perpetual futures

A perpetual future is a leveraged bet on an asset's price that, unlike a traditional futures contract, never expires — you can hold a long or short position indefinitely. Born on centralized crypto exchanges and now widely traded on-chain, 'perps' are the dominant derivative in crypto markets, often dwarfing spot volume. They let a trader gain magnified exposure to, say, ETH without holding ETH, posting only a fraction of the position's value as margin.

The central puzzle a perpetual must solve is: with no expiry to force convergence, what keeps the contract's price tethered to the real spot price? The answer is the funding rate, a small periodic payment exchanged directly between longs and shorts. When the perp trades above the index (spot) price, longs pay shorts, nudging traders to close longs and open shorts until the gap closes; when it trades below, shorts pay longs. The protocol distinguishes a mark price (used for valuing positions and triggering liquidations, smoothed to resist manipulation) from the index price (the external reference), and from the contract's own last-traded price.

On-chain implementations differ sharply in how they source liquidity and price. Order-book perps (such as dYdX) match longs against shorts directly. Oracle-and-pool perps (such as GMX) price trades off an external oracle and settle against a shared liquidity pool that takes the other side, so liquidity providers act as the counterparty and absorb traders' aggregate profit or loss. Virtual-AMM designs price positions along a synthetic curve with no real reserves. In all of them leverage cuts both ways: a position is liquidated the moment its margin can no longer cover its losses, and high leverage means a small adverse move wipes you out.