Project: Aragon Futures Exchange
The project I’m working on is a decentralised exchange for tokenised futures for ERC20 tokens.
What is it
A futures contract is a financial instrument that allows you to buy an asset and take delivery at some time in the future. It’s useful if you want to minimise the volatility risk associated with the underlying asset or of you want to expose your self to more of the risk (and thus earn a larger profit)
Aragon is a project that allows you to create and manage flexible DAOs, the token associated with the project is ANT.
My main motivation in building this project is to put into practice the knowledge I have gained from the smart contract 30 courses. I trade futures contracts for a living so its a concept I’m familiar with so I have quite a bit of scope to upgrade the project in the future. I am also an Aragon community member so its a project I know well
How does it work
Alice is a market maker providing liquidity for ANT on the 0x protocol. She uses her inventory of ANT to earn the bid-ask spread. Alice has no opinion on the future price of ANT she simply wants to remain delta neutral on her inventory of ANT (i.e. she wants the value of her ANT to remain the same in relation to DAI)
Bob is a trader, he believes ANT is undervalued and is about to start a massive bull run. He has an inventory of DAI he uses to make speculative trades
- On the 1st of July, Alice buys 1,000 ANT at 10 DAI per token
- She immediately places a sell order for 1,000 ANT at 11 DAI (expiring on the 1st of August) on the Aragon futures exchange. depositing 500 ANT as collateral
- Bob sees the futures order, even though the price is 10% higher than the spot price (today’s price), he thinks the price will be much higher by 1st August, he doesn’t want to lock up all his DAI buying at spot, so he is happy to buy the futures contract.
- Bob buys the 1,000 ANT futures contracts depositing 5,500 DAI as collateral
- At this point, Alice has locked in 1,000 DAI profit and she has 500 ANT inventory to trade with. Bob has locked in a price of 11 DAI and has 5,500 DAI to trade with
- On the 1st of August, the spot price of ANT is 14 DAI. The value of the Alice ANT is now 14,000 DAI however she has promised to sell it to Bob at 11,000 DAI. She now has 12 hours to send the rest of the ANT to futures exchange contract or she will forfeit the collateral and the claim on the DAI. She sends the remaining 500 ANT.
- Bob sends 5,500 DAI to fulfil his obligation. During the month he made an additional 3,000 DAI trading with the this 5,500 DAI which offset the 1,000 DAI premium he paid for the futures contract
- Both Alice and Bob withdraw their purchases from the exchange
- Alice is happy. She made a profit and hedged her risk
- Bob is happy he made a bigger profit than he would have simply bought at spot
you can follow my progress on GitHub here, I’m also happy to answer any questions or clarify anything that doesn’t make sense. Also if anyone is interested in collaborating with me on this or any other project just give me a shout