Functionalities

The Deriveum token will have unique characteristics, enabling it to function as multi-layered collateral to any derivative deal:

  • limited in amount;
  • indivisible;
  • transparent market participants;
  • smart contract;
  • free choice of event verifiers and dispute resolvers;
  • used as a collateral in deals;
  • evolutionary;
  • automated and public price stabilization mechanism.

 

Fundamentally, the key issue with CDS derivatives is the collateral (money, securities, bonds or other assets) used to underline the security. Both parties in the derivative transaction would like to hold it, because a) the counterparty needs it for its business activities and b) the derivative holder has no legal certainty that in case of counterparty failure the contract will be fulfilled. To get out of this situation there are at least two possible solutions – to use additional collateral or  set up the collateral with an option of changing hands outside of the resolution procedure. We have decided to create a tool to do both.

Value is based on exclusivity; hence our token will have hard-cap. Fixed supply products increase their price as demand goes up, pretty much like housing costs in London: city conditions make it very hard to build and property prices keep going up. Our token may be used as the additional collateral that both parties need. Its unique functionalities are designed to give it advantage over any other form of collateral that may be used for similar purposes (see below for additional clarifications).

 

To provide clarity in pricing, as well as to uphold the commodity nature of the collateral our token will be indivisible.

 

Transparency of market participants is crucial for the functioning of the Deriveum platform. Firstly, legal certainty will increase for both parties as they may rely on state enforcement mechanisms for protection against abuse, fraud and theft. Secondly, market liquidity will increase because a greater number of financial institutions shall be able to participate. Thirdly, we will be able to comply with the US tax legislation and, unlike most other crypto currencies, get access to the world’s largest economy. To ensure transparency every token user will need to be identified through a valid state issued electronic signature. Only identified users may purchase tokens. The identification process will be easy, and fully compatible with most e-wallets.

 

An integral part of the token must be the automatic execution of contract between the derivative holder and the counterparty. Our token will utilize smart contracts, where users will have the absolute certainty that their contract will be executed as described by its terms. To ensure freedom during contracting, users will decide among themselves who will be the event verifier and dispute solvers. That function may be performed by Oracles (automated service – Please see Technical Note on Complete Automation for further information.  ), notaries, institutions or natural persons. The Central Cooperation Unit would also act as one if users fail to agree on other options.

 

To prevent token owners from using the same tokens as collateral for more than one contract, we have decided to block (disallow use or sale) the tokens once they have been collateralized. Since every smart contract will have a sunset clause (as every derivative contract does), as soon as the contract expires the token owner will be able to use or sell their tokens. In essence this feature would decrease the supply of tokens every time they are used as a collateral, but will increase that supply once the contract expires.

 

Lastly, we have decided to create an evolutionary (time limited) token. In 5 years the Deriveum token will be succeeded by technologically more advanced token. All tokens will be exchanged with the new one in one-to-one ratio. We have made special provisions for CDS contracts that will extend beyond the 5 year time-frame, where those tokens will be fully operational for the duration of their respective contracts.

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