The Decentralized Derivatives Association (DDA) is a cooperative set up to provide risk management tools to cryptocurrency users. We recognize that true adoption of cryptocurrencies will only occur when price volatility can be harnessed. To accomplish this, DDA is preparing to launch the first decentralized derivatives product on Ethereum. The seemingly simple task of a functioning market for risk transfer has proved a notable foe for the financial developers on Ethereum. With the complicated and ever-changing regulatory environment and a system that is upgrading faster that most normal development cycles, its hardly a mystery why many are trying yet none have succeeded at the task. There are no options for peer to peer derivatives on these networks and DDA will be the first to market with a range of products for hedging risk and taking positions.

What we’re building

Derivatives are products that say I’ll give you X in the future based on the change in Y. Here’s an example of a potential contract:

Kathy and I each place 100 dollars into a jar. We get paid from that jar based on the change in the temperature between right now and 5 pm tonight. If the measured temperature at 5 is higher, Kathy gets her 100 dollars back plus 1 dollar of mine for every degree above the original temperature. If the temperature is lower, I get my 100 dollars back and 1 of Kathy’s for every degree lower it is.

DDA creates a program that acts as the jar and automatically executes the entire contract.

DDA Example Product

To move even further down the rabbit hole, DDA tokenizes the contracts. This means that a position in the contract is owned not by the entering party but by a series of tokens given to the party (e.g. Alice gets 100 tokens representing Payout X in the future). Now Alice and Bob can trade all or part of their position in that contract to any third party.

What exactly is this?

At its core, DDA products are financial contracts that change value based upon the input of an outside source of information. The difference between these contracts and other attempts at derivatives or other risk hedging products are:

· Products are not tied to one exchange

· Products are not subject to counterparty risk (they are fully collateralized)

· Fully custom products allow for specific risks to be targeted (not limited to just ETH)

· Products can be traded anonymously

What this enables

The decentralized world needs a way to hedge the price risk of cryptocurrencies as well as a mechanism for transferring real world risk on the Ethereum blockchain. A functioning risk transfer market is the backbone of an advanced market economy. Whether it’s businesses needing to hedge currency risk or parties seeking exposure to a certain asset, a derivatives market is imperative for longer term planning and risk mitigation for a financial system. If Ethereum will ever make the leap from crypto-science project to handling true stores of value and business processes, a derivatives market that accepts all customers on the system is a prerequisite.

DDA’s products fill this void.

Although some have called them prediction markets, some futures or options platforms, and still others the longer term ‘stable coin’; the underlying function of a value derived from some other asset or rate’s value is the same. The ability to customize DDA products enables the following and more:

· Stable Coins

If you hold ETH and are shorting ETH, and this combined position is a token, you have a stable coin. It’s as simple as that. The only downfall is: what is the cost? DDA’s products have full collateralization, a sometimes-costly endeavor, and require contracts to be rolled from one expiration to another. A tokenized short position in an ETH/USD DDA contract can act as a transparent and easy-to-understand stable coin.

· Prediction Markets

A prediction market is in many ways another word for a derivatives exchange mixed with a gambling website. The underlying products are almost always derivatives; the only difference is that the reference rate can be on politics, or sports, or another non-price at which point the nomenclature ‘prediction market’ slides easier off the tongue than casino. At their core, they are solving the same problems as derivatives markets and a functioning, truly custom derivatives product can incorporate all the functionality of a prediction market without the unnecessary regulatory sidestepping.

· Cross Border/ Chain risk

A burgeoning technology is that of cross chain transfers. The system will rise to a whole new level when these abilities are seamless, borderless and trustless; however, for the meantime, cross chain transfer of risk will serve a large portion of the end users needs. Whether a party on the Ethereum wants Bitcoin exposure without the transaction fees and centralization of the exchanges, or a party desires to hedge price risk on an exchange in a jurisdiction which they are not approved to do business; derivatives allow parties to hedge risk or gain exposure in the native token of Ethereum. Having this ability will not only create incentives for openness across borders, but will also allow for speculators to move exposure to a chain with simpler and more liquid decentralized exchanges.

Stable coins, prediction markets, and cross border (or chain) price risk are issues and solutions that do not exist, and are not needed, in societies that have an efficient derivatives market. The launching of bitcoin futures (or other crypto futures) and the push towards a regulated market will provide liquidity for the network, however does not address the fundamental need for the network which is a truly open, portable and unstoppable application available to all users.

The future

DDA is taking members now. We plan to offer custom risk tools through our website and hopes to partner with decentralized and centralized exchanges to bring additional tools to members.

The old model of trusting an exchange to hold your money and calculate outcomes is over. DDA realizes the necessity of derivatives to increase adoption and usability of cryptocurrencies. If you’re a crypto user and you need a hedging solution, come join us.

For more information: www.ddacoop.org