DeFi · 59 / 86 · 2 min

On-chain derivatives

Perpetuals and options can live in a contract. You do not call a broker. You do call a liquidation engine. The engine is the product.

A worked case

A perpetual on a chain feels like it has no firm. The oracle updates, the margin is short, and a liquidator closes it. There was no phone call. There was a program with a line.

Where liquidation happens

The contract watches a price feed. Cross the line and the position is closed, often at a bad price, with a fee. There is no phone call.

Who you are trusting

The oracle, the insurance fund, the admin key, and the matching engine if there is one. A decentralised logo does not remove those.

This course does not teach you a leverage strategy. It tells you the contract will close you.

No phone call, still a liquidation

Perpetual futures existed on crypto exchanges for years. Then they moved into contracts: GMX, dYdX, and others let you post margin and hold a position the program will close. There is no broker to argue with. There is an oracle and a line. When the line is crossed, a liquidator is paid to close you. The engine is the product, in the same way a lending protocol's engine is the product.

The 2022 crashes were full of this on the centralised side. On the chain, the wreckage is public: positions closed, margins sold, oracles updated. Public does not make the line kinder. It makes it readable after the fact, which is a poor time to read it.

If you use one, the liquidation price in dollars is the trade. The advertised leverage is the advertisement.

Read it yourself

• Perpetual futures
• CFTC: the Mango Markets charge, a price and a derivative

These links are the record. They are not a recommendation, and they are not instructions. A news story or a court paper can still be wrong about a detail. The check does not change because a famous name is in the story.

Apply the check

Open a question. The line is about this topic. It is not a verdict that anything is safe.

Check yourself