7 ms·

Perpetual futures, explained

136 points by sirodoht 10mo ago

Animats 10mo ago
It's striking how much the crypto world depends on trust in other parties. The whole point of crypto was supposed to be that it was "trustless". But it's not set up that way. All these crypto derivatives are not set up as contracts on a blockchain, with assets locked up until the derivatives settle. They're book entries with some weakly regulated exchange in Outer Nowhere.
- mhh__ 10mo ago
  That's not true with decentralised exchanges like hyperliquid, no?
  - Maxatar 10mo ago
    Hyperliquid and similar exchanges aren't decentralized. That is their long term goal but they are very far from achieving it. The few actual decentralized exchanges are too slow and expensive.
    - awesome_dude 10mo ago
      I mean, as soon as synchronisation is required in any system, block chain, distributed SAAS, even Peer to Peer sharing, decentralisation fails hard That's one of the sticking points I have with the /idea/ of the technology
      - immibis 10mo ago
        Ethereum and similar chains run arbitrary computation on-chain. You can make a futures exchange on Ethereum (or Solana, etc). However, the fees for doing so are very large, and confirmation times are very long, like any other on-chain transaction.
        awesome_dude 10mo ago
        What I am loving about this comment, and the downvotes, is the idea that blockchains can escape things like basic laws of the universe. > confirmation times are very long, like any other on-chain transaction Yes. synchronisation is where everything breaks down because you have to get everyone to agree to the new state. edit: Sorry, not everyone, but a consensus, and that consensus is then what everyone agrees is the state.
    - gametorch 10mo ago
      > HyperCore includes fully onchain perpetual futures and spot order books. Every order, cancel, trade, and liquidation happens transparently with one-block finality inherited from HyperBFT. HyperCore currently supports 200k orders / second, with throughput constantly improving as the node software is further optimized. Key part: > fully onchain perpetual futures and spot order books
      - Saline9515 10mo ago
        Being on a blockchain and being decentralized are two different things. The HyperCore client isn't even open source.
        gametorch 10mo ago
        That's just patently false. > Importantly, HyperCore does not rely on the crutch of off-chain order books. A core design principle is full decentralization with one consistent order of transactions achieved through HyperBFT consensus.
        Saline9515 10mo ago
        The basis of decentralized software is open-source. Otherwise a centralized authority can just push an update to, for instance, blacklist addresses. https://github.com/hyperliquid-dex/node https://github.com/hyperliquid-dex/node "For lowest latency, run the node in Tokyo, Japan." Decentralization means to run all of the closed-source nodes in the same AWS datacenter!
        monokh 10mo ago
        And in fact they did just this when their vaults started bleeding money on an unfavourable position (JellyJelly). They handed out a closed source binary and the validators ran it immediately, closing out the market at an arbitrary price.
        trhway 10mo ago
        The basis of decentralized software is open protocol. Then it doesn't matter that somebody runs closed source while somebody runs open source.
    - miohtama 10mo ago
      There are some exchanges that are more decentralised (and older) than Hyperliquid. Hyperliquid, while being the most popular one, is not the only horse in the town. E.g. GMX on Arbitrum chain is no longer prohibitively expensive. Left some comments here https://news.ycombinator.com/item?id=46172450 https://news.ycombinator.com/item?id=46172450
- block_dagger 10mo ago
  This comment makes sweeping generalizations.
  - throw101010 10mo ago
    This is a common place in any thread about cryptocurrencies on HN unfortunately... I could be convinced of my own message also being a sweeping generalization if anyone can point out a single post where top comments aren't doing exactly this when it comes to this topic, even the technical ones.
  - petesergeant 10mo ago
    This is a useless comment for most readers (myself included!) unless you specify what you think those sweeping generalizations are, and why you think they're unsound.
- wmf 10mo ago
  The people who want trustless decentralization and the people who want leveraged gambling and the people who want KYC-free international money transfer may be different people. The only problem with Liberty Reserve was that it got shut down; if a "decentralied" fig leaf can allow it to operate... let there be "decentralization".
- Analemma_ 10mo ago
  By now crypto-in-practice has violated so many of its supposed founding principles that it's tired and cliche to point it out. It was supposed to be limited in supply unlike fiat, and yet Tether underpins the whole thing and they print that out of thin air all the time. It was supposed to be decentralized, but in practice a few big exchanges control all the transactions and a few big mining pools control all the minting. It was supposed to be "code is law", and yet if you find a big exploit on smart contracts it'll be unwound later on and the cops will still show up for you. And as you say, it was supposed to be trustless, but counterparty risk is everywhere. And it turns out nobody cares, because to a first approximation nobody is in crypto for the libertarian principles. It is all about number go up; always has been, always will be. It's not even worth pointing out anymore.
  - awesome_dude 10mo ago
    > And it turns out nobody cares, because to a first approximation nobody is in crypto for the libertarian principles. It is all about number go up; always has been, always will be. It's not even worth pointing out anymore. I agree 100% - Meme stocks go brrrrrrrr The idea that it's a currency that lives beyond the reach of governments is laughable (as soon as something goes bang a lot of the owners call for... regulators and government oversight)
