By Staff Writer
eToro, an electronic trading platform, has released plans to put US$500 trillion OTC derivatives market on the blockchain, representing a major breakthrough in what is often referred to as frictionless, decentralized finance or DeFi.
It is planning to do so by introducing a new programming language dubbed, Lira, which will be used to write derivatives smart contracts on the Ethereum blockchain, according to a statement.
Blockchain is seeing as helping bring better transparency and efficiency into the OTC derivatives trading market seen as ripe for some disruption. The post-trade cycle, such as settlement and clearing of derivatives, are expensive and prone to error and failure.
“We believe that blockchain technology can provide a secure execution environment in which settlement is guaranteed by design,” Yoni Assia, chief executive and co-founder of eToro, (pictured above) said in a statement, adding that Lira has “the potential to open up and transform the derivatives market.”
Currently, native blockchain scripting languages are subject to broad design requirements. This makes them error-prone – as seen for example by the Dao hack – and thus unsuitable for writing financial contracts. Native languages also present themselves as an opportunity for attackers.
According to Omiri Ross, eToro’s chief blockchain scientist, 45% of smart contracts on the Ethereum blockchain have errors because of the broad nature of their design. Lira, he said, is “built on formal verification, a mathematical equation that proves the language will deliver the promised outcomes.”
This will help further open up the derivatives markets and increase liquidity in the markets by reducing collateral requirements. The open-source nature of the language means that the community can now develop it further across different blockchains.
eToro was founded in 2007 with the vision of opening up the global markets so that everyone can trade and invest in a simple and transparent way. The eToro Group consists of the eToro platform, a multi-asset trading and investment venue, and eToroX, which manages its crypto wallet and exchange.