptionBlox that allows him to enter into an option contract guaranteeing him the option to sell 100 XLM for $7.00 in one year's time. This hedges him against any potential downward movement by XLM. He purchases a large batch of contracts and enters into his XLM investment.
Central derivative post-trade processing is a time intensive and costly process. We believe that the eventual path of the industry is to move derivative processing onto a decentralized ledger. Once this transformation takes place, central parties could use our protocol to replace a majority of their post-trade processes.