Crypto Valley Exchange Bets on 'Smart Clearing' as DeFi Derivatives' Missing Link

Crypto Valley Exchange Focuses on 'Smart Clearing' as Missing Element for DeFi Derivatives

Arbitrum-based derivatives platform adopts new protocol that will improve the efficiency of its financial flows.

Danny Nelson | Edited by Steven Alpher Updated April 11, 2025, 2:43 PM Published April 11, 2025, 2:40 PM

Key points:

• CEO James Davis says Crypto Valley exchange's “Smart Clearing” service will reduce collateral requirements for derivatives trades.
• Davis believes the efficiencies achieved will help make DeFi more competitive with traditional financial markets.

According to information from Crypto Valley Exchange, complex channels that support derivatives trading will soon receive a significant improvement in DeFi.

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Crypto Valley exchange's “smart clearing” protocol will reduce capital requirements for derivatives traders by setting collateral levels based on correlations between the prices of trading assets. CEO James Davis noted that this could make DeFi more competitive with cryptocurrencies seeking to replace mainstream financial markets.

This service represents a new approach to solving an old DeFi problem: how to adequately mitigate counterparty risk in a trustless environment.

Traditional financial markets like CME and NYMEX rely on clearinghouses to act as trusted counterparties for every buyer and seller. They require some collateral, but rarely 100%. At the same time, DeFi markets definitely suffer from a lack of a trusted intermediary and therefore cannot afford to require anything less than full collateral.

The system works, but it's not very efficient. Tighter margin requirements mean traders have less capital to use in other areas. Davis says this is a significant limitation on market growth.

“This is the one time where all of crypto is much more conservative than TradFi,” Davis said. “We’re really, really undervalued in this space, and that’s because you need clearing to get that efficiency.”

He pointed out the absurdity of requiring full margin for trades in highly correlated assets such as oil.

“If I went to, say, NYMEX as an oil company and wanted to buy oil and sell jet fuel, and you asked me to put up full margin on both positions, I would laugh at you because those assets are 90 percent correlated,” Davis added.

He believes the same logic should apply to DeFi. “Ethereum won’t hit 10,000 the day Solana hits zero,” he noted. Because of the correlation, a trader betting on ETH rising relative to SOL doesn’t have to put up full collateral.

Clearing is the missing piece in DeFi’s efforts to take over traditional finance, he says. If protocols can better manage risk and do so transparently on the blockchain so everyone can see what’s going on, they can compete with the financial systems they seek to replace.

“You can’t just build a DeFi platform for securities or commodities, compete with NYMEX or CME and expect to succeed when you have to lock up a lot more collateral than you would have to do to trade on those platforms,” Davis added.

If the real world asset (RWA) sector of cryptocurrency delivers on its promises of introducing tokenized versions of everything

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