When discussing crypto trading with experienced traders, the conversation often revolves around perpetual futures, or 'perps' - a type of derivative contract that enables traders to control larger positions with less capital. Unlike traditional futures, perps do not have an expiration date, making them a popular choice among traders. For altcoin traders, perps are often the only viable option for derivatives trading, as dated futures for these assets are typically illiquid.

CoinDesk spoke with traders who have thrived in the perps market to understand what sets them apart from other derivatives and how they cater to the needs of both institutional and retail traders. The traders unanimously agreed that perps offer deep liquidity, low trading fees, and high margin efficiency, making them an attractive option.

However, they also expressed concerns over funding rates, which can add up over time and negatively impact trading profits. One trader, Lucas Krenn, noted that perps are not just one tool among many, but rather the primary tool for crypto-native firms.

He explained that dated futures are often illiquid, leading to significant price swings and slippage. Another trader, Kenneth Ong, highlighted the benefits of perps from a retail trader's perspective, including better fills, lower fees, and the ability to hold both long and short positions simultaneously. Ong also emphasized the importance of margin efficiency, which allows traders to manage risk across multiple venues and tokens.

The traders also discussed the role of perps in price discovery, particularly in the context of tokenized assets. Krenn noted that perps have shifted price discovery to a 24/7 process, allowing traders to react to news and events in real-time.

However, the traders also warned about the risks associated with perps, including liquidations and funding rates. Krenn explained that funding rates can be a significant burden for traders, particularly if they hold positions for extended periods. Ong added that funding rates can potentially wipe out trading profits if not properly managed. The traders also addressed the criticism that perps are prone to liquidations, which can lead to significant losses for traders.

Krenn argued that this is not a problem with perps themselves, but rather with the crypto exchange margin model. He noted that dated futures on the same venues are subject to the same risks and challenges. In conclusion, perps have democratized futures trading by providing access to a leveraged market with high margin efficiency.

However, they also come with unique challenges, particularly with regards to funding rate exposure. As Krenn noted, until there is a liquid dated curve in crypto, the market will continue to carry an interest rate exposure that cannot be priced or hedged.