Opium derivatives exchange introduced credit default swaps for USDT launching on Thursday which insures the buyer in the event of default with the issuer of the world’s largest stablecoin so let’s find out more in our Tether cryptocurrency news today.
In this case, a sharp drop in USDT’s price from the usual $1 is used as a proxy for USDT turning out to be insolvent. If the token falls to 70 cents, the writer of the contract will have to pay the buyer 30 cents at maturity. This is the second time in a month that the Opium derivatives exchange launched a CDS tied to a digital asset and these contracts have been around on Wall Street since the 1990s while gaining notoriety for their role during the 2008 financial crisis.
They were invited to manage risks and the prices offer markets an early warning sign of credit troubles. Unlike the paper agreements in the “Big short,” these new CDS are smart contracts and are stored on the Ethereum blockchain. The founder Andrey Belyakov said:
“Transfer of the insurance from people who know and are confident to people who’d like to be insured. Derivatives are just about transferring the risk. Some people would like to have the risk and get paid, some people would like to pay to get rid of risk.”
The investors don’t need to hold USDT to purchase the coverage as they can use CDS to bet against the asset while those who trust Tether, as Opium, said:
“You can use it to protect yourself against (or speculate on) a systemic failure of the most widely used stablecoin in crypto. It also allows you to earn interest on your capital in case you are willing to bet on the quality and sustainability of USDT.”
6/ The largest Swap deal on our platform was 1000 DAI
— Opium.Team (@Opium_Network) March 19, 2020
Paolo Ardoino, the chief technology officer at Tether explained that Tether is solvent and this solution is not really interesting to us or our community. The Opium Exchange rolled out a contract that ensures the buyers from defaults on “credit delegation” loans which is a form of unsecured borrowing on Aave. For both CDS products, the information about off-chain events that would trigger payouts is fed to the smart contracts by “oracle” service Chainlink. The CDS tethered to USDT can be optimized to pay out under different scenarios for example if stablecoins fall under a present value according to Stani Kulechov who advises Opium.
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