Hello everyone, I am Paul Miyi, a small coder. This is the first day of learning blockchain from scratch. We will continue to update blockchain knowledge points. Today we will discuss what is coin-based and U-based.

The concepts of coin-based and U-based, as well as their evolution, represent different stages of cryptocurrency trading. The following will detail these two models from definitions, historical evolution, trading logic, and specific cases.

I. Coin-based: Trading logic based on cryptocurrencies

1. Definition

Coin-based is a trading method centered on cryptocurrencies (like BTC, ETH), where profit and loss settlements and margin reserves are measured in cryptocurrencies.

2. Features

  • Return measurement: Profit and loss results are expressed in terms of coin quantity, whether earning or losing is in coins.

  • Market impact: Account value is closely related to coin price fluctuations.

  • Investment logic: Hope to increase the number of coins through trading rather than directly converting to fiat currency.

3. Applicable scenarios

  • Bull market environment: If coin prices rise, coin-based can bring higher returns.

  • Hodlers: For users who are bullish on cryptocurrencies in the long term, coin-based trading aligns with their goal of 'accumulating more coins'.

4. Mainstream in the early development

In the early cryptocurrency market, stablecoins were not widely used (USDT was born in 2015 and only became widely popular after 2017). In this context:

  • Trading platforms (like BitMEX) mainly provide futures contract trading based on BTC.

  • Users leverage to obtain more bitcoin profits.

II. U-based: Trading logic based on stablecoins

1. Definition

U-based is a trading method centered on stablecoins (like USDT), where profit and loss settlements and margin reserves are measured in stablecoins.

2. Features

  • Return measurement: Profit and loss results are expressed in terms of the number of stablecoins, and returns are linked to fiat currency.

  • Market impact: Account value is not directly affected by coin price fluctuations.

  • Investment logic: More suitable for short-term operations, the goal is to earn stable fiat currency returns.

3. Applicable scenarios

  • Fluctuating or bear market environment: When coin prices fluctuate significantly or decline, U-based can protect the value of total account assets from shrinking with coin prices.

  • Novice traders: Easier to understand, without worrying about the complex impact of price changes on returns.

4. Stablecoins drive development

After 2017, stablecoins like USDT began to be widely used, and exchanges gradually supported contract trading with USDT as margin. Platforms represented by Binance and OKX launched USDT contracts, significantly reducing the interference of price fluctuations on investors.

III. Comparison of Coin-based and U-based

IV. Evolution of Coin-based and U-based

1. Early stage: Coin-based as the main (2011-2016)

  • Market background: Stablecoins were not widely popular, and cryptocurrency prices fluctuated continuously.

  • User needs: Investors focus on accumulating more cryptocurrencies, hence they tend to prefer coin-based.

  • Typical products: BitMEX's BTC perpetual contracts.

  • Trading logic: Investors increase BTC positions in contracts, and profits are automatically settled in BTC.

2. Rise of stablecoins: U-based gradually develops (2017-2019)

  • Market background: The emergence of stablecoins (USDT) has addressed the impact of cryptocurrency price fluctuations on fiat currency settlements.
    In a bear market, the significant drop in coin prices leads to a severe reduction in fiat currency returns based on coins.

  • Trading logic: Using USDT as margin, profits are also settled in USDT, reducing the impact of price fluctuations on accounts.

  • Typical products: USDT contracts launched by Binance and Huobi.

3. Dual-mode parallel (2020 to present)

  • Market maturity: Exchanges provide both coin-based and U-based models simultaneously to meet different user needs.

  • User segmentation: Investors bullish on the long-term market choose coin-based.
    Short-term traders tend to prefer U-based.

  • New model introduction: Cross-currency margin model allows users to use various assets as collateral, but still settles based on U-based or coin-based.

4. Future development trends

  • Diversified derivatives: More options, futures, and ETF products based on stablecoins are being introduced.

  • Risk hedging strategy: Some traders use a combination of coin-based and U-based to hedge against price fluctuation risks.

V. Practical cases and comparative analysis

1. Hypothetical scenario

  • You participate in coin-based trading with 1 BTC, using 10x leverage, and the coin price rises from 30,000 USDT to 35,000 USDT.

  • You participate in U-based trading with 30,000 USDT, using 10x leverage, and the coin price also rises to 35,000 USDT.

2. Result comparison

  • Coin-based returns: The profit in BTC is (35,000−30,000)×10/35,000=0.142857BTC (35,000 - 30,000) × 10 / 35,000 = 0.142857 BTC.
    At this point, your total account assets are 1+0.142857=1.142857BTC 1 + 0.142857 = 1.142857 BTC, the fiat currency value is 1.142857×35,000=40,000USDT 1.142857 × 35,000 = 40,000 USDT.

  • U-based returns: The profit is directly (35,000−30,000)×10=50,000USDT (35,000 - 30,000) × 10 = 50,000 USDT.
    At this point, the total account assets are 30,000+50,000=80,000USDT 30,000 + 50,000 = 80,000 USDT.

Summary

  • Coin-based returns mainly increase in coin quantity. If the coin price continues to rise, holding coins for the long term will yield higher returns.

  • U-based returns are more intuitive and stable, especially when coin prices fall, better protecting asset value.

The development of coin-based and U-based trading is a result of the increasing maturity of the cryptocurrency market and the diversification of user needs. From the early single model of coin-based trading to the current diversified trading methods, they have collectively promoted market efficiency and user experience.