Efficient and Universally Accessible Cross-Chain Options without Upfront Holder Collateral

2024-10-21

arXiv.org

AI Summary

Existing blockchain-based options mechanisms rely on trusted third parties, suffer from limited asset backing, incur high transaction latency, and mandate holder pre-collateralization—severely constraining risk-management efficiency and accessibility in DeFi. This paper proposes the first holder-collateral-free cross-chain options protocol, enabling trustless, bridgeless options trading between any two EVM-compatible blockchains. Our approach eliminates the need for holder collateral while ensuring liveness and safety via a novel guarantee mechanism and on-chain verifiable execution. Key contributions include: (1) the first holder-collateral-free options design; (2) a universal cross-chain asset adaptation architecture; and (3) fast position transfer leveraging Double-Authentication-Preventing Signatures (DAPS), reducing settlement latency by over 50%. We provide formal security proofs under standard cryptographic assumptions, demonstrating resistance to double-spending, front-running, and counterparty default. The protocol supports arbitrary underlying assets and preserves composability within the broader DeFi ecosystem.

Technology Category

• Multiagent Systems: Mechanism Design
• Game Theory and Economic Paradigms: Mechanism Design
• Search and Optimization: Distributed Search

Application Category

• Economics, Online Markets and Human Computation: Economic aspects of blockchain and cryptocurrencies
• Security and Privacy: Blockchains and distributed ledgers
• Systems and Infrastructure for Web, Mobile and WoT: Decentralized Web and Fediverse systems

Abstract

Options are fundamental to blockchain-based financial services, offering essential tools for risk management and price speculation, which enhance liquidity, flexibility, and market efficiency in decentralized finance (DeFi). Despite the growing interest in options for blockchain-resident assets, such as cryptocurrencies, current option mechanisms face significant challenges, including a high reliance on trusted third parties, limited asset support, high trading delays, and the requirement for option holders to provide upfront collateral. In this paper, we present a protocol that addresses the aforementioned issues. Our protocol is the first to eliminate the need for holders to post collateral when establishing options in trustless service environments (i.e. without a cross-chain bridge), which is achieved by introducing a guarantee from the option writer. Its universality allows for cross-chain options involving nearly extit{any} assets on extit{any} two different blockchains, provided the chains' programming languages can enforce and execute the necessary contract logic. Another key innovation is reducing option position transfer latency, which uses Double-Authentication-Preventing Signatures (DAPS). Our evaluation demonstrates that the proposed scheme reduces option transfer latency to less than half of that in existing methods. Rigorous security analysis proves that our protocol achieves secure option trading, even when facing adversarial behaviors.

Problem

• Eliminates upfront collateral for blockchain options
• Enables cross-chain options for diverse assets
• Reduces option transfer latency significantly

Innovation

• Eliminates upfront collateral for option holders
• Supports cross-chain options with any assets
• Reduces transfer latency using DAPS technology