    - rjdj377dhabsn 10mo ago
      People putting their self-interests before maintaining support for more general principles is par for the course. Even the vast majority of free-market maximalists will support a government bailout of large banks or the auto industry if it will save their investment portfolio.
    - Animats 10mo ago
      > I agree 100% - Meme stocks go brrrrrrrr Mostly, meme coins go into a screaming dive after the initial pump. Go type some meme coin names into Coinmarketcap. Except for Bitcoin and Ethereum, almost everything in crypto has crashed hard.
- yieldcrv 10mo ago
  whats more important to me is that you don't have to ask anybody if you can deploy an entire financial services suite and not only will other people worldwide use it immediately, they will also pay for all your infrastructure costs as they update the chain state with every transaction fee that they pay the permissionless nature means you can deploy anything as cenralized or decentralized as you want, and its up to consumers to be discerning and its only their fault if they are not cost wise this will always be attractive to developers and for them to bring over every audience they can muster, because web 2.0 cloud cannot compete with that cost structure and permissionless nature
  - michaelmrose 10mo ago
    Isn't basically virtually 100% of the money that isn't crime adjacent web 2.0 implying it can compete?
    - yieldcrv 10mo ago
      What are you asking? Can you rephrase that in a different way? Can I leverage trade derivatives and also earn fees from liquidity pooling with Robux?
      - michaelmrose 10mo ago
        BTC almost exclusively enables crime. It's fundamentally too bad at basically everything to replace any part of the real economy. It is almost exclusively used for crime, admittedly fun technological exploration, and gambling on a valuation based not on actual net utility in current context but on perception of future utility that will probably never materialize. Web 2.0 based on boring old primitives like ad dollars and banks actually funds things that in real life provide ultimately virtually all the actual utility obtained by the world from software. You said > web 2.0 cloud cannot compete with that cost structure and permissionless nature It appears to me that that is just incorrect on its face because web 2.0 cloud actually DOES compete insofar as its literally everywhere as we speak and web 3.0 is a buzzword from 2014 that has yet to achieve actual meaning. To rephrase do you feel it is accurate to say that something that represents basically all the real value obtained by network computers doesn't competes with something that provides? What again?
- Karrot_Kream 10mo ago
  Different cryptocurrency products offer different properties and guarantees. Much like different databases offer different concurrency models. Folks that use currency backed stablecoins do not care for the trustless properties. There are various algorithmic stablecoins out there that you can use to stay free of KYC/AML but they aren't very popular. Largely the folks that want trustless currency use chains like BTC, BCH, XMR, or ZEC.
- kikimora 10mo ago
  It was the case up until recently. But today Hyperliquid does it on chain and very popular.
  - monokh 10mo ago
    Hyperliquid being on chain in the traditional sense is fiction. You have a closed source piece of software run by closely controlled "validators" with additionally centralised components.
    - kikimora 10mo ago
      Settlement is on chain which removes clearing house, exchange and brokerages from the picture.
- deleted 10mo ago
  [deleted]
- miohtama 10mo ago
  You can trade perpetual futures, onchain, mostly decentralised, in self-custodial manner [1] e.g. on GMX https://gmx.io/ https://gmx.io/ Some more modern decentralised exchanges (DEXes) dealing with leveraged trades and try to minimise centralisation also include YieldBases: https://yieldbasis.com/markets https://yieldbasis.com/markets There are other exchanges that are much more centralised, like Hyperliquid, and it is incorrect to call these decentralised. But there are truly decentralised alternatives as well. GMX is not as popular, let's say Binance, because onchain user experience has been very hard. You don't want to sign every order from your crypto wallet. Transaction cost ("gas fee") used to be too high for trading. This is finally changing with the latest Ethereum improvement proposals, dealing with so called account abstraction. [1] Because futures always settle on an external price, the price feed must come from some oracle. In the case of GMX, there are keepers (multiple of them) who are responsible to bring the correct price to Arbitrum chain and trigger the settlement. But it's not a single party.
- creer 10mo ago
  > The whole point of crypto There is a common confusion in this (perhaps?). Most businesses get created primarily to make money. Not primarily to solve the world's problems. It's easy to say "if they really had their customers at heart...". Well, yeah, but that's not and has never been the priority. It's not a cynical view, it's being realistic. All kinds of mayhem follows. All the way to fundamental research papers such as "on average actively managed mutual funds do not beat XX index". Well, yeah, mutual funds don't get created because someone is good at it. They get created because someone wants to make money. Beating XX is not the first objective, or competence, of the entrepreneurs. Hopefully that fund doesn't last too long but often it does, and anyway there are many of them. So anyway, there are plenty of ways to try and leverage ideas of cryptography, crytocurrencies, block chain - most of which are still accessible - and most of the ventures in the field are not going to be primarily about solving the users' problems.
noname123 10mo ago
