What Is a Perpetual Future? Mechanism, Funding, Liquidation
A perpetual future is a leveraged crypto contract with no expiry that tracks spot via a funding rate. Here is the full mechanism in 2026.
A perpetual future — almost always shortened to 'perp' — is a leveraged derivatives contract that tracks the price of an underlying spot asset but never expires. Perps were invented by BitMEX in 2016 and are now the dominant form of crypto derivatives, with daily volume routinely exceeding $200B across centralised and decentralised venues. The mechanism is more elegant than it appears.
The Three Moving Parts
- Mark price: the price the contract is settled against — usually a weighted index of multiple spot venues to resist manipulation
- Funding rate: a small periodic payment between longs and shorts that pulls the perp price back to spot — paid every 8 hours on most venues, every 1 hour on some DEX-perp venues
- Liquidation engine: the mechanism that closes underwater positions before they damage the venue's solvency
How Funding Works
When the perp trades above spot, longs pay shorts a funding rate proportional to the gap — incentivising shorts to enter and longs to exit, which closes the gap. When perp trades below spot, shorts pay longs. Funding rates of +0.01% per 8 hours (annualised ≈11%) are typical in calm markets. During mania, BTC funding has hit +0.30% per 8 hours (≈ 330% annualised) — at that level, longs are paying enormous carry and the trade decays even if price drifts sideways.
How Liquidation Works
- Each position has a margin balance and a maintenance margin requirement (typically 0.5%-2% of notional)
- If unrealised losses push the margin below the maintenance threshold, the liquidation engine closes the position
- Centralised venues use an insurance fund to absorb residual losses if the position cannot be unwound at the bankruptcy price
- Decentralised perps (Hyperliquid, GMX, dYdX, Steyble Perps) use auction-based or AMM-based liquidations with public bidder pools
- Auto-deleveraging (ADL) is the last-resort backstop: if the insurance fund is exhausted, profitable counterparties are force-closed at the bankruptcy price
What Practical Use Looks Like
- Hedge spot exposure: short a perp equivalent to your spot bag to lock in price for 30-90 days
- Capital-efficient long: use 2-5x leverage to gain BTC exposure without tying up the full notional
- Basis trade: long spot + short perp during high positive funding to harvest the funding-rate spread
- Pair trade: long ETH perp + short BTC perp to express a relative-value view with neutral market exposure
- Carry farming: short perps in stable bull markets to harvest negative funding when retail goes max-long
Steyble Perps in One Sentence
Steyble Perps is a self-custodial perpetuals venue: the user signs every order with their own key, positions live in a transparent on-chain account, leverage goes to 20x, and liquidations are handled by an open-bidder auction — the same mechanism design as Hyperliquid, with the routing and UX integrated into the rest of the Steyble super app.