Multi Pair Swap-Based Weather Derivative DeFi

Abstract

For solar power producers, fluctuation in power generation due to changes in solar radiation are one of the major risks because they can lead to unstable income. To deal with this risk, solar power producers have been trading weather derivatives, financial instruments that generate income calculated based on solar radiation. Prior research has proposed one-to-one bilateral swap-based weather derivatives utilizing DeFi. However, in bilateral transactions, the parties need to agree on various terms and conditions of the swap in advance, which may lead to lost time due to repeated negotiations and adjustments, as well as the possibility of failed negotiations. In this paper, we extend bilateral transactions to N-to-N multi-pair swaps, which do not require negotiation before the swap transaction and are easier to participate in. We implement a prototype on the Ethereum test network and show that our proposed method can mitigate income loss risk due to weather fluctuations.