Quanto Contract

A quanto contract is a derivatives contract, such as a futures contract (see Kaavon's "Futures Contract (Dated)" glossary definition) or perpetual swap (see Kaavon's "Perpetual Swap" glossary definition), whose underlying asset is priced in one currency but settled in a different currency, using a fixed, predetermined conversion rate between the two rather than the actual prevailing exchange rate at settlement. This removes the holder's exposure to fluctuations in the settlement currency's own exchange rate, isolating their position to only the underlying asset's price movement.

In crypto, a common quanto structure involves a contract tracking an asset's price in U.S. dollar terms but settled in a different cryptocurrency, such as Bitcoin, at a fixed conversion rate, letting a trader gain exposure to the underlying asset's dollar-denominated price movement while being paid out and holding margin in a different asset entirely. This structure shifts the exchange-rate risk that would otherwise exist onto whichever party is offering the quanto contract, since they must manage that currency mismatch themselves rather than passing it through to the contract holder.