Crypto trading sometimes feels like steering a boat in a storm. You have a direction in mind, but the waves keep altering your course. That’s where perpetual decentralized exchange solutions bring innovation to change the entire trading experience. Perpetual DEX platform offers a steadier path for traders to trade cryptocurrencies without added stress. They help them manage positions and stay in the market longer.
In this blog, let’s explore what perpetual DEX is, its working mechanisms, benefits, and risks. After reading this, you’ll be familiar with the basic characteristics of perpetual DEX platforms and how perpetual contracts work.
Let’s dive in!
So, let’s start by understanding the fundamental concept now.
What is Perpetual Contracts?
A perpetual contract is one type of derivative that enables traders to buy or sell a specific asset based on price movements and hold their position for as long as they want. Unlike traditional futures contracts that end after a set time, perpetual contracts can be held indefinitely as long as the trader maintains enough funds in their account (called margin).
With perpetual contracts, traders can wait until their holdings get more profits and sell whenever they want. Plus, they can get leverage to boost their gains.
Let’s make this concept more understandable with an easy example.
- Assume Bitcoin is trading at $30,000.
- Now, let’s say you put $1000 as a margin on perpetual contracts.
- Also, you use 10x leverage, $1000 x 10 = $10,000.
A few hours later, Bitcoin rises to $31,000 (a 3.3% increase).
- Your $10,000 position is now worth about $10,330.
- You make a profit of $330. A 3.3% BTC price increase results in a 33% gain on your $1,000 margin due to 10x leverage.
At this point, you can close your position and withdraw both your earnings and the initial margin you deposited. If you think the value of Bitcoin will increase further, you can wait and claim whenever you want.
If the value of Bitcoin falls below your margin, your position will be automatically liquidated, and you will lose your money.
Simply, Perpetual contracts give traders the freedom to maintain long-term positions while staying nimble enough to adjust strategies as market conditions change.
Now that you understand the concept of perpetual contracts, it’s time to explore…
What is Perpetual DEX?
A perpetual DEX is a decentralized trading platform that lets users trade perpetual contracts efficiently and securely. It also gives traders the flexibility to adjust their strategies instantly. This platform operates automatically and manages users’ trades with the help of pre-defined smart contracts (code defines rules). With these contracts, Perpetual DEXs manage trades, margin, and liquidations.
Since everything runs on code, there are no intermediaries executing platform operations, allowing users full control over their funds while trading.
There are several perpetual DEXs in the DeFi space. One well-known example is dYdX, which regularly handles over $10 million (approx) in daily trading volume. And this number continues to grow as more traders adopt decentralized derivatives.
Key Features Of Perpetual DEX Platforms
Perpetual decentralized exchange platforms offer a range of valuable features designed to enhance the trading experience for users. Below is a list of these key features:
Complete Decentralization
No person or company controls the funds or operations in the perpetual DEX platforms. This approach eliminates the risk of systematic errors and lets users trade more confidently.
Transparency
Every detail of transactions made on the perpetual decentralized exchange software is stored on the immutable blockchain network. This enhances transparency and allows the platform to be audited at any time.
Funding Rate Mechanisms
The funding rate serves as a fundamental feature within the structure of a perpetual DEX. It helps keep the contract price aligned with the underlying asset’s spot price. Depending on market conditions, traders either pay or receive small fees from each other. This system helps balance prices and maintains fair trading even when the market is very volatile.
Leverage Options
Perpetual DEX platforms essentially provide more leverage to traders. Yet, the level of leverage can vary across different platforms. For example, platforms such as dYdX are well-known for offering leverage as high as 20x to their users. Meanwhile, GMX allows perpetual trades with leverage as high as 100x currently. This helps users to increase their positions and make more profits.
Advanced Risk Management Tools
Many perpetual DEX platforms come equipped with built-in advanced risk management features. With options like limit orders, stop-losses, and margin calls, traders can better control potential losses and secure their gains. For example, if the market fluctuates suddenly against your position, these tools can automatically close the trade to protect you from heavy losses.
Now that you’ve explored the features of perpetual trading platforms, it’s time to explore…
How Perpetual Decentralized Exchange Platforms Work?
The perpetual trading solutions work slightly differently from normal DEX platforms. Here’s the simple explanation of how perpetual DEX operates:
Step 1: Price Feeds and Market Data Collection
A perpetual decentralized exchange platform connects with decentralized oracles like Chainlink or others to provide real-time pricing of cryptocurrencies. With this, the perpetual DEX provides accurate and reliable pricing, eliminating the need for centralized parties.
