WuBlockchain republished a commentary by @agintender arguing that stock perpetuals could become a major growth driver for small-cap equities, not because they add leverage by themselves, but because they create a venue where participants with very different motives can trade against one another.
The article’s core claim is that perpetuals can bring in traders who are bullish on a company, traders who question its valuation, traders focused on funding income, and traders looking only at the spread between spot and derivatives. They do not need to agree on the same story. They only need a structure that lets each side express a view, hedge risk, or earn carry.
GameStop as the starting point
The author begins with GameStop and the practical problem faced by anyone trying to short the stock in 2020: where to borrow shares. According to the piece, stock-borrow fees for the video game retailer topped 100% annualized in the second quarter of 2020, then stood at about 25% in January 2021.
The point is not where the stock traded. It is what it cost to stay in the trade. The article compares the setup to renting a car for a job that may pay $5,000 a month later, while the rental bill for that month is $8,333. Even if the trade thesis works, the economics can still fail. And sometimes the car is not available at all. In equities, paying up does not guarantee borrow. A broker has to support shorting, the account needs the right permissions, and shares must actually be available to lend.
Why perpetuals matter
That is where stock perpetuals become worth discussing, the author says. Their value lies in allowing more people to participate in the same market for different reasons. Some want directional exposure. Some want to challenge a valuation. Others do not care about direction and only want to know whether funding can cover carrying costs or whether a spot-perp basis trade makes sense.
The article argues that this framework can apply to any stock. For smaller names with weaker liquidity and fewer derivatives tools, perpetuals may fill a gap that previously prevented certain trade structures from existing at all. That, in turn, can create an entry point for capital that otherwise would not participate.
How market makers transmit perp demand into the stock
To explain the mechanism, the author uses a fruit-stand analogy. A fruit seller buys inventory because customers want to buy fruit, not necessarily because the seller believes apples will be more expensive next month. If the selling price covers procurement, spoilage and operating costs, the trade makes sense.
The same logic can apply to market makers in equities. They may hold stock to serve client flow rather than to express a view on the company.
The article gives a simple example. Assume a stock trades at $10 and a customer wants long exposure equivalent to 10,000 shares through a perpetual contract. A market maker sells the contract to that customer and becomes short the perp. If the stock rises, the market maker loses money on the derivative leg, so it hedges by buying 10,000 shares in the cash market. The customer ends up long the perp, while the market maker holds a long stock position against a short perp position. That creates a $100,000 buy order in the stock.
The author stresses that this stock purchase does not automatically mean the market maker is bullish. It may simply be inventory and hedge management. The reverse path also works. If a customer wants to short the perp, the market maker can become long the contract and then sell stock it already owns, or borrow stock and sell it short, to offset downside risk. In that case, the stock market sees selling while the derivatives market sees buying.
Not every perp trade maps one-for-one into a stock trade, the article adds. Market makers first offset long and short demand across customers and only hedge the residual net risk. Holding stock inventory also does not mean they can take unlimited flow. Capital, borrow availability and risk tolerance still set the limits.
The four prices behind a stock perpetual
The article then asks how a perpetual stays linked to the stock. If the stock is at $10 and the contract runs to $15, the two markets have clearly drifted apart. Because stock perpetuals usually do not settle by delivering shares on a fixed date, they cannot rely on expiry convergence alone. They need another incentive system, and funding is one part of that system.
Funding is described as a periodic carrying bill. When the contract trades rich for a sustained period, the mechanism usually raises the cost for longs and pays shorts, encouraging traders to take the other side. When the contract trades cheap, the payment direction can flip. The article notes that this is not an exchange handing out money. The cash comes from the other side of the open interest. Every open contract has one long and one short, so the process cannot be reduced to a simple headcount of how many traders are long.
To judge whether a contract is rich or cheap, the author says traders need to separate several prices. One is the impact price, which reflects the average executable price obtained by walking the order book for a specified notional amount. The article gives a typical exchange-style formula:
[max(impact bid - reference price, 0) - max(reference price - impact ask, 0)] ÷ reference price
Using a $10 reference price and impact execution prices of $10.01 and $10.03 on the two sides, the result is 0.1%, according to the article.
The piece also discusses mark price and reference price. Mark price is there to keep a small abnormal trade from deciding whether a large number of accounts get liquidated. It usually combines the reference price, order-book information or a smoothed basis estimate to manage risk. Different venues use different formulas, and these prices do not have to match at every moment.
