# Overlay Protocol introduction By [Untitled](https://paragraph.com/@0x0d6d4ac93ae3f711d9e46cdb7693459328d37678) ยท 2024-08-17 --- financial sector, especially in the crypto market, perpetual futures contracts (perps) are increasingly becoming a trading tool of interest. while Overlay Protocol As a member of it, it shows a series of unique characteristics and mechanisms. Characteristics of perpetual futures contracts Perpetual futures contracts provide users with a great deal of flexibility, allowing users to easily choose to go long or short without actually owning the underlying asset. At the same time, the contract does not have a fixed maturity date or asset delivery requirements, it will continue to roll until the user decides to close the position. On the margin side, users have access to whitelisted assets and are able to make leveraged trades. Third, pricing methods In terms of pricing, Overlay uses a unique combination strategy that combines the Oracle based data source with the native mechanism to determine the price In contrast, traditional crypto exchanges like Binance typically rely on a centralized limit order book system, while some on-chain protocols simply use a data source based on prophecy for pricing. Fourth, the counterparty In terms of counterparties, Overlay creates a unique trading market for users, with no counterparties in the traditional sense. It balances transactions by dynamically minting or destroying its native token OV. Traditional CLOB-type crypto exchanges tend to rely on swap counterparties to provide liquidity, while on-chain derivative agreements rely on liquidity providers. Order type In terms of order types, Overlay v1 currently only supports market orders, not limit orders. This is different from general CLOB and LP-based exchanges, which typically offer limit order functionality. Capital rate The money rate is an important element in perpetual futures contracts, which require traders to pay a fee periodically to hold a position in order to ensure that the futures price is in line with the spot price. Overlay calculates the fund rate according to the imbalance of open positions, thereby effectively reducing the imbalance of long and short positions. Profit and loss and mortgage In terms of profit and loss and collateral, users need to lock OV as collateral for Overlay market positions. When profit is made, the agreement will generate OV to pay the user; At a loss, the locked OV is destroyed. Sum up In general, Overlay in the field of perpetual futures contracts show distinctive characteristics and ways of operation, providing traders with a new choice and possibility. --- *Originally published on [Untitled](https://paragraph.com/@0x0d6d4ac93ae3f711d9e46cdb7693459328d37678/overlay-protocol-introduction)*