Armani Ferrante, founder of Backpack, introduces Interest Bearing Perpetuals, a novel margin system that maximizes capital efficiency for crypto traders.

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• ‍Earn yield on 100% of your collateral: Use lent assets as collateral to open and maintain Futures positions

• ‍Earn yield on your unrealized gains: Earnings automatically increase margin and cycle into the Lending pool (to generate further yield)

• ‍A single cross-margined account: All eligible assets are automatically accepted as collateral and can be used across all products: Spot Margin, Futures, Lending and Borrowing

• ‍PnL and Settlement Flexibility: users can choose to realize their PnL continuously, and avoid having their non-USD collateral converted by automatically borrowing USDC to cover outstanding payments and settlements

• ‍Isolated risk with Subaccounts: Margin and risk is isolated within each Subaccount

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The First Brick: Omnichain Money Markets

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At the heart of the Interest Bearing Perpetual Futures system is our first brick: an omnichain money market inspired by Aave.

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Deposit any asset from any chain into the Exchange and withdraw any asset to any other chain. With this, we achieve ZERO WASTE and yield on everything.

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Omnichain enables seamless communication between different blockchains.

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The Second Brick: Cross-Collateralized Portfolios

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The next brick to layer on is the cross-collateralized portfolio.

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Today, it's standard to cross-margin and cross-collateralize open spot and futures positions in a portfolio. Backpack take it a step further. All Lends contribute to your margin balance.

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Not a single centralized crypto exchange in the world does this. To put this into context, if you go to any CEX today and try to lend your assets you will experience a process like:

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1. Deposit into an account.
2. Transfer into another account.
3. Click lend.
4. Poof, your assets are gone.

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Wtf? Where did they go? Where does the yield come from?

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On Backpack, the money market is transparent, and the collateral stays visible in your Portfolio.

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The Third Brick: Spot-Margin

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Omnichain money markets and a cross-collateralized portfolio build the next brick, Spot Margin.

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With omnichain money markets and your cross-collateralized portfolio, we introduce Spot Margin. At first glance, this might seem important but maybe a little boring. But here's the thing - with your exact same margin balance, you can trade in and out of the omnichain money market by simply trading directionally on spot.

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Have a lend but no physical balance in your portfolio? Simply open a short, we’ll trade through the Lending pool and Spot order book atomically in one fell swoop.

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The Final Brick: Perpetual Futures

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Last but not least we build up to the final brick. Perpetual Futures.

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To trade futures, there is no separate account type. No transfers. No funding account vs. universal trading account vs. isolated account vs. earn account vs. (god, why do exchanges have so many darn account types?)

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A single, cross-collateralized, cross-margin, interest-bearing account. If you want isolated margin, just create a new subaccount (all subaccounts are isolated from each other).

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Virtual PnL Realization: A New Way to Settle PnL

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What makes our futures unique is not just interest-bearing collateral, but interest-bearing settlement. We introduced a novel mechanism we call Virtual PnL Realization (vPNL). But before describing vPNL, let’s talk about Auto Realized PnL.

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Auto Realized PnL is a setting we've introduced to facilitate continuous, real time settlement into physical. Every 10 seconds or so, all losing positions pay up their losses to fund settlement for winners.

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This is the most capital-efficient thing you can do - if you have dollars in your account.

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Why is it the most capital efficient thing you can do?

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TL;DR: Unrealized profits earn yield, and it’s awesome.

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Because it completely avoids borrowing when you have an unrealized loss. Instead we realize the balances and draw from your physical USDC to pay it off. However, this is less efficient if you don’t have USDC in your account.

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Say you're putting a basis trade, or you're just long crypto and want to stay away from stablecoins. For this reason, we generalized continuous real-time settlement with a mechanism we call Virtual PnL Realization (vPNL).

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Instead of settling into physical balances through a user's account, we settle through a virtual account called the liquidity fund, which cycles all unrealized profits and losses into and out of the USDC borrow-lending market.

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This continuously synchronizes all unrealized PnL liquidity and collateral with open, virtual positions in the borrow-lend market:

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• Losers pay interest

• Winners earn yield

• No need to put on a borrow to increase your margin exposure

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All Backpack products work together

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Everything in the system was built to work together. All in a single subaccount.

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✅ Borrow-Lend
✅ Spot Margin
✅ Perpetuals
✅ All assets, every chain, all in a single portfolio for all products

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Market makers can take it a step further with RFQ, Backstop Liquidity Program and OTC.

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The Road Ahead

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We’re thrilled to open up the margin system for the public beta. This is a big step for us as we slowly ramp up risk limits, increase load and make sure everything is (hopefully) working smoothly every step along the way.

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It's been a long journey thus far and we have many more bricks to go. But now, it feels like we start playing the game for real.

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Learn more about Backpack

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Exchange | Wallet | Twitter | Discord

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Disclaimer: This content is presented to you on an “as is” basis for general information and educational purposes only, without representation or warranty of any kind. It should not be construed as financial, legal or other professional advice, nor is it intended to recommend the purchase of any specific product or service. You should seek your own advice from appropriate professional advisors. Where the article is contributed by a third party contributor, please note that those views expressed belong to the third party contributor, and do not necessarily reflect those of Backpack. Please read our full disclaimer for further details. Digital asset prices can be volatile. The value of your investment may go down or up and you may not get back the amount invested. You are solely responsible for your investment decisions and Backpack is not liable for any losses you may incur. This material should not be construed as financial, legal or other professional advice.