📈The Perpetual Futures Market
Last updated
Last updated
When you participate in the Perpetual Futures Market, you deposit rETH as your collateral margin, open a long position, and mint a non-transferable NFT (ERC-721) that represents your leverage position. The additional rETH is borrowed from Flat Money (UNIT) holders, who provide the rETH held in the protocol’s shared liquidity pool.
As Leverage Traders increase their long positions, UNIT holders automatically assume the opposite short position, thus reinforcing a delta-neutral status for UNIT LPs.
The Flat Money protocol uses the rETH liquidity pool to connect the Flat Money Market with the Perpetual Futures Market. As a Leverage Trader, you’re getting leveraged rETH price exposure by borrowing rETH from UNIT LPs, who are taking a short position on rETH’s spot price.
As a Leverage Trader, you earn a profit when:
The Price of rETH Increases. If the price of rETH goes up, Leverage Traders can profit at a multiple of the price increase due to the borrowed rETH in their position.
Borrow Rate Fees Are Negative. Whenever this rate is negative, UNIT LPs are paying Leverage Traders to borrow rETH for long positions from the protocol’s shared liquidity pool. The Borrow Rate (a.k.a., the Funding Rate) is negative when the Long Open Interest is lower than the amount of rETH collateral provided by UNIT LPs, since Flat Money holders provide the available rETH in the protocol’s shared liquidity pool. A negative Borrow Rate creates an incentive for people to create more open leverage positions to balance the delta between the Flat Money markets.
As a Leverage Trader, you can turn a profit in the right market conditions, but you’ll also pay standard trading fees and run the risk of having your collateral margin liquidated if rETH’s price declines and your collateral is insufficient to cover your position.
Leverage Traders pay the following fees:
Trading Fee. There is a 0.08% fee when you open, close, or adjust your leverage position.
Keeper Execution Fee. There is a variable fee, which is dependent on market conditions, you pay when your collateral margin drops below the maintenance margin for your open long position.
Borrow Rate Fee. Whenever this rate is positive, Leverage Traders are paying UNIT holders to borrow rETH for long positions from the protocol’s shared liquidity pool. The Borrow Rate is positive when the Long Open Interest is higher than the amount of rETH collateral provided by UNIT holders, since Flat Money holders provide the available rETH in the protocol’s shared liquidity pool. A positive Borrow Rate creates an incentive for people to mint more UNIT, increase the amount of rETH in the shared liquidity pool, and balance the delta between the Flat Money markets.
Together the Flat Money and Perpetual Futures Markets create incentives to maintain a delta-neutral position for UNIT holders. At times, the skew (i.e., the net difference between total long position size and UNIT LPs) may be positive or negative. This means the Flat Money markets may not always be completely delta neutral.
