Opium Protocol Allows Traders to Hedge or Bet Against the Stablecoin Tether's Solvency
Cryptocurrency traders can now protect their tether tokens or bet against the solvency of the stablecoin by leveraging a new crypto derivatives product from the Opium Protocol. Opium founder, Andrey Belyakov, claims the product is the “first CDS (credit default swap) on a centralized stablecoin.”
The stablecoin tether (USDT) is the most popular dollar-pegged token out there today, as it captures a large market cap and significant trade volume. Tether’s market valuation is around $14.1 billion and the token has around $13.6 billion in global trade volume on Sunday afternoon.
In addition to the stablecoin’s popularity, being number one comes with significant criticism.
Over the last few years, a number of people have speculated on whether or not tether (USDT) is backed by real dollars. Especially given the fact that roughly $10 billion worth of the market cap grew in 2020.
In the spring of 2019, court documents revealed that every tether was supported by “cash and cash equivalents.” The founder of the Opium Protocol, Andrey Belyakov, says his team has designed a credit default swap (CDS) on USDT.
The new CDS will allow users to protect their investment in USDT or even bet against the controversial stablecoin. “Opium Protocol is proud to announce the very first CDS (Credit Default Swap) on a centralized stablecoin — USDT,” Belyakov detailed in a blog post.
Belyakov further added:
You can use it to protect yourself against (or speculate on) a systemic failure of the most widely used stablecoin in crypto. It also allows you to earn interest on your capital in case you are willing to bet on the quality and sustainability of USDT.
Belyakov explained that financial products like derivatives are perfect for centralized stablecoins and “CDSs are used to insure against credit default events.” The Opium founder notes that these centralized stablecoins can be defined as “credit notes.”
“For example, USDC can be regarded as a credit issued by Coinbase, GUSD is issued by Gemini and USDT is issued by a firm called Tether, which is closely associated with Bitfinex,” Belyakov details.
The Opium founder highlights that USDT in particular has been scrutinized over the company’s reserve status. Belyakov also reveals the project will leverage Chainlink’s price oracle tied to the USDT-USD price and he believes the product will be a great tool for risk management going forward.
“[Opium Protocol is] using a decentralized Chainlink price oracle to trigger the derivative logic in the most reliable way,” Belyakov concludes. “At maturity, a USDT-USD price oracle is used to determine whether the market price of USDT is still on a peg or has fallen below $0.95 USD — which would pay out the collateral to the CDS buyer. For example, if USDT is traded at 70 cents per dollar at maturity the CDS holder will receive 30 cents per dollar to compensate for a loss.”
What do you think about the Opium Protocol’s new crypto derivatives product tied to the stablecoin tether? Let us know what you think about this subject in the comments below.
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