Top 5 Perpetual and Futures DEXs and Their Features

by Jan 26, 2023DEX/CEX0 comments

Perpetual DEX (decentralized exchange) is an emerging type of cryptocurrency exchange that is gaining popularity among traders and investors. This innovative exchange operates on a decentralized network that allows users to trade cryptocurrencies without the need for a central authority or intermediary. In this article, we will take a closer look at Perpetual DEX, its features, benefits, and potential to revolutionize the cryptocurrency trading industry.

What is Perpetual DEX?

A perpetual DEX (decentralized exchange) is a type of decentralized exchange that offers perpetual swaps as a trading product. A perpetual swap is a type of derivative contract that allows traders to speculate on the price of an underlying asset without actually owning it.

Perpetual swaps are different from traditional futures contracts in that they have no expiration date. Instead, the contract is settled on a daily basis, with any gains or losses realized on a daily basis. This means that traders can hold a position in a perpetual swap for as long as they want, without having to worry about rolling over their contract or dealing with expiration dates.

Perpetual DEXs use an automated market-making (AMM) algorithm to provide liquidity to traders. This algorithm is designed to adjust the price of the perpetual swap contract based on market conditions to ensure that it remains in line with the underlying asset.

When a trader enters a long or short position in a perpetual swap, the AMM algorithm creates a corresponding position on the other side of the market. For example, if a trader enters a long position in a perpetual swap for Bitcoin, the AMM algorithm will create a short position for the same amount of Bitcoin. This ensures that there is always sufficient liquidity on the platform and that traders can execute their trades quickly and efficiently.

The price of the perpetual swap contract is determined by the current price of the underlying asset. If the price of the underlying asset increases, the price of the perpetual swap contract will also increase. Similarly, if the price of the underlying asset decreases, the price of the perpetual swap contract will also decrease.

Perpetual DEXs also offer leverage to traders, allowing them to increase their trading power by borrowing funds from the platform. This means that traders can enter larger positions than they would be able to otherwise, potentially magnifying their gains or losses.

Overall, perpetual DEXs offer a decentralized, low-cost, and efficient way for traders to gain exposure to cryptocurrencies and other assets. However, it is important for users to understand the risks associated with derivatives trading and to exercise caution when using leverage to increase their trading power.

What Algorithm Does Perpetual DEX Use for Market Making?

One of the key components of a perpetual DEX is the automated market-making algorithm. The algorithm serves as the backbone of the DEX by facilitating the trading of assets between buyers and sellers without the need for a centralized order book.

Automated market-making (AMM) is a process in which an algorithm sets the price of a particular asset based on its supply and demand. This is accomplished by the algorithm maintaining a liquidity pool of two or more assets, with each asset having a specific weight or ratio within the pool. The ratio of each asset in the pool determines the price of the asset relative to the others.

For example, let’s say there is a liquidity pool for two assets, A and B. The ratio of A to B in the pool is 2:1. If a user wants to buy asset A, the algorithm will automatically calculate the amount of asset B needed to complete the trade based on the ratio in the pool. This ensures that the price of asset A remains stable, as the algorithm adjusts the ratio of the two assets in the pool based on demand.

AMMs have become increasingly popular due to their simplicity and efficiency in enabling decentralized trading. Since the algorithm automatically sets the price of the assets, there is no need for order matching or order book management. This also eliminates the need for a centralized authority to manage the process, allowing for a trustless and decentralized trading experience.

However, there are also limitations to the AMM algorithm, particularly in its ability to handle extreme market conditions or sudden changes in supply or demand. In these situations, the price of the assets can become unstable, resulting in a phenomenon known as “impermanent loss” for liquidity providers. To mitigate this risk, some perpetual DEXs incorporate additional mechanisms, such as oracle-based price feeds and dynamic adjustment of liquidity pools, to ensure stable pricing and minimize the risk of impermanent loss.

Overall, the automated market-making algorithm is a crucial component of perpetual DEXs, allowing for efficient and decentralized trading of assets. While there are limitations to the AMM approach, ongoing advancements in technology and additional mechanisms can help address these issues and further improve the functionality and usability of perpetual DEXs.

What is the Critical Component of Perpetual DEX Platforms?

Liquidity supply is a critical component of Perpetual DEX platforms. Without sufficient liquidity, traders may not be able to execute trades at desired prices, which can lead to losses and reduced confidence in the platform.

Perpetual DEX platforms incentivize liquidity providers to supply liquidity by offering rewards in the form of fees and/or tokens. These rewards are designed to compensate liquidity providers for the risk and effort involved in providing liquidity to the platform.

