How Do Perpetual Futures Contracts Utilize Stablecoins for Margin and Settlement?
Perpetual futures, a major type of crypto derivative, predominantly use stablecoins like USDT or USDC as the collateral (margin) and the final settlement currency. This is known as “coin-margined” or “stablecoin-margined” settlement.
The stablecoin acts as the reliable dollar-equivalent for posting collateral and for the P&L (Profit and Loss) realized at the contract’s closure or upon liquidation. The stablecoin’s $1 peg is crucial because it allows the leverage ratio and margin maintenance levels to be calculated consistently in fiat-equivalent terms.
Glossar
Perpetual Futures
Structure ⎊ Perpetual Futures are a type of derivative contract, native to the cryptocurrency market, that allows traders to speculate on the future price of an underlying asset without a fixed expiration date.
Margin Maintenance Levels
Collateral ⎊ Margin Maintenance Levels represent the minimum equity a trader must retain in a margin account relative to the position’s value, serving as a critical risk management parameter within cryptocurrency, options, and derivatives markets.
Leverage Ratio
Ratio ⎊ The leverage ratio, within cryptocurrency derivatives and options trading, quantifies the extent of financial risk undertaken relative to available capital.
Liquidation Price
Valuation ⎊ determines the theoretical price of the derivative contract, which directly influences the required margin and the potential payoff structure.
Perpetual Futures Contracts
Structure ⎊ Perpetual futures contracts are a unique type of derivative in the cryptocurrency market that mirrors a traditional futures contract but lacks a fixed expiration date.
Settlement Currency
Currency ⎊ Within the convergence of cryptocurrency, options trading, and financial derivatives, settlement currency denotes the asset utilized to finalize obligations arising from transactions.