Perpetual futures are derivative contracts that track an underlying asset’s price without an expiry or settlement date. A periodic funding-rate payment between long and short holders tethers the contract price to the spot index, replacing the convergence that expiry provides in traditional futures. They are a dominant instrument in crypto derivatives markets, enabling leveraged directional exposure that can be held indefinitely.
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- The funding mechanism periodically transfers payments from the side trading at a premium to the side at a discount, incentivising arbitrage that keeps the perpetual price near the spot index. On-chain perpetual DEXs implement this with oracle-fed mark prices, automated liquidation engines, and either order books or liquidity-pool counterparties, exposing traders to funding cost, liquidation, and oracle risk.