Perpetual swaps, also known as perpetual futures or simply perps, have become the dominant trading instrument in crypto. CoinDesk said the product now handles an estimated $40 trillion to $50 trillion in annual volume, far outpacing spot trading. Professional traders, hedge funds and retail speculators use perps when they want leveraged exposure to assets such as bitcoin or ether without owning the underlying asset, yet the mechanics behind the contracts remain poorly understood outside active trading circles.
What came before perps
CoinDesk framed perpetual swaps as a response to the shortcomings of traditional futures in crypto’s early years. In conventional finance, traders usually get leveraged exposure through futures contracts, which are agreements to buy or sell an asset at a fixed price on a specified date. When that date arrives, the contract expires and settles, so anyone who wants to stay in the trade has to roll the position into the next contract.
That setup created recurring problems in early crypto markets. Bitcoin futures often traded above the spot price, a gap known as basis, which made the product less intuitive for retail traders looking for straightforward directional exposure. Expiry was another issue: positions closed whenever the contract matured, whether traders wanted out or not.
BitMEX, the derivatives exchange founded by Arthur Hayes and Ben Delo in 2014, spent much of a year trying to fix the problem by shortening contract durations. The exchange moved from quarterly expiries to monthly, then weekly, then 48-hour and finally 24-hour contracts. CoinDesk said those changes still fell short.
The contract with no expiry
Delo developed the perpetual swap structure that BitMEX launched in May 2015. The key change was simple but far-reaching: remove the expiry date entirely and create a derivative that can track the price of an asset indefinitely.
There is no settlement date, no need to roll and no expiry. A trader can hold the position for hours or for years.
That created a new structural challenge. In a dated futures market, expiry acts as an anchor that eventually pulls the contract back toward the spot price. Without that anchor, nothing naturally forces the perpetual swap price to converge with the underlying asset. BitMEX addressed that problem with a mechanism that later became the industry standard.
How the funding-rate mechanism works
According to CoinDesk, traders on opposite sides of the market exchange a payment every eight hours.
If the perpetual swap is trading above spot, showing stronger demand for long exposure, traders who are long pay traders who are short. If the contract is trading below spot, the payment flows the other way. The exchange does not take a cut.
That payment is known as the funding rate. It is calculated based on how far the perpetual swap price has deviated from spot over the previous eight-hour window. The larger the deviation, the higher the rate.
The mechanism creates a self-correcting balance. When longs are paying a meaningful funding rate, holding the position becomes more expensive, which can reduce demand and pull the contract price back toward spot.
Market makers speed up that adjustment. When a noticeable premium opens between the perp and spot markets, they can short the perpetual swap while buying spot, capturing the spread as profit.
CoinDesk said the funding-rate system is now used in essentially the same form by nearly every major derivatives exchange in the world.
Leverage and liquidations
The other defining feature of perpetual swaps is leverage.
Most exchanges let traders control positions that are much larger than their posted capital, though the cap depends on the platform and the jurisdiction. At its peak, BitMEX offered leverage of as much as 100x. That meant a 1% move in bitcoin’s price could translate into a 100% gain or loss on a fully leveraged position.
To contain the risk this creates, perpetual swap platforms rely on automated liquidation systems. If a trader’s losses approach the value of posted margin, the system closes the position before it turns negative, shielding the exchange from taking on the deficit.
CoinDesk said the speed and reliability of the liquidation engine quickly became a major point of competition among exchanges in crypto’s early derivatives market, and that it remains central today.
Where crypto price discovery happens
Perpetual swaps are now the main venue for price discovery in crypto, according to CoinDesk. When bitcoin makes a sharp move, the shift usually begins in perp markets before spreading to spot.
The article added that the market structure Delo built in 2015 has held up well enough that U.S. regulators are now examining whether the same model could be applied to traditional assets. CME could potentially list perpetual swaps tied to equities.
What started as a workaround for the limitations of crypto futures has become one of the most heavily traded financial products in the world.