What is Quanto?

Beyond the Jargon

RAVE is the pioneer DeFi 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. (Eg. Buying a US stock using Pounds, and being paid out in Pounds based on the stock's performance in USD - a fixed exchange rate eliminates exchange rate risk between pounds/USD) .

Perpetual Futures: A trading derivative product commonly used in crypto that enables speculation on the future price of an asset without expiration or physical settlement.

Now putting it all together...

Quanto Perpetual Futures: A permissionless crypto trading product introduced by RAVE that enables trading perpetual futures markets (eg. BTC-USD) using any token through quanto contracts.

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 much the exchange rate changes, the contract will always be settled in the chosen 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, altcoin collateral can open positions on perpetual markets and also settle profits or losses. RAVE Trade isolates collateral price from trading risk through the quanto fixed exchange rate.

A fixed exchange rate ensures that for the percentage the asset (eg. BTC) goes up in USD, so will the proportional payouts in units of altcoin collateral, completely eliminating altcoin currency conversion risk.

For traders, RAVE Trade solves the significant issue of altcoin volatility and the feasibility of establishing robust price oracles for long-tail tokens. At the same time, it provides permissionless access for altcoins to collateralize positions on major perpetual market pairs. For tokens, single-sided liquidity in Caves facilitate quanto trading and capture yield.