Distributed Derivatives Contract Execution Platform

Distributed Derivatives Contract Execution Platform

Briefly describe the advantages of distributed ledger technology (DLT) in derivatives contract trading.

Explain the role of smart contracts in the derivatives contract execution platform.

What role does BCML (Blockchain Markup Language) play in the system?

List and briefly describe the four stages of the interest rate swap (IRS) smart contract life cycle.

Explain the function of the oracle in the execution of the IRS smart contract and explain its necessity.

Describe how the system handles the retrieval and payment calculation of floating interest rates.

Explain how the system ensures the determinism of smart contract execution.

Describe the application of the "monotonicity" principle in ensuring the correctness of oracle information.

List and briefly describe three key indicators for evaluating the performance of blockchain architecture.

Briefly describe the role of "shadow chains" in the enterprise-level deployment of blockchain technology.

Quiz Answers

DLT reduces transaction costs by improving security through decentralization, reducing dependence on intermediaries, and increasing transaction speed and settlement efficiency. In addition, DLT can enhance transparency and simplify the audit process.

Smart contracts convert contract terms into self-executing code, eliminating ambiguity and reducing external dependencies. This improves efficiency, reduces costs, and enhances the security and transparency of contract execution.

BCML is a message format within the platform that is used to create, execute, and store smart contracts. It is based on FPML, contains all parameters and values ​​in FPML, and stores a list of pending events, a list of events that have occurred, the counterparty's account balance, and the net payment amount.

The four stages are: 1) Negotiation and Agreement: The counterparties use the platform to negotiate and determine the terms and details of the IRS contract. 2) Deployment: The finalized contract is converted into a BCML object and deployed on the blockchain. 3) Execution: The oracle triggers events based on the contract terms, and the chaincode executes the event and updates the contract status on the blockchain. 4) Completion: The contract expires or triggers a termination condition, and the final status is recorded on the blockchain.

The oracle is responsible for obtaining the data required for the execution of the smart contract from the outside, such as interest rates, and passing the data to the chaincode securely and reliably. Since the chaincode cannot directly access external data, the oracle is a necessary component to ensure the correct execution of the smart contract.

The oracle obtains the floating rate from an external data source on the scheduled calculation date and sends it to the chaincode. The chaincode calculates the floating payment amount based on the received interest rate, contract term and other parameters, and records the result on the blockchain.

The system ensures determinism through the following mechanisms: 1) The chaincode can only access data on the blockchain and cannot make external calls or store off-chain states; 2) The chaincode obtains time information through the oracle to avoid uncertainty caused by clock asynchrony between nodes.

The monotonicity principle requires that the order of time and events must be consistent. The chaincode ensures that events occur in the predetermined order by checking the event timestamps sent by the oracle to prevent the oracle from sending wrong or malicious information.

The three key indicators are: 1) Transaction throughput: the number of transactions processed per second, which determines the processing capacity of the system; 2) Transaction confirmation delay: the average time from transaction submission to confirmation, which affects the user experience; 3) Security: the ability of the system to resist various attacks, which is a key indicator of system reliability.

"Shadow chain" refers to a blockchain environment running in parallel with the production environment, which is used to test and verify blockchain technology. It can receive and process real transaction data without affecting the operation of production systems, thereby evaluating the performance and reliability of blockchain technology without affecting business.

Glossary of Key Terms

Term Definition Distributed Ledger Technology (DLT) A database technology that shares, replicates and synchronizes data between multiple parties. Smart Contract A computer program that automatically executes the terms of a contract. Blockchain A list of transaction records linked in chronological order, protected by cryptography. Oracle A third-party service that provides external data to smart contracts. Interest Rate Swap (IRS) A financial derivative contract in which the two parties agree to exchange fixed and floating interest rate cash flows over a future period of time. FPML (Financial Product Markup Language) An XML standard for exchanging information about financial derivative contracts. BCML (Blockchain Markup Language) An internal message format for creating, executing and storing smart contracts. Hyperledger Fabric An open source enterprise-level blockchain platform. Monotonicity means that the order of time and events must be consistent. Shadow Chain A blockchain environment that runs in parallel with the production environment to test and verify blockchain technology