Preface

Futures Listing / Perpetual Listing plays a crucial role in both traditional finance and the blockchain world. For traditional commodities such as crude oil, gold, and soybeans, the listing of futures contracts signifies price discovery and the maturity of risk management tools. For encrypted assets such as Bitcoin and Ethereum, contract listing represents increased market recognition, expanded trading depth, and also provides a stage for speculation and high leverage operations.

1. Basic Concepts and Evolution of Contract Listing

1.1 The Essence of Contracts

A ‘contract’ is a financial derivative tool based on the price of the underlying asset or commodity, and its value depends on the performance of the underlying asset in the spot market. Common types of contracts include:

• Futures Contract: A prearranged agreement between the buyer and seller to trade at a specific price on a future date.
• Perpetual Futures: There is no fixed delivery date. Traders adjust the cost of long and short positions through the funding rate to closely anchor the contract price to the spot price.

1.2 From traditional futures to encrypted derivatives

• Traditional futures market: mainly targeting commodities, financial indices, foreign exchange and other underlying assets, reviewed for listing by regulatory bodies (such as the U.S. Commodity Futures Trading Commission CFTC).
• Derivative products: With the rise of digital assets such as Bitcoin and Ethereum, centralized exchanges (CEX) and decentralized exchanges (DEX) have successively launched contract products, including perpetual contracts and futures contracts. The leverage multiplier is more flexible, and trading is available 24/7, attracting a large number of individual investors.

Source:CFTC (Commodity Futures Trading Commission)

1.3 Key Milestones

• 2017-2018: Bitcoin futures launched on traditional exchanges such as CME and CBOE in the United States, marking the integration of encrypted assets into the mainstream financial derivative market.
• 2019-2020: Many large encryption exchanges have launched perpetual contract and delivery contract products, and the market size and trading depth are gradually increasing.
• Since 2021: under the trend of compliance and institutionalization, the trading volume of contracts has continued to hit new highs, and various new types of derivatives (such as NFT derivative contracts, volatility options, etc.) have emerged continuously.

2. Traditional Financial Contracts VS Encryption Derivatives

The following comparison table can help readers to more intuitively understand the differences between traditional financial contracts and encrypted derivatives in terms of listing process, leverage restrictions, regulatory models, and more:

As can be seen from the above table, there are significant differences between encrypted derivatives and traditional futures in terms of contract mechanisms, leverage multiples, and regulatory aspects, which provide investors with greater flexibility but also bring higher uncertainties in compliance and risk control.

3. Contract Listing Process and Trading Model

3.1 Listing Process

• Product design: The exchange or project party designs contract types (perpetual or fixed-term delivery), underlying assets (BTC, ETH, etc.), leverage multiples, and other core parameters based on market demand and compliance requirements.
• Internal approval and testing: conduct simulated trading and security testing, evaluate risk management capabilities, and ensure system stability.
• Announcement and Launch: The platform releases announcements to explain contract rules, listing time, precautions, etc. It usually collaborates with market makers or large holders to provide initial liquidity support.

3.2 Trading Mode

• Isolated Margin: The margin of each contract position is independently calculated. If one position is liquidated, it will not affect other positions.
• Cross Margin: All positions share the account margin, and gains and losses offset each other. However, if one position suffers significant losses, it may drag down the overall account.
• Perpetual Contract Funding Rate: Used to keep the contract price close to the spot market, with both long and short sides regularly paying or receiving funding rates.

4. Mainstream Derivative Trading Platforms and Representative Tokens

In the encryption industry, there are mainly the following types of trading platforms that provide contract services and issue their own functional or governance tokens for ecological construction and user incentives.

4.1 Gate.io Contract \

• Platform Introduction: Gate.io is one of the well-known digital asset trading platforms, offering a variety of services such as spot trading, contract trading, wealth management, and lending.
• Contract Features: Rich variety of trading products, supporting mainstream coins and some popular project tokens; providing flexible leverage and full position/isolated position mode.
• Platform token: GT (GateToken). Users can enjoy trading fee discounts, voting for listing, and financial benefits by holding GT. \

Source:Gate.io Contract Column

4.2 Binance Futures (Binance Futures) \

• Platform Introduction: Binance is currently one of the largest encryption exchanges in terms of trading volume, providing a wide range of derivative products.
• Contract Features: The product system covers USDT-based contracts, coin-based contracts, options, etc.; the maximum leverage can reach up to 125 times, and the funding rate is updated frequently.
• Platform token: BNB, used for trading fee discounts, Launchpad subscriptions, on-chain ecosystem applications, etc.

4.3 OKX Derivative Contract \

• Platform Introduction: OKX (formerly OKEx) focuses on spot trading, derivatives, DeFi aggregator, and other services.
• Contract Features: Product coverage includes perpetual contracts and delivery contracts, flexible margin modes, and continuous upgrades to risk management systems.
• Platform token: OKB, helping users enjoy benefits such as fee discounts, ecosystem investments, etc.

