Collateral-Free Derivatives Trading

Collateral Derivatives

Collateral refers to an asset or group of assets one party provides to another party to mitigate credit or counterparty risk. Collateral derivatives ensure parties can fulfil their contractual obligations.

Collateral-Free Derivatives

Collateral-free derivatives, also known as uncollateralized derivatives, are financial contracts that do not require posting collateral to mitigate counterparty risk. Traders can utilise funds that would otherwise be tied up in collateral, increasing their available capital for trading and potentially enhancing liquidity.

Going Long Versus Short

Going Long in Derivatives

When taking a long position on an asset (betting its price will increase), a trader usually does not require collateral beyond their initial investment. The potential loss is capped at the amount invested, as the asset price cannot fall below zero.

Shorting an asset (speculating that the price will fall) is different.

Going Short in Derivatives

Shorting an asset requires collateral because you are borrowing it, even without leverage. If the price rises instead of falls, the losses can rapidly surpass the initial investment. Collateral is essential to safeguard the lender and ensure you can cover any potential losses.

Leverage increases your exposure to price movements, multiplying potential gains and losses. In short trading, your losses can grow even faster if the price rises. Collateral is required to cover the amplified risk and prevent the need for liquidation.

How does Genie DEX Eliminate the Need for Collateral?

Genie DEX allows you to trade long and short derivatives without collateral, even when using leverage. Collateral-free derivatives are made possible through the Potentia Protocol, which eliminates liquidation risk using innovative power perpetuals that adjust position sizes automatically.

By using these power perpetuals, Genie DEX offers leverage without the usual collateral constraints, allowing traders to engage in leveraged trading with greater flexibility.

For a deep dive, we will publish the research and implementation docs after mainnet.

Benefits of Genie DEX’s No Collateral Trading

Traders gain access to several benefits with no collateral derivatives for short trades while still having leveraged exposure, including:

1. Lower Barriers to Entry

Without collateral, more traders can participate in the market, regardless of their capital size. This democratises access to advanced trading strategies.

2. More Liquidity

Traders can retain more capital for other investments or trades, as they do not need to lock up assets as collateral.

3. Greater Flexibility

With no collateral requirements, traders can open, close, and adjust positions more freely, enabling quicker responses to market changes.

About Us

We are building the Potentia Protocol and Genie DEX as the foundation for a new era in derivatives trading, starting with crypto. This foundational layer is just the beginning — unlocking a future where collateral is no longer a barrier and liquidation risk is eliminated.

These innovations open the door to endless possibilities and new use cases, empowering traders of all levels to engage in more dynamic and accessible markets. This revolution will bring a new set of trading strategies that were previously impossible in a traditional, linear derivatives ecosystem.

Learn, discover, and join Genie DEX through our WhitePaper, Website, Discord, Twitter, and Telegram.