Futures contract collateralization and its implications

Jarrow, Robert A.; Kwok, Simon S.

doi:10.1016/j.jempfin.2023.101422

Cited by 1 publication

(1 citation statement)

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“…Futures contracts are traded on stock exchanges and standardized in terms of quantity, quality, and delivery date, where both parties are obligated to fulfill the contract terms at the expiration date, either by delivering or receiving the specified asset or settling the difference in cash [4]. These contracts are used by both investors and producers to hedge against price fluctuations or to speculate on future market movements [5].…”

Section: Introductionmentioning

confidence: 99%

Smart Contracts as a Tool to Support the Challenges of Buying and Selling Coffee Futures Contracts in Colombia

Ordoñez,

Organero,

Ramirez-Gonzalez

et al. 2024

Agriculture

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In Colombia, coffee futures contracts represent essential financial agreements that allow producers and buyers to establish prices, quality, and conditions for future transactions in the coffee market. Despite the evident benefits of stability and predictability, this practice faces significant sustainability challenges that threaten its long-term viability. One of the reasons is the significant lack of transparency in the supply chain. Farmers, affected by abrupt price fluctuations and adverse weather conditions such as the El Niño phenomenon, experience an increase in market prices, leading to the non-delivery of the final product, and contract breaches as they find better prices in the local market. In this context, smart contracts emerge as a promising technological solution to address these problems. These contracts enable the verification of each step in the process, from harvest to final sale, within a blockchain. Therefore, this research designs a smart contract managed through a platform called SmartBeanFutures, which records the clauses of futures contracts using the IERC721 framework, allowing the generation of a unique and non-repeatable asset. It aims to sell, promote, and manage coffee sale prices during the agreement’s signing, creating a transparent environment for chain actors. This proposal undergoes evaluation in a test environment, providing farmers access to the designed platform. Following the validation of the proposal, it was identified that over 74% would use this type of contract in their agricultural processes, highlighting that implementing this technology contributes to eliminating intermediaries in the chain and gives farmers more control over their participation in the market.

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Section: Introductionmentioning

confidence: 99%