Derivative financial instruments
Today we will talk about derivative financial instruments, i.e. futures and options, details you may face dealing with, as well as discuss how the DDBTC project differs from such instruments and what its advantages are.
A derivative financial instrument or derivative is a liability in respect of another investment asset or commodity. Such instruments enable counterparties to agree to perform certain actions regarding the underlying asset.
In the stock market, there are derivative securities such as futures and options. In the cryptocurrency market, similar instruments have also emerged, and their value is based on digital assets.
Futures are one of the most demanded products on the stock exchange as well as crypto. They represent a liability, the seller has to deliver the underlying asset at a predetermined price, within a certain period of time, and the buyer is obliged to purchase it. The underlying asset can be any cryptocurrency. This allows crypto market members to speculate on the future value of cryptocurrencies, gaining access to more of the base cryptocurrency at a minimum market value.
With competent market forecasting, trading futures enables you to multiply the level of income, but at the same time increases the potential risk of losing money. Cryptocurrency futures are traded on almost all well-known crypto exchanges, including Binance, Bybit and others.
Another derivative instrument is an option. The buyer of an option purchases the right to buy or sell an asset within a certain period of time at a predetermined price. The operation principle of options is almost similar to the operation of futures.
However, buying a futures contract makes both parties of the transaction complete it. Buying an option requires only one party to meet the obligation, and the other party has the right not to do that as well. One of the most convenient and reliable exchanges for trading crypto options is deribit.com.
Futures and options are traded on an exchange and are designed for speculators mainly. In the second part of the article, I want to talk about the DDBTC derivative from the DeWrap team.
In 2019, a new project appeared on the cryptocurrency market, it is called Wrapped BTC. WBTC is a token that is developed on the Ethereum blockchain, but whose price is fixed to the price of Bitcoin one-to-one (BTC). In other words, the price of WBTC is always equal to the price of BTC. Before the development of this token, bitcoin could only be used in centralized structures (CEX). WBTC enables decentralised applications (DApps) running on the Ethereum blockchain to access Bitcoin. It is exchanged on decentralized exchanges (DEX) and also used as security on lending and derivatives platforms. It is a decentralized alternative to Bitcoin.
The DDBTC token is designed according to the same concept and its price is correlated to the price of WBTC, which in turn is related to the price of WBTC. The purpose of its establishment is to solve the inflation problem and to provide protection from speculation. New tokens are issued only upon replenishment of the liquidity pool, so their price cannot be diluted. The deflationary fee is deducted from the user after purchasing new tokens and added to the common pool that is distributed among all participants. This principle encourages users to hold the token for a long time. And due to value redistribution (meaning increasing the token’s value by fixing its price, and lacking the ability to reduce it to a lower level), its price is constantly increasing.
Therefore, the DDBTC derivative is an excellent opportunity to invest in Bitcoin for the long term, hedging the risks caused by its excessive volatility.
Why is DDBTC always rising?
Purchasing a DDBTC token, the buyer pays a membership fee of 15% from the investment. 6% of these funds are used to promote the project and developers, while the remaining 9% is redistributed among all participants. Thus, the total liquidity pool is replenished when new members are added, but is distributed among all existing members. That is why the longer you hold the token, the higher will be its price in WBTC equivalent.
The lock-up period for invested funds is 90 days. If an investor wants to withdraw tokens early, he or she will have to pay a penalty of 8% of the invested amount. These funds will also go into the liquidity pool and will be distributed among all participants, increasing the price of the DDBTC token.
The token is launched on the DeWrap platform, All tokens further released on it will be related to the main token. When each new token is sold, its founders must transfer 2% of the value to the DDBTC liquidity pool.
Therefore, buying a DDBTC token is investing in the growth potential of Bitcoin. At the same time, the system of distributing funds between participants enables to reduce the risks associated with high volatility of cryptocurrencies.
By Catherine Adiyak
