How Do Smart Contracts Handle Collateralization for Perpetual Futures?
Smart contracts automatically manage the collateral (margin) required to open and maintain a perpetual futures position. The contract continuously monitors the position's health and automatically executes liquidation if the margin falls below a predefined maintenance level.
This process is transparent and eliminates the need for a centralized margin desk.
Glossar
Smart Contracts
Function ⎊ Smart contracts are self-executing agreements with the terms of the agreement directly written into lines of code, residing on a decentralized ledger.
Collateralization
Meaning ⎊ Collateralization is the act of pledging an asset or pool of assets to secure a financial obligation, such as a loan, a margin trade, or a derivative position.
Decentralized Exchange
Exchange ⎊ A decentralized exchange (DEX) facilitates peer-to-peer cryptocurrency trading without intermediaries, operating autonomously on blockchain networks.
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.
DeFi Derivatives
Volatility ⎊ DeFi derivatives represent synthetically created financial contracts whose value is derived from underlying cryptocurrency assets, extending traditional derivative functionalities ⎊ like futures, options, and swaps ⎊ onto decentralized blockchain networks.
Funding Rate
Mechanism ⎊ Funding Rate represents a periodic payment exchanged between traders holding opposing positions in perpetual futures contracts, establishing an equilibrium between contract prices and the underlying spot market.