May 12–13 the 8base team participated in, and ultimately won, the CoinDesk Consensus 2018 Building Blocks Hackathon challenge presented by AlphaPoint in New York City.

Representing 8base in the Consensus 2018 Building Blocks Hackathon was VP of Technology, Andrei Anisimov, Director of Design, Gabriel Kelly, and Engineering Team Lead, Evgeny Semushin. They participated in a weekend of building, hustling, and deep-diving into the blockchain industry’s most cutting edge developer tools alongside many of the world’s top blockchain developers vying to build the next killer smart contract app. Participants were allowed to build on top of any blockchain protocol and through various sponsor challenges, were encouraged to leverage the software and support made available to deliver their solutions.

The 8base team participated in the AlphaPoint challenge to build an application tied into a digital asset exchange, with guidelines to digitize an asset and integrate it into the blockchain, build a merchant processing application, build a market marking tool, and build a custom trading front end. Rising to the task, Andrei, Gabriel, and Evgeny were awarded first place by creating BlockSigma — a set of smart contracts that enable the creation and management of derivative contracts for crypto assets. The margin management is done on-chain and doesn’t require a centralized actor to ensure that the funds locked inside of the smart contract satisfy the maintenance margin requirements.

Inspiration

Derivatives are a big deal. Global derivatives are estimated to have a ~$500 trillion market capitalization. Comparing to $0.4T crypto, $38T liquid money and $73T global stock markets. Derivatives, such as options, futures and swaps are useful tools employed by banks, funds and companies to manage risk.

At the same time, derivatives are usually leveraged — meaning that counterparty doesn’t usually have funds in their account to necessarily cover all risks. This leads to a complex system of settlement, maintenance margin and margin calls. This system failed in 2008. Margin calls destroyed Lehman Brothers and others. Government had to bailout Wall Street to help unwind staggering amount of defaulted derivative agreements.

Andrei Anisimov and Evgeny Semushin — 8base

Andrei Anisimov and Evgeny Semushin — 8base

How they built it

The core innovation is fully on-chain margin management that requires no central party or oracle price feed. This was achieved by integrating with the Bancor protocol, which is growing in adoption and already facilitating millions of dollars of daily trading activity. Bancor uses a deterministic price formula that is calculated based on supply and demand of a token. As such, BlockSigma can get token price at any given moment on-chain, which allows the calculation of the maintenance margin requirement and the ability to trigger a margin call.

Additionally, BlockSigma integrated the AlphaPoint trading platform to enable trading of the option contracts created. In the future, BlockSigma’s option management user interface would allow trading derivatives just like traditional brokers like Bloomberg or TD Ameritrade.

Winning first place

After many grueling hours building this solution, our team presented BlockSigma and was awarded the first place prize by AlphaPoint based on the criteria of: it’s use of distributed ledger technology, implementation and tech quality, a solution to a real life problem, presentation quality, and market readiness.