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To supply liquidity on a Perpetual DEX platform, a liquidity provider typically deposits two assets into a liquidity pool. For example, a liquidity provider may deposit an equal value of Bitcoin and Ethereum into a Bitcoin/Ethereum liquidity pool. The liquidity provider earns fees and/or tokens based on the trading activity in the pool.

Perpetual DEX platforms often use Automated Market Making (AMM) algorithms to determine the price of assets in the liquidity pool. The AMM algorithm balances the supply and demand of assets in the pool to maintain a stable price. This allows traders to buy and sell assets without the need for a centralized exchange or order book.

Some Perpetual DEX platforms also use features such as impermanent loss protection to incentivize liquidity providers to supply liquidity to the platform. Impermanent loss protection is designed to protect liquidity providers from losses due to fluctuations in the price of assets in the liquidity pool. This can help to attract more liquidity to the platform and improve the overall trading experience.

Top 5 Perpetual and Futures DEXs

Apart from Perpetual Protocol, there are several other examples of perpetual DEXs in the market. Some of the most popular ones include:

1. Serum

Serum offers traders the ability to trade perpetual futures contracts on a variety of assets. Perpetual futures contracts are a type of derivative that allows traders to bet on the future price of an asset without actually owning the asset itself. These contracts are called “perpetual” because they have no expiration date, unlike traditional futures contracts.

Serum’s perpetual futures contracts are settled in the native cryptocurrency of the Solana blockchain, SOL. This allows traders to take advantage of the fast and cheap transaction speeds offered by the Solana blockchain, which can process transactions in just a few seconds with minimal fees.

To trade perpetual futures on Serum, users must first connect their cryptocurrency wallet to the platform. They can then select the asset they wish to trade and enter a long or short position, depending on whether they believe the price of the asset will rise or fall. The value of the contract is determined by the current price of the underlying asset, with leverage available up to 50x.

One of the key advantages of trading perpetual futures on Serum is the ability to take advantage of the platform’s automated market-making algorithm. This algorithm helps to ensure that there is always sufficient liquidity on the platform, even during periods of high volatility or low trading volumes. It also helps to prevent price manipulation and other market distortions that can be common on other trading platforms.

Overall, Serum’s perpetual futures trading platform is a promising addition to the growing world of decentralized finance (DeFi). It offers traders a fast, efficient, and flexible way to trade derivatives on a variety of assets, with the added benefits of low fees and fast transaction processing speeds.

2. Injective Protocol

Injective Protocol is another decentralized exchange (DEX) platform that offers trading of perpetual futures contracts on a variety of assets. Similar to other DEX platforms, Injective Protocol operates on a decentralized network, allowing users to trade directly with one another without the need for intermediaries.

Perpetual futures contracts on Injective Protocol are settled in the native cryptocurrency of the platform, INJ. This allows users to take advantage of the fast and low-cost transaction processing speeds offered by the Injective Protocol blockchain.

To trade perpetual futures contracts on Injective Protocol, users must first connect their cryptocurrency wallet to the platform. They can then select the asset they wish to trade and enter a long or short position, depending on their market outlook. The value of the contract is determined by the current price of the underlying asset, with leverage available up to 20x.

One of the unique features of Injective Protocol is its “Layer-2” trading technology, which is designed to enable high-speed and low-cost trading without sacrificing security or decentralization. This technology also helps to reduce gas fees, which can be a significant barrier to entry for many traders on other DEX platforms.

Another notable feature of Injective Protocol’s perpetual futures trading platform is its market-making algorithm. This algorithm helps to ensure that there is always sufficient liquidity on the platform, even during periods of high volatility or low trading volumes. It also helps to prevent price manipulation and other market distortions.

3. dYdX

dYdX is a decentralized exchange (DEX) that operates on the Ethereum blockchain and offers trading of perpetual futures contracts. The platform allows users to trade derivatives on a variety of assets, including cryptocurrencies, commodities, and indices.

Perpetual futures contracts on dYdX are settled in the native cryptocurrency of the platform, Dai (DAI). This allows users to take advantage of the fast transaction processing speeds and low fees offered by the Ethereum blockchain.

To trade perpetual futures contracts on dYdX, users must first connect their Ethereum wallet to the platform. They can then select the asset they wish to trade and enter a long or short position, depending on their market outlook. The value of the contract is determined by the current price of the underlying asset, with leverage available up to 10x.

One of the key features of dYdX’s perpetual futures trading platform is its margin trading system. This system allows users to borrow funds from the platform to increase their trading power, enabling them to take larger positions than they would be able to with their own funds alone. However, this also means that users are exposed to greater risk if their trades go against them.

