⚙️How it works

Contango protocol synthesises expirable positions by using spot exchanges and borrowing and lending at a fixed rate, i.e. cash flows of expirable positions are replicated through fixed interest rate markets. The different steps are realized atomically, i.e. in one transaction each time a trader buys or sells an expirable. If for any reason the transaction fails then no position will be taken neither by the trader nor by the protocol.

Position opening

Below are presented the steps to open an expirable position.

Steps to open a position on ETHDAI.

Short	Long
Trader sells a expirable Protocol borrows the base currency Protocol sells the borrowed amount for an equivalent amount of the quote currency on the spot market to synthesize a short position. The amount of the quote currency is lent	Trader buys a expirable Protocol borrows the quote currency Protocol sells the borrowed amount for an equivalent amount of the base currency on the spot market to synthesize a long position The amount of the base currency is lent

Position closing

Below are presented the steps to close an expirable position.

Steps to close a position on ETHDAI.

Short	Long
Trader closes a short position Protocol gets the principal and the interest from lending the quote currency Protocol swaps the quote currency for the base currency on the spot market Protocol gives back the borrowed funds including the accrued interest	Trader closes a long position Protocol gets the principal and interest from lending the base currency Protocol swaps the base currency for the quote currency on the spot market Protocol gives back the borrowed funds including the accrued interest

In order to quote a price to a trader, Contango simulates what would happen in a real execution and enriches the answer with min/max values, also simulating how the position status would look like after execution. To achieve that Contango uses the "preview" functions provided by the underlying protocols.