DUO Network is a developer of a blockchain decentralized platform intended to create a transparent and autonomous derivative marketplace, capable of offering issuance, trading, and settlement of digital derivatives. DUO Network is headquartered in Singapore and was established in 2017 by FinBook. The company's platform mainly consists of Collateralized Autonomous Tokens (CAT), Price Oracle, CAT Exchange, and DUO Network Token, in order to reduce risks and barriers in derivative transactions.
DUO DEX is a decentralized platform for issuance, trading, and settlement of tokenized digital derivatives based on an 0x protocol. The tradable derivatives include DUO Network's Collateralized Autonomous Token (CAT) and products such as dual-class tokens, options, and structured products. The platform is intended to reduce the risks in traditional derivative trading and create a transparent and autonomous derivative marketplace.
The Collateralized Autonomous Token (CAT) defines a set of standards for the issuance, redemption, and settlement of cryptocurrency derivatives. CAT's value is backed by digital assets held in custodian smart contracts, with a custodian capable of creating two or more payoff classes of CATs, which each represent a claim of the underlying collateral. This kind of split can be based on seniority, levels of risk, or a payoff structure.
The CATs also offer two-way convertibility with corresponding collaterals that can be created from depositing collaterals into the custodian smart contracts or to redeemed back into collaterals during a life cycle. This mechanism is used to enforce the net asset value parity between CATs and allows the market to self-correct any price dislocations.
All CATs are ERC-20 compatible. Further, it allows for derivative positions to be freely transferred and not bound to any centralized venue by allowing storage and trading across most existing wallets and exchanges. DUO Network believes this capability can be a key to an efficient market through improved decentralized liquidity and price discovery.
In order to control the volatility of consumption and transaction utilities, such as network fuel or medium of exchange, DUO Network took inspiration from dual-class fund structures in the stock market. This led them to engineer a mechanism that could convert a basic cryptocurrency asset into a dual-class structure, or two classes of CATs, each representing a different risk-return profile on the underlying.
In the Beethoven smart contract, DUO Network splits an underlying cryptocurrency asset into an income CAT to provide a stream of fixed income and a Leverage CAT to provide leveraged capital gains linked to an underlying asset. The Income CAT is intended to accumulate and pay interest based on the original net value in fiat currency. These CATs can be split into another tier of Income Cats and Leverage CATs to further reduce volatility. The Leverage CAT is intended to offer leveraged return of the underlying digital assets.
To continue to provide more diversified payoffs under the dual-class structure, the company also implemented a smart contract called Mozart as a way for the market to short underlying assets. The Mozart smart contract is essentially designed to bind speculators with opposing market views in the structure. The Mozart mechanism includes a Short CAT, which short-sells a cryptocurrency assets and stands to benefit from downward price movement; and a Long CAT, which has a three times leverage over the two times leverage offered by the short CAT class.
DUO Network also offers option trading, which allows a user to buy or sell an underlying asset at a specified price on a future date. This includes three types of options: a European option, which can be exercised on maturity date; an American option, which is exercisable at any time during the life of the option; and a Bermudan option, which can only be exercised within a predetermined time before maturity. Options trading is intended to introduce asymmetry to any linear risk exposure and give investors a chance to create strategic payoffs if the investor decides to customize risk reversals, strangles, digitals, and calendar spreads. Options and stable coins both attempt to address the same problems of excess volatility present in cryptocurrency markets.