Summary

Pascal Protocol and Jetstream represent three years of intensive R&D applying traditional clearing house methodology to decentralised finance — solving the capital efficiency problem that has constrained professional participation in on-chain derivatives markets. How do you create Wall Street and the City of London on-chain.

This project involved substantial scientific and technological uncertainty, requiring the development of novel computational approaches to portfolio risk calculation, the adaptation of established financial models for blockchain execution constraints, and the creation of new cryptographic verification systems for off-chain computation.

Handleport Limited's participation has been through IP development, technical advisory services, and protocol contributions — compensated through a combination of protocol tokens rather than conventional employment relationships.

The Problem: Why Existing Infrastructure Fails

Capital Inefficiency in DeFi Derivatives

Existing DeFi derivatives platforms (perpetual swaps, options protocols) require isolated margin per position. A trader with offsetting risk across multiple instruments must post full collateral for each — capital inefficiency that makes professional market-making uneconomic compared to centralised alternatives.

Example: A market maker with:

• Long 100 BTC calls at $70,000 strike

• Short 100 BTC calls at $72,000 strike

Under isolated margin, must post collateral for both positions independently. Under portfolio margining, the hedged position requires dramatically less capital because the risk offset is recognised.

The Capital Efficiency Gap

ModelCapital RequiredCapital EfficiencyIsolated Margin (DeFi standard)100% per position0% offsetTraditional CCP Portfolio Margin10-30% of notional70-90% offsetPascal Protocol15-35% of notional65-85% offset

Traditional finance solved this decades ago through central counterparty clearing: portfolio margining, cross-margining, and netting reduce capital requirements by 70-90% for hedged portfolios.

No existing on-chain protocol provided equivalent functionality before Pascal.

Technical Innovation: Core R&D Areas

1. QUBO-Based Portfolio Risk Calculation

The Fundamental Challenge:

Traditional Value-at-Risk (VaR) portfolio margining uses Monte Carlo simulation — computationally expensive methods that require overnight batch processing. This approach is incompatible with 24/7 blockchain markets requiring continuous margin updates.

The Innovation: Quadratic Unconstrained Binary Optimization (QUBO)

Pascal uses QUBO algorithms for real-time portfolio risk assessment — framing portfolio risk calculation as an optimisation problem finding worst-case loss across correlated market scenarios.

Mathematical Specification:

Maximize: L = X^T Q X

Where:
- X = binary vector of included/excluded positions
- Q = covariance matrix of position returns  
- L = worst-case portfolio loss

Why QUBO:

1. Combinatorial Explosion Management: With N positions, there are 2^N possible loss configurations. For a 50-position portfolio: >1 quadrillion configurations. QUBO provides near-optimal solutions in milliseconds rather than hours.

2. Correlation Captures Reality: Unlike bucketing approaches (CME SPAN), QUBO naturally models how positions move together under stress.

3. Non-Linear Risk Handling: Options gamma, vega require considering portfolio-level interactions, not just position-by-position summation.

Technical Complexity:

• Base computational complexity: O(n²) for n instruments (covariance matrix)

• Gas minimisation through path routing optimisation

• Verifiable proof generation for on-chain validation

• NP-Hard problem class requiring quantum-inspired classical solving

R&D Challenge: Adapting quantum-inspired optimisation algorithms for deterministic blockchain execution while maintaining verifiable correctness guarantees.

2. Student-t Distribution Fat-Tail Modelling

The Problem: Standard Gaussian VaR models systematically underestimate tail risk in cryptocurrency markets. Extreme moves (>5σ) occur far more frequently than normal distribution predicts.

Per-Instrument VaR Calculation:

VaR_i = Position_i × Price_i × t-quantile(α, df) × σ_i

Where:
- α = confidence level (typically 99%)
- df = degrees of freedom (captures tail risk)
- σ_i = volatility of instrument i

Empirical Validation:

Backtesting against historical stress scenarios shows Student-t with df=6-8 provides:

• 99% VaR exceedances: 1-2% (close to theoretical 1%)

• Gaussian 99% VaR exceedances: 5-7% (massive underestimation)

R&D Achievement: First on-chain risk model implementing fat-tail distributions with continuous recalibration based on market regime detection.

3. Verifiable Off-Chain Computation Architecture

The Constraint: QUBO problems are too computationally heavy to solve natively on-chain within Ethereum block times and gas limits.

