Fixed-Point Arithmetic

Fixed-Point Arithmetic is a method of representing fractional numbers using integers by scaling them by a fixed factor, which is essential for blockchain-based financial applications. Because standard floating-point arithmetic can produce different results across different hardware architectures, it is considered non-deterministic and unsuitable for consensus-based systems.

By using fixed-point math, developers ensure that every node in a network calculates the exact same result for interest accrual or option pricing, maintaining the integrity of the ledger. This approach involves defining a specific number of decimal places, such as 18 decimals for ERC-20 tokens, and performing all operations using scaled integers.

While this avoids rounding discrepancies, it requires careful management of scaling factors during multiplication and division to prevent loss of precision. It is the industry standard for maintaining consistent state across decentralized derivative protocols.