The first thing they warn us about when we learn about is “not your keys, not your bitcoins”. This simple phrase encompasses many concepts, which can be simplified into two words: decentralization
For those of us who value the foundations of the only decentralized currency in the world, which began as a response to the subprime crisis, it seems ironic to use it for services traditionally provided by centralized institutions and companies.
But once you understand how decentralized you will understand why the opportunity lost could be significant if you are not taking advantage of the potential offered by the underlying technology, the blockchain, to decentralize any swaps focused on any financial product, such as raw materials
Although the concept is not new, since the first related projects were born in 2013 with as an early pioneer of decentralized token swaps, the truth is that the raw material market has not offered a viable option leveraging blockchain technology so far.
In this sense, MetalSwap, a decentralized platform that allows hedging swaps on financial markets, is emerging as a disruptive product within traditional commodity swaps offers.
With a multi-billion dollar market among the major players in the commodities markets, strong use cases can be found for the decentralized concept in a market still untapped by blockchain technology.
The reality of traditional swaps
Derivatives offer the possibility of hedging an asset against various factors that cause volatility in any financial transaction, with the aim of providing stability by reducing risk.
Among those alternatives offered by derivatives are swap contracts, which are unique agreements between two parties to exchange financial instruments or underlying cash flows at a time agreed upon. These contracts are said to be tailored to the specific needs of investors and are therefore considered over-the-counter (OTC), which means that they are not traded on organized exchanges.
The functions of swaps are mainly to cover the risk that an investor may face on an asset such as the exchange rate or liquidity risk. Although it can also be used to speculate on market movements and obtain added value in your portfolio.
However, despite the benefits of swaps, especially those related to commodities, there are important limitations that slow their adoption among non-financial actors.
From the erosion of profit margins to excessive price volatility, investors face a set of external factors that put additional stress on operating efficiently in this trillion-dollar market.
More importantly, the bureaucratic procedures, price adjustments due to sudden fluctuations in volatile markets and high commissions for the payment of bank guarantees required for the execution of these contracts, often end up frustrating the average investor.
From traditional swaps to decentralized use
With the advent of blockchain technology and its inherent properties of transparency and traceability that evoke a climate of security to execute contracts between two parties without trust, MetalSwap is determined to exploit the potential in the commodity markets.
Through the execution of smart contracts on one of the most decentralized networks in the blockchain industry Ethereum, MetalSwap has introduced the decentralized concept of commodity swaps.
The execution of “smart agreements” executed through smart contracts in Ethereum will allow simulating the normal negotiation processes in a traditional physical swap contract.
The decentralized platform offers the hedging of swaps on financial markets with the aim of providing coverage to those who work with commodities and an investment opportunity.
Through the benefits of blockchain technology in a traditionally centralized environment, users can execute economically viable agreements, while eliminating the high negotiation fees involved in the execution of costly bank guarantees to operate, or the payment of fees to third parties to be able to connect with suitable investors.
From the MetalSwap interface, any investor will be able to obtain the necessary funds in a widely available portfolio of inter-chain digital assets that provide instant liquidity, including synthetic assets pegged to common raw materials such as metals, crude oil or grains.
How does it work?
The operation of MetalSwap, compared to the bureaucratic process of traditional swaps, is totally disruptive and simple to execute. Simply open the application in your browser, select the economic result you want to achieve and complete the swap directly from your non-custodial wallet, completing the entire process with full autonomy.
The ease of these steps outlined above is made possible by the execution of smart contracts written on the Ethereum Blockchain, which in turn enable a Web3 communication interface through decentralized wallets and third-party verified price oracles. With these automated decentralized tools, MetalSwap is able to provide more reliable and accurate price references through its user interface.
The liquidity of the swaps is guaranteed under the AMM concept, whereby each participant (Liquidity provider-LP) is rewarded through the provision of project governance tokens (XMT).
MetalSwap allows you to open hedge positions only if they can be counter-guaranteed by liquidity pools.
Unlike traditional swaps, the Metalswap interface is open 24 hours a day, seven days a week. And more interestingly, there are no restrictions on use by geographical location of the user/investor.
In addition, MetalSwap introduces the concept of a through the native XMT token, which allows users who own this token to execute or participate in key decisions for the improvement of project development.
In short, Metalswap is changing the world of traditional swaps through:
- Elimination of the need for intermediaries
- Cost reductions
- Availability 24/7
- Elimination of monopolies
- No need for bank coverage to operate
- Incentives for liquidity providers, beyond the traditional benefits of executing contracts or closing swaps
- Ease of use and operation through a high performance online interface
- Reliable pricing thanks to the use of decentralized oracles
- Increased availability of multi-chain digital assets, including synthetic assets pegged to commodities
- Decentralized governance: As a holder of $XMT tokens, you can exercise voting rights in the key decisions of the project and its updates, improvements or operation and receive rewards for it.
About MetalSwap
MetalSwap is the Evolved, Decentralized Swaps solution. Through a set of smart contracts, initially deployed on Ethereum’s mainchain, we are making it possible to execute swaps without the need for intermediaries, at reduced costs and without time restrictions. From a traditional-based financial product, to a new digital LEGO-Money brick!
