Perpetual Futures

Derivatives Strategy for DUSD

Overview of Derivatives Usage

Delta Money employs derivatives to optimize the stability and risk management of DUSD, ensuring that its backing assets maintain a consistent USD value across fluctuating market conditions. By adopting a "delta neutral" strategy, Delta Money uses perpetual contracts to offset the exposure of long spot positions in backing assets, mitigating volatility while stabilizing the value of DUSD.

Perpetual Contracts for Risk Management

Delta Money exclusively utilizes perpetual contracts to manage its derivatives positions. Unlike traditional futures contracts, perpetual contracts do not have an expiration date, providing flexibility to hedge and adjust positions continuously based on market conditions.

• Perpetual Contracts: These contracts are used to manage exposure to volatile crypto assets like BTC, ETH, and SOL without the need to liquidate positions. By opening short positions in perpetual contracts, Delta Money neutralizes directional market risk, ensuring that net exposure to any single asset stays within predefined risk limits.

Inverse vs. Linear Perpetual Contracts

Delta Money engages in both inverse and linear perpetual contracts to suit different risk management objectives:

• Inverse Perpetual Contracts: These contracts move in the opposite direction of the underlying asset. For example, if the price of BTC rises, the value of the inverse perpetual contract falls. These contracts are used to hedge against potential market downturns, offering protection against adverse price movements.

• Linear Perpetual Contracts: These contracts follow the price movement of the underlying asset. Delta Money uses linear perpetuals to take controlled, long positions, allowing it to capitalize on market upswings while maintaining a delta-neutral posture for risk management.

Basis Spread and Capital Efficiency

Delta Money is highly attentive to the basis spread — the difference between the spot price of an asset and its corresponding perpetual contract price.

• A positive basis (contango) indicates perpetual prices are above spot.

• A negative basis (backwardation) indicates perpetual prices are below spot.

Delta Money leverages these spreads to enhance capital efficiency by optimizing positions across different exchanges, selecting those offering favorable contract terms. This enables the protocol to maximize yield from its derivatives portfolio while keeping risk exposure within acceptable limits.

Exchange Optimization and Liquidity Management

Delta Money continually monitors and optimizes its positions across multiple exchanges. This algorithmic strategy ensures that the protocol selects the most efficient platforms in terms of liquidity, capital efficiency, and contract specifications.

By adjusting positions across exchanges, Delta Money can maintain flexibility and responsiveness to market changes, while managing counterparty risk.

The protocol also utilizes off-exchange settlement providers to enhance liquidity, reduce counterparty risk, and ensure that the value of DUSD remains stable even in volatile conditions.