5. The purpose and typical scenarios of contract trading

5.1 Hedging Risk

One of the most common uses of contract trading is risk management.

• Example: Alice is a long-term investor who holds 100 bitcoins (BTC) in her hands. Because the price of bitcoin fluctuates greatly, she is worried that recent macroeconomic policies (such as interest rate decisions) or market sentiment will cause the price of the coin to fall.
• Hedging strategy: Alice does not want to sell spot Bitcoin directly, she can open a short position in the contract market (short Bitcoin). When the spot price of Bitcoin falls, although her spot assets shrink, the contract short position will make a profit, partially or completely offsetting the loss of the spot.
• In this way, holders can retain their long-term positions while reducing the uncertainty caused by short-term market fluctuations.

5.2 Margin Trading

Contract trading allows investors to leverage their positions with equal capital, thereby amplifying potential gains or losses.

• Example: Bob has funds worth 1,000 USDT in his hand. He predicts that Ethereum (ETH) will experience significant positive news, and the price is expected to rise from 1,500 USDT to 2,000 USDT.
• Leverage Strategy: Bob uses 5x leverage to open a long position on the contract platform, which is equivalent to controlling an ETH position with a scale of 5,000 USDT with a margin of 1,000 USDT. If ETH really rises to 2,000 USDT, an increase of about 33%, he will reap profits magnified about 5 times.
• Risk Warning: If the market moves in the opposite direction and falls by a certain extent (e.g. falling below 1,250 USDT), Bob’s margin may not be sufficient to support the loss, facing the risk of forced liquidation (liquidation).

Leveraged trading pairs are attractive to investors with limited capital but a higher risk appetite, but it is important to carefully set stop-loss and take-profit orders and control positions.

5.3 Speculation and Arbitrage

Many professional traders primarily use the price fluctuations or differentials in the contract market to gain profits.

• Cross-Platform Arbitrage (Cross-Exchange Arbitrage): If the prices of the same currency’s derivatives differ between two exchanges, traders can short at the higher price and long at the lower price, simultaneously conducting the opposite operation to lock in the price difference profit.
• Cash-and-Carry Arbitrage: When there is a significant price difference between the futures price and the spot price of a certain contract, investors can buy the underlying asset in the spot market and short the futures contract of the asset in the futures market, and close the position for profit when the contract expires or the price difference converges.
• Calendar Spread Arbitrage: Some traders will open positions in contracts with different expiry dates at the same time to capture price differences between expiry dates.

Example: Charlie observes that the BTC perpetual contract price on Platform A is 100 USDT higher than on Platform B, so he shorts the BTC perpetual contract on Platform A and goes long on the BTC contract on Platform B, achieving risk-free or low-risk arbitrage. If the price difference returns, Charlie will close the position for profit.

5.4 Liquidity Mining

Some decentralized exchange protocols (DEX) have launched a ‘contract version’ of liquidity mining, attracting users to provide liquidity and to some extent alleviating the problem of insufficient trading depth.

• For example, in DeFi projects, users can deposit their stablecoins or mainstream coins into smart contract pools to provide counterparty funds needed for other traders to open or close contracts.
• The platform will allocate a portion of the contract trading fees, platform tokens, or other benefits according to the share of liquidity providers.

This mode to some extent improves the depth and liquidity of DEX contract trading, and also provides users with additional profit opportunities. However, due to the leverage and high volatility characteristics of contract trading, liquidity providers also need to bear corresponding risks.

6. Risks and Challenges

6.1 Market Volatility and Liquidation Risk

The cryptocurrency market has extremely high volatility, and the short-term violent fluctuations in prices often lead to rapid large floating gains and losses in leveraged positions.

• For example: In a bull market or under sudden good news, Bitcoin may rise by 10%-20% within 24 hours, while it may also plummet by 10%-30% within a few hours in the face of panic selling.
• If an investor uses 10x leverage, just a 10% adverse movement could lead to insufficient margin, triggering a liquidation mechanism and forcing a position to be closed.
• Risk Management: Investors need to set stop-profit and stop-loss before opening a position, pay close attention to the margin status in a timely manner, and try to avoid heavy positions or high leverage operations in extreme market fluctuations.

Source:CoinGlass official website

6.2 Exchange Security and Compliance

The platform’s security and compliance level directly affect the security of user funds and the sustainable trading environment.

• For example, some small platforms have been hacked, resulting in the theft of hot wallet assets, or there have been cases of user assets being misappropriated due to internal management chaos.
• If the regulatory policies in the platform’s jurisdiction become stricter, the exchange may be forced to delist derivative products or completely exit the market, leaving investors in a dilemma of fund migration or inability to withdraw coins.
• Measures: Choose a compliant exchange with deep qualifications and good reputation, regularly pay attention to platform announcements, and properly diversify asset storage.

