Decentralized finance is currently one of the flagship areas of the crypto ecosystem. A field that is only limited by the imagination of developers leveraging blockchain technology to democratize tools once reserved for traditional finance.
Strips Finance is thus the world’s first decentralized platform for trading interest rate derivatives. A sector that is specialized and unknown to the general public, which nevertheless represents a huge part of traditional finance with volumes reaching $435,000 billion in 2019.
This promotional article is brought to you in collaboration with Strips Finance.
Interest rate swaps, a major pillar of the global financial system
A “swap” is a contract in which investors (usually banks or financial institutions) agree to exchange one cash flow for another, according to pre-specified terms and conditions.
The value of swaps depends essentially on the value of the underlying assets and is therefore a “derivative” product. In the case of Strips Finance, the asset in question is an interest rate. Swaps are essentially used for hedging or speculation purposes. They are traded over-the-counter, but until now have only been accessible to financial professionals through banks.
Take back the power!
Thanks to Strips Finance, the banking hegemony over global finance is once again being shaken by the ingenuity of crypto players. With decentralization, small holders finally have direct access to powerful financial tools, previously reserved for institutions. And interest rate SWAPs, which still account for 80% of the global derivatives market, were still sorely missing.
The fluctuation of interest rates that lenders and borrowers pay and receive is a recurring problem in decentralised finance. Indeed, it is not uncommon for ” field farmers ” to see projects collapse after gaining popularity. This is a major pitfall, and there has been no effective response to it until now.
Financial opportunity taken to the extreme
Specifically, Strips Finance is an interest rate trading exchange currently hosted on the <a href=”https://journalducoin.com/actualites/transactions-bsc-nouvel-ath/” target=”_blank” rel”Binance Smart Chain, side-chain proposed by the giant Binance. Only interest flows are exchanged, no transaction is made on your deposited capital, which only has the role of “collateral” on the platform. It is a trade between investors who want to reduce their risk exposure by betting on fixed rates to compensate for their possible investments or loans at variable rates and others who want to speculate on these rate variations.
A “smart-contract” is then concluded on the application which will automatically manage the ins and outs, as well as the possible levers which it will have seemed good to add to the agreement: At fixed dates, the first will pay to the second the interests drawn from the investment at fixed rate, and vice versa. A decrease will suit the one who chose the variable rate, an increase, the one who bet on the fixed rate. In simple terms, the variations will benefit some to the detriment of others. You have just understood that for there to be a winner, there must necessarily be a loser.
These protocols, like all financial products, carry significant liquidation risks. They are sophisticated and complex tools and it is crucial to understand the mechanisms in depth before trying them. Aware of the risks, Strips Finance is launching an insurance pool in parallel with its swap protocol as a form of protection. A protection granted to investors who will participate in the process by staking in the smart-contract STRP, the native token of Strips Finance, and USDC.
The compensation fund will be funded through various means, namely:
- 5% of all “profits” made by ” Automated Market Makers “
- 5% of all trading fees
- Liquidation profits
This is an important step in the emancipatory vision proposed by the company, because if the professionals of the sector know the workings of these complex mechanisms, the opening to individuals had to be carried out responsibly. By offering credible safeguards, as well as a clear, friendly and unambiguous interface, Strips Finance fully assumes its role as a creator of opportunities, in the true sovereign tradition advocated by blockchain technology.
To make this adventure a success, Strips Finance has spared no effort to make a field that might seem austere to many. Animations triggered by earnings, ranking of traders, gifts linked to certain daily objectives, lotteries linked to volumes, live sharing of positions on Twitter, everything is done to motivate investors to push the protocol to its limits.
An original approach, an absolutely colossal sector, an ambitious approach and faithful to the “Blockchain” spirit, a whole set of qualities that have seduced many giants of the sector, such as Crypto.com or DeFi Alliance. And this is perhaps the best proof of the future that the company could provide.