Settlement

Linear Settlement and Inverse Nonlinear settlement

Linear settlement: With the rise of stablecoins, exchanges now offer liquid linearly-settled contracts that avoid touching fiat, but pay out with more intuitive USD-like assets, such as USDT. Binance is an example of an exchange that offers this type of perp swap. Such contracts demonstrate a more typical linear PNL profile.

Inverse Nonlinear settlement: Perpetual swaps began as inversely settled futures, meaning that they were settled in crypto instead of USD. This allowed exchanges to not have to have exposure to the traditional banking system and live entirely in the crypto sphere. Traders deposit BTC to begin with and these contracts settle in the base currency as opposed to the quote currency, meaning if you were to trade BTC/USD, you would actually receive your payout in BTC itself. The nonlinearity arises from the fact that as you profit from a long position in BTC, you will receive a BTC payout, but in a smaller amount since BTC itself is more expensive relative to USD. On the flip side, if BTC/USD drops in value, you will be losing BTC at a greater rate since BTC itself is cheaper relative to USD. BitMEX is an example of an exchange that offers this style of perpetual swap.

Void Exchange hybrid settlement

To leverage the funds in both crypto and stablecoins. We applied Inverse Nonlinear settlement for long contracts and Linear settlement for short contracts. This helps to establish much more liquid markets by utilizing both types of assets.