>The basis trade, classically executed, is delta neutral: one isn’t exposed to the underlying itself. You don’t need any belief in Bitcoin’s future adoption story, fundamentals, market sentiment, halvings, none of that. You’re getting paid to provide the gambling environment, including a really important feature: the perp price needs to stay reasonably close to the spot price, close enough to continue attracting people who want to gamble. You are also renting access to your capital for leverage. Patrick is largely correct on perp futures being mostly used as a leverage instrument to gamble on bitcoin or ether by retail. However I think he's missing one point which is that actually some institutional players also use CME futures to gain exposure to Bitcoin (e.g., BITO ETF or a pension fund that wants to gain exposure to crypto and have a fiduciary duty to hold assets with AAA custodians). The thesis being that if you're an institution, you don't trust the relatively "fly-by" offshore crypto or even US-regulated custodians of crypto. When you trade CME bitcoin futures, your settlement is guaranteed by the clearing entities of Chicago Mercantile Exchange which are bulge bracket firms of TradFi. So why CME futures largely reflect a premium over the spot BTC price - and this premium is a function of the demand of bitcoin at anytime and the Fed fund rate. As the bitcoin futures market is highly efficient, the CME futures premium is arbitraged across the various DeFi and CeFi exchanges with basis points added relative to the default risk of each venue. And the basis trade itself is not a "risk-free" arbitrage. The seller on the other side of gamblers are exposed to "right-tail" risk - your premium you get paid to "carry" the bitcoin is fixed while the collateral you must hold in theory to "hold" the coin on behalf of the buyer could be in theory infinite if bitcoin skyrockets to infinity. Sell too much and you might not have enough collateral before the futures settlement happens (for a fixed term futures, not perps) kind of like a reverse but still deadly scenario with Silicon Valley Bank (i.e., you incur "paper loss" that goes away if you can hold it to expiry; but you get force liquidated before then).
- djoldman 10mo ago
  > When you trade CME bitcoin futures, your settlement is guaranteed by the clearing entities of Chicago Mercantile Exchange which are bulge bracket firms of TradFi. The CME clearinghouse itself is the guarantor. And below it are the clearing firms. The trading firms don't guarantee trades, the clearing firms do. In fact, for many products, the CME is the counterparty for both sides of a trade.
frankest 10mo ago
Crypto at this point is neither decentralized nor anonymous. It’s a Ponzi scheme wrapped in increasing level of complexity and involving an increasing number of banks, and controlled by a decreasing number of very large players. This crypto octopus is putting tentacles in Fidelity, and major US banks, and pension funds, and 401k accounts, and any other money holder. They are putting debt on banks at leverage levels beyond any reason. So when the music stops playing the octopus can slurp the real money liquidity out of as many US banks and savings institutions as possible, to eventually collapse the savings even of people who have nothing to do with Crypto.
- rjdj377dhabsn 10mo ago
  That's really not true. Sure, there are huge amounts of scams and ponzi schemes and that's what gets attention, but crypto is absolutely used every day by many in a decentralized and effectively anonymous way. Dark markets are still active and people move large amounts across international borders effortlessly. As an example of being effectively anonymous, I can easily take some cash, meet up at a cafe nearby with someone from a p2p site to swap it to crypto, and then pay a foreign company for hosting services for years with that crypto, sharing zero personal information.
- beeflet 10mo ago
  There are some new-ish attempts to improve crypto anonymity and decentralization. For example zcash and monero.
renewiltord 10mo ago
Only missing the bit about the insurance fund and so on.
max_ 10mo ago
Is there a good resource on how perps actually work? i.e a technical specification on how to implement them?
- wmf 10mo ago
  BitMEX and Hyperliquid have fairly detailed documentation about how they implement perps and there are probably open source projects out there.
- miohtama 10mo ago
  Yes! If you want to get into the deepest detail there are several decentralised perpetual futures exchanges. Here are some open source codebases on Github: https://github.com/vegaprotocol/vega https://github.com/vegaprotocol/vega https://github.com/dydxprotocol/v4-chain/ https://github.com/dydxprotocol/v4-chain/ https://github.com/gmx-io/gmx-synthetics https://github.com/gmx-io/gmx-synthetics https://github.com/0xOstium/smart-contracts-public/ https://github.com/0xOstium/smart-contracts-public/ Vega is a stalled project, but they have good documentation: https://docs.vega.xyz/release/concepts/new-to-vega https://docs.vega.xyz/release/concepts/new-to-vega
- fullstackvraj 10mo ago
  https://github.com/drift-labs https://github.com/drift-labs you can go through the drift labs code to see implementation of perps
barfoure 10mo ago
Sad to see patio11 fell victim to Mammon. The great beast tempts us all.
spir 10mo ago
I don't think many people on HN realize how globally systemically important public blockchains are on track to become, especially Ethereum. The understandable hatred of the casino and many scams has blinded most of HN as to the true potential of the technology and its associated new public institutions. That's what a decentralized public blockchain is, a new kind of public institution. One small example of this is that the most state-of-the-art perpetual futures market in the world is an Ethereum Layer 2 named Lighter https://app.lighter.xyz/markets/ https://app.lighter.xyz/markets/
- wmf 10mo ago
  I guess you could help educate us by giving some non-gambling and non-criminal examples of innovation powered by Ethereum that justify its importance.
