Frequently Asked Questions
- WHAT IS VELOCITY?
- A distributed protocol project, Velocity aims to provide the ability to hedge risk on asset prices. This includes investors looking to speculate on future prices and market makers looking to profit from their liquidity. This is done using digital asset derivatives.
- WHAT IS A DERIVATIVE?
- An instrument used in the financial markets, derivatives are “derived” from an asset. The purpose of a derivative is to allow investors to reduce risk in speculative assets they may hold instead of having to consistently buy or sell because of volatility.
- WHAT IS A DIGITAL ASSET?
- Distributed, blockchain-based virtual monetary systems are what is defined as a digital asset within Velocity. These include the most popular digital currencies and blockchain systems available today. Bitcoin, Ethereum and Litecoin are examples.
- WHAT IS ETHEREUM?
- Blockchain-based decentralized computing platform. In short, if Bitcoin is a distributed database, Ethereum is a distributed computer.
- WHAT IS A SMART CONTRACT?
- Applications running on Ethereum blockchain are called Smart contracts. These applications run exactly as programmed without any possibility of downtime or censorship.
- HOW IS VELOCITY DIFFERENT FROM TRADITIONAL DERIVATIVES?
- Unlike traditional derivatives that require a third party, Velocity utilizes smart contracts. By automating the settlement and clearing process, this reduces risk and eventually will lower cost.
- WHAT TYPE OF DERIVATIVES DOES VELOCITY USE?
- To begin with, Velocity will start with an implementation of a simple collared option contract. In the future, we plan to add a variety of derivatives based on market dynamics.
- WHAT IS A COLLARED OPTION CONTRACT?
- This is used to offset the risk of an option contract by creating a “collar” above and below the original strike price. This limits the risk (and profit) to an option’s expiring price, reducing volatility for investors. Read more about this implementation in the Velocity whitepaper.
- WHY DID YOU CHOOSE 5 BLOCKS FOR YOUR DEMO? CAN I PURCHASE LONGER CONTRACTS?
- The choice of 5 blocks was made because it is a long enough period to demonstrate proof of concept while also fast for people to try. In the future, the plan is to add a variety of contract sizes and options.
- HOW DO YOU GET PRICING INFORMATION IN A DISTRIBUTED SYSTEM?
- We’ve built a price feed with accessible historical data on ethereum’s blockchain. It’s separated from Velocity’s smart contracts. Called PriceGeth, it publishes price each ethereum block.
- HOW MUCH MONEY CAN I WIN OR LOSE?
- The current contract limits profits and losses to just 0.1 ETH per contract. However this is only a proof of concept. There is currently no requirement to purchase the contract at all. This limits both profits and losses to exactly 0.1 ETH.
- CAN I PURCHASE A CONTRACT LARGER THAN 0.1 ETH?
- Currently you can only purchase a contract for 0.1 TETH (Test Ether) or participate in the Velocity Demo free of charge. In the future, the plan is to add a variety of contract sizes and options.
- CAN I CHOOSE A DIFFERENT EXCHANGE OR ORACLE?
- Currently, the only integrated exchange is Poloniex. The plan is to add a variety of contract sizes, options, and price feeds (known as oracles) in the future. To learn more about oracles, please read our blog post about Pricegeth.
- HOW CAN I BUY VELOCITY PROTOCOL TOKENS?
- Velocity protocol tokens will be software that accesses the production system. These are not available yet. Please join our mailing list to be among the first to get access to Velocity.