Perpetual Futures: Centering Around the Crypto Derivatives Market...Funding Rate Risks Have Increased

Beyond Bitcoin (BTC) and Ethereum (ETH), the cryptocurrency derivatives market is rapidly shifting its focus to 'perpetual futures (perps)'. Analysts suggest that the combination of high liquidity, low costs, and a robust leverage structure has established it as a core trading tool for both individuals and institutions.

According to interviews conducted by CoinDesk with traders, the unique characteristic of perpetual futures, which have no expiration date, allows for continuous position maintenance. This has made them virtually the only derivative instrument utilized in the altcoin market. Expiry futures suffer from a lack of liquidity, making actual trading difficult, and spot trading is deemed less useful unless for long-term holding purposes.

"A Necessity, Not an Option"...Dominance of the Perpetual Futures Market

Lucas Kren, a trader at market-making firm STS Digital, described perpetual futures as "the core infrastructure of crypto-native companies". This is because trading expiry futures is nearly impossible for most assets outside of Bitcoin and Ethereum.

The greatest strength of perpetual futures lies in their 'liquidity'. They exhibit minimal price distortion even with large orders, and low slippage (the difference between the order price and the execution price) enhances execution efficiency. Coupled with low fees and high 'margin efficiency', traders can manage larger positions with the same capital.

The advantages for individual traders are also clear. Through hedge mode, they can operate long (buy) and short (sell) positions simultaneously on the same asset, providing greater strategic flexibility. This functionality is restricted in traditional futures markets like CME.

Replacing Price Discovery Functions..."Moves Ahead of the Market"

Perpetual futures are changing the price formation structure itself, as they allow for 24-hour trading. In fact, during the Iranian conflict in 2026, the hyperliquid-based tokenized oil perpetual futures market saw significant price adjustments occurring over the weekend when traditional markets were closed.

This indicates that 'real-time price discovery' occurs first in perpetual futures, with existing markets following suit afterward.

This trend is also expanding into traditional financial assets. Perpetual futures, which track prices without the complex legal structures of tokenized stocks, provide a much simpler exposure to trading. This suggests the potential for 'perpification' to extend into commodity and stock markets in the future.

Hidden Costs: 'Funding Rates'...A Variable That Eats Into Profits

However, perpetual futures are not without their flaws. The biggest risk is the 'funding rate'. This is a cost that is periodically paid or received while maintaining a position, akin to a variable interest rate.

The issue is that this cost is not predetermined. While the interest rate is fixed at the time of trading for expiry futures, it fluctuates every eight hours and accumulates for perpetual futures. If the market moves contrary to expectations, the funding rate can erode profits or amplify losses.

One trader pointed out, "In long positions, this is not something to be ignored; it can ultimately grow to a level that flips profits into losses."

Structural Problems More Dangerous Than Forced Liquidation

While 'liquidation' is generally cited as a risk of perpetual futures, experts view the structure of exchanges themselves as a more significant issue. In fact, during the Bitcoin crash last October, some exchanges applied 'socialized losses', forcibly closing profitable short positions because they could not absorb losses.

This is not an issue inherent to perpetual futures but rather a risk arising from the margin systems and insurance fund structures of centralized exchanges. The same structure applies to expiry futures as well.

"Long Positions Are Safer"...Misunderstanding of Risk

An interesting point is the interpretation of risk structures. While short positions are generally considered risky, some analyses suggest the opposite may be true.

When the funding rate is positive, arbitrage becomes active, quickly reducing costs; however, in a negative funding rate environment, it becomes structurally difficult to resolve this. Especially in tokens with low circulation, short positions may face prolonged high costs.

In extreme cases, some new tokens have seen short positions paying funding rates as high as '1% every 4 hours'.

Increased Accessibility, But..."Invisible Interest Rate Risks"

Ultimately, while perpetual futures have democratized the crypto derivatives market with low entry barriers and high efficiency, they are also passing on 'unpriced interest rate risks' to the entire market.

Without an expiration structure, traders are constantly exposed to fluctuating funding rates. This is a cost that cannot be fully controlled at the time of trading or during subsequent hedging processes.

Experts state, "In the current structure, all participants are essentially paying a kind of 'invisible tax'," and they believe this issue will persist until a sufficiently liquid expiry futures market is established.