// GLOSSARY -- DEFI

What is Perpetual Swap (Perps)?

1 min read Updated

A perpetual swap (perp) is a derivative contract that lets traders speculate on asset prices with leverage and no expiration date — settled through a funding rate mechanism that keeps the contract price aligned with the spot price.

WHY IT MATTERS

Perpetual swaps are the most traded instrument in crypto. Unlike futures with expiration dates, perps run indefinitely. A funding rate — periodic payments between longs and shorts — keeps the perp price anchored to spot. When perps trade above spot, longs pay shorts; below spot, shorts pay longs.

Perps enable leveraged trading: open a 10x position with $100 to get $1000 of exposure. This amplifies both gains and losses, with liquidation if the position moves too far against you.

On-chain perps (dYdX, GMX, Hyperliquid) bring this instrument to DeFi — permissionless, transparent, and non-custodial. They've become among the highest-volume DeFi protocols.

FREQUENTLY ASKED QUESTIONS

How does the funding rate work?
Periodic payments (typically every 8h) between longs and shorts. If perp price > spot, longs pay shorts (discouraging longs, pushing price down). Vice versa. This keeps prices aligned.
What is liquidation in perps?
If your position's unrealized loss exceeds your margin, you're liquidated — the position is forcibly closed. Higher leverage means smaller price moves trigger liquidation.
On-chain vs off-chain perps?
On-chain (GMX, dYdX): non-custodial, transparent, permissionless. Off-chain (Binance, Bybit): faster, deeper liquidity, centralized. On-chain perps are growing but still smaller by volume.

FURTHER READING

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