Practical Blockchain-Based Options Contract

Decentralized finance (DeFi) relies on crypto assets in blockchains to provide financial services. High volatility of crypto assets puts users at risk of financial loss. Options contracts address this issue by empowering a buyer to exchange his asset with that of a seller, which mitigates risks for both parties. Existing options contract protocols have the following two weaknesses: (i) The buyer have to lock his asset during the contract's lifespan, incurring heavy opportunity costs; (ii) Turing-completed smart contract (TCSC)/hash time lock contract (HTLC) is required to exchange assets, which restricts applicability as TCSC/HTLC is supported by a limited number of blockchains. In this paper, we propose UP-BLOC, a universal and practical blockchain-based options contract. We construct UP-BLOC using a buyer-pay-first design, and propose a blockchain-based secret storage mechanism to ensure the security of the assets involved. This allows the buyer to engage in an options contract without locking any asset and resulting opportunity costs, and thus is more practical than existing works. Besides, UP-BLOC achieves the exchange of assets using standard digital signatures instead of TCSC/HTLC. Hence, UP-BLOC is compatible with all blockchains and is universal. Security analysis and performance evaluation demonstrate that UP-BLOC is secure and efficient.