  - miohtama 10mo ago
    I would say stablecoins. They are so important that now every country in the world has and is making laws about them.
  - spir 10mo ago
    1. Stablecoins 2. Tokenizing all assets (equities, commodities, real estate, etc.) 3. Being able to use those stablecoins/tokenized assets in DeFi protocols that are more automated, more impartial, and less extractive than corresponding traditional finance systems. Including lending and marketplaces to buy/sell. Many industries will see parts of their back offices go onchain. Tokenized real estate + onchain swapping = onchain real estate markets. Stablecoins + onchain swapping = onchain forex markets. 4. All of these being inherently global, so anyone in the world with a mobile phone can access these assets and the onchain financial system. 5. All of these being size-agnostic. The same assets and technologies work with a 5 cent buy of tokenized TSLA stock just as they do with a 50 million buy. 6. All of these capabilities enjoy instant settlement. The act of trading the tokenized asset also settles the trade. There is no more T+1 settlement risk or delay. This reduces risk and improves capital efficiency. 7. Decentralized public chains, especially Ethereum, offer new kinds of credible commitments that are strong enough to bind corporations and governments because the agreements are automated by the highly decentralized chain. Centralized chains (almost all chains) can't do this because they are too easy to rewrite history if governments apply pressure. When using Ethereum, instead of relying on a counterparty to keep their word and then suing them if they don't, parts of that agreement can become automated by the chain, reducing risk of breach of contract and cost of compliance. Maximum decentralization greatly reduces overall risk, which is very valuable at global scale. 8. Generally increased permissionless innovation, stronger property rights, and freer markets. Anybody can use onchain or build onchain, there's no gatekeepers.
jhancock 10mo ago
I spent a few years leading dev on decentralized exchanges, building bridges to other chains and building a sophisticated margin system on top of the trading pools. A few things I think I've learned: In its current state, most retail investors are simply supplying to the sophisticated investor. Although some DeFi projects make a genuine effort to provide analysis tools to level the playing field, it's not nearly enough. The safest least volatile yields in DeFi are lending your stable coins into a system such as aave. The yield is not far from a high yield USD savings account. Exchanges such as Uniswap may be the most important legit tool in DeFi. The biggest problem is the liquidity provider's ability to protect their downside...so the investor adds on more sophisticated monitoring/hedging schemes. This gets us back to the retail investor being at a severe disadvantage.
- Karrot_Kream 10mo ago
  Yes if you start doing analysis on DeFi and a lot of cryptocurrency markets, you can see very quickly that retail investors ("dumb money") are just providing liquidity to the smart money. There's a lot of unsophisticated money in these markets which makes it pretty fun to compete as someone trying to be smart. It's even more brutal in the more established, traditional markets though. Obviously if you're going long and managing a portfolio that's a different perspective, but it's very hard as an outsider to compete with the smart funds in the world. You might be smart but most of those funds are very smart, well capitalized, and have a very deep understanding of market structure.
HWR_14 10mo ago
Why would I want a perp on BTC when I can just buy the coin? The example quoted the price of the perp as (close to) the same as the price of BTC, so if I'm not getting leverage why not just buy the coin and avoid counterparty risk?
- nroets 10mo ago
  You can buy (go long) a BTC future with only $10,000 or less of collateral. So you can get lots of leverage. Another reason is that the future may be trading slightly below the spot price of BTC due to lots of traders shorting.
- wmf 10mo ago
  Because the exchanges offer 20x leverage on perps but not on spot. In theory perps can have deeper liquidity because they can go beyond the 21M BTC limit. If you don't care about those factors then you shouldn't trade perps; they aren't intended to be magically superior to spot.
- Karrot_Kream 10mo ago
  A perp is a future which is different from buying BTC at its spot price. If you remove the "perpetual" aspect of the future and it was a regular future that was settling soon, likewise it would be similar in price but not the same as the underlying. There's lots of uses for futures and they're often used as hedges against various forms of risk, like currency risk.
- trotro 10mo ago
  If the goal is just to buy and hold, then you wouldn't use perps, not only because of counterparty risk but also because the funding rate is typically positive, meaning you pay (usually ~10% APR) to be long. The point of perps is: - Easy access to leverage. Unlike options or futures, there's no need to roll over. - It's the easiest way to short a coin. Most of the time you even get paid the funding rate to be short. - Trading fees are typically much lower than for spot. - Volume and liquidity can be better for perps than for spot. The BTC/USDT perp did 10x the volume of the spot pair in the last 24h on Binance.
- 10mo ago
hippich 10mo ago
It appears to me that majority of the article is about (unregulated) leveraged trading, with perps being an instrument to get leverage. I seen similar stories of blowing up outside us in forex market, for example, where no one were talking about futures, it was just 100x leverage that was biting many (most?) traders.
trhway 10mo ago
>In cases where management deems paying winners from the insurance fund would be too costly and/or impossible, they automatically deleverage some winners. that's deep, in all senses.

