Perpetual Futures (Perps)

Perpetual Futures (commonly known as "perps") are a type of derivative contract that allows traders to speculate on the future value of an asset without an expiration date. Unlike traditional futures contracts, which settle on a specific date, perps can be held indefinitely.

The Funding Mechanism

Because there is no settlement date, perps require a mechanism to ensure the price stays close to the underlying asset's spot price. This is achieved through Funding Rates. If the perp price is higher than the spot price, longs pay shorts. If it's lower, shorts pay longs. This constant pressure anchors the derivative to reality.

Margin and Leverage

Perps are typically traded with leverage, using a margin system. Traders deposit collateral (usually USDC) to open larger positions. If the market moves against the position and the margin falls below the maintenance threshold, the protocol triggers a Liquidation to protect the exchange's solvency.

Why Perps Dominate Crypto

In traditional finance, spot and futures markets are fragmented. In crypto, perps have become the primary source of liquidity and price discovery. This is due to their capital efficiency, lack of roll-over costs, and 24/7 trading availability.