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Another important feature of dYdX’s perpetual futures trading platform is its market-making algorithm. This algorithm helps to ensure that there is always sufficient liquidity on the platform, even during periods of high volatility or low trading volumes. It also helps to prevent price manipulation and other market distortions.

Overall, dYdX’s perpetual futures trading platform is a powerful tool for traders looking to gain exposure to a variety of assets in a decentralized, low-cost, and efficient manner. However, it is important for users to understand the risks associated with margin trading and to exercise caution when using leverage to increase their trading power.

4. DerivaDEX 

DerivaDEX is a decentralized derivatives exchange built on top of the Ethereum blockchain. The exchange offers a range of trading products, including perpetual swaps, options, and futures contracts.

One of the key features of DerivaDEX’s perpetual swap trading product is its use of an automated market-making algorithm to provide liquidity. This algorithm helps to ensure that there is always sufficient liquidity on the platform, even during periods of high trading volumes or volatility. The algorithm also adjusts the price of the perpetual swap contract based on market conditions to ensure that it remains in line with the underlying asset.

Perpetual swaps are a type of derivatives contract that allows traders to speculate on the price of an underlying asset without actually owning it. The contract has no expiration date and is settled daily, meaning that any gains or losses are realized on a daily basis. Perpetual swaps are commonly used in the cryptocurrency market to gain exposure to cryptocurrencies without having to buy or sell them directly.

To use DerivaDEX’s perpetual swap trading product, users must first connect their Ethereum wallet to the platform. They can then select the perpetual swap contract they wish to trade and enter a long or short position, depending on their market outlook. The value of the perpetual swap contract is determined by the current price of the underlying asset, with leverage available up to 10x.

Overall, DerivaDEX’s perpetual swap trading product is a powerful tool for traders looking to gain exposure to cryptocurrencies in a decentralized, low-cost, and efficient manner. However, it is important for users to understand the risks associated with derivatives trading and to exercise caution when using leverage to increase their trading power.

5. GMX

GMX Perpetual is a decentralized perpetual futures trading platform that operates on the Ethereum blockchain. It is designed to provide traders with a fast, secure, and transparent trading experience, while also offering liquidity providers with attractive rewards for supplying liquidity to the platform.

One of the key features of GMX Perpetual is its advanced trading engine, which is designed to provide traders with fast execution speeds and low transaction costs. The platform uses a sophisticated matching algorithm that can handle a high volume of trades, while also maintaining a fair and transparent trading environment.

Another key feature of GMX Perpetual is its liquidity incentives program. The platform offers a range of rewards to liquidity providers, including trading fee rebates, staking rewards, and a native token (GMX) that can be used to access premium features on the platform. These incentives are designed to attract liquidity to the platform and ensure that there is sufficient liquidity available for traders to execute their trades.

GMX Perpetual also offers traders a range of advanced trading features, including leverage, margin trading, and stop-loss orders. These features can help traders to manage their risk and maximize their profits, while also providing a high degree of flexibility and control over their trading strategies.

Finally, GMX Perpetual is fully decentralized, which means that it is not controlled by any central authority or institution. This ensures that the platform is secure, transparent, and resistant to censorship and other forms of interference.

In summary, GMX Perpetual is a decentralized perpetual futures trading platform that offers traders a fast, secure, and transparent trading experience, while also providing liquidity providers with attractive rewards for supplying liquidity to the platform. With its advanced trading engine, liquidity incentives program, and range of advanced trading features, GMX Perpetual is well positioned to become a leading player in the decentralized trading space.

Benefits of Perpetual DEX

Perpetual decentralized exchanges (DEXs) offer several benefits that make them an attractive option for trading cryptocurrencies and other digital assets. Here are some of the key benefits of perpetual DEXs:

  1. No need for a centralized authority: Perpetual DEXs are entirely decentralized, meaning that there is no need for a central authority or intermediary to manage trades. This reduces the risk of fraud, censorship, and hacking, and provides users with greater control over their assets.
  2. Trading 24/7: Unlike traditional centralized exchanges, perpetual DEXs operate 24/7, allowing users to trade whenever they want, without any restrictions or limitations. This also means that users can take advantage of opportunities as they arise, without having to wait for the exchange to open.
  3. Lower trading fees: Perpetual DEXs generally have lower trading fees compared to centralized exchanges, as they do not have the same overhead costs associated with running a centralized platform. This makes it more accessible for traders who may not have large amounts of capital to invest.
  4. Greater liquidity: By providing a decentralized platform for trading, perpetual DEXs can offer greater liquidity for digital assets. This is because there is no single central authority or intermediary controlling the market, which can help to prevent market manipulation and promote fair trading.
  5. No need for KYC: Perpetual DEXs often do not require Know Your Customer (KYC) verification, meaning that users can trade anonymously. This can be particularly beneficial for users who value their privacy and do not want to share their personal information with an exchange.
  6. No need to deposit funds: Perpetual DEXs often allow users to trade directly from their wallets, without the need to deposit funds onto the exchange. This means that users maintain full control over their assets and do not have to worry about the risk of losing their funds in the event of an exchange hack or failure.
  7. Access to a wider range of assets: Perpetual DEXs can offer access to a wider range of assets than traditional exchanges. This is because they are not limited by the jurisdictional restrictions and regulations that centralized exchanges may face.
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Risks of Perpetual DEX