136 points by sirodoht 10mo ago

It's striking how much the crypto world depends on trust in other parties. The whole point of crypto was supposed to be that it was "trustless". But it's not set up that way. All these crypto derivatives are not set up as contracts on a blockchain, with assets locked up until the derivatives settle. They're book entries with some weakly regulated exchange in Outer Nowhere.

mhh__ 10mo ago
That's not true with decentralised exchanges like hyperliquid, no?
- Maxatar 10mo ago
  Hyperliquid and similar exchanges aren't decentralized. That is their long term goal but they are very far from achieving it. The few actual decentralized exchanges are too slow and expensive.
  - awesome_dude 10mo ago
    I mean, as soon as synchronisation is required in any system, block chain, distributed SAAS, even Peer to Peer sharing, decentralisation fails hard That's one of the sticking points I have with the /idea/ of the technology
    - immibis 10mo ago
      Ethereum and similar chains run arbitrary computation on-chain. You can make a futures exchange on Ethereum (or Solana, etc). However, the fees for doing so are very large, and confirmation times are very long, like any other on-chain transaction.
      - awesome_dude 10mo ago
        What I am loving about this comment, and the downvotes, is the idea that blockchains can escape things like basic laws of the universe. > confirmation times are very long, like any other on-chain transaction Yes. synchronisation is where everything breaks down because you have to get everyone to agree to the new state. edit: Sorry, not everyone, but a consensus, and that consensus is then what everyone agrees is the state.
  - gametorch 10mo ago
    > HyperCore includes fully onchain perpetual futures and spot order books. Every order, cancel, trade, and liquidation happens transparently with one-block finality inherited from HyperBFT. HyperCore currently supports 200k orders / second, with throughput constantly improving as the node software is further optimized. Key part: > fully onchain perpetual futures and spot order books
    - Saline9515 10mo ago
      Being on a blockchain and being decentralized are two different things. The HyperCore client isn't even open source.
      - gametorch 10mo ago
        That's just patently false. > Importantly, HyperCore does not rely on the crutch of off-chain order books. A core design principle is full decentralization with one consistent order of transactions achieved through HyperBFT consensus.
        Saline9515 10mo ago
        The basis of decentralized software is open-source. Otherwise a centralized authority can just push an update to, for instance, blacklist addresses. https://github.com/hyperliquid-dex/node https://github.com/hyperliquid-dex/node "For lowest latency, run the node in Tokyo, Japan." Decentralization means to run all of the closed-source nodes in the same AWS datacenter!
        monokh 10mo ago
        And in fact they did just this when their vaults started bleeding money on an unfavourable position (JellyJelly). They handed out a closed source binary and the validators ran it immediately, closing out the market at an arbitrary price.
        trhway 10mo ago
        The basis of decentralized software is open protocol. Then it doesn't matter that somebody runs closed source while somebody runs open source.
  - miohtama 10mo ago
    There are some exchanges that are more decentralised (and older) than Hyperliquid. Hyperliquid, while being the most popular one, is not the only horse in the town. E.g. GMX on Arbitrum chain is no longer prohibitively expensive. Left some comments here https://news.ycombinator.com/item?id=46172450 https://news.ycombinator.com/item?id=46172450
block_dagger 10mo ago
This comment makes sweeping generalizations.
- throw101010 10mo ago
  This is a common place in any thread about cryptocurrencies on HN unfortunately... I could be convinced of my own message also being a sweeping generalization if anyone can point out a single post where top comments aren't doing exactly this when it comes to this topic, even the technical ones.
- petesergeant 10mo ago
  This is a useless comment for most readers (myself included!) unless you specify what you think those sweeping generalizations are, and why you think they're unsound.
wmf 10mo ago
The people who want trustless decentralization and the people who want leveraged gambling and the people who want KYC-free international money transfer may be different people. The only problem with Liberty Reserve was that it got shut down; if a "decentralied" fig leaf can allow it to operate... let there be "decentralization".
Analemma_ 10mo ago
By now crypto-in-practice has violated so many of its supposed founding principles that it's tired and cliche to point it out. It was supposed to be limited in supply unlike fiat, and yet Tether underpins the whole thing and they print that out of thin air all the time. It was supposed to be decentralized, but in practice a few big exchanges control all the transactions and a few big mining pools control all the minting. It was supposed to be "code is law", and yet if you find a big exploit on smart contracts it'll be unwound later on and the cops will still show up for you. And as you say, it was supposed to be trustless, but counterparty risk is everywhere. And it turns out nobody cares, because to a first approximation nobody is in crypto for the libertarian principles. It is all about number go up; always has been, always will be. It's not even worth pointing out anymore.
- awesome_dude 10mo ago
  > And it turns out nobody cares, because to a first approximation nobody is in crypto for the libertarian principles. It is all about number go up; always has been, always will be. It's not even worth pointing out anymore. I agree 100% - Meme stocks go brrrrrrrr The idea that it's a currency that lives beyond the reach of governments is laughable (as soon as something goes bang a lot of the owners call for... regulators and government oversight)