The Innovation: Pascal supports a verifiable off-chain solving architecture where:

1. QUBO problems are formulated on-chain with full parameter transparency

2. Solutions computed off-chain by distributed solvers

3. Results submitted on-chain via oracle mechanism

4. Protocol verifies constraints and consistency deterministically

5. Outcomes auditable without trust assumptions

Technical Implementation:

• Arbitrum One (L2) for collateral pool integrity and settlement

• Arbitrum Orbit (custom chain) for high-frequency risk calculations and clearing logic

• Cryptographic proof submission for computation verification

• Decoupled mark prices from order book to prevent manipulation

R&D Challenge: Creating trustless verification schemes for complex numerical optimisation without requiring full computation replication on-chain.

4. Non-Markovian VaR Models for Blockchain

Traditional VaR assumes:

• Stationary correlation structures

• Time-independent volatility

• Markovian (memoryless) price processes

Cryptocurrency markets exhibit:

• Regime-dependent correlations

• Volatility clustering

• Long memory in return distributions

Pascal Innovation:

• Rolling 90-day historical windows with hourly observations

• Volatility weighting (recent data weighted exponentially)

• Regime detection for high/low volatility states

• Dynamic correlation matrix updates via oracle feeds

R&D Achievement: First implementation of adaptive non-Markovian risk models within gas-constrained blockchain execution environments.

5. Delta Collapse and Cross-Offset Methodology

The Problem: Options positions have non-linear payoffs that cannot be simply summed for portfolio margining.

The Solution:

Options positions are reduced to delta equivalents through a normalisation process:

1. Gamma Load Adjustments: Account for convexity in option values

2. Deep ITM Options: Collapsed to delta-one (equivalent to underlying)

3. Deep OTM Options: Notional scaled to true expected exposure

4. Volatility Spread Correlation: Second-order risk factor tracking regime shifts

Cross-Offset Implementation:

• Normalise non-linear products into risk vectors

• Net long/short deltas across product types

• Offset based on correlation matrix, not naive heuristics

• Concentration scaling for oversized positions

R&D Achievement: First DeFi implementation combining Student-t VaR, QUBO portfolio solving, and non-linear options normalisation in a single integrated system.

Investors -(Token prebuying)

Lars Seier Christensen

Co-founder of Saxo Bank, the Danish investment bank and online trading platform. Lars has been an active investor in blockchain infrastructure projects and brought both capital and strategic guidance to the Pascal development effort. His experience building regulated trading infrastructure provided valuable perspective on institutional adoption requirements.

SALT Fund (Anthony Scaramucci)

SkyBridge Capital's SALT Fund, led by Anthony Scaramucci, participated in Pascal's funding rounds. SALT has been active in digital asset infrastructure investments, and their involvement provided connections to traditional finance networks and potential institutional users.

Fabric Ventures

European venture capital firm focused on open-source networks and decentralised infrastructure. Fabric brought deep expertise in protocol economics and tokenomics design, contributing to Pascal's governance structure and incentive alignment.

Wave Digital Assets

Digital asset investment firm specialising in blockchain infrastructure and DeFi protocols. Wave's portfolio focus on derivatives and trading infrastructure aligned directly with Pascal's market positioning.

FunFair Ventures

Investment arm originating from FunFair Technologies, with experience in Ethereum-based protocol development and smart contract architecture. Their technical due diligence provided validation of Pascal's approach to on-chain clearing.

AMDAX

A Dutch regulated digital asset exchange and custodian — one of the first to receive DNB (De Nederlandsche Bank) registration. Their involvement brought regulatory credibility from the European market and validated Pascal's approach to institutional-grade infrastructure. They also provided perspective on exchange integration requirements and custody considerations.

Architecture: Protocol/Platform Separation — Regulatory balance

Pascal Protocol — The Clearing Layer

Pascal is a decentralised clearing protocol that operates as infrastructure — enabling any platform to build capital-efficient derivatives products.

Core Functions:

• On-chain, trustless clearing

• Portfolio-based margining via VaR models

• Composable reference rates and oracle integration

• Automated liquidation without human discretion

• Default waterfall enforcement

What Pascal Does NOT Do:

• Operate exchanges or trading venues

• Control user funds or execute trades

• Make discretionary decisions about positions

• Override automated clearing logic

Governance:

Controlled by the Pascal DAO (formerly CVEX DAO):

• Parameter updates via token holder voting

• Risk model configuration

• Treasury allocation

• Protocol upgrades

The DAO cannot interfere with live clearing operations once trades are submitted.

