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February 3, 2020

What is USDQ on Delta Exchange

USDQ is used to denote quanto contracts that have:

(a) quote currency in USD and
(b) the margin and settlement currency are other than USD.

 On Delta, we have two types of quanto contracts:

(a) quoted in USD and margined & settled in BTC and
(b) quoted in USD and margined & settled in USDC.

Recall that in a typical vanilla futures contract, the quote currency and margin/ settlement currency are the same. E.g. our ATOMBTC perpetual contract, quote, margin, settlement currency is BTC.

What are Quantos?

According to Wikipedia, “A quanto is a type of derivative in which the underlying is denominated in one currency, but the instrument itself is settled in another currency at some rate. Such products are attractive for speculators and investors who wish to have exposure to a foreign asset, but without the corresponding exchange rate risk.”

In simple terms, Quanto Futures are contracts in which the pay-off is calculated in one currency but paid in another currency. Quantos are attractive because they safeguard the trader from uncertain exchange rate fluctuations. By introducing Quanto, the trader is hedged against the risk without an extra step.

The invention of Quanto’s was required because US investors wanted exposure to Japenese stocks. However, this leads to exposure risk not only in Japanese stocks but also USD/JPY currency rates. Thus, through Quanto’s US investors invested in Japanese stocks through futures on the Nikkei which were settled in USD, eliminating the currency exposure risk.

Why do we have Quanto on Delta Exchange

  1. Traders find it easier to predict the USD price of altcoins compared to BTC price of altcoins. Consider a scenario in which a major bull market is going. Both BTC and altcoins are going up in USD terms. If BTC is outperforming alts, ALT-BTC pairs will go down. Conversely, if BTC is underperforming, ALT-BTC pair will go up. Altcoins’ absolute performance against USD is easier to predict compared to their relative performance against BTC.

 

  1. We do not have fiat payment gateway on Delta Exchange. Traders can deposit or withdraw only cryptocurrencies (as of now only bitcoin). Therefore, USD pair of futures contracts will have to be inverse contracts. That means, they will be settled in the underlying altcoins. Consequently, traders will have to maintain balances in multiple altcoins. This is not ideal.

Quantos enable us to solve for both the issues mentioned above. Quote currency remains USD and the settlement currency is either BTC or USDC. The choice between offering BTC vs. USDC margining/ settlement is based on trader demand

Quantos listed on Delta Exchange

ETHUSDQ Ethereum-USD Quanto Vanilla Future, quoted in  USD, settled and margined in USDC
XRPUSDQ Ripple-USD Quanto Vanilla Future, quoted in  USD, settled and margined in USDC
LTCUSDQ Litecoin – USD Quanto Vanilla Future, quoted in  USD, settled and margined in USDC
LEOUSDQ Leo Coin – USD Quanto Vanilla Future, quoted in  USD, settled and margined in USDC
XMRUSDQ Monero – USD Quanto Vanilla Future,s quoted in  USD, settled and margined in USDC
BSVUSDQ Bitcoin Cash SV – USD Quanto Vanilla Futures, quoted margined and settled in BTC
BNBUSDQ Binance Coin – USD Quanto Vanilla Future, quoted in  USD, settled and margined in BTC

 

This is what a BTC-USD USDC Quanto pair looks like on Delta Exchange. You can find Bitcoin Quanto Futures here.

  • Quoted in USD
  • Margined and Settled in USDC
  • P/L earned in USDC
  • The exchange rate for USD-USDC will remain pegged @ 1USD during the life of the contract

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