# Underlying Derivatives

## Context

Ethena utilizes derivatives positions to buttress the synthetic USD value of the backing assets in most market conditions. This is achieved by being "delta neutral" through the use of an offsetting short derivatives position to the natural long spot position from backing assets.

In the subsections below, we go into what each term refers to and the key differences:

* Futures vs Perpetuals
* Inverse vs Linear Contracts
* Basis Spread

## Overview

{% hint style="info" %}
Ethena trades derivatives across all major centralized exchanges that are supported by "Off-Exchange Settlement" providers.
{% endhint %}

At a high level, Ethena trades derivatives with a few motivations:

* Ethena opens a short position when a user **mints** *USDe*.
* Ethena closes a short position when a user **redeems** *USDe*.
* Ethena closes/opens positions across exchanges to realize unrealized PnL.
* Ethena algorithmically optimizes positions in the backing portfolio to account for risk.
* Ethena algorithmically optimizes positions in the backing portfolio to account for the differences between the exchanges' derivative contract specifications & the capital efficiency available from each exchange.

It is important to note that not all exchanges offer the same derivatives contracts and there are often key differences between each. Ethena is also sensitive to the exchange-assigned backing assets value when using liquid staking Ethereum assets, such as stETH, to margin ETHUSD or ETHUSDT Perpetual positions.

<br>


---

# Agent Instructions: Querying This Documentation

If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question.

Perform an HTTP GET request on the current page URL with the `ask` query parameter:

```
GET https://docs.ethena.fi/solution-overview/underlying-derivatives.md?ask=<question>
```

The question should be specific, self-contained, and written in natural language.
The response will contain a direct answer to the question and relevant excerpts and sources from the documentation.

Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.