Value in Pair Currency

Using Dex pairs in base valuation of the underlying tokens in a deal

Referencing the Technology Topic below:

Underlying Value

Hedges and Loans all have underlying assets/tokens as collateral in order to guarantee payoff outcomes to both parties.

Considering that all tokens are already valued on Dexes in their paired token, it is only logical to embrace this as the valuation standard for the underlying assets on our protocol.

This removes risk that may be associated with using other currencies, when price changes.

• Call Option Hedge with VELA tokens as underlying assets is created

• In the Hedge, VELA tokens are valued in XXX TOKENS an unofficial pair

• VELA tokens on DEX are paired with WETH officially

This creates a discrepancy in pricing or valuing. There is now need for a currency conversion.

Now supposed the price of XXX crushes by 50% overnight, or during the lifespan of the Call Option:

• The underlying value of the hedge is spoiled on the protocol, and is cut to half

• Yet on DEX-es, the value of the underlying tokens remains higher in WETH

• In turn, the collateral provided in the hedge is no-longer proportional to guarantee the parties.

• Twice the amount of XXX is now required to bring the Hedge value up to true Dex value

Conclusion

Third party currencies will not work to value hedges.

Most platform which only deal with majors use USD on the quoted currency for their Hedges and Loans. This is not supportive of most ERC20 tokens on DEX-es which could benefit from risk management and lending tools.

Neon Protocol supports all ERC20 tokens on DEX-es. We are the only project which fully recognize that all tokens should be valued in their paired currency, and we have built an engine to support this.

This then enables for ease of costing, valuation and payoff when trading on our platforms. Value remains fair for both parties for the underlying tokens in question.