3.10 Perpetual Futures on LQDTY

Perpetual futures contracts are a widely adopted derivative product in traditional and decentralized finance (DeFi). Unlike traditional futures, perpetual contracts do not have an expiration date, allowing traders to hold positions indefinitely while leveraging funding rates to maintain price stability.

3.10.1 Key Features of Perpetual Futures on LQDTY

Traditional Futures on LQDTY will be developed as an extension of the Liqudity custom blockchain, providing an add-on feature that enhances the platform's existing capabilities. This feature will introduce structured futures contracts with fixed expiration dates, enabling traders to engage in risk management, speculation, and institutional-grade trading strategies within a decentralized framework.

Perpetual futures on LQDTY offer a decentralized, gas-free (paid by sponsor), and highly efficient trading environment designed to meet the needs of both retail and institutional traders. Unlike traditional futures, perpetual contracts do not have an expiration date, allowing traders to hold positions indefinitely while utilizing a funding rate
mechanism to maintain price stability.

LQDTY's perpetual futures trading system is built on smart contract automation, highspeed execution, and risk-managed leverage trading, providing a secure, transparent, and scalable trading experience.

Core Features of LQDTY's Perpetual Futures Market:

1. Gas-Free (Paid by Sponsor) Trading for Authorized Users: Traders can execute perpetual futures contracts without incurring transaction fees, making trading more accessible and cost-efficient.
2. Smart Contract-Powered Market Execution: Fully decentralized trading system with automated position entry, risk management, and liquidation to ensure secure and efficient trading.
3. Dynamic Funding Rate for Price Stability: A funding rate mechanism keeps the perpetual contract price aligned with the spot market, ensuring fair price discovery.
4. Leverage and Margin Trading: Traders can enhance capital efficiency by utilizing leverage with automated liquidation mechanisms to mitigate excessive risk.
5. Zero-Knowledge Proof-Based Compliance: Accredited traders can participate in a secure and regulation-ready perpetual futures market without exposing personal data.
6. Cross-Chain Liquidity and Institutional Market Access: LQDTY integrates with multi-chain liquidity providers to ensure deep and stable markets for perpetual contracts.
7. Trustless Settlement & Risk Control: Automated margin maintenance and liquidation mechanisms preserve market stability without central oversight.

By combining decentralized execution, institutional-grade liquidity, and smart contract automation, LQDTY's perpetual futures market provides a secure and scalable trading infrastructure, making it an attractive alternative to centralized derivatives platforms.

3.10.2 Mechanism of Operation

PLQDTY's perpetual futures market facilitates trading through smart contracts, automated risk management, and decentralized liquidity providers (LPs).

How Perpetual Futures Work on LQDTY:

• Market Creation & Order Execution:
  1. Traders enter perpetual futures contracts through decentralized order matching and execution.
  2. Smart contracts automate position entry, settlement, and liquidation.

• Dynamic Funding Rate Adjustments:
  1. To keep perpetual contract prices aligned with the spot market, a funding rate mechanism is applied.
  2. Traders with opposing positions pay or receive funding fees, ensuring that contract prices remain near the spot price.

• Collateralized Leverage Trading:
  1. Traders post collateral to open leveraged long or short positions.
  2. Leverage ratios are dynamically adjusted based on market volatility and liquidity conditions.

• Smart Contract-Based Liquidation:
  1. f a trader's margin falls below the maintenance threshold, the position is automatically liquidated via smart contracts.
  2. Liquidations occur trustlessly, without reliance on centralized authorities.

• Cross-Chain & Institutional Market Integration:
  1. LQDTY supports multi-chain perpetual trading, enabling liquidity providers and traders to interact across different blockchain networks.

LQDTY's perpetual futures system enables sustainable and decentralized trading by ensuring efficient market execution and automated risk management.

3.10.3 Benefits of Perpetual Futures on LQDTY

LQDTY's perpetual futures trading system is designed to provide efficient, transparent, and cost-effective trading for both retail and institutional users. By leveraging smart contracts, decentralized liquidity, and risk-managed leverage, it eliminates many of the inefficiencies of traditional and centralized futures exchanges.

Key Benefits of Perpetual Futures on LQDTY:

1. Gas-Free (Paid By Sponsor) Trading for Cost Efficiency: Authorized traders can execute perpetual futures contracts without incurring transaction fees, reducing barriers to entry.
2. Decentralized and Trustless Execution: Automated smart contracts handle trade execution, funding rates, and liquidation, eliminating reliance on intermediaries.
3. On-Chain Risk Management: Built-in margin monitoring and automated liquidation mechanisms reduce excessive risk exposure and ensure market stability.
4. Institutional-Grade Liquidity: LQDTY integrates with cross-chain liquidity providers to ensure deep markets, efficient order matching, and minimal slippage.
5. Zero-Knowledge Proof Compliance Framework: Accredited traders can engage in perpetual trading without exposing sensitive identity data, ensuring regulatory alignment.
6. Dynamic Funding Rate Mechanism: Perpetual contracts remain aligned with the spot market through an automated funding rate, preventing price divergence.

By combining cost-efficiency, security, and transparency, LQDTY's perpetual futures market offers a next-generation trading infrastructure that is scalable, accessible, and fully decentralized.

3.10.4 Process Flow of Perpetual Futures Trading on LQDTY

LQDTY's perpetual futures trading is designed for efficiency, security, and decentralization, ensuring seamless execution and risk management through smart contracts. The trading process is structured to provide low-latency execution, automated liquidation, and on-chain compliance validation.

Perpetual Futures Trading Workflow on LQDTY

• User Authentication & Compliance Verification:
  1. Traders authenticate using Decentralized Identifiers (DIDs) and Zero-Knowledge Proofs (ZKPs) for regulatory compliance while preserving privacy.
  
  
• Trade Execution & Position Management:
  1. Smart contracts process order matching, leverage selection, and funding rate adjustments in real time.
  2. Positions remain open indefinitely, with the funding rate aligning the contract price with the spot market.
  
  
• Risk Management & Liquidation:
  1. Collateralized margin accounts enforce risk limits, preventing excessive leverage exposure.
  2. Automated liquidation occurs when a trader's margin falls below the required threshold.

• Trustless Settlement & Profit Realization:
  1. Smart contracts execute settlements automatically, ensuring secure and efficient fund transfers.

This streamlined process ensures cost-effective, risk-mitigated, and transparent perpetual futures trading, reinforcing LQDTY's role as a leading decentralized derivatives platform.

3.10.4 Process Flow of Perpetual Futures Trading on LQDTY

To illustrate how perpetual futures trading works on LQDTY, consider the following example:

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Example

• Trader A Opens a Long Position on Ethereum:

  1. Trader A expects the price of ETH to increase and opens a 5x leveraged long position with $1,000 as collateral.
  2. The total position size is $5,000, with the trader required to maintain sufficient margin.
  
  

• Market Price and Funding Rate Adjustments:

  1. The ETH perpetual contract follows the spot market price with minor funding rate adjustments.
  2. If the funding rate favors short sellers, Trader A may need to pay a funding fee to maintain the position.
  
  

• Price Increases and Profit Realization:

  1. ETH increases in value by 10%, raising the total position value to $5,500.

  2. Trader A closes the position, realizing a $500 profit minus trading fees.

• Risk Control & Liquidation Scenarios:

  1. If the ETH price drops significantly, automated liquidation will trigger if the trader's margin falls below maintenance requirements.

This example demonstrates how LQDTY's perpetual futures trading framework operates with high efficiency, low costs, and enhanced transparency