DEX. Here are some of the risks to consider:

  1. High volatility: The cryptocurrency market is known for its high volatility, which means that the price of assets can fluctuate rapidly and unpredictably. This can lead to significant losses if you do not manage your risk effectively.
  2. Impermanent loss: Impermanent loss occurs when you provide liquidity to a pool and the price of the assets changes. This can lead to a reduction in the value of your assets compared to if you had simply held them.
  3. Technical risks: Perpetual DEX platforms are based on complex smart contracts and algorithms, which can be vulnerable to hacking, bugs, and other technical issues.
  4. Liquidity risks: If there is not enough liquidity on the platform, it can be difficult to execute trades at the desired price, which can lead to losses.
  5. Regulatory risks: The regulatory landscape for cryptocurrency is constantly evolving, and there is a risk that regulators may take action against Perpetual DEX platforms, which could impact their operations and value.
  6. Counterparty risks: Perpetual DEX platforms are decentralized, which means that there is no central authority or counterparty to guarantee trades. This means that there is a risk that you may not be able to execute trades as expected or that you may lose assets due to a smart contract failure.
  7. Operational risks: Perpetual DEX platforms are still relatively new and may experience operational issues such as downtime, delays, or other issues that can impact the ability to trade effectively.

It is important to consider these risks carefully before investing or trading on a Perpetual DEX platform. It is also important to understand the platform’s risk management tools and to manage your risk effectively to minimize potential losses.

FAQ

What is a perpetual DEX?

A perpetual DEX is a type of decentralized exchange that allows traders to trade perpetual swaps. Perpetual swaps are derivative contracts that enable traders to speculate on the price of an underlying asset without owning it. Perpetual DEXs use an automated market-making algorithm to provide liquidity to traders.

How does the automated market-making algorithm work?

The automated market-making algorithm is a process that sets the price of an asset based on its supply and demand. The algorithm maintains a liquidity pool of two or more assets, with each asset having a specific weight or ratio within the pool. The ratio of each asset in the pool determines the price of the asset relative to the others.

What are the benefits of using a perpetual DEX?

Perpetual DEXs offer several benefits over traditional exchanges, including decentralization, lower costs, and increased efficiency. They also allow traders to gain exposure to cryptocurrencies and other assets without actually owning them.

What are the risks associated with perpetual DEXs?

Perpetual DEXs carry some risks, such as market volatility, impermanent loss, and the potential for losses due to leverage trading. It is important for users to understand these risks and to exercise caution when using perpetual DEXs.

How do liquidity providers benefit from supplying liquidity to perpetual DEXs?

Liquidity providers earn rewards in the form of fees and/or tokens for supplying liquidity to perpetual DEXs. These rewards compensate liquidity providers for the risk and effort involved in providing liquidity to the platform.

How can impermanent loss protection help incentivize liquidity providers to supply liquidity?

Impermanent loss protection is a feature designed to protect liquidity providers from losses due to fluctuations in the price of assets in the liquidity pool. This can help incentivize liquidity providers to supply liquidity to the platform, as it reduces the risk of loss.

Conclusion

Perpetual DEXs are decentralized exchanges that offer perpetual swaps as a trading product. They use an automated market-making algorithm to provide liquidity to traders and offer leverage to magnify gains or losses. Perpetual DEXs are low-cost and efficient, but users should exercise caution when using leverage and understand the risks associated with derivatives trading. The automated market-making algorithm is a critical component of perpetual DEXs, allowing for efficient and decentralized trading of assets. Liquidity supply is also important, and perpetual DEXs incentivize liquidity providers to supply liquidity through fees and/or tokens. Some perpetual DEXs use impermanent loss protection to attract more liquidity to the platform and improve the trading experience. Overall, perpetual DEXs provide a decentralized and efficient way for traders to gain exposure to cryptocurrencies and other assets.

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