Delta Exchange Launches Interest Rate Swap Contract For DAI
Delta Exchange Launches Interest Rate Swap Contract For DAI
July 25, 2020
Delta Exchange Launches Interest Rate Swap Contract For DAI
Delta Exchange Launches Interest Rate Swap Contract For DAI
July 25, 2020

Delta Exchange, a crypto derivatives platform, has announced the launch of an interest rate swap contract for DAI, MakerDAO’s dollar-pegged stablecoin.

It has been reported that the contract will allow its purchasers to enter interest swaps on the Dai Savings Rate, which the exchange sees as a way for Maker (MKR) borrowers to fix their stability fee interest payments that are routed into the Savings Rate as earnings for DAI holders.

However, interest rate swaps are a type of derivative contract established between two counterparties with opposite goals, similar to options and futures. One of the parties wants to lock in their interest rate payments to a fixed value to hedge the risk of a volatile interest rate, as this gives them a predictable payment schedule, which can be especially useful to borrowers.

The counterparty is obligated to pay a fixed interest rate at certain intervals, daily in the case of Delta’s contract.

ALSO READ :  US Authorities Arrests Three Men For Running Alleged $722 Million Crypto Ponzi Scheme

They will make money if the actual interest rate is higher than what they agreed to pay, and subsequently, they will lose money if the variable interest falls below the contract’s fixed rate.

Likewise, entering the contract means that one party is “bearish” on the variable rate, while the other is “bullish.” This opens the ground to speculation, as traders will make bets on the future value of the interest rate payments. Delta’s contract supports up to 160x leverage.

As reported, both the stability fees, the interest paid by borrowers, and Dai Savings Rate are set ad-hoc by Maker governance in periodic voting.

Since the introduction of Multi Collateral DAI, each asset has different stability fees, though the savings rate is one for all DAI. Curiously, the savings rate has been set to 0% since March 24.

The stability fee on Ether (ETH) is also 0% as of press time, though other assets can have interest rates of 2-4%.

ALSO READ :  RBI Confirms No Prohibition On Banking Services To Crypto Traders Or Companies

Similarly, the rates are set so low largely because of Dai’s consistent break of its $1 peg. It often trades above $1 following the events of Black Thursday. A low rate should thus entice borrowers to create new Dai at its supposed cost and sell it to the market.

It has been analyzed that with interest rates at zero, sellers of the swap contract could agree to pay some interest rate to its buyers, with the expectation that soon it will go up.

By using the contract, borrowers on the Maker platform could offset some of their losses to the stability fee in the future and hedge against erratic changes.

Thus, unlike other interest rate swaps where the dynamic percentages are market-driven, traders on Delta will be effectively speculating on the decisions of the Maker community.

Source: Cointelegraph | Image: Adcb


Crypto News Point a news platform of Digital Notice Media Labs is primarily a regular publication of information, commentary and articles focused extensively on fintech, blockchain technology, cryptocurrency, blockchain-based tokens, cryptocurrency market trends, and trading strategies. We do not provide individually tailored investment advice and does not take a subscriber’s or anyone’s circumstances into consideration when discussing investments, nor is Crypto News Point registered as an investment adviser or broker-dealer in any jurisdiction. Information contained herein is not an offer or solicitation to buy, hold, or sell any digital assets.

Affiliate Disclosure: To help support the work we do here at CNP, we often link to products and deals from around the web. Should you buy some of these, we may get a portion of the sale.

We in generally gather content from the major websites. In every article there is always a clear link and attribution to the source publication. If you have any issue with any of our published content taken from your site, kindly let us know so that we can take appropriate action. In any case, the content of the pages of this website is for your general information and use only. It is subject to change without notice.

You May Also like

Ishita Bora

Ishita Bora is a Senior Content Creator at Digital Notice Media Labs with an experience of 1 year. She has completed her Master's Degree in Language and Linguistics in 2019 from Gauhati University, India. Her interest lies in blockchain technology and cryptocurrency space. She loves writing about blockchain and other blockchain-related articles.