Perpetual Swap Settlement

Perpetual swap settlement refers to the ongoing process of accounting for gains and losses in a derivative contract that has no expiration date. Unlike traditional futures, which settle on a specific date, perpetual swaps settle unrealized gains and losses continuously through the funding rate and mark-to-price adjustments.

This system allows traders to maintain their positions indefinitely as long as they meet the required margin maintenance levels. The settlement process involves updating the margin account of each trader based on the difference between the entry price and the current mark price.

If a trader's margin falls below a certain threshold, the system triggers a liquidation process to protect the protocol and other market participants. This continuous settlement model is highly capital efficient but requires robust risk management systems to handle rapid price swings.

It is the backbone of modern cryptocurrency derivatives, providing a flexible way to gain exposure to volatile assets without the burden of physical delivery or contract rollover.