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Blade Exchange Review

new cryptocurrency derivatives exchange

BLADE is the only cryptocurrency exchange dedicated to perpetuals. We enable leveraged (up to 150X) speculation and hedging on a large selection of cryptocurrency pairs. BLADE does not accept fiat currency; margin, profit-and-loss, and settlement are in cryptocurrency – currently Tether and Bitcoin.

Blade is raising funds from Silicon Valley’s VCs, but U.S. investors won’t be legally able to participate in the exchange. U.S. government agencies have been a bit more stringent in regulating cryptocurrencies, so there’s more trading activity taking place on exchanges outside the jurisdiction. Blade itself is an offshore entity with a U.S. subsidiary; its primary market is East Asia.

Cryptocurrency exchange Coinbase has backed a $4.3 million seed funding round for upcoming cryptocurrency derivatives exchange Blade.

BLADE offers separate order books for the following perpetuals with more to follow:

  1. Bitcoin to US Dollars (BTC/USD) – Inverse Perpetuals
  2. Bitcoin to Korean Won (BTC/KRW) – Inverse Perpetuals
  3. Ripple to USD Tether (XRP/USDT) – Vanilla Perpetuals
  4. Binance Coin to USD Tether (BNB/USDT) – Vanilla Perpetuals
  5. Zcash to USD Tether (ZEC/USDT) – Vanilla Perpetuals
  6. Monero to Bitcoin (XMR/BTC) – Vanilla Perpetuals
  7. Dogecoin to USD Tether (DOGE/USDT) – Vanilla Perpetuals

Perpetuals Intro

Perpetuals (aka perpetual swap contracts) are financial derivatives, similar to futures, that enable traders/investors/speculators/hedgers to easily long and short cryptocurrencies with leverage. They are named perpetuals because they never expire and they are classified as swaps because payments are “swapped” between counterparties on a periodic basis. Perpetuals represent the price of a perpetual claim on an index (e.g. the BLADE ZEC/USDT index).

Trading perpetuals is analogous to trading the underlying asset/cryptocurrency, but with leverage and a simple and efficient mechanism to short. In addition, trading perpetuals has two important advantages over trading expiring futures:

  1. Since perpetuals never expire, traders never need to roll over their futures contracts from the front month to a further-out month.
  2. Perpetuals typically trade closer to spot because of periodic payments which close the gap (or basis) between perpetuals prices and underlying index prices.

As shown in the following table, BLADE lists both vanilla perpetuals and inverse perpetuals. Vanilla perpetuals are simpler contracts in which P&L is denominated in the quote currency. Inverse perpetuals are more complex contracts in which P&L is denominated in the underlying currency.

Basis Payments

Basis payments are periodic payments made between longs and shorts designed to push perpetuals prices as close to spot prices as possible.

Basis measures the relationship between spot prices and derivatives prices and is calculated by subtracting the derivatives price of a contract from the spot/index price of an underlying asset. Therefore, when perpetuals prices are higher than index prices, the basis will be negative and longs will make basis payments to shorts. Conversely, when perpetuals prices are lower than index prices, the basis will be positive and shorts will make basis payments to longs.

Basis payments are calculated (and subsequently applied) continuously every second by multiplying the position value (irrespective of leverage) by the basis payment rate:

  • Basis Payment = Position Value * Basis Payment Rate

These payments accumulate as unrealized profit-and-loss until daily settlement at 1:00 UTC.
Basis Payment Rate

At a high level, the basis payment rate is the percentage difference between spot prices and derivatives prices multiplied by the payment frequency divided by the time horizon over which the basis payment is realized:

  • Payment Rate = (Spot Price - Derivatives Price) / Spot Price * Payment Frequency / Time Horizon

More specifically, the basis payment rate is calculated using the following formula:

  • Payment Rate = (Index Price - Perpetuals VWAP) / Index Price * 1 / 43200

The index price is the same as the mark price and represents the underlying spot price.

