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Delta NewsJanuary 24, 2019

World's first Bitcoin futures settled in stablecoin (USDC)

Pankaj Balani
CEO, Delta Exchange
January 24, 2019
What's in this post?
    Trade Bitcoin Futures with Stablecoin – Bitcoin USDC Quantos

    Bitcoin futures traded on major crypto exchanges such as BitMEX, DeriBit and on Delta Exchange require traders to maintain margin & earn P/L in Bitcoin terms.

    This means that your margin is exposed to risk in prices of Bitcoin during the lifetime of the trade. Lets look at an example to understand this. Say you are short 1 Bitcoin in futures when Bitcoin price is at 4000$. Assume you’ve kept 10% or 0.1 BTC = 400$ as margin.

    If Bitcoin moves down by 5%, you’d make 0.05 BTC in profit. Along-with the 0.1 BTC margin that you had kept initially the total value of your holdings is 0.15 BTC or 570 USD. Your profit is 190$ but your margin has reduced in value to 380$ from 400$ at the beginning of trade.

    This is because you’ve been trading aninverse future, which is margined in the same currency on which you are taking long or short exposure.

    Though inverse futures are commonplace in the crypto derivative universe, they are not so intuitive to trade. It is difficult to keep track of profit earned in a trade and one has to account for margin that might erode in value during the lifespan of a trade.

    It is much more simple to think in terms of a dollar denominated P/L!

    The same way you trade futures in stocks

    We wanted to solve this problem and offer the same experience that traders have when they trade say a S&P future or future on HKSE. You just need to worry about your trade being right and not bother with balances eroding in value.

    Thus we explored offering StableCoin futures, which will be quoted, margined and settled in USDC. We chose USDC because of the strong names behind it, its growing traction and clean image.

    This still doesn’t cut-it though, because there is not enough volume in USDC pairs on spot exchanges. BTC-USDC pairs trade less than 10Mn USD a day on top spot exchanges together. We wanted the underlying to be fairly liquid and represent the true price of Bitcoin-USD.

    Enter Quantos

    Quanto futures are Futures where the pay-off is calculated in one currency but paid in another currency. Simply put, quantos are nothing but vanilla futures contracts which are margined and settled in a 3rd currency. This 3rd currency though has a fixed exchange rate with the base currency for the duration of the contract.

    Hence we decided to offer stablecoin quanto futures, which will be margined and settled in stablecoin. This offers the best of both worlds, margining in earning P/L in stablecoin and trading a liquid underlying.

    A BTC-USD USDC Quanto is:
    1. Quoted in USD
    2. Margined and Settled in USDC
    3. P/L earned in USDC
    4. Exchange rate for USD-USDC will remain pegged @ 1USD during the life of the contract

    Hence, if you want to go short 1 Bitcoin @ 4000 USD with 10% margin, you need to have 400 USDC in your account on Delta Exchange.

    To get USDC in your wallet, use our currency-convertor feature and convert BTC in your wallet to USDC.

    Comparing P/L when trading Inverse futures, vanilla futures and USDC Quantos.

    Lets examine how the P/Ls and cash positions look like for a short 1 Bitcoin futures position @ 4000 USD @ 10% margin and Bitcoin sliding to 3800.

    Inverse Futures Vanilla Futures Quanto Futures
    Margin & P/L currency Bitcoin USD USDC
    Leverage 10x 10x 10x
    Cash at beginning (Margin).

    BTC @ 4000

    0.1 BTC 400 USD 400 USDC
    Profit/Loss 0.05 BTC 200 USD 200 USDC
    Cash at end (M+P/L).

    BTC @ 3800

    0.15 BTC 600 USD 600 USDC
    Value in USD ~ 570 USD 600 USD ~ 600 USD
    Value in BTC 0.150 BTC ~ 0.158 BTC ~ 0.158 BTC

    Other features of the quanto features remain the same.
    You can find Bitcoin Quanto Futures on the trading page

    We are also going to offer ETH-USD USDC Quanto and XRP-USD USDC Quanto. This would mean that you can trade different cryptocurrency pairs all of which are quoted in USD and settled in USDC. No more shorting 1x futures to protect your available balances, you can just maintain your balances in USDC on Delta Exchange.

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