Crypto Valley Exchange’s Smart Clearing service sets collateral levels in light of traded assets’ correlations, lowering capital requirements and making DeFi more competitive with traditional finance markets.
The Arbitrum-based derivatives platform Crypto Valley Exchange has introduced a new protocol called ‘Smart Clearing‘ to make its financial pipes more efficient. This service will lower collateral requirements for derivatives trades, making DeFi more competitive with traditional finance markets.
Crypto Valley Exchange is a digital asset trading platform based in Zug, Switzerland.
It was established to provide a secure and efficient way for investors to buy, sell, and trade 'cryptocurrencies'.
The exchange offers a range of features, including real-time order books, advanced charting tools, and multi-language support.
Crypto Valley Exchange has gained popularity among traders due to its high liquidity and competitive fees.
According to recent statistics, the exchange has seen a significant increase in user activity, with over 10,000 active accounts and a trading volume of $1 million daily.
How Smart Clearing Works
Crypto Valley Exchange‘s ‘smart clearing‘ service sets collateral levels in light of the traded assets’ correlations in price. This approach lowers the capital requirements for derivatives traders, reducing the amount of collateral needed to mitigate counterparty risk. By doing so, it can make DeFi more competitive with mainstream financial markets.
Smart clearing is an algorithmic trading strategy used in financial markets to optimize order execution and minimize market impact.
It involves using advanced mathematical models to predict price movements and execute trades at optimal times, reducing transaction costs and increasing liquidity.
Smart clearing can be applied to various asset classes, including stocks, options, and futures.
The Problem with Traditional Clearing
Traditional financial markets like CME and NYMEX rely on clearinghouses to be a trusted counterparty for every buyer and seller. They demand some collateral, but hardly 100%. DeFi markets, meanwhile, lack a trusted middleman, and so cannot afford to require anything less than full collateral.
This system works, but it’s not ideal. More collateral requirements mean traders have less capital to deploy elsewhere. The current approach limits the market’s growth, as CEO James Davies pointed out: ‘This is the one place where all of crypto is much more conservative than TradFi… We’re really, really undersized in this space, and that’s because clearing is needed to create this efficiency.’
The Benefits of Smart Clearing
Davies believes that smart clearing is the missing piece in DeFi‘s effort to compete with traditional finance. By managing risk transparently on a blockchain, protocols can become more competitive with financial rails they’re trying to replace.
DeFi refers to financial services and systems built on blockchain technology, operating without intermediaries like banks.
It enables peer-to-peer transactions, lending, borrowing, and trading of assets.
DeFi applications include decentralized exchanges (DEXs), stablecoins, and yield farming protocols.
According to a report by Chainalysis, the total value locked in DeFi surpassed $100 billion in 2021, indicating its growing popularity.
The use of smart contracts ensures transparency, security, and efficiency in DeFi transactions.
‘If protocols gain an ability to better manage the risk, and also do so transparently, on a blockchain, so that everyone can see what’s happening and how, then they’ll become competitive,’ Davies said. Smart clearing can help DeFi platforms overcome this hurdle by reducing collateral requirements for correlated trades.
Adoption and Future Plans
The first user of smart clearing is Crypto Valley Exchange itself. The platform is already running dated futures orders through its smart clearing service. More capabilities are coming later this year to support commodities markets beyond crypto, and Davies hopes for other protocols to plug into smart clearing as well.
By introducing smart clearing, Crypto Valley Exchange is taking a step towards making DeFi more competitive with traditional finance. As the industry continues to evolve, it’s likely that we’ll see more platforms adopt similar approaches to improve efficiency and reduce costs.