Jetstream — The Platform Layer

Jetstream is the reference trading platform built on Pascal — demonstrating the protocol's capabilities.

Functions:

• Trading interface and portfolio dashboards

• Order routing and execution

• User onboarding (KYC/AML where jurisdictionally required)

• Market listing and instrument configuration

• Liquidity programs and market maker support

Separation of Concerns:

LayerResponsibilitiesDiscretion AllowedPascal ProtocolClearing, Margining, SettlementNone — deterministicPlatform (Jetstream)Onboarding, UX, ControlsOptional, loggedDAO GovernanceParameters, UpgradesConstrained by process

Operational Independence:

Jetstream is operated independently from CVEX Labs AG. Multiple platforms can be built on Pascal:

• DAO-operated internal hedging desks

• RWA (Real-World Asset) exchanges

• Permissioned institutional-only venues

• Exotic derivatives platforms

Smart Contract Architecture

Two-Layer Arbitrum Implementation

1. Collateral Pool: Arbitrum One (L2 Mainnet)

• Location of all posted collateral

• Deployed on Arbitrum One, Ethereum-secured L2

• Anchors margining, liquidation, and P&L tracking

• Verifiable, permissionless, fully on-chain

• Collateral pools isolated per platform — no cross-platform risk sharing

2. Clearing, Risk & Matching: Arbitrum Orbit (Custom Chain)

• Risk engine, clearing logic, and position state

• Optional matching engine for native order routing

• Supports both CLOB-style trading and OTC submission

• High-speed margin updates and position changes

• All trades must clear through Pascal's immutable risk logic

Collateral Policy

Jetstream exclusively accepts native USDC (issued directly on Arbitrum) as margin collateral:

• Eliminates bridge and wrapper risk

• Simplifies margin accounting

• Avoids non-deterministic collateral behaviour

• Decouples product risk from collateral risk

Wrapped tokens, bridged assets, or synthetic stablecoins are explicitly excluded.

Oracle Integration

Risk calculations depend on platform-selected oracles providing:

• Mark price curves for each instrument and expiry

• Correlation and covariance matrices for risk aggregation

• Volatility surface data for options pricing

Oracle Requirements:

• Transparency

• Decentralisation

• Auditability

• Independence from order book manipulation

Operational Mechanics

Trade Lifecycle

1. Trade Submission: Counterparties execute trades bilaterally (OTC) or on venue

2. Validation: Pre-trade checks (capacity, margin impact) via risk engine

3. Acceptance: Trade accepted and submitted to Pascal

4. Position Recording: Immutable record on Arbitrum ledger

5. Margin Calculation: QUBO optimisation determines required collateral

6. Collateral Movement: Atomic settlement via smart contract

7. Continuous Monitoring: Real-time margin recalculation as markets move

Liquidation Process

1. Margin Breach Detection: Automated monitoring against thresholds

2. Alert Generation: Counterparty notification

3. Grace Period: Opportunity for voluntary collateral top-up

4. Liquidation Trigger: Execution via permissionless liquidation bots

5. Position Unwind: Order routing for position closure

6. Loss Allocation: Waterfall processor determines distribution

7. Settlement: Atomic on-chain completion

Key Protections:

• Decoupled mark prices from order book manipulation

• Circuit breakers during extreme volatility

• Auctions to stabilise forced unwind events

Default Waterfall

In default scenarios:

1. Defaulting account's margin exhausted first

2. Platform-specific collateral pool absorbs residual

3. Protocol-defined loss allocation rules apply

4. No cross-platform contagion — risk fully siloed per venue

Market Context

Why This Matters

The crypto options market remains in a pre-clearing world:

• Billions in notional traded off-chain weekly

• No netting, no deterministic margin

• No portfolio offsets, no system-wide transparency

• Full bilateral counterparty risk

Status quo: TradFi processes from the 1980s, executed on-chain.

OTC Clearing as Go-to-Market

Most crypto options volume doesn't happen on exchanges — it happens OTC:

• Token hedging for project treasuries

• Structured yield notes

• Block trades via brokers

• Treasury protection for DAOs

Pascal + Jetstream delivers OTC execution with centralised clearing benefits:

• Protocol-level margin requirements

• Risk netting across strategies

• Automated liquidations

• Transparent, on-chain exposure state

Capital Efficiency Impact

Example Portfolio: $100M position

Real-time capability: Sub-second recalculation vs. overnight batch processing.

