What is Quanto?

Beyond the Jargon

KRAV is the pioneer quanto perpetual protocol, making it essential to explore and understand this innovative financial mechanism. Let's break down the components and functionality of quanto perpetual protocols

Key Terms

Quanto: A financial contract that allows you to invest in assets priced in one currency while receiving returns in your own currency at a fixed rate, eliminating currency exchange risks. (Think buying a US stock using Pounds, and being paid out in pounds, based on the stock's percent appreciation in USD - a fixed exchange rate eliminates currency volatility in pounds/USD)

Perpetual Futures: A financial contract in crypto that allows you to use leverage on your collateral to bet on the future price movements of an asset (long or short), without any expiration date.

Now putting it all together...

BTC Perpetual Quanto Futures: Use any altcoin as collateral in BTC futures, PnL payouts in same altcoin based on change in Bitcoin value in USD.

Why Quanto for Perpetuals?

The key feature of a quanto is that it removes the foreign exchange risk from the contract. This means that no matter how the foreign exchange rate changes, the contract will always be settled in the fixed currency at the specified exchange rate. This allows investors to confidently invest in assets valued in different currencies.

The same mechanism can likewise be applied to perpetual futures. Using Quanto, you can use altcoins to open positions on Bitcoin (and other crypto assets valued in dollars), and be paid out in altcoin units, without having to worry about the price of the altcoin itself. This is a significant issue, given the volatility of altcoins, and the difficulties in establishing reliable oracles for most altcoins. A fixed exchange rate at trade open ensures that for however much the asset (BTC) goes up in price in USD value, so will the proportional payouts in units of altcoin collateral - completely eliminating altcoin currency conversion risk.

Last updated