Perpetual futures

In finance, a perpetual futures contract, also known as a perpetual swap, is an agreement to non-optionally buy or sell an asset at an unspecified point in the future. Perpetual futures are cash-settled, and differ from regular futures in that they lack a pre-specified delivery date, and can thus be held indefinitely without the need to roll over contracts as they approach expiration. Payments are periodically exchanged between holders of the two sides of the contracts, long and short, with the direction and magnitude of the settlement based on the difference between the contract price and that of the underlying asset, as well as, if applicable, the difference in leverage between the two sides.

Perpetual futures were first proposed by economist Robert Shiller in 1992, to enable derivatives markets for illiquid assets.^[1] However, perpetual futures markets have only developed for cryptocurrencies, with specific "inverse perpetual" type being invented by Alexey Bragin in 2011 for ICBIT^[2] exchange first, following their wider adoption in 2016 by other derivatives exchanges like BitMEX.^[3][4], Kraken Cryptocurrency perpetuals are characterised by the availability of high leverage, sometimes over 100 times the margin, and by the use of auto-deleveraging, which compels high-leverage, profitable traders to forfeit a portion of their profits to cover the losses of the other side during periods of high market volatility, as well as insurance funds, pools of assets intended to prevent the need for auto-deleveraging. Prior to spread of stablecoins in cryptomarkets all perpetual futures traded on unlicensed crypto exchanges were inverse (non-linear) futures contract, with asset being US dollar, and the price being quoted in US dollars for 1 Bitcoin. The contract is called non-linear inverse bitcoin futures because of the added non-linearity in the calculation. This makes the contract useful as a financial instrument and enables to do all accounting in Bitcoin at the same time, unlike quanto futures, while also not requiring exchange to have financial license due to accounting not being done in any fiduciary currency.^[5]

Perpetuals serve the same function as contracts for difference (CFDs), allowing indefinite, leveraged tracking of an underlying asset or flow, but differ in that a single, uniform contract is traded on an exchange for all time-horizons, quantities of leverage, and positions, as opposed to separate contracts for separate quantities of leverage typically traded directly with a broker.^[3]