Clearing System

The decentralized clearing system of the AFP is the fundamental piece of infrastructure that enables seamless trading and product creation.

Existing derivates markets (both in TradFi and DeFi) couple trade execution and clearing into one venue. In TradFi, monopolistic tendencies concentrate market activity into a single trading venue for a particular instrument, whilst in DeFi, competition for market share in derivatives with the same underlying results in a fragmented market structure.

For example, Binance, Bybit (CEXs), Hyperliquid and DYDX (DEXs) have all created BTCUSDT futures contracts, all built on the same underlying market: spot BTC-USDT. Yet, each venue that creates a futures contract on BTC-USDT allows for only their own product to be traded on their own venue, leading to fragmented liquidity even though the underlying is the same. This is not a decentralized market architecture by any means. Contrast this to true decentralized markets such as spot Bitcoin. Bitcoin can be bought on one exchange (e.g. Binance) and can then be moved to a wallet on-chain and sold on a Uniswap, providing traders with an abundance of liquidity options to trade it. The AFP introduces the same level of true decentralisation in the world of derivatives.

Decentralized clearing decouples trade execution from clearing, allowing for trades to be executed at one venue but cleared at another. This subtle yet crucial architectural difference results in a significantly altered and more efficient market design, allowing:

• A rich choice of trading modalities to trade the same product
• Traders to have access to a global pool of open interest in a product
• Cross-margin trading across trading venues