Short Paper: Implementing Swap Contracts on Blockchain Networks

Abstract

The stock market is crucial in modern economic systems, facilitating capital allocation and wealth generation. Swap contracts are a fundamental financial tool allowing two parties to exchange cash flows, such as stocks, according to predefined rules over a specified period. These contracts are widely used to manage financial exposure, reduce borrowing costs, speculate on market movements, and optimize financial strategies. Blockchain technology, a decentralized and distributed ledger system, has gained significant traction in recent years. Increasingly, blockchain users are seeking to invest in traditional stocks through blockchain-based mechanisms. In this paper, we propose a protocol for implementing swap contracts on a blockchain, enabling the synthetic representation of real-world stocks. To the best of our knowledge, this work is the first to implement blockchain-based swap contracts. Implementing swap contracts has the potential to facilitate the development of more advanced financial tools that currently do not exist on blockchain networks, such as blockchain-based index funds and Exchange-Traded Funds (ETFs).