What is Derivative ?

A derivative is a financial security with a value that is reliant upon or derived from, an underlying asset or group of assets — a benchmark. The derivative itself is a contract between two or more parties, and the derivative derives its price from fluctuations in the underlying asset.

Source : Investopedia

The most common underlying assets for derivatives are stocks, bonds, commodities, currencies, interest rates, and market indexes. According to above definition, a derivative could be anything, any cryptocurrency, like Bitcoin for example making it very profitable for traders based on massive movements of the Bitcoin price.

DeFi meets Traditional Finance

Cryptocurrency is just a speck in overall markets, and it is still undervalued comparatively of what blockchain is capable of in 5 years from now, we might just see DeFi at $1.5 Trillion market in few years from now and crypto market somewhere near gold.

Now this is where the real transition of money happens into DeFi, when we bring derivatives to Blockchain. What that means, is the value of any assets simulated on a Blockchain via synthetics.

Synthetic assets have already played an enormous role in the world of traditional finance markets.

What are Synthetics : The combination of securities and/or assets in such a way that they produce the same financial effect as the ownership of an entirely different asset would.

Source: synthetic asset. (n.d.) Wall Street Words: An A to Z Guide to Investment Terms for Today’s Investor by David L. Scott. (2003). Retrieved June 23 20

In simple terms, Synthetic assets are meant to simulate the same effect as another investment, you do not need to physically hold the other asset.

A synthetic acts as a financial instrument that comprises of one or more derivatives. In turn, the derivatives would simulate the price behaviors of their underlying assets which could be stocks, bonds, gold, bitcoin or any other assets.

Synthetics via blockchain can track the value of traditional finance assets by reflecting them digitally on blockchain.

DimSum

Now imagine a world we are in right now, using blockchain, we can reflect any asset we want, any commodity, stock, cryptocurrency, just any category that have value, can be created representing intrinsic value of the same using Synthetics.

This is what DimSum is all about, creating synthetics of any kind first on Binance Smart Chain and thereafter on other top Blockchains via interoperability.

The most important building block what makes synthetics is Data. Data is just everything, synthetics trading rely massively on the correct price feeds, so DimSum will integrate Chainlink Oracles and also other Decentralized Oracles to get the correct price feeds of various categories.

As of April 2020, most market feeds have migrated to Chainlink and all future synth assets must be supportable by Chainlink’s network.

We would also be querying historical data of various blockchain for price history via integrating The Graph to DimSum protocol.

“The Graph, the indexing and querying protocol for the Web3 ecosystem, has added support for Binance Smart Chain.”

Rather than reinvent the wheel, Panda Dao will be forking from Balancer, UMA, Synthetic, Bao ecosystems and build upon that to bring a very easy to use synthetic asset creation and trading Dapp.

In addition to DEX, we will be coming up with a simple mobile application as our most important goal is to bring traditional finance users to DeFi and simplify the on boarding.

This was the Part 1 of the article series about Introduction to DimSum, I hope that I could simplify DimSum as best as possible for our Panda Dao community.

Part 2 of this Series will provide detailed information on 15:03.2021 about :