Atomic Swaps As Options: A Derivative Finance Approach
10 Pages Posted: 13 Jun 2022
Date Written: June 4, 2022
We investigate how no-arbitrage conditions from finance impact the applicability of conventional distributed-computing tools in DeFi. Many synchronization proto- cols resemble derivative structures and are therefore priceable using standard tech- niques. By applying these techniques to stylized synchronization protocols we can see how dynamic-replication trading imposes severe limits on what can be achieved. What we find are emergent conflicts of interest when financially-motivated trading counterparties are also participants in a cooperative recordkeeping system.
Keywords: DeFi, distributed computing, compound options
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