Alice and Bob are two counterparties with different views on the price of gold.
Some people make predictions, others hedge their assets. Alice thinks the
price of Gold will go up. Bob thinks the price will go down. They both place a margin of 20% in
In this example, the contract will expire in 5 months.
By that time the price can go up or down.
In the Opium Protocol contract
can’t be executed before maturity. Even though the price of an asset can go far up or down from
At maturity (in 5 months) price went down 15% of future price.
If Alice had a long position and Bob had a short position, Bob would
receive his 20% of collateral back and also 15% from that of Alice. Alice will only get 5% back,
losing 15% to Bob, as she was wrong at her market view.