Crypto Derivatives

Perpetual Futures Contract

• two counterparties trade a contract to speculate on the future price of an asset

• no expiry date on perpetual contract settlement

• collateral (stablecoin/crypto) is deposited to borrow assets at marked price

• leverage is supported to enter position larger than total balance

• Liquidation happens when collateralized crypto assets fall below a threshold price, e.g.

  • borrow $100 worth of USDC against $150 worth of ETH, with a liquidation ratio of 125%

  • If the price of ETH drops below 125% of the outstanding balance, the platform sells the collateral

  • the borrower can pay down the loan or add more funds to avoid being liquidated

💡 Initial Margin: amount of asset to open a leverage position, 10x leverage refers to 1 ETH margin to open a 10 ETH position

💡 Funding Rate: when contract price is higher that spot price (positive funding), buy/long side to pay short/sell side, vice versa

Options Contract

• an agreement between two parties to facilitate a transaction of an asset at a preset price & date

• the contract can only be exercised within the preset timeframe, otherwise it expires

• CALL when expecting a price rise in the future, PUT when expecting a price drop in the future

• buyer can decide whether exercise options, seller is obligated to trade based on buyer's decision

• strike price is the price at which the asset will be bought or sold on the expiry date

  • a CALL contract is created to buy 1 ETH at $100, expiration date T+10

  • when ETH price = $120, exercise the CALL contract to buy at $100 from seller and sell for $20 profit (excl. fee)

  • when ETH price = $80, exercise the CALL contract to buy at $100 from seller and sell for $20 loss (excl. fee), generally people leave the contract expire, losing premium paid when entering the position

Leveraged Tokens

• gain leveraged exposure to a crypto assets without the risk of liquidation

• no collateral required, won't lose more than what you input

• BTC3XUP has a leveraged profit when BTC price goes up

• BTC3XDOWN has a leveraged profit when BTC price goes down