  - rjdj377dhabsn 10mo ago
    People putting their self-interests before maintaining support for more general principles is par for the course. Even the vast majority of free-market maximalists will support a government bailout of large banks or the auto industry if it will save their investment portfolio.
  - Animats 10mo ago
    > I agree 100% - Meme stocks go brrrrrrrr Mostly, meme coins go into a screaming dive after the initial pump. Go type some meme coin names into Coinmarketcap. Except for Bitcoin and Ethereum, almost everything in crypto has crashed hard.
yieldcrv 10mo ago
whats more important to me is that you don't have to ask anybody if you can deploy an entire financial services suite and not only will other people worldwide use it immediately, they will also pay for all your infrastructure costs as they update the chain state with every transaction fee that they pay the permissionless nature means you can deploy anything as cenralized or decentralized as you want, and its up to consumers to be discerning and its only their fault if they are not cost wise this will always be attractive to developers and for them to bring over every audience they can muster, because web 2.0 cloud cannot compete with that cost structure and permissionless nature
- michaelmrose 10mo ago
  Isn't basically virtually 100% of the money that isn't crime adjacent web 2.0 implying it can compete?
  - yieldcrv 10mo ago
    What are you asking? Can you rephrase that in a different way? Can I leverage trade derivatives and also earn fees from liquidity pooling with Robux?
    - michaelmrose 10mo ago
      BTC almost exclusively enables crime. It's fundamentally too bad at basically everything to replace any part of the real economy. It is almost exclusively used for crime, admittedly fun technological exploration, and gambling on a valuation based not on actual net utility in current context but on perception of future utility that will probably never materialize. Web 2.0 based on boring old primitives like ad dollars and banks actually funds things that in real life provide ultimately virtually all the actual utility obtained by the world from software. You said > web 2.0 cloud cannot compete with that cost structure and permissionless nature It appears to me that that is just incorrect on its face because web 2.0 cloud actually DOES compete insofar as its literally everywhere as we speak and web 3.0 is a buzzword from 2014 that has yet to achieve actual meaning. To rephrase do you feel it is accurate to say that something that represents basically all the real value obtained by network computers doesn't competes with something that provides? What again?
Karrot_Kream 10mo ago
Different cryptocurrency products offer different properties and guarantees. Much like different databases offer different concurrency models. Folks that use currency backed stablecoins do not care for the trustless properties. There are various algorithmic stablecoins out there that you can use to stay free of KYC/AML but they aren't very popular. Largely the folks that want trustless currency use chains like BTC, BCH, XMR, or ZEC.
kikimora 10mo ago
It was the case up until recently. But today Hyperliquid does it on chain and very popular.
- monokh 10mo ago
  Hyperliquid being on chain in the traditional sense is fiction. You have a closed source piece of software run by closely controlled "validators" with additionally centralised components.
  - kikimora 10mo ago
    Settlement is on chain which removes clearing house, exchange and brokerages from the picture.
deleted 10mo ago
[deleted]
miohtama 10mo ago
You can trade perpetual futures, onchain, mostly decentralised, in self-custodial manner [1] e.g. on GMX https://gmx.io/ https://gmx.io/ Some more modern decentralised exchanges (DEXes) dealing with leveraged trades and try to minimise centralisation also include YieldBases: https://yieldbasis.com/markets https://yieldbasis.com/markets There are other exchanges that are much more centralised, like Hyperliquid, and it is incorrect to call these decentralised. But there are truly decentralised alternatives as well. GMX is not as popular, let's say Binance, because onchain user experience has been very hard. You don't want to sign every order from your crypto wallet. Transaction cost ("gas fee") used to be too high for trading. This is finally changing with the latest Ethereum improvement proposals, dealing with so called account abstraction. [1] Because futures always settle on an external price, the price feed must come from some oracle. In the case of GMX, there are keepers (multiple of them) who are responsible to bring the correct price to Arbitrum chain and trigger the settlement. But it's not a single party.
creer 10mo ago
> The whole point of crypto There is a common confusion in this (perhaps?). Most businesses get created primarily to make money. Not primarily to solve the world's problems. It's easy to say "if they really had their customers at heart...". Well, yeah, but that's not and has never been the priority. It's not a cynical view, it's being realistic. All kinds of mayhem follows. All the way to fundamental research papers such as "on average actively managed mutual funds do not beat XX index". Well, yeah, mutual funds don't get created because someone is good at it. They get created because someone wants to make money. Beating XX is not the first objective, or competence, of the entrepreneurs. Hopefully that fund doesn't last too long but often it does, and anyway there are many of them. So anyway, there are plenty of ways to try and leverage ideas of cryptography, crytocurrencies, block chain - most of which are still accessible - and most of the ventures in the field are not going to be primarily about solving the users' problems.

