Margin Futures Strategies

There are two types of margin accounts utilized in Arcana's strategy: USD-margined futures and COIN-margined futures. Both have unique characteristics and serve different strategic purposes depending on market conditions.

USD-Margined Futures

USD-margined futures use stablecoins pegged to the US dollar, such as USDT, as the settlement currency. Here are key features of USD-margined contracts:

• Intuitive Calculations: Returns are calculated in fiat currency equivalents, making it easier to assess gains or losses in familiar terms.

• Flexibility in Trading: These contracts allow traders to engage in various futures without the need to hold the underlying crypto assets, since all settlements are in USDT or similar stablecoins.

• Reduced Exchange Costs: By using a universal settlement currency, traders can switch between different contracts without incurring currency exchange fees.

For Arcana, managing USD-margined positions requires active rebalancing because they are denominated in USD. The value of the margin must be constantly adjusted to reflect changes in the price of the underlying asset to maintain the necessary collateral levels and minimize the risk of liquidation.

COIN-Margined Futures

COIN-margined contracts use the actual crypto asset (such as Bitcoin in the case of BTC-margined contracts) both as collateral and for settlement. They come with distinct advantages:

• Direct Settlement in Crypto: Profits and losses are directly in the crypto asset used for the contract, which can be beneficial for long-term holders who prefer to increase their holdings.

• Capital Appreciation: As the value of the cryptocurrency increases, so does the value of the collateral, enhancing the potential returns on holdings.

• Hedging Efficiency: Hedging with COIN-margined futures does not require converting crypto assets into stablecoins. Traders can simply take short positions to hedge their portfolios against potential price declines.

• Reduced Liquidation Risks: Unlike USD-margined contracts, COIN-margined futures lessen the chance of forced liquidation under normal market conditions due to their inherent crypto settlement nature.

For Arcana, COIN-margined positions naturally balance out because they are denominated in the same currency as the trading asset (BTC). This characteristic simplifies the management of these positions, as any appreciation in the asset's value directly offsets the liabilities in a declining market, and vice versa.

How Arcana employs USD-Margined and COIN-Margined Futures

Arcana utilizes both USD-margined and COIN-margined futures to capitalize on different market conditions effectively. When the market expects stable or bullish conditions, COIN-margined futures might be preferred for their capital appreciation potential and direct crypto settlement. In contrast, during volatile or bearish market conditions, USD-margined futures provide stability and reduced exposure to price swings.

The choice between USD-margined and COIN-margined futures will depend on the current market analysis, liquidity needs, and the broader strategic goals of the protocol.