New crypto-derivative could help set unpredictable IAD interest rates

Delta Exchange, a crypto-derivative platform, announced the launch of an interest rate swap contract for DAI, MakerDAO’s stablecoin, with a fixed price in dollars.

The contract will allow its buyers to swap interest on the DAI Savings Rate (DSR, a smart DAI contract for generating interest), which is seen by the exchange as a way for Maker borrowers (MKR) to set interest payments on their stability fee, which are channeled into the Savings Rate as profit for DAI holders.

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Interest rate swaps are a type of derivative contract established between two counterparties with opposite objectives, similar to options and futures. One party seeks to fix its interest rate payments at a fixed value to cover the risk of a volatile interest rate. This provides them with a predictable payment schedule, which can be especially helpful to borrowers. The counterparty is required to pay a fixed interest rate at certain intervals, on a daily basis in the case of Delta’s contract. They will make money if the actual interest rate is higher than they agreed to pay, and will subsequently lose money if the floating interest falls below the fixed rate of the contract.

Therefore, entering the contract means that one party is down on the floating rate, while the other is up. This opens the ground to speculation, as traders will make bets on the future value of interest rate payments. Delta’s contract supports leverage of up to 160x.

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Maker’s governance parameters

Both the stability rates, the interest paid by the borrowers, and the DAI Savings Rate are specifically set by Maker’s governance in periodic votes.

Since the introduction of DAI Multi Collateral, each asset has different stability rates, although the savings rate is one for all DAI tokens. Interestingly, the savings rate has been set at 0% since March 24. Ether’s stability rate (ETH) is also 0% at the time of publication, although other assets may have interest rates of 2-4%.

Rates are very low due to Bitcoin Rejoin constant breaking of its $1 quota. It often trades above $1 after the events of Black Thursday. A low rate should attract borrowers to create new IADs at their cost and sell them to the market.

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With interest rates at zero, the sellers of the swap contract may agree to pay some interest rate to their buyers, with the expectation that it will soon rise.

The borrowers of the Maker platform, using the contract, could compensate for some of their losses in the stability fee in the future and cover themselves against unpredictable changes.

But unlike other interest rate swaps where dynamic percentages are market-driven, traders in Delta will effectively be speculating on the decisions of the Maker community.

Kik’s SEC drama will soon be over

A new round of documents has been filed in the long-running dispute between the U.S. Securities and Exchange Commission, or SEC, and Kik Interactive Inc. over the courier company’s initial coin offering, or ICO.

Both parties are seeking summary judgment, and the SEC is filing a proposed order that it expects the court to sign.

However, Kik is confident that the judge will rule in its favor, saying that the Bitcoin System, Bitcoin Investor, Bitcoin Compass, Bitcoin Evolution, Bitcoin Lifestyle argument is based largely on building the Telegram case as a precedent.

Kik and SEC Oppose Each Other’s Motions for Summary Judgment

SEC Proposes Summary Judgment Order
The SEC filed a proposed order on May 8 describing its request for summary judgment that it hopes the court will choose to sign.

If signed, the order would find Kik guilty of violating U.S. securities laws by failing to register his public and private offerings with the SEC, citing Howey’s three-pronged test to argue that Kik’s tokens represented securities.

On the same day, Kik filed a memorandum in support of its motion for summary judgment, rejecting the arguments made by the SEC.

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Kik Rejects SEC Motion
First, Kik argues that „the SEC cannot establish two of the three requirements of the Howey test: a joint venture and the expectation of profit from each other’s essential management efforts.

The company claims that its ICO comprised two separate offerings: a securities-free offering to reputable investors and a public ‚token distribution event‘ that sold utility tokens, emphasizing that token sales „involved different rights, different contractual arrangements, different buyers, and different consideration.

The filing also argues that the SEC places extensive and misplaced reliance on the recent injunction ordered in the regulator’s lawsuit against Telegram and precedent for the denial of Kik’s motion for summary judgment.

„Telegram involved a completely different set of facts and circumstances, so even the tentative conclusions reached at the preliminary injunction stage are irrelevant to this case,“ the motion says.

Telegram agrees to turn over its ICO documents to the SEC

The judge is expected to deliver his verdict next month
In statements to Cointelegraph, a Kik representative described the documents as „the last standard step in the process“.

„The judge will probably not rule for another 4-6 weeks,“ the representative added.

Kik’s general counsel, Eileen Lyon, told Cointelegraph that the SEC’s argument „is largely based on the recent Telegram case, which we believe was poorly reasoned and poorly decided.

„As you know, the Telegram case is not a binding precedent, so it will be interesting to see what impact it could have, in light of the many other authorities we have cited and the significant differences in fact in the two token offerings,“ she added.