noname123 10mo ago

>The basis trade, classically executed, is delta neutral: one isn’t exposed to the underlying itself. You don’t need any belief in Bitcoin’s future adoption story, fundamentals, market sentiment, halvings, none of that. You’re getting paid to provide the gambling environment, including a really important feature: the perp price needs to stay reasonably close to the spot price, close enough to continue attracting people who want to gamble. You are also renting access to your capital for leverage. Patrick is largely correct on perp futures being mostly used as a leverage instrument to gamble on bitcoin or ether by retail. However I think he's missing one point which is that actually some institutional players also use CME futures to gain exposure to Bitcoin (e.g., BITO ETF or a pension fund that wants to gain exposure to crypto and have a fiduciary duty to hold assets with AAA custodians). The thesis being that if you're an institution, you don't trust the relatively "fly-by" offshore crypto or even US-regulated custodians of crypto. When you trade CME bitcoin futures, your settlement is guaranteed by the clearing entities of Chicago Mercantile Exchange which are bulge bracket firms of TradFi. So why CME futures largely reflect a premium over the spot BTC price - and this premium is a function of the demand of bitcoin at anytime and the Fed fund rate. As the bitcoin futures market is highly efficient, the CME futures premium is arbitraged across the various DeFi and CeFi exchanges with basis points added relative to the default risk of each venue. And the basis trade itself is not a "risk-free" arbitrage. The seller on the other side of gamblers are exposed to "right-tail" risk - your premium you get paid to "carry" the bitcoin is fixed while the collateral you must hold in theory to "hold" the coin on behalf of the buyer could be in theory infinite if bitcoin skyrockets to infinity. Sell too much and you might not have enough collateral before the futures settlement happens (for a fixed term futures, not perps) kind of like a reverse but still deadly scenario with Silicon Valley Bank (i.e., you incur "paper loss" that goes away if you can hold it to expiry; but you get force liquidated before then).

djoldman 10mo ago
> When you trade CME bitcoin futures, your settlement is guaranteed by the clearing entities of Chicago Mercantile Exchange which are bulge bracket firms of TradFi. The CME clearinghouse itself is the guarantor. And below it are the clearing firms. The trading firms don't guarantee trades, the clearing firms do. In fact, for many products, the CME is the counterparty for both sides of a trade.

frankest 10mo ago

Crypto at this point is neither decentralized nor anonymous. It’s a Ponzi scheme wrapped in increasing level of complexity and involving an increasing number of banks, and controlled by a decreasing number of very large players. This crypto octopus is putting tentacles in Fidelity, and major US banks, and pension funds, and 401k accounts, and any other money holder. They are putting debt on banks at leverage levels beyond any reason. So when the music stops playing the octopus can slurp the real money liquidity out of as many US banks and savings institutions as possible, to eventually collapse the savings even of people who have nothing to do with Crypto.

rjdj377dhabsn 10mo ago
That's really not true. Sure, there are huge amounts of scams and ponzi schemes and that's what gets attention, but crypto is absolutely used every day by many in a decentralized and effectively anonymous way. Dark markets are still active and people move large amounts across international borders effortlessly. As an example of being effectively anonymous, I can easily take some cash, meet up at a cafe nearby with someone from a p2p site to swap it to crypto, and then pay a foreign company for hosting services for years with that crypto, sharing zero personal information.
beeflet 10mo ago
There are some new-ish attempts to improve crypto anonymity and decentralization. For example zcash and monero.

renewiltord 10mo ago

Only missing the bit about the insurance fund and so on.

max_ 10mo ago

Is there a good resource on how perps actually work? i.e a technical specification on how to implement them?

wmf 10mo ago
BitMEX and Hyperliquid have fairly detailed documentation about how they implement perps and there are probably open source projects out there.
miohtama 10mo ago
Yes! If you want to get into the deepest detail there are several decentralised perpetual futures exchanges. Here are some open source codebases on Github: https://github.com/vegaprotocol/vega https://github.com/vegaprotocol/vega https://github.com/dydxprotocol/v4-chain/ https://github.com/dydxprotocol/v4-chain/ https://github.com/gmx-io/gmx-synthetics https://github.com/gmx-io/gmx-synthetics https://github.com/0xOstium/smart-contracts-public/ https://github.com/0xOstium/smart-contracts-public/ Vega is a stalled project, but they have good documentation: https://docs.vega.xyz/release/concepts/new-to-vega https://docs.vega.xyz/release/concepts/new-to-vega
fullstackvraj 10mo ago
https://github.com/drift-labs https://github.com/drift-labs you can go through the drift labs code to see implementation of perps

barfoure 10mo ago

Sad to see patio11 fell victim to Mammon. The great beast tempts us all.