The author’s division of labor is straightforward: the reference price tells the market what is being compared, funding encourages capital to adjust positions, and the mark price determines how risk controls handle exposure.
Funding-rate trades are about carry, not direction
Once those mechanics are clear, the article says, traders who specialize in funding can step in. They are not trying to predict whether the stock goes up or down. They want to know whether the income from the position is enough to cover financing and other costs.
The example used is a stock trading around $10. A trader buys 10,000 shares in the cash market and shorts 10,000-share equivalent in the perpetual. If the contract pays shorts 0.03% every eight hours and the notional stays close to $100,000, the trader receives $90 a day, or about $2,700 over 30 days. If financing the stock purchase costs 6% annualized on a 360-day basis, the 30-day financing bill is about $500.
That leaves a $2,200 difference over 30 days. Multiply by 12 and divide by the $100,000 notional, and the annualized return is roughly 26.4%, before other costs. The point of the example is that someone can hold the stock and the hedge because of funding income, not because they are bullish on the company.
The reverse trade is less forgiving. A trader can borrow stock, sell it short, and buy the perpetual when funding is negative. In that setup, the long perp position may receive funding. But the article notes that if the trader collects $2,700 over a month while stock-borrow costs run at 30% annualized on a $100,000 base using a 360-day convention, the borrow bill is $2,500 for 30 days, leaving only $200 to cover everything else. If borrow costs reach $8,333, funding alone is nowhere near enough.
That asymmetry matters. Buying stock and shorting the perp mainly requires capital. Borrowing stock to short it and buying the perp requires capital plus actual borrow availability. Perpetuals can spare ordinary traders from sourcing borrow themselves by distributing risk across natural longs, holders and professional firms, but the part of the system that still needs stock borrow remains constrained by stock-loan supply.
Basis trades depend on convergence, not on a target price
The article also describes traders who focus only on the spread between spot and the perpetual. The analogy is two shops selling the same standardized product at $10 and $10.20. The question is whether the $0.20 gap is enough to cover transport and execution costs.
Suppose the stock is at $10 and the perpetual is at $10.20. A trader buys 10,000 shares and shorts the matching perp exposure. If both later move to $11, the stock makes $10,000 while the perp loses $8,000, leaving a gross spread gain of $2,000. If both move to $9, the stock loses $10,000 while the perp makes $12,000, again leaving $2,000. Funding, financing and trading costs come on top of that.
The trader does not need to know whether the company is ultimately worth $9 or $11. The real question is whether the $0.20 gap will narrow and whether the cost and risk of waiting are acceptable. Because perpetuals have no fixed expiry, the spread can widen from $0.20 to $0.50 before it converges, forcing losses or even an exit before the trade works.
Cross-platform traders can compare prices and funding across venues as well, but the article warns that contract multipliers, reference prices and dividend adjustments must line up, and capital has to be posted on both sides. A price difference is only the start of the trade, not the profit itself.
What “new points of competition” really means
The article says the phrase “creating new points of competition out of thin air” is less mysterious once the mechanics are laid out. The company is still the same company, but the market now has more prices, fees and risks that can be compared separately.
A stock buy order may come from someone bullish on the company, or from an arbitrageur hedging a short perp position. A perp sell order may come from an outright bear, or from a long-term shareholder trying to reduce short-term risk while keeping the stock. The same trade can reflect very different motives.
The author gives a simple chain. One investor buys the perpetual because they like the company. Another trader sells that contract and buys the stock to hedge, planning to earn funding. They do not agree on the company’s outlook, yet both are willing to trade. Add a shareholder who sells the contract to manage near-term uncertainty, and that order may meet an arbitrageur who thinks the perp is too cheap. Perpetuals connect these motives so the market does not have to wait for two people with opposite outright price views to show up at the same time.
This is why some small-cap stocks may see more incremental benefit, the article argues. Large caps often already have developed options markets, stock-loan channels and institutional derivatives infrastructure. Small caps with fewer tools look more like towns with only one road in. Some traders would participate if access were easier. A perpetual can add that missing route.