Step 2: Creating Perpetual Contracts
When a user decides to trade, the platform creates a perpetual futures contract linked to the asset’s price. It allows traders to hold positions as long as they want, without any limits.
Step 3: Liquidity Pools and Margin Deposits
The perpetual DEX platform facilitates trades through liquidity pools. It won’t work like an order book DEX model. Traders deposit collateral (like USDT or ETH) to open long or short positions. Users can access leverage up to the maximum allowed by the platform for that trading pair.
Step 4: Funding Rate Adjustments
To maintain the contract price near the real market value, perpetual DEX platforms utilize a funding rate system. Depending on market trends, traders may pay or receive small periodic fees to balance the market.
Step 5: Risk Management and Leverage
The perpetual crypto trading solution comes with built-in risk management features such as stop-loss orders, limit orders, and margin calls. These features help protect users’ profits and minimize risks. If the market moves against a trader and the margin ratio falls below the required threshold, the platform automatically liquidates the position to prevent further losses. This ensures that users cannot lose more than their deposited margin.
Step 6: Trade Settlement and P&L Calculation
Once a trader closes their position, the perpetual DEX platforms use advanced mechanisms to calculate profit and loss on the price difference between when they entered and exited the trade. With smart contracts, the platform automatically settles the funds to users’ wallets.
How Perpetual Decentralized Exchange Platforms Benefit Traders?
Using perpetual trading platforms benefits traders in multiple ways. Let’s explore some of them now:
Hedging Volatility
The perpetual DEX platforms allow users to protect their assets against sudden price swings without selling the underlying tokens.
Profit Opportunities
It’s possible for traders to gain from markets whether prices are going up or down. Unlike spot trading, they can hold and sell assets when the price reaches their expected value, without any time restrictions.
Liquidity Rewards
Many perpetual trading platforms enable traders to earn attractive returns for providing their funds to liquidity pools. Data from trusted sources show that global DeFi platforms have offered $250 million in rewards to participants.
Secure Trades
Perpetual trading solutions facilitate trades securely using reliable smart contracts and blockchain technology. This enables users to trade perpetual contracts without any stress.
Global User Access
Anyone holding a crypto wallet can place trades anytime, anywhere. No geographical restrictions or documentation to trade crypto assets.
Now that you understand the concept of perpetual DEXs, how they work, and their benefits, it’s important to consider both sides of the coin to get a complete picture. So, let’s take a closer look at…
Risks Of Trading In Perpetual DEX Platforms
While perpetual decentralized exchange solutions come with numerous benefits, they also have some drawbacks. Let’s explore what they are:
Leverage Risks
Using high leverage in perpetual trades can be profitable. However, it can also lead to losses. Beginners should be careful before investing.
Complexity
It’s important for traders to understand funding rates, margin management, and liquidation policies prior to trading. If not, they will end up losing money.
Smart Contract Bugs
While smart contract risks have been reduced nowadays due to regular audits, a weak or vulnerable contract can still lead to significant losses.
Regulatory Uncertainty
The legal framework for decentralized derivatives is still evolving, which could affect access or compliance.
So, a careful approach and proper risk management strategies are essential for traders entering this space.
Now, you have completely understood the basics of perpetual DEX platforms. So, it’s time to discuss…
Business Opportunity Behind Perpetual DEX Platforms
Perpetual trading platforms benefit not only traders but also entrepreneurs and startups. As billions of users are looking for high leverage and perpetual trading options, the demand for the best perpetual trading DEX platforms continues to increase. This opens up a huge opportunity for entrepreneurs and startups to establish their DeFi venture by launching their own perpetual DEX platform under their own brand.
By doing so, they can operate a lucrative DeFi venture that generates income through various streams. These platforms make money for founders by collecting users’ trading fees, funding rate spreads, liquidity incentives, and more.
The worldwide derivatives market is forecasted to expand to $22 trillion by the year 2033. So, launching your own platform lets you create a future-proof business and makes you a leader in the DeFi space.
If you’re interested in developing your own perpetual DEX platform and kick-starting your business, then you need a reliable development team to get started.
For those, hiring experts from Trioangle, a decentralized exchange development company, will be the smart choice. But…
Why Choose Trioangle To Build a Perpetual DEX Platform?
As an industry-recognized decentralized exchange development company, Trioangle has years of experience in developing fully customized Perpetual DEX platforms tailored to your business needs. Our skilled team specializes in creating DEX solutions using various models that align with your vision and business goals. We offer pre-made perpetual DEX scripts like the GMX clone script and dYdX clone script to speed up your perpetual DEX development and launch your platform faster. Get started now!