The perpetuals VWAP is the volume-weighted average price of all trades in the last 60 minutes and represents the derivatives price.

The payment frequency is set to 1 because basis payments are applied once a second.

The time horizon is set to 43,200 because basis payments are realized over a 12 hour time span (12 * 60 * 60).
Basis Payment Activation

For any new perpetuals contract, basis payments will be activated once trading volume reaches 50,000 contracts a day for 7 consecutive days (measured in UTC time). Until this point, new perpetuals contracts will trade without basis payments.

Indices

BLADE’s indices represent the underlying spot prices for perpetuals contracts and are used to calculate both basis payment rates and unrealized profits and losses.

Every perpetuals contract on BLADE maps to a corresponding BLADE index. For example, the underlying index price for the BTC/KRW contract is the BTC/KRW index and the underlying index price for the ZEC/USDT contract is the ZEC/USDT index.

BLADE’s indices are computed every second by pulling real-time price data from cryptocurrency spot exchanges which are selected for their trustworthiness, resiliency and liquidity. In addition, index composition (i.e. the specific spot exchanges used) will vary depending on the contract and may change over time.
Rules

BLADE’s index rules exist to protect users by preventing liquidations caused by market manipulation or erroneous price data.

  • In the base case, each index is comprised of data from three cryptocurrency spot exchanges
  • In the base case, constituents (up to two) will be removed from an index if its spot price deviates by more than 2.00% from the median of all three spot exchanges
  • When two constituents remain, a constituent will be removed from an index if its spot price deviates from the previous index price by more than 3.00% and by a greater percentage than the other constituent
  • Index prices will be clamped to +/-1% of the previous index price when only one or two constituents remain
  • All constituents are always equally weighted

BLADE will make every effort to maintain three constituents for every index. If a constituent is removed from an index, the constituent will be manually reviewed before being added back to the index.

Profit-and-Loss

Profits-and-Losses (also referred to as P&L) are currently always calculated in Bitcoin or Tether and can either be realized or unrealized.
Unrealized P&L

Unrealized profits-and-losses are gains and losses that exist on “paper”, but have yet to be converted into cash/cryptocurrency.

On BLADE, unrealized P&L takes two forms: unrealized P&L from marking-to-market and unrealized P&L from basis payments. Unrealized P&L from marking-to-market becomes realized once a position is closed or reduced. Unrealized P&L from basis payments becomes realized at daily settlement.
Realized P&L

Realized profits-and-losses are gains and losses from completed transactions that have been converted into cash/cryptocurrency.

On BLADE, P&L becomes realized when positions are closed or reduced, basis payments are settled and trading fees/rebates are paid/received.

Marking-to-Market

Marking-to-Market (also known as marking) is the process of reconciling changes in the value of assets or financial derivatives like perpetuals contracts. Marking requires two steps: first determining a position’s mark price and subsequently calculating the mark profit-and-loss (i.e. the unrealized profit and loss).

Mark Price

Mark prices on BLADE always equal the underlying index prices. Marking to index/spot prices versus marking to a fair-value/order-book calculation reduces complexity for users and the likelihood of liquidations from illiquidity or market manipulation.

Positions are marked-to-market continuously every second on BLADE.

Mark P&L for Vanilla Perpetuals

For vanilla perpetuals, a position’s unrealized profit-and-loss is denominated in its contract’s quote currency and equals the number of contracts multiplied by the contract size and the difference between the mark price and the average entry price:

  • Mark P&L Longs = # of Contracts * Contract Size * (Mark Price – Entry Price)
  • Mark P&L Shorts = # of Contracts * Contract Size * (Entry Price – Mark Price)

For example, if a user is long 100,000 contracts of the XRP/USDT vanilla perpetual with a contract size of 1 XRP at a current mark price of ₮0.40 and an average entry price of ₮0.30, the position’s unrealized profit-and-loss would be:

  • Mark P&L = 100,000 * 1 * (₮0.40 - ₮0.30) = ₮10,000

Mark P&L for Inverse Perpetuals

For inverse perpetuals, a position’s unrealized profit-and-loss is denominated in its contract’s underlying currency and equals the number of contracts multiplied by the difference between the contract size divided by the average entry price and the contract size divided by the mark price:

  • Mark P&L Longs = # of Contracts * (Contract Size / Entry Price - Contract Size / Mark Price)
  • Mark P&L Shorts = # of Contracts * (Contract Size / Mark Price - Contract Size / Entry Price)

For example, if a user is long 10,000 contracts of the BTC/USD inverse perpetual at an average entry price of $10,000 and a current mark price of $15,000, the position’s unrealized profit-and-loss would be:

  • Mark P&L = 10,000 * ($1 / $10,000 - $1 / $15,000) = ₿0.33

Margin

Margin is the cash/cryptocurrency that must be deposited as collateral for perpetuals positions. Margin protects users from counterparty losses from price changes.

Margin Requirements

Margin requirements are specific to each contract and take two forms:

  • Initial Margin is the upfront deposit made prior to opening a new position or adding to an existing one
  • Maintenance Margin is the minimum amount of cash/cryptocurrency required to maintain a position

Margin Eligibility

Cash/cryptocurrency in trading wallets that are not collateralizing open positions or earmarked for open orders can be used to fund new orders (available margin).

In addition, the margin is segregated by cryptocurrency type; Bitcoin can only be used to collateralize contracts with payoff structures (P&L) denominated in Bitcoin and Tether can only be used to collateralize contracts with payoff structures (P&L) denominated in Tether.

Placing Orders

When users place orders, BLADE will first calculate the position’s post-trade liquidation price, initial margin requirement and earmarked exit fees as well as the order’s trading fee/rebate.

Next, BLADE will verify the following two conditions:

  1. Order Price Longs > Liquidation Price
  2. Order Price Shorts < Liquidation Price
  3. Available Margin1 ≥ (Post-Trade Initial Margin + Post-Trade Earmarked Exit Fees)2 – (Pre-Trade Initial Margin + Pre-Trade Earmarked Exit Fees)2 – Trading Fees for Taker Orders
  • 1 To fund positions using the same collateral cryptocurrency type that is earmarked for the order
  • 2 Only applicable to orders that increase net position size. Orders that reduce net position size will not require earmarked margin for post-trade initial margin requirements or exit fees.

If both conditions are true, the order will be immediately processed by BLADE’s matching engine. If either condition is false, the order will be rejected.
Maintaining Positions

Once a position is created, users are responsible for maintaining enough margin such that their position is not liquidated from unfavorable changes in the underlying mark price.

The exact mark price at which a position is liquidated (the liquidation price) will depend on whether users select isolated margin or cross margin as their margin policy. In addition, the liquidation price will fluctuate with unrealized basis payment losses.
Cross Margin

Under cross margin, margin is shared among open positions collateralized by the same cryptocurrency, which means that available margin will be used to offset unrealized losses to prevent liquidations. A position using cross margin will be liquidated when:

  • Unrealized Losses Position ≥ Initial Margin - Maintenance Margin - Unrealized Losses Other Cross Positions with Same Collateral + Trading Wallet Balance Same Collateral

Cross margin is the default setting on BLADE.

Isolated Margin

Under isolated margin, margin is restricted to the assigned initial margin and available margin will not be used to prevent liquidations. A position using isolated margin will be liquidated when:

  • Unrealized Losses Position ≥ Initial Margin - Maintenance Margin

Users always choose and can adjust how much leverage to use for their isolated margin positions.

Leverage

BLADE offers market-leading leverage for the benefit of its users. Applying leverage to a position will enhance exposure, multiplying both gains and losses.

A position’s chosen margin policy (and chosen leverage for isolated margin positions) determines the position’s margin requirements.