Crypto as a live case study
To show that the mechanism is not just theoretical, the article turns to crypto. A small market cap does not mean the trading ecosystem built around an asset must also stay small, the author says. The “plasticity” comes from the same asset being used in different trade structures to satisfy different risk preferences. Volume no longer depends only on how many people want to buy and hold it outright.
ALPACA is presented as an extreme example. The token belongs to Alpaca Finance and, as the article notes, is unrelated to the U.S. brokerage infrastructure company with the same name. On April 24, 2025, Binance announced that it would delist ALPACA. The perpetual contract would settle and stop trading on April 30, while spot trading would end on May 2. The article says the relevant price action took place after the delisting notice and before the perpetual stopped trading, and points readers to the author’s earlier X post on the episode.
Citing a BlockBeats event review, the article says ALPACA spot briefly fell to $0.029 after the announcement, implying a market capitalization of about $5 million. The author adds that this $5 million figure refers to the early stage of the move, not the later peak in trading activity.
The more important data point is turnover. From April 23 to April 25, over two days, daily perpetual volume rose 52.4 times while spot volume rose 13.3 times, according to the article. The persuasive part of the case is not how much the token moved, but that two trading channels tied to the same asset carried volumes that differed by nearly 20 times. In the author’s view, that shows a small market cap is not a mechanical ceiling on large derivatives turnover.
The article then asks why a “closing notice” could attract so much trading. The answer is that perpetuals increase the number of reasons to trade. Instead of asking only what the project is worth, traders can ask whether shorts are too crowded, how much a position pays or costs per hour, why another exchange is quoting a different price, and whether the residual return after hedging is enough to cover costs.
Funding is compared to a parking-rate sign that keeps changing. The article gives a mechanism example: if a market has a negative funding rate of 0.1% per hour, shorts pay longs under the usual convention. A $100,000 notional long would collect $100 an hour, or $2,400 a day, if the rate and notional stayed unchanged. The author explicitly says this is only an illustration of the mechanism, not ALPACA’s historical funding rate. Even someone bearish on the project might consider going long the perpetual and shorting spot by borrowing the token, but the trade fails if borrow is unavailable, too expensive, or if funding flips.
The conclusion from that section is simple. Perpetuals add reasons to participate, but they do not remove participation costs. For some traders, the asset is first a set of prices, costs and risks that can be calculated, and only second a story they need to believe in.
TRB and JELLYJELLY: market cap, volume and open interest are different things
The article says that even outside extreme episodes, small-cap assets can support meaningful derivatives activity. Using data for TRB and JELLYJELLY on Sept. 10, 2025, the author says an altcoin with a market capitalization of around $50 million can have open interest equal to about two-thirds of its market cap, while derivatives volume can reach 70% of market cap.
That helps explain why “trading volume larger than market cap” is not strange, the article says. The analogy is a wholesale store with inventory worth 1 million yuan. The inventory can turn over repeatedly, and traders can open and close positions again and again. Margin also matters. A contract with 100 yuan of notional exposure does not necessarily require 100 yuan of cash collateral. The same capital can circulate multiple times and generate turnover far above the original principal.
The author draws a clear distinction among four metrics: market cap is a price tag on the asset, trading volume is flow over a period, open interest is outstanding notional risk, and order-book depth is closer to how much can be absorbed right now. They are not interchangeable.
The article’s conclusion on small-cap stocks
The piece ends by asking whether stocks with fundamentals and market capitalizations in the hundreds of millions or tens of billions of dollars might have an even better chance if even a delisting-bound altcoin that started in the low millions can support dense perpetual trading.
The answer offered is not that every small-cap stock will suddenly become a derivatives success. It is that market cap alone is not enough to dismiss the possibility. What matters is whether the mechanism can gather people with different views and different trade objectives in one place and let them express those views with capital.
For stocks to attract new money through perpetuals, the market has to bring in more than just believers in the company. It also needs skeptics and firms willing to commit capital to intermediate and hedge risk. The market does not need everyone to believe the same story in order to broaden participation. Bulls can get exposure. Others who do not want the same directional risk can take the other side through hedged structures.
For small-cap stocks with fewer trading channels, the article says, that may create new buy and sell flow, new ways to hold positions and new incentives to do research. But the condition is still the same: hedging, stock borrow and risk management must be able to support the trade. The hardest stocks to trade are not automatically the best first candidates for listing. If cash-market hedging, borrow supply and market-making capital are missing, adding a new access point alone may not be enough.