How Collateral Works on Velar Perps

Traders on Velar Artha PerpDex often have questions about collateral requirements for different position types. This comprehensive guide explains our collateral structure and how it supports a secure and efficient trading environment on Stacks.

Current Collateral Structure

The Velar Artha PerpDex facilitates trades where liquidity providers (LPs) take the opposite side of trades, creating specific collateral requirements based on position direction:

• Long positions require USDh collateral

• Short positions require sBTC collateral

This dual-collateral structure is fundamental to how the DEX operates. With liquidity providers taking the opposite side of trades, the protocol must maintain appropriate asset reserves to balance market exposure and ensure proper risk management.

The Mechanics Behind Collateral Requirements

Understanding why different assets are required for different position types requires examining the underlying mechanics of perpetual trading on our platform:

Long Positions and USDh Collateral

When traders open a long position:

• They deposit USDh as collateral

• This collateral secures their leveraged position

• LPs take the opposite side of the trade

• Profits and losses are calculated against the USDh value

USDh serves as an ideal collateral for long positions because:

• It provides a stable value reference point

• Minimizes volatility in margin calculations

• Creates predictable liquidation thresholds

• Aligns with the quote currency of most trading pairs

Short Positions and sBTC Collateral

For short positions:

• Traders deposit sBTC as collateral

• This provides a native asset hedge for the LPs

• The LPs can effectively manage counterparty risk

• Position settlement remains efficient and secure

sBTC collateral for shorts offers several structural advantages:

• Natural hedge against Bitcoin price movements

• Reduced protocol exposure to directional risk

• More efficient margin utilization

• Enhanced protocol solvency protection

Why This Structure Matters for Traders

The current dual-asset requirement has important implications for how traders interact with the platform:

Portfolio Management Considerations

Traders need to hold both USDh and sBTC to access the full range of trading strategies, which:

• Requires maintaining balances in multiple assets

• May necessitate conversion between assets before trading

• Creates additional portfolio management considerations

• Impacts overall capital efficiency

Risk Management Implications

The collateral structure also affects risk profiles:

• Each position type has distinct liquidation parameters

• Collateral volatility differs between USDh and sBTC positions

• Margin management strategies must account for different assets

• Funding rates may impact different position types uniquely

The Velar Artha PerpDex Advantage

Despite the additional considerations, our collateral structure provides several advantages:

• Enhanced protocol stability during market turbulence

• Reduced systemic risk compared to single-collateral systems

• More predictable and efficient liquidation processes

• Greater overall market resilience

Our team continuously monitors market conditions and protocol performance to ensure the collateral structure remains optimal for both trader experience and system security.

We invite traders to participate in community discussions about collateral requirements and other protocol features through our official channels. Your feedback is invaluable as we continue to refine and enhance the Velar Artha PerpDex experience.