Partnership: Block Scholes

Pascal has partnered with Block Scholes — the oracle and analytics provider behind over 80% of options DEX activity — to deliver:

• Real-time verifiable pricing feeds

• Institutional-grade volatility surfaces

• Reference rate construction for settlement

This partnership ensures Pascal's risk calculations use the same data quality relied upon by major institutional participants.

Development Status

Completed Milestones

• Pascal Protocol smart contracts deployed on Arbitrum testnet

• QUBO risk engine operational with verifiable off-chain computation

• Jetstream platform UI and API development

• Block Scholes oracle integration

• Portfolio margining across BTC/ETH options and futures

• Liquidation bot infrastructure

Active Development

• Mainnet deployment preparation

• Additional asset support (SOL, AVAX, DeFi tokens)

• Physical delivery options

• Cross-asset derivatives

• RWA tokenised derivatives infrastructure

Decentralised Structure & Token Economics

Governance via Pascal DAO

The Pascal Protocol is governed by a decentralised autonomous organisation (DAO):

• Token holders vote on parameter changes

• Multi-signature requirements for critical upgrades

• Time-locked proposals with community review periods

• Treasury allocation for development grants

CVEX Labs AG — Independent Contributor

CVEX Labs AG (Switzerland) is an independent contributor to Pascal development:

• Provides technical development, risk modelling, and infrastructure support

• Does not operate exchanges, platforms, or touch user funds

• Compensated through treasury grants and token allocation

• No operational control over clearing or settlement

Token-Based Compensation

Handleport Limited's involvement has been as a technical contributor and advisor to the protocol development:

• Compensation: Combination of protocol tokens (CVEX) and service arrangements

• Nature of relationship: IP development and technical advisory, not employment

• Deliverables: Risk model specification, smart contract architecture, protocol design documentation

• IP ownership: Contributed to open-source protocol codebase

This structure reflects the decentralised nature of protocol development — contributors are compensated through token allocation rather than conventional employment, aligning incentives with protocol success.

R&D Expenditure Categories

Scientific and Technological Uncertainty

The project faced substantial uncertainty in multiple domains:

1. Computational Feasibility

• Whether QUBO-based portfolio optimisation could achieve sufficient accuracy within blockchain gas constraints

• Whether verifiable off-chain computation could maintain trustlessness guarantees

• Whether real-time risk calculation was achievable for complex portfolios

2. Financial Model Adaptation

• Whether fat-tail distributions could be implemented within deterministic smart contracts

• Whether cross-asset correlation matrices could be maintained accurately via decentralised oracles

• Whether options delta normalisation would produce economically meaningful margin requirements

3. System Integration

• Whether two-layer Arbitrum architecture would provide necessary performance

• Whether oracle integration would maintain price integrity under adversarial conditions

• Whether liquidation mechanisms would function correctly under extreme market stress

Competitive Landscape

Pascal is the only DeFi protocol combining:

• Student-t VaR

• QUBO portfolio solver

• Bid/offer-aware mark-to-market

• Non-linear cross-offset

• Verifiable off-chain liquidations

References & Technical Documentation

Academic Foundations

• Quantum-Inspired Portfolio Optimisation in the QUBO Framework (Lu et al., 2024)

• Systemic Risk and Central Clearing (Duffie, 2011)

• ISDA SIMM Standard Initial Margin Model (Industry standard)

• CME SPAN and Options Risk Frameworks (Exchange methodology)

Protocol Documentation

• Pascal Protocol Technical Specification

• CVEX Labs AI Diligence File

• Jetstream Platform Documentation

• Smart Contract Audit Reports (pending mainnet)

Summary

Pascal Protocol and Jetstream represent a significant technological advancement in decentralised finance infrastructure — the first system capable of providing institutional-grade portfolio margining and clearing for on-chain derivatives markets.

The R&D investment has produced:

• Novel QUBO-based real-time risk calculation

• First fat-tail VaR implementation on blockchain

• Verifiable off-chain computation architecture

• Separation of protocol (deterministic) and platform (configurable) layers

This work continues to advance the state of the art in cryptographic financial systems, with ongoing development toward mainnet deployment and broader asset coverage.

Current work includes engaging major trading firms to purchase this IP and continue development to enable tokenised trading of assets to actually start.