What Are Perpetual Contracts In DeFi?
Perpetual contracts (perps) in DeFi are a type of derivative that allows users to speculate on the price of an asset without actually owning it — and without an expiry date. They are similar to futures contracts but "perpetual" because they never expire or settle automatically
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🕒 6:58 PM
📅 Aug 06, 2025
✍️ By CASHMONEY1
🔧 How Perpetual Contracts Work in DeFi
1. Leverage Trading
Perps allow traders to take long (bet price will go up) or short (bet price will go down) positions with leverage — sometimes up to 50x or more. 1.
E.g., with $100 and 10x leverage, you can open a $1,000 position. 2.
2. No Expiration
Unlike futures, you don’t need to roll over the position or worry about settlement dates. You can hold the position as long as your margin allows. 1.
3. Funding Rate
Since perps don't expire, they use a funding rate mechanism to keep the perp price close to the spot price:
When perp price > spot price → longs pay shorts 1.
When perp price < spot price → shorts pay longs 2.
This discourages divergence and keeps markets balanced. 3.
4. Collateral and Liquidation
To open a perp position, you lock collateral (usually in stablecoins or crypto like ETH). If the trade moves against you beyond a threshold, your position can be liquidated to protect the protocol. 1.
5. Settlement via Smart Contracts
All trades, margin calculations, funding rate payments, and liquidations are automated via smart contracts — removing intermediaries and enabling 24/7 trading. 1.
💡 Use Cases
Speculation with high leverage 1.
Hedging price exposure (e.g., a DeFi farmer hedging ETH exposure) 2.
Arbitrage between perp and spot/futures markets 3.
Passive income for LPs who provide collateral/liquidity