Derivative Warrants

The Crests Derivative Protocol is a decentralized derivative warrant system that enables users to trade cryptocurrency and digital asset-based derivatives. Through the use of smart contracts, the protocol ensures that the conditions of derivative contracts are met and executed without the need for a central authority. This trustless alternative to derivative trading provides increased security and transparency for market participants.

The Crests derivative protocol is built upon the fundamental principles of the general derivative warrant, which involves a contractual agreement between a buyer and a seller to exchange an underlying asset at a specified price and time. In this case, the Crests protocol will act as both the lender and the contract issuer, with sole authority to execute the contract and determine the expected return. All transactions will be conducted via smart contracts to ensure transparency and accountability.

About Derivative Warrants

Derivative Warrants are financial tools that allow the buying (Call DW) or selling (Put DW) of underlying securities at a predetermined exercise price, ratio, and date. These warrants are generally issued by an investment bank or a third party that is not the original issuer of the underlying assets. As a result, the entity issuing the warrants may differ from the issuer of the underlying assets, but they must possess or have the right to possess the underlying assets.

Derivative Warrants are the most likely Options. They are generally divided into two types: (Call and Put). In the case of call warrants, if the underlying asset price is higher than the exercise price of the derivative warrant, the derivative warrant is "In the Money" and will be exercised automatically. The holder of a call warrant will receive a payment compensation equal to the positive difference between the settlement price and the exercise price of the warrant after being adjusted by the entitlement ratio. On the expiry date, if the settlement price of the call warrant is lower than its exercise price, the derivative warrant is "Out of the Money" and will become worthless.

And in the case of put warrants, it is the opposite to call warrants. Suppose the price of the underlying assets is lower than the derivative warrant's exercise price. In the case of a call warrant, the holder will receive a cash payment equivalent to the positive difference between the settlement price and the exercise price of the warrant after being adjusted by the entitlement ratio. On the one hand, upon the expiry date, if the settlement price of a put warrant is below its exercise price, the derivative warrant will be considered "Out of the Money" and, consequently, will become devoid of value.

CrestsX Derivative Warrant Protocol Diagram

AI Predictive

Since derivative warrant issuers need to have underlying assets to issue derivative warrants, most of the time, issuers use them to purchase all four types of options contracts (long call, short call, long put, short put). The issuer needs to calculate the proportion of assets and options in terms of proportion, expiration date, and strike price. The strike price, in particular, is significant for the issuer. Because it is an essential factor affecting the advantage of derivative warrant issuers, for these reasons, we developed an AI that predicts the strike price of derivative warrants issued for higher accuracy and efficiency.