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Ember Nuggets are a weekly update with commentary from the investment team on what’s happening within the crypto market - news, developments, market trends, and more.
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A perpetual swap contract is a derivative instrument. A derivative is a financial instrument who's value is tied to another asset or assets. For example, the DeFi index on Ember is a derivative instrument tied to the performance of the DeFi tokens that make up the basket. Derivatives can also be contracts between two or more parties.
Now back to perpetual swaps:
A perpetual swap is a contract between parties that allows them to buy or sell an asset of value in the future. Perpetual swaps have many advantages including:
Trading with leverage (margin)
Don’t need to own the asset to sell it (no custody needed, borrowing from counterparty if you sell an asset you don’t have - short position)
Positions can be kept open, forever (i.e. perpetually)
This week’s big news is the derivatives exchange dYdX, created by a company called dYdX Trading. dYdX is a decentralized derivatives exchange that allows users to place short and long bets on the prices of various cryptocurrencies against other traders without any intermediaries. The exchange is built on an Ethereum Layer 2 platform called StarkEx, allowing the transactions to be executed faster and more cheaply.
Thank you for reading!
Investment Associate | Ember Fund
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