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Findel: Secure Derivative Contracts for Ethereum

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Financial Cryptography and Data Security (FC 2017)

Part of the book series: Lecture Notes in Computer Science ((LNSC,volume 10323))

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Abstract

Blockchain-based smart contracts are considered a promising technology for handling financial agreements securely. In order to realize this vision, we need a formal language to unambiguously describe contract clauses. We introduce Findel – a purely declarative financial domain-specific language (DSL) well suited for implementation in blockchain networks. We implement an Ethereum smart contract that acts as a marketplace for Findel contracts and measure the cost of its operation. We analyze challenges in modeling financial agreements in decentralized networks and outline directions for future work (See the author’s post-print at https://orbilu.uni.lu/handle/10993/30975 and the related source code at https://github.com/cryptolu/findel).

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Notes

  1. 1.

    The derivatives market is comparable in size to the world’s GDP. The gross market value of all outstanding over-the-counter derivatives is $20.7 trillion [Bis16] (2016). The world GDP in 2015 is $73,9 trillion [Wor16].

  2. 2.

    We may refer to Findel contracts simply as contracts, when the distinction between them and Ethereum smart contracts is clear from the context.

  3. 3.

    INF is a symbol representing infinite time, i.e., \(t_0 < INF\) for every \(t_0\). \(\delta \) is an implementation dependent constant intended for handling imperfect precision of time signal in distributed networks.

  4. 4.

    In case of Or, execute exactly one of the sub-nodes, according to the owner-submitted value indicating the choice; delete the other one. It is the only primitive that requires an additional user-supplied argument for execution.

  5. 5.

    Beware of front-runners: Bob can monitor the network and try to join a contract as soon as he sees Alice’s attempt to do so. Depending on the network latency and miner’s behavior, either transaction can be confirmed.

  6. 6.

    BTCRelay is a prominent example: users submit Bitcoin block headers to a smart contract, which implies their authenticity from the validity of easily verifiable proof-of-work. After a header is stored on the Ethereum blockchain, users check with a Merkle proof that the Bitcoin block contains a given transaction.

  7. 7.

    For simplicity, we only consider 256-bit integers as observable values. Boolean values can be trivially simulated via integers.

  8. 8.

    By definition, an expired contract is equivalent to \(\mathrm {Zero}\).

  9. 9.

    An expired contract should also be deleted even if its owner is offline forever. Our current implementation does not handle the latter case, though it may be considered an attack vector due to increasing storage usage. A possible approach is for a marketplace to offer rewards for keeping track of expired contracts and triggering their deletion.

  10. 10.

    Compare to [JES00]: “If you acquire (c1 or c2) you must immediately acquire either c1 or c2 (but not both)”. We can not force a user to make this decision.

  11. 11.

    In this particular case, an equivalent contract \(\mathrm {Give}(\mathrm {Or}(\mathrm {One}(USD),\mathrm {One}(EUR)))\) solves the issue. In more complex cases this is not necessarily the case.

  12. 12.

    A likely rationale: rounding issues break consensus.

  13. 13.

    Solidity version: 0.4.4+commit.4633f3de.Emscripten.clang.

  14. 14.

    Szabo makes a case against state variables in general, stating that “they should be avoided unless utterly necessary”.

  15. 15.

    In traditional finance, a future is a standardized contract while a forward is not. This distinction is not relevant for our model.

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Author information

Authors and Affiliations

  1. SnT, University of Luxembourg, Esch-sur-Alzette, Luxembourg

    Alex Biryukov, Dmitry Khovratovich & Sergei Tikhomirov

Authors
  1. Alex Biryukov
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  2. Dmitry Khovratovich
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  3. Sergei Tikhomirov
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Corresponding author

Correspondence to Sergei Tikhomirov .

Editor information

Editors and Affiliations

  1. Leibniz Universität Hannover, Hannover, Germany

    Michael Brenner

  2. New Jersey Institute of Technology, Newark, New Jersey, USA

    Kurt Rohloff

  3. New York University, New York, New York, USA

    Joseph Bonneau

  4. University of Illinois at Urbana-Champaign, Urbana, Illinois, USA

    Andrew Miller

  5. University of Luxembourg, Luxembourg, Luxembourg

    Peter Y.A. Ryan

  6. University of Melbourne, Parkville, Victoria, Australia

    Vanessa Teague

  7. University of Stirling, Stirling, United Kingdom

    Andrea Bracciali

  8. University of Trento, Trento, Italy

    Massimiliano Sala

  9. University of Trento, Trento, Italy

    Federico Pintore

  10. Agari Inc., San Mateo, California, USA

    Markus Jakobsson

A Examples

A Examples

  • A fixed-rate currency exchange: the owner sells €10 for $11.

    $$\begin{aligned} \mathrm {And}(\mathrm {Give}(\mathrm {Scale}(10, \mathrm {One}(EUR))),\mathrm {Scale}(11,\mathrm {One}(USD)) \end{aligned}$$

  • A market-rate currency exchange: the owner sells €10 at market rate as reported by the gateway at addr.

    $$\begin{aligned} \mathrm {Scale}(10, \mathrm {And}(\mathrm {Give}(\mathrm {One}(EUR)), ScaleObs(addr,\mathrm {One}(USD)))) \end{aligned}$$

  • A zero-coupon bond: the owner receives $100 at \(t_0\).

    $$\begin{aligned} \mathrm {Timebound}(t_0-\delta , t_0+\delta , \mathrm {Scale}(100, \mathrm {One}(USD))) \end{aligned}$$

  • A bond with coupons: the owner receives $1000 (face value) in three years (maturity date) and two coupon payments of $50 at regular intervals before the maturity date.

    $$\begin{aligned} \mathrm {And}(\mathrm {At}(\text {now + 3 years},c_{face}),\mathrm {And}(\mathrm {At}(\text {now + 1 years}, c_{cpn}),\mathrm {At}(\text {now + 1 years},c_{cpn}))) \end{aligned}$$

    where

    $$\begin{aligned} c_{face} = \mathrm {Scale}(1000,\mathrm {One}(USD)), \quad c_{cpn} = \mathrm {Scale}(50,\mathrm {One}(USD)) \end{aligned}$$

  • A future (a forward Footnote 15): parties agree to execute the underlying contract \(c\) at \(t_0\).

    $$\begin{aligned} \mathrm {Timebound}(t_0-\delta , t_0+\delta , c) \end{aligned}$$

  • An option: the owner can choose at (European option) or before (American option) time \(t_0\) whether to execute the underlying contract \(c\).

    $$\begin{aligned} \mathrm {Timebound}(t_0-\delta , t_0+\delta , \mathrm {Or}(c, \mathrm {Zero})) \end{aligned}$$
    $$\begin{aligned} \mathrm {Timebound}(now, t_0+\delta , \mathrm {Or}(c, \mathrm {Zero})) \end{aligned}$$

  • A binary option: the owner receives $10 if a predefined event took place at \(t_0\) and nothing otherwise.

    $$\begin{aligned} \mathrm {If}(addr, \mathrm {Scale}(10, \mathrm {One}(USD)), \mathrm {Zero}) \end{aligned}$$

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Biryukov, A., Khovratovich, D., Tikhomirov, S. (2017). Findel: Secure Derivative Contracts for Ethereum. In: Brenner, M., et al. Financial Cryptography and Data Security. FC 2017. Lecture Notes in Computer Science(), vol 10323. Springer, Cham. https://doi.org/10.1007/978-3-319-70278-0_28

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  • DOI: https://doi.org/10.1007/978-3-319-70278-0_28

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  • Online ISBN: 978-3-319-70278-0

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