Financial instruments on crypto-assets

Abhinav Ramesh
Jul 27, 2017 · 3 min read

Currently investing in cryptocurrency ABC could take place by either exchanging fiat currency for ABC or by exchanging fiat currency for bitcoin and then converting to ABC. Using WandX, you can create and trade in instruments that help you invest in multiple cryptocurrencies at once, hence potentially maximising your returns as well as lowering your risk.This would look something like 0.4*ABC + 0.3 * DEF + 0.3 * GHI. This need not be only cryptocurrencies, but any crypto-assets that are traded on the WandX platform. By any crypto-assets, I mean blockchains that generate cryptocurrencies as transfers of value and blockchains that record real world assets such as artwork, diamonds, precious metals, land records. This would allow market makers to create products with a lucrative risk-return ratio, hence making the crypto-assets much more liquid.

The WandX framework can be used to create a variety of financial instruments.

There are various other financial instruments that you can create:

  • A concept that we are working on is instruments to short crypto-assets. This would be more difficult than investment instruments since we would have to set up escrow accounts and a method by which the user wanting to short the asset will pay back the user who will lend the asset. This can also be done through options offered on our Derivatives DEX. We will bring this functionality into WandX 2.0.
  • Price variation swaps: If the price variation of a particular currency is high, and there are two users on two different platforms, they might be willing to exchange the price rise/fall risk with each other through a swap contract, similar to interest rate swaps and currency swaps.
  • Insurance on the asset: When you invest in a portfolio of assets or a product, you can buy insurance on that product through insurance contracts that can be created on WandX. This will guarantee you a certain return even if the asset value goes down. This is similar to the credit default swap (the instrument that was “instrumental” in the financial crash of 2008) with one major difference — the collateral that the insurer has currently is the maximum amount to which he can be leveraged. In the financial crash, many insurers were insuring risky products, say to the tune of $1 trillion, in spite of having only $100 billion in collateral. Although the probability of many companies defaulting is low, that’s exactly what happened in 2008.
  • Tranching a derivative: Investment vehicles such as mutual funds, asset combined products can be tranched with returns going to senior investors first, then junior investors. This is similar to tranching a CDO in the real world.
Overview of the WandX beta.

There are two ways to look at the products that can be created on WandX — Using established cryptocurrency to invest, and speculating on the movement of different markets through custom derivatives created either by an DEX (decentralized exchange) on WandX or through the OTC markets on WandX. Our aim is to create a framework for creating any financial instrument on crypt0-assets. Check us out at wandx.co to learn more!

Abhinav Ramesh

Written by

Founder at wandx.co. Ironman finisher.

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