The Double-Edged Sword of Perpetual Futures: Insights from Crypto Traders

When discussing crypto trading with experienced traders, the topic of perpetual futures, or 'perps,' inevitably comes up. These derivatives contracts allow traders to control large positions with minimal capital, but they also come with unique challenges. To better understand the world of perps, CoinDesk spoke with traders who have thrived in this market, including Lucas Krenn, a derivatives trader at STS Digital, and Kenneth Ong, an independent trader. According to Krenn, perps are the 'plumbing underneath everything' his firm does, particularly for altcoins, where dated futures liquidity is scarce. Ong, who has most of his trading activity in perps, highlights their advantages, including better fills, lower fees, and the ability to run both long and short positions simultaneously via hedge mode. However, both traders express concerns about funding rates, which can add up over time and become a significant burden, especially for long-term positions. The funding rate, which is typically charged every eight hours, is a floating rate that can be difficult to quantify and hedge, making it a major cause for concern among traders. Despite these challenges, perps have democratized futures trading by providing access, cost efficiency, and margin efficiency. As Krenn notes, 'until there is a liquid dated curve in crypto, the whole market is carrying an interest rate exposure it cannot price and cannot hedge.'