Understanding Perpetual Futures in Cryptocurrency Markets

Summary

This article provides an in-depth explanation of perpetual futures (perps) in cryptocurrency markets, examining their structure, purpose, and risks. The author explores how perpetual futures offer capital efficiency for professionals, leveraged exposure for retail traders, and rich yields for market makers, while also highlighting their poorly understood failure modes. The piece positions perpetual futures as a financial innovation unique to crypto that lacks a direct connection to the real economy, comparing them to traditional futures contracts and analyzing their mechanisms for maintaining price alignment with spot markets.