Can a Perpetual Swap Be Physically Settled with Crypto?
No, perpetual swaps are designed to be cash-settled. They are derivative contracts that track the price of the underlying cryptocurrency, and their value is exchanged in a stablecoin or fiat currency, not the actual crypto asset.
This allows for easier trading and avoids the logistical complexity and security risks associated with the transfer of the physical crypto asset.
Glossar
Perpetual Swaps
Derivatives ⎊ Perpetual swaps represent a class of financial derivatives, specifically within the cryptocurrency ecosystem, that replicate the payoff of a futures contract without a fixed expiration date.
Physical Settlement
Delivery ⎊ The concept of physical settlement, particularly within cryptocurrency derivatives and options, signifies the actual transfer of the underlying asset ⎊ be it a digital token or a commodity ⎊ rather than a cash-based offset.
Derivative Contracts
Stewardship ⎊ Involves structuring these agreements to manage the financial exposure associated with assets that may face future regulatory or environmental shifts.
Logistical Complexity
Interdependence ⎊ Logistical complexity within cryptocurrency, options trading, and financial derivatives arises from the interconnectedness of market participants and systems, demanding robust risk management frameworks.
Physically Settled
Settlement ⎊ Physically settled derivatives contracts require the actual transfer of the underlying asset from the short position holder to the long position holder at maturity.
Perpetual Swap
Mechanism ⎊ Perpetual swaps, within cryptocurrency markets, represent agreements to exchange cash flows based on the difference between a cryptocurrency’s current price and a user-defined price, perpetually, without an expiration date.