Perpetual futures are immensely popular in the cryptocurrency market. They have become a favored product among traders, so much so that perps make up more than 90% of trade volume on exchanges and the majority of open interest. Yes, you read that right!
What really separates perpetual trading contracts from traditional calendar futures is that the former have no expiry date. Popularly known as perps or perpetuals, they are similar to futures contracts except that they do not have an expiration date, meaning traders can hold a position open indefinitely and never have to worry about the contract rolling over or expiring.
They are not just a crypto retail investor favorite but also gaining ground among a more considerable number of professional and institutional traders who are shifting away from traditional calendar futures.
These instruments mimic the spot market and are pretty much like spot contracts. They are also easy to use and access on exchanges. As the preferred source of leverage, their dominance has ballooned in the crypto sector.
Another reason for their popularity could be the less attractive cash-and-carry trade, where traders take advantage of the inefficiencies between the spot and futures markets.
The first perpetual contract was introduced by the crypto exchange BitMEX in 2016. The product gained popularity among retail traders due to its simplicity, and since then, it has been adopted by most crypto exchanges.
Exchanges use the funding rate to keep the price of contracts in line with their underlying spot price. When the funding rate is positive, those investors who hold long positions pay interest to those who are short, and vice versa.
Enter Decentralized Protocols (DEXs)
In recent years, decentralized protocols have become increasingly popular because they give users more control over their data. For example, these protocols allow users to trade perpetual contracts without centralized intermediaries.
On decentralized exchanges (DEXs), you don’t have to worry about the security or trustworthiness of a centralized party; instead, computer programs called smart contracts automatically execute actions according to the terms of a contract or an agreement.
These protocols are the future of perpetual contract trading because they provide several advantages over traditional centralized exchanges.
That said, in the world of cryptocurrencies, there is always a risk that exchanges will be hacked and users’ funds will be stolen. Unfortunately, this has happened several times in the past. In fact, it is one of the major concerns for people considering investing in crypto. One way to increase security for users’ funds is to decentralize the exchanges. By using a decentralized protocol for trading perpetual contracts, users can trade directly with each other without having to rely on a central exchange.
The reason being decentralized protocols are much more resilient to hacking and fraud than centralized exchanges due to no central point of failure for a hacker to target and exploit. If one part of the system were to be compromised, the rest would still be functioning. This would make it much more difficult for hackers or malicious actors to take down the entire system.
They also offer much better security for users’ funds as they are not held by a central entity that could be hacked or go bankrupt. By spreading out the data and processing power over many nodes, it becomes much more difficult for anyone to tamper with the system.
Additionally, with the immutable public ledger recording all trade data, DEXs offer greater transparency and accountability. All transactions on a decentralized protocol are public and can be verified by anyone. This makes it very difficult for anyone to commit fraud or hide nefarious activities.
It also reduces counterparty risk as trades are settled directly between users; because the platform is permissionless and open source and anyone can audit it, you don’t have to trust a single entity. Traders get increased autonomy and control too.
But Not Exactly Problem Free
When it comes to trading perpetual contracts, decentralized protocols are the future. As discussed above, they are far superior to traditional centralized exchanges in terms of improved security, lower fees, and more control for the individual trader.
With a decentralized protocol, each trader can hold their private keys and trade directly with other traders without going through a third-party exchange. This not only reduces costs but also increases security since there is no central point of failure that hackers could target.
Besides resilience to hacking and fraud due to no central failure point, decentralized protocols offer better security. However, having said that, decentralized protocols for perpetual contract trading are not issue-free.
Today, there are many decentralized DEXs where you can trade perpetual contracts, but they face problems in the form of high slippage, high costs, and inadequate tool support.
Most DEXs use the AMM model for price discovery, which is necessary to provide liquidity. But this liquidity is often lacking with small-cap altcoins, which makes it difficult to execute trades without significant slippage.
With a majority of DEXs built on ETH, they involve high transaction fees that users have to pay to trade. But most importantly, most of these DEXs have inadequate tool support like order types which are necessary for perpetual trading. Users don’t want to open a position without the option of placing a Stop Loss or Take Profit.
PalmSwap to the Rescue
For the past few years, we’ve understood the complexity of exchange and the crypto world. To solve these issues with existing DEXs, we have been building a perpetual DEX engineered to offer the benefits of both a DEX and CEX.
Palmswap is a decentralized perpetual contract trading protocol that allows its users to trade with up to 10x leverage. In addition, the platform has a native token, PALM, to enable a robust ecosystem around governance, rewards, and staking to further drive future growth and decentralization of Palmswap for a better user experience.
What’s unique about the Palmswap protocol is its new proprietary pricing model, dynamic Virtual Automated Market Maker (dvAMM). This model performs market-making and provides liquidity in a way that is not present in any existing decentralized exchanges.
dvAMM uses a customizable k mechanism to recalibrate the liquidity of a trading pool based on the demand of the participants, resulting in better capital efficiency and lower slippage.
To tackle the issue of high transaction costs, Palswap has chosen the scalable, fast, and cheap Binance Smart Chain as its foundation. This allows it to offer a cost-effective legacy alternative and an optimal on-chain trading experience.
On top of all this, the perpetual DEX comes with many on-chain tools, including limit order, conditional order, take profit, stop loss, and trailing stop, making the DEX more user-friendly for individuals and institutional traders. We have also introduced the first-of-its-kind affiliate program, much like CEXs.
With these specialized features, Palmswap Protocol aims to become the next-generation perpetual DEX for cryptocurrency market speculations.