The World’s First Option Smart Contract CUSE Gets Listed on OAX
On September 14, the world’s first option smart contract CUSE gets listed on OAX exchange platform.
This is a significant innovation of blockchain and financial derivatives, which will also enable financial instruments to play an important role in blockchain application and token economy area.
Recently, there have been many chaos in the field of blockchain investment. Many projects began to dump large amounts of Ethereum after having completed ICO, which caused a sharp devaluation of ETH. Meanwhile, the project teams do not spend their time on project development, leaving investors with nothing.
From the perspective of blockchain industry governance, how to make the interests of project teams and investors consistent, and promote the long-term sustainable development of blockchain technology has become a very important issue.
As for investors, how to enhance risk management in the high-risk cryptocurrency market, is also must be considered ahead.
In August 2018, Usechain option contract made its world debut and entered the 1.2 trillion financial derivatives market. Options using smart contracts can not only provide a protection for investors’ interests but also impose constraints on the project team.
What’s Option?
In finance, an option is a contract which gives the buyer (the owner or holder of the option) the right, but not the obligation, to buy or sell an underlying asset or instrument at a specified strike price on a specified date, depending on the form of the option.
Characteristics of Options
So what’s the function of options in investment area? Take stock options as an example: As a financial derivative instrument, stock option has the functions of asset allocation, price discovery, and risk measurement and management.
1.Stock options provide an easy-to-use “insurance” that allows investors to have the opportunity to make profit when managing risk.
2 Options can effectively measure and manage the risk of market volatility.
3 Options can reveal risks more comprehensively.
4 Options are the flexible basic building blocks that drive market innovation.
In general, as a financial derivative, options have a strong appeal to investors in high-volatility markets. On one hand, financial derivatives can be used to hedge, which is popular in high-risk markets. On the other hand, high volatility can also be of interest to investors because of the potential for huge returns.
Usechain Option Contract:
With the gradual improvement of the digital currency industry ecosystem, cryptocurrency transactions have also formed a basically complete industrial chain, with spot and futures all over the place. The concept of options has also been introduced.
In August 2018, Usechain Option Contract made its world debut. By customizing the option contract PUSE for USE, Usechain gives investors great confidence to invest in the bear market. This also fully reflects the determination of Usechain to achieve financial innovation. Using smart contract, PUSE gives the investor the right to exchange their USE to ETH. Since the smart contract was written on the Ethereum, the issue of trust was solved.
In addition, a call option smart contract (Call on USE, a.k.a. CUSE) provided by a third party has appeared on Ethereum. The basic rule of CUSE is: If the user purchases a CUSE contract, each CUSE contract has the right to exchange one USE specified in the smart contract with a certain ETH for a certain period of time in the future.
Let’s look at an example of a USE call option:
On September 1, A sold short of USE. In order to prevent the loss caused by the increase in USE price, A bought a call option to hedge against possible risks.
The underlying asset of this option is USE, assuming the strike price of option is 7000Gwei (ie 0.000007ETH) and the expiration time is October 31, 2018.
In order to get this right, A pays 8000Gwei option fee; B sells this right and gets 8000Gwei.
*Gwei is an ETH unit. 1ETH=10⁹Gwei
Result 1: On October 31, 2018, the USE price rose to 18000 Gwei. At this point, A can ask B to sell him a USE at the price of 7000Gwei with the call option, and B must satisfy the request. Even if B does not hold USE, he must buy USE in the market price of 18,000 Gwei yuan/hand, and then sold to A at the strike price of 7000 Gwei.
A’s profit on the option is:
(18000–7000)-8000=3000Gwei.
B’s loss:
(7000–18000) +8000=-3000Gwei, a loss of 3000Gwei.
Result 2: On October 31, the USE price fell to 6000Gwei, that is, the market price was lower than the option strike price of 7000Gwei. A can choose to give up the option right, thus losing only 8000Gwei premium. And B earns 8000Gwei premium.
On September 14, CUSE gets listed on OAX exchange, which fully reflects the determination of Usechain as a financial public chain to achieve financial innovation.
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