Crypto Default Swap
In the chapter of Credit Default Swap, we illustrate how CDS in traditional finance works. Here I will show how CDS differ in the crypto world.
Last updated
In the chapter of Credit Default Swap, we illustrate how CDS in traditional finance works. Here I will show how CDS differ in the crypto world.
Last updated
GyroX is a CDS platform in the crypto world and can issue CDS events in most fields. There are five specific categories currently. Users can issue CDS events in these five categories.
There are three different roles in GyroX: Issuer, LP (Liquidity Provider) and Buyer.
The issuer is the creator of the CDS event in GyroX, similar to the banker and security agent in traditional finance, they issue CDS events on specific topics.
If the CDS event occurs, which is a default, the issuer will compensate the buyers of the CDS.
LPs here is different from the many other DeFi protocol, it is not just a liquidity provider. His view is the same as that of the issuer if he provides liquidity for CDS.
LP will also compensate the buyer according to the proportion of the initial pool if defaults. If there is no default, the buyer's payment will also be charged in proportion to LPs.
Buyers are a significant part of GyroX's user base. They do some payments to get a chance to divert potential risks in the future. It's the same with traditional CDS.
An issuer creates a CDS named γThe price of bitcoin will plunge to $10,000 by 1st Julyγand the initial pool worth 100,000 USDT (all from the issuer).
LPs will stake their token is about worth 25,000 USDT to provide liquidity and be with the issuer.
If defaults, the issuer and LPs will pay the money to buyers, to the scale of the pool, the exact ratio is 4:1;
If no defaults, the issuer and LPs will capture buyers' payments as revenue.
The whale of bitcoin wanna hedge the risk of the price falling, so he pays some money to buy the CDS.
If defaults, the price of bitcoin plunges to $8,899 on 1st July, the whale will get compensation from the staking pool of the issuer and LPs;
If no defaults, the price of bitcoin keeps above $10,000, the whale will not receive any money, but instead, he locked in a portion of the solid profit from his position.