BLADE’s maximum available leverage and the corresponding margin requirements are summarized in the following table:

Margin requirements on BLADE scale linearly after either the first ₿0.10 or ₮1,000 in position notional in order to protect exchange participants from counterparty losses.

For example, a BTC/USD inverse perpetuals position with ₿100 position notional using cross margin or isolated margin at 150x leverage requires:

  • Initial Margin = Base IM% + (Position Notional BTC – ₿0.10) / ₿100 * 2.00% = 0.67% + (₿100 – ₿0.10) / ₿100 * 2.00% = 2.668%
  • Maintenance Margin = Base MM% + (Position Notional BTC – ₿0.10) / ₿100 * 2.00% = 0.50% + (₿100 – ₿0.10) / ₿100 * 2.00% = 2.498%

As another example, a ZEC/USDT vanilla perpetuals position with ₮1,000,000 position notional using cross margin or isolated margin at 150x leverage requires:

  • Initial Margin = Base IM% + (Position Notional USDT – ₮1,000) / ₮1,000,000 * 2.00% = 2.00% + (₮1,000,000 – ₮1,000) / ₮1,000,000 * 2.00% = 3.998%
  • Maintenance Margin = Base MM% + (Position Notional USDT – ₮2,000) / ₮1,000,000 * 2.00% = 1.50% + (₮1,000,000 – ₮1,000) / ₮1,000,000 * 2.00% = 3.498%

Liquidations

If a position’s margin requirement is breached by hitting the position’s liquidation price, BLADE’s liquidation engine will take over the position with the goal of protecting counterparty interests.

Liquidation Process

Liquidations will be automatically processed in a step-by-step manner:

  1. Open orders for the contract will be canceled and the corresponding order margin will be added back to the trading wallet
    1. For cross positions, if enough margin is returned to the trading wallet to satisfy the position’s maintenance margin requirement, the liquidation process will stop. If not:
    2. For isolated positions, the liquidation process will proceed to the next step upon which:
  2. A limit order for the entire position will be placed at the bankruptcy price
    1. If the limit order is fully and immediately filled, the liquidation process will stop*. If not:
  3. A request will be sent to BLADE’s market makers who have the option of taking over all or a portion of the remaining position
    1. If the remaining position is fully assumed by market makers, the remaining resting limit orders will be canceled and the liquidation process will stop*
    2. If the remaining position is closed before the mark price reaches the bankruptcy price by a combination of market makers and resting limit order fills, any remaining resting limit orders will be canceled and the liquidation process will stop*
    3. If neither of the above occurs, then:
  4. All remaining contracts will be terminated at the bankruptcy price
    1. Contract termination will begin with the highest levered profitable counterparties and will end once the remaining position has been fully closed

* If a position is liquidated at a price better than the bankruptcy price, any remaining maintenance margin will be forfeited and added to BLADE’s insurance fund.

Taker fees are always assessed to liquidated parties for filled orders, market maker position takeovers and contract terminations during liquidations.

Insurance Fund

BLADE’s insurance fund helps protect users from counterparty losses. When appropriate, the fund is used to aggress liquidation orders in order to minimize the likelihood of contract termination.

BLADE’s insurance fund grows from liquidations executed at better than bankruptcy prices.

Order Types

BLADE currently offers the following order types:

Market Orders

Market orders are filled immediately at the best available price. They are used when the certainty of execution is a priority over the price of execution.

Market orders may be split across multiple counterparties which could result in multiple prices for the same market order.

Limit Orders

Limit orders are filled at a specified price or better. They are used to control the price of execution rather than the certainty of execution. A limit order may result in a missed trading opportunity if the price moves away from the limit price before the order can be filled.

Limit orders default to a good-til-canceled order duration which means limit orders will remain active until they are filled or canceled. Alternatively, users can choose a good-til-time order duration which means limit orders will remain active until the date and time specified or they are filled or canceled, whichever comes first.

