The Benefits of Decentralized Funding in Scrap Futures

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Mettalex has launched daily exchange-settled contracts for bulk exports of scrap metal to Turkey and for exports of containerized shredded scrap to India which are settled on the basis of the Davis index of American origin HMS 1/2 (80:20) bulk cfr (cost and freight) Turkey index and Davis containerized shredded index cfr Nhava Sheva index, respectively, end of May. What makes these contracts different from other contracts available to the industry is that, unlike futures contracts, a maintenance margin does not have to be provided, says Humayun Sheikh, CEO of UK-based Mettalex. United.

Mettalex started with the contracts it has because Turkey is the world’s largest importer of scrap metal shipped in bulk carriers, while India is the world’s largest buyer of containerized scrap. “Bulk cargoes, by their very nature, are very big contracts,” Davis Index CEO Sean Davidson said of the Turkey contract, which is also why it makes sense to cover such transactions.

Davis Index is based in Singapore and has North American offices in Toronto.

“All open positions are 100% guaranteed by stable guarantees provided by the user,” explains Sheikh. “There are no margin calls on Metallex. Users know exactly what they can lose / win before opening a position.

“Any user with BUSD can either use it to provide liquidity to DEX Mettalex and earn trading fees and MTLX tokens OR use it to trade DEX,” Sheikh said of Binance’s stablecoin indexed on the US dollar.

In addition, open positions do not have a predetermined expiration date on Mettalex, he says. “An open position can be settled either by the user or by the actual price of the asset exceeding the band.”

Sheikh explains, “Unlike other derivative instruments, leverage is determined by an automatically determined price range (based on historical price volatility for that specific market) and the current price of the asset between the floor and the ceiling of the price range. The closer the price of an asset reported by Oracle is to the floor or the ceiling, the greater the leverage to take the open position. This presents asymmetric opportunities for traders.

The Davis Index provides reliable price data that is essential to the proper functioning of Mettalex’s contracts, he says.

Davidson says that scrap metal traders, the largest scrap metal product traded by volume, should benefit from hedging tools in the same way as non-ferrous scrap metal traders. While there are a number of instruments for hedging scrap metal trades, he says they haven’t taken off in the same way as non-ferrous hedging instruments for a variety of reasons, including how long it takes. to put in place such transactions and other potential barriers to entry. . “Working with Mettalex eliminates the middleman,” Davidson adds, noting that the platform is “independent of which financial institution you want to deal with,” reducing the cost associated with coverage by 10-15%.

Metallex says hedging tools remain largely inaccessible to small and medium-sized businesses due to their high costs. In addition, players in the commodities market face hurdles related to the race to the front, low liquidity, price manipulation and depreciation in the form of margin calls. However, Mettalex says it is enabled by decentralized finance (DeFi) liquidity and automated by blockchain-based smart contracts, using machine learning to automate market making and data delivery mechanisms. price.

“The current system provides industry with less than a handful of instruments, and the risk and cost base are simply unachievable for most companies,” Davidson adds. “Metalex is finally responding to the call for a decentralized exchange that can list any product. We look forward to providing our price benchmarks on the Mettalex platform to give the metal fabrication, demolition and production industries the precise hedging instruments they need. “

Mettalex’s autonomous market makers participate in all trading on the stock exchange, ensuring that the system is fully secured by stable liquidity and pricing long and short positions, according to the company. UK-based Fetch.ai’s stand-alone software agents allow commodity-driven price data to flow securely to Mettalex and settle markets.

Sheikh says DeFi-enabled scrap contracts offer a number of benefits:

  • There are no third party fees.
  • Autonomous market makers make it possible to make any trade at any time, as someone will always take the opposite position to any trade.
  • Mettalex is available at all times.
  • Users identify themselves only with their Ethereum or Bitnance Smart Chain addresses.
  • No company provides liquidity on Metallex; it is generated by the peers.
  • The Mettalex team does not have access to user funds. Instead, collateral for open positions is stored in smart contracts.

“All transactions and open positions are completely transparent,” he says. “Users actually have their positions open – they are represented by ERC20 or BEP20 tokens in their Etherum wallets. Stables generally offer more utility than fiat money (government issued currency that is not backed by a commodity such as gold) as it can be used on various lending platforms to generate annual returns. well above 5%. No bank currently offers such high interest rates, ”said Sheikh.

He adds that Mettalex is the hedging tool that small and medium-sized commodities companies have been looking for. “It will help them manage risk at a much more affordable rate than the alternatives. “Sheikh adds that the biggest benefit is” the abundance of cash in the DeFi space, “which he says” will make the spread.[s] more stringent and improve the overall profitability of trade.

Metallex plans to introduce contracts for iron ore, aluminum, copper, lithium and other waste in the future. “We just need to listen to what the trading and hedgehog community wants to be exposed to and offer it.”

Davidson adds, “To be good, any contract needs market participants. When the market sees that certain instruments will work for them, they will start talking to other market makers.

Despite the deal with Mettalex, Davidson said his company was ready to work with other entities that want to use Davis Index prices to settle their futures contracts. “I hope innovations like this spur more change in our space.”

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