6.3 Manipulation and Insufficient Liquidity

Less mainstream or newly launched contract varieties are prone to lack of liquidity and price manipulation risks.

• Example: The token of a new DeFi project has just been listed on the contract market, but the trading depth is not sufficient. Once a large amount of capital is concentrated for buying or selling, the price can experience significant fluctuations in a short period of time, and ordinary investors may encounter liquidation or buy at a high price without any preparation.
• ‘Needle insertion market’ is more common in low liquidity contracts, where prices are instantly pushed up or down by large orders and then quickly return to normal levels, resulting in innocent positions being liquidated.
• Risk Prevention: It is recommended that investors pay attention to the real trading volume and market depth when entering such contracts to avoid blindly increasing leverage.

6.4 Funding Rate and Oracle Failure

Perpetual contracts rely on funding rates to maintain a close connection between prices and the spot market, while oracles are responsible for providing data on the underlying asset prices.

• For example: If the majority of the market is bullish, leading to a high proportion of long positions, the funding rate will continue to rise. Longs need to pay fees to shorts regularly, increasing the cost of going long.
• If the oracle fails to update the price in a timely manner due to network delays or node failures, there may be temporary price “stuck” or significant deviation from the actual market price, resulting in abnormal price fluctuations and incorrect liquidation of contracts.
• Measures: Choose a safe and mature perpetual contract platform, and pay attention to the changes in funding rates and platform announcements at all times. Once abnormal oracles are found, it is necessary to reduce or close positions in time to minimize potential losses.

Source:Chainlink official website

7. Contract Platform Token Mechanism and Economic Model

Many encryption trading platforms will issue their own functional tokens or governance tokens to incentivize users and form a platform ecosystem. Taking Gate.io’s GT as an example, it usually has the following characteristics:

• Trading Fee Discount: Holding or using platform tokens to pay trading fees can enjoy different levels of discounts.
• Platform rights: including voting for listing rights, VIP level exchange, community governance, etc., to provide users with more participation.
• Revenue Distribution Mechanism: Some platforms will repurchase and destroy tokens, or distribute part of the income to token holders, thereby enhancing the value of the tokens.
• Contract-related activities: on some platforms, token holders may have priority access to new contract market testing or enjoy additional margin discounts, activity airdrops, etc. in contract trading.

8. Industry Development Trends and Future Prospects \

8.1 Diversified Contract Products

In addition to traditional perpetual contracts and futures, derivatives such as options and structured products are becoming increasingly abundant in the encryption field. In the future, there may be more ‘new concept’ contracts related to indexes, NFTs, metaverses, and so on.

8.2 Decentralized Contract Protocol

In addition to centralized exchanges, decentralized derivative protocols (such as dYdX, GMX, etc.) have also received a lot of attention. These protocols rely on smart contracts and AMM (Automated Market Maker) models to provide users with permissionless, non-custodial contract trading services, while facing challenges such as liquidity and network performance.

Source:GMX Official Website

8.3 Compliance and Institutional Entry

As large traditional financial institutions gradually pay attention to the encryption market, encrypted derivatives are expected to integrate with traditional financial futures. The recognition of compliant products by regulatory agencies such as the SEC and CFTC will continue to increase, which is expected to bring more compliance pressure and industry reshuffle.

8.4 More professional risk management tools

In response to the characteristics of high volatility and high leverage, more sophisticated risk control systems, insurance funds, and flexible margin mechanisms may be introduced in the future to enhance the security of contract trading for retail and institutional investors.

9. Summary

Listing of contracts is not only an important part of traditional finance, but also plays an indispensable role in the world of encrypted derivatives. It provides investors, institutions, and speculators with diversified risk management and profit strategies, while also bringing higher leverage risks and compliance challenges.

• From traditional futures to encrypted perpetual contracts: significant differences in regulation, rules, and mechanisms, but core functions are the same - hedging, leverage, and speculation.
• Representative platforms and token economy: Gate.io, Binance, OKX and other leading exchanges provide liquidity and diversified products for the derivatives market, with their platform tokens playing an important role in the ecosystem construction.
• Future outlook: The innovative potential of the contract market is still huge, and more decentralized protocols and new derivative tools will emerge, while the process of compliance will profoundly affect the industry landscape.

For a deeper experience or understanding of contract listing and trading, it is recommended to go toGate.io Derivatives Trading PageView official announcements, trading rules, and security risk reminders, and conduct thorough research and risk management before participating.

Statement:

• Investing is risky, and market entry should be cautious. This article does not serve as investment or financial advice provided by Gate.io or any other type of advice.
• Without mentioning Gate.io, copying, disseminating, or plagiarizing this article will violate the “Copyright Law”, and Gate.io has the right to pursue its legal responsibilities.