Any portion of limit orders that can be immediately matched are immediately filled.

Stop Orders

Stop orders are filled immediately as market orders once the price reaches a specified entry/exit point, known as the stop price. They are used to protect unrealized gains or minimize losses.

Stop orders are of two types: buy stop orders and sell stop orders. A buy–stop order is entered at a stop price above the current market price. A sell–stop order is entered at a stop price below the current market price.

Since stop orders become market orders, they are not guaranteed a specific execution price and may execute significantly away from its stop price, especially during volatile market conditions.

Post-Only Orders

Post-only orders are either added to the order book as limit orders or rejected because they would immediately match against pre-existing orders. Since post-only orders never remove liquidity, they are always eligible for maker rebates and never subject to taker fees.

Wallets and Transfers

Every user on BLADE has two wallets: (1) a trading wallet to hold cryptocurrency that can be used to collateralize new orders/existing positions and receive/pay P&L including trading rebates/fees and (2) a cash wallet to store cryptocurrency not subject to trading obligations like liquidations.

Cash wallets (which are the accounts that accept deposits) have dedicated cold storage addresses for each cryptocurrency collateral type (i.e. one for Bitcoin and one for Tether).

Deposit Transfers

BLADE currently accepts Bitcoin and Tether deposits. Deposits are credited in cash wallets after 1 confirmation on the Bitcoin blockchain/Omni Layer. Once available, deposited funds can be instantaneously transferred to trading wallets to begin trading.

Deposits are always free on BLADE.

Withdrawal Transfers

BLADE manually verifies and processes withdrawals daily at 23:00 UTC and users will receive their funds shortly after this time. Withdrawal requests for the same day must be submitted before the cutoff time of 18:00 UTC. Withdrawal requests made after 18:00 UTC will be processed the next day.

Withdrawals incur a network fee of [₿0.0005] per Bitcoin withdrawal request and [₮2.00] per Tether withdrawal request to offset fees charged on the Bitcoin blockchain and Omni Layer. Network fees are automatically added to funds earmarked for withdrawal.

Withdrawal requests may be canceled without penalty before the cutoff time. Withdrawal request cancellations received after the cutoff time may not be accepted.

The minimum withdrawal amount is [₿0.001] for Bitcoin and [₮10.00] for Tether.

Internal Transfers

Transfers between cash wallets and trading wallets (and vice versa) are always free and instantaneous.

Security

BLADE always prioritizes the security of user funds. We strive to meet the highest security standards and we take a careful, comprehensive and rigorous approach to security.

In addition to utilizing multi-signature wallets, 100% of user Bitcoin funds are held in our offline (air-gapped) vaulted cold storage system and every withdrawal is audited manually by the BLADE security team.

Moreover, we employ many confidential security measures to prevent theft and loss of assets and information.

Blade Exchange Review Free

Name: Blade Exchange

Description: BLADE is the only cryptocurrency exchange dedicated to perpetuals. We enable leveraged (up to 150X) speculation and hedging on a large selection of cryptocurrency pairs. BLADE does not accept fiat currency; margin, profit-and-loss and settlement are in cryptocurrency - currently Tether and Bitcoin.

  • (3)
    Platform
  • (3.5)
    Fees
  • (3)
    Reputation
  • (3.5)
    Deposit / Withdrawal
  • (4)
    Contracts
  • (3.5)
    User Friendly
3.4

Summary

Blade hopes to compete against other similar offerings from rival exchanges by offering simple contracts. It’s also offering margin and settlement in the stable coin tether (USDT), as well as leverage as high as 150x on BTC/USD and BTC/KRW.

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Written by Ravi Gupat

Ravi grew up in India and graduated in Economics. He is a serial entrepreneur who has founded and exited several companies in tech and media over the past 15 years. He is also an early stage investor and advisor in various blockchain-based companies.

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