Settlement and Realization
Futures on Backpack settle in USDC. This includes fees, funding payments, and PnL.
If you have USDC in your account, then all USDC settlements will be debited from your USDC balance. However, in the case that you don't have USDC available in your account and therefore owe it to the system, Backpack considers the following options (in order):
Redeem any outstanding USDC lends
Borrow USDC from the borrow lending pool
Convert non-USDC collateral into USDC
This means that you can trade futures without having any USDC in their account.
By default, PnL remains unrealized unless any of the following happens:
The position is closed partially or entirely
Auto Realize PnL is enabled
Risk limits are reached, such as borrow/lend limits or unrealized PnL limits
Unrealized profits get paid the USDC lending rate, while unrealized losses pay the borrow rate due to a process called Virtual Realization (more details below).
Auto Realize PnL
Auto Realize PnL is an account setting that automatically realizes PnL every 10 seconds without reducing the size of the position. This is the most capital efficient setting when using USDC as collateral, as you don’t have to pay the borrow rate on your unrealized losses.
Additionally, when Auto Realize PnL is on, you will see their physical USDC balances getting debited/credited every 10 seconds as your positions go up or down. This means that if a position is up +1000 USDC in profit, you can withdraw that USDC without having to close your position.
Here's a quick video walkthrough:
To better understand how this setting works, here’s a quick comparison:
Auto Realize PnL Disabled
Auto Realize PnL Enabled
PnL remains unrealized unless the position is reduced, or if risk limits are reached.
Unrealized PnL gets Realized every 10 seconds without reducing position size
Your physical USDC balance is not debited or credited as the uPnL goes up or down. Only your equity is updated.
Your physical USDC balance gets debited or credited as your PnL gets realized. This also increases/decreases your equity.
Unrealized losses pay the borrow rate. Unrealized profits receive the lending rate.
No borrow rate is paid on losses. Users can enable Auto-Lend to receive lending yield on their profits.
Unrealized losses are considered “virtual” borrows, which pay interest but do not increase your margin usage.
If you are using Non-USDC collateral as margin and incurs losses, a borrow will be created to settle that loss, which will increase margin exposure.
Virtual Realization
Unrealized PnL on Backpack have two unique components:
Unrealized profits earn yield and unrealized losses pay interest.
While unrealized losses pay interest, they are not considered actual borrows, and therefore do not increase your margin exposure.
This is possible thanks to a mechanism called Virtual Realization. Instead of settling into physical balances, unrealized PnL is settled through a virtual account called the Liquidity Fund. This synchronizes all unrealized PnL liquidity and collateral with open positions in the borrow-lend market. Losers pay interest, and winners earn yield—without increasing margin exposure.
There may be instances where Liquidity Fund must realize your PnL:
Borrow Lend limits - when there’s no available lending capacity in the USDC borrow lend market or when utilization is past the throttle threshold.
Unrealized PnL limits - if you hit the account’s unrealized loss limit, all unrealized losses past that point will be realized automatically.
Note that realizing PnL has no effect on account equity. Both Unrealized PnL and Realized PnL contribute equally towards account equity.
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