Gate.io Education | What are U-based Perpetual Contracts?

2024-12-24, 08:53

U-based Perpetual Contracts are a type of perpetual contract in cryptocurrency derivatives trading, typically referring to contracts that use USDT (Tether) or other stablecoins as the underlying asset for trading.
In derivatives trading, “base currency” and “settlement currency” are two important concepts. The base currency represents the value of the contract, while the settlement currency is used for the final settlement. For example:

U-based Contracts: Use stablecoins like USDT as the base currency, meaning the price of the contract is quoted in USDT.
Coin-based Contracts: Typically use cryptocurrencies like BTC or ETH as the base currency, meaning the price of the contract is quoted in BTC or ETH.

Characteristics of U-based Perpetual Contracts

Quoted in USDT: In U-based perpetual contracts, regardless of the cryptocurrency being traded, its price is quoted in USDT. This means traders do not need to hold or trade BTC, ETH, or other assets directly, but can buy or sell related crypto assets based on USDT.
No Expiration Settlement: Unlike traditional futures contracts, perpetual contracts do not have a fixed expiration date. Traders can choose to hold positions long-term, and contracts remain valid as long as their margin account is not liquidated.
Margin and Leverage: Users can use USDT as margin to open positions and can choose different leverage multipliers to amplify potential profits or losses.
Funding Fees: As perpetual contracts, they typically have a “funding rate,” which is periodically adjusted based on market conditions. This fee mechanism helps keep the contract price close to the price of the underlying asset.

Advantages of U-based Perpetual Contracts

Higher Stability: By using USDT as the pricing unit, U-based perpetual contracts can avoid the impact of significant market fluctuations, making investors’ funds relatively more stable.
Ease of Operation: For investors, USDT is a widely accepted stablecoin, simplifying the trading process without the need for frequent currency conversions.
Reduced Risk Exposure: By using a stablecoin as the unit, investors reduce the risk of being affected by the price volatility of assets like Bitcoin during trading.

U-based Perpetual Contracts on Gate.io

For example, on the Gate.io trading platform, if you choose to trade a U-based perpetual contract, say the BTC/USDT perpetual contract, the underlying asset is BTC, but you use USDT as both the margin and settlement unit. This means you do not need to hold BTC directly; instead, you speculate or hedge BTC prices using USDT.

Overall, U-based perpetual contracts provide a flexible trading method using the stablecoin USDT as the base, allowing investors to manage their funds more conveniently and stably when participating in cryptocurrency derivatives trading.

Author: Icing, Gate.io Researcher

*This article represents only the views of the researcher and does not constitute any investment suggestions. Investment involves risks and users need to make careful decisions.

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