DeFi-nitely the Place to Be: Bliv Learn's Guide to Navigating the World of Decentralized Finance! 🤑

If you're feeling a bit lost in the world of DeFi, don't worry because, with our DeFi guide, you'll be able to go from a crypto-noob to a DeFi-nitionary expert in no time. We understand that the world of DeFi can be intimidating, so our guide starts with the fundamentals and gradually builds up your knowledge. We'll explain all the technical jargon in simple terms, so you can clearly understand how DeFi works. Whether you're a complete DeFi newbie or have some experience, our guide will provide the essential knowledge you need to navigate this bold new world.

Comprehensive Overview of Covered Topics:

Mastering the Basics: An Introduction to Derivatives

Derivatives are financial instruments based on an underlying asset, such as a currency, commodity, or stock. They allow investors to speculate on the future price movements of these assets or protect against potential price fluctuations.

Various derivatives include futures, options, Perpetuals, and forwards. Each type has its own unique characteristics and uses, but they all enable investors to speculate on the future price of an underlying asset or hedge against price changes. Here we will discuss only perpetual, as our product is based on perpetuals.

Perpetuals Uncovered: Everything You Need to Know

Perpetuals are a type of derivative contract that allows traders to speculate on the future price of an underlying asset with no expiration date. They are similar to traditional futures contracts but do not have a fixed expiration date. Instead, they use a mechanism called "funding" to keep the contract's price in line with the spot price of the underlying asset.

How does a Perpetual Contract Work?

1. Perpetual futures are based on the underlying asset's spot price. This means that the price of the perpetual futures contract is closely tied to the current market price of the underlying asset, such as a cryptocurrency or commodity.
2. They are traded on a cryptocurrency exchange. Traders can buy or sell perpetual futures contracts on these platforms, just like they would with any other security.
3. They use a mechanism called "funding" to keep the contract's price in line with the spot price. This mechanism ensures that the price of the perpetual futures contract does not deviate too far from the spot price of the underlying asset.
4. Perpetual futures contracts can be leveraged, meaning traders can control a larger position with less capital. However, this also increases the risk of loss if the trade goes against them.
5. There is no expiration date on perpetual futures contracts, so traders can hold them for as long as they wish. However, traders will need to pay or receive funding periodically to keep the contract price in line with the spot price.
6. Traders can close their position at any time by either buying or selling an equal number of contracts.

Let’s understand them with an example and an analogy.

Example: An example of trading in perpetual futures would be a trader who believes that the price of Bitcoin will increase in the future. They buy a perpetual futures contract on Bitcoin, allowing them to speculate on the future price of the cryptocurrency.

The trader buys a contract for 1 Bitcoin at a price of $10,000, with a leverage of 10x. This means the trader only needs to put up $1,000 of their own capital to control a position worth $10,000.

If the price of Bitcoin increases to $11,000, the trader can sell the contract for a profit of $1,000 ($11,000 - $10,000). However, if the price of Bitcoin decreases to $9,000, the trader would incur a loss of $1,000.