Explain How a Loyalty Token Can Be Used as the Underlying Asset for a Perpetual Futures Contract.
A perpetual futures contract is a derivative that trades like a futures contract but has no expiration date. For a loyalty token, the perpetual future allows traders to speculate on its long-term price without holding the actual token.
The contract is kept close to the spot price through a 'funding rate' mechanism, which is paid between long and short positions. This creates a highly liquid, leveraged market for the token, even if the token itself is primarily used for utility.
Glossar
Futures Contract
Leverage ⎊ Futures contracts in cryptocurrency represent agreements to buy or sell an underlying asset at a predetermined price on a future date, functioning as a derivative instrument that allows for amplified exposure without immediate asset ownership.
Perpetual Futures Contract
Mechanism ⎊ Describes the unique funding rate system that replaces traditional expiry dates, aligning the contract price with the underlying spot market.
Perpetual Futures
Contract ⎊ Perpetual futures represent a type of financial derivative contract, specifically within the cryptocurrency and options trading space, that replicates the payoff of a traditional futures contract without a fixed expiration date.