spir 10mo ago

I don't think many people on HN realize how globally systemically important public blockchains are on track to become, especially Ethereum. The understandable hatred of the casino and many scams has blinded most of HN as to the true potential of the technology and its associated new public institutions. That's what a decentralized public blockchain is, a new kind of public institution. One small example of this is that the most state-of-the-art perpetual futures market in the world is an Ethereum Layer 2 named Lighter https://app.lighter.xyz/markets/ https://app.lighter.xyz/markets/

wmf 10mo ago
I guess you could help educate us by giving some non-gambling and non-criminal examples of innovation powered by Ethereum that justify its importance.
- miohtama 10mo ago
  I would say stablecoins. They are so important that now every country in the world has and is making laws about them.
- spir 10mo ago
  1. Stablecoins 2. Tokenizing all assets (equities, commodities, real estate, etc.) 3. Being able to use those stablecoins/tokenized assets in DeFi protocols that are more automated, more impartial, and less extractive than corresponding traditional finance systems. Including lending and marketplaces to buy/sell. Many industries will see parts of their back offices go onchain. Tokenized real estate + onchain swapping = onchain real estate markets. Stablecoins + onchain swapping = onchain forex markets. 4. All of these being inherently global, so anyone in the world with a mobile phone can access these assets and the onchain financial system. 5. All of these being size-agnostic. The same assets and technologies work with a 5 cent buy of tokenized TSLA stock just as they do with a 50 million buy. 6. All of these capabilities enjoy instant settlement. The act of trading the tokenized asset also settles the trade. There is no more T+1 settlement risk or delay. This reduces risk and improves capital efficiency. 7. Decentralized public chains, especially Ethereum, offer new kinds of credible commitments that are strong enough to bind corporations and governments because the agreements are automated by the highly decentralized chain. Centralized chains (almost all chains) can't do this because they are too easy to rewrite history if governments apply pressure. When using Ethereum, instead of relying on a counterparty to keep their word and then suing them if they don't, parts of that agreement can become automated by the chain, reducing risk of breach of contract and cost of compliance. Maximum decentralization greatly reduces overall risk, which is very valuable at global scale. 8. Generally increased permissionless innovation, stronger property rights, and freer markets. Anybody can use onchain or build onchain, there's no gatekeepers.

jhancock 10mo ago

I spent a few years leading dev on decentralized exchanges, building bridges to other chains and building a sophisticated margin system on top of the trading pools. A few things I think I've learned: In its current state, most retail investors are simply supplying to the sophisticated investor. Although some DeFi projects make a genuine effort to provide analysis tools to level the playing field, it's not nearly enough. The safest least volatile yields in DeFi are lending your stable coins into a system such as aave. The yield is not far from a high yield USD savings account. Exchanges such as Uniswap may be the most important legit tool in DeFi. The biggest problem is the liquidity provider's ability to protect their downside...so the investor adds on more sophisticated monitoring/hedging schemes. This gets us back to the retail investor being at a severe disadvantage.

Karrot_Kream 10mo ago
Yes if you start doing analysis on DeFi and a lot of cryptocurrency markets, you can see very quickly that retail investors ("dumb money") are just providing liquidity to the smart money. There's a lot of unsophisticated money in these markets which makes it pretty fun to compete as someone trying to be smart. It's even more brutal in the more established, traditional markets though. Obviously if you're going long and managing a portfolio that's a different perspective, but it's very hard as an outsider to compete with the smart funds in the world. You might be smart but most of those funds are very smart, well capitalized, and have a very deep understanding of market structure.

HWR_14 10mo ago

Why would I want a perp on BTC when I can just buy the coin? The example quoted the price of the perp as (close to) the same as the price of BTC, so if I'm not getting leverage why not just buy the coin and avoid counterparty risk?

nroets 10mo ago
You can buy (go long) a BTC future with only $10,000 or less of collateral. So you can get lots of leverage. Another reason is that the future may be trading slightly below the spot price of BTC due to lots of traders shorting.
wmf 10mo ago
Because the exchanges offer 20x leverage on perps but not on spot. In theory perps can have deeper liquidity because they can go beyond the 21M BTC limit. If you don't care about those factors then you shouldn't trade perps; they aren't intended to be magically superior to spot.
Karrot_Kream 10mo ago
A perp is a future which is different from buying BTC at its spot price. If you remove the "perpetual" aspect of the future and it was a regular future that was settling soon, likewise it would be similar in price but not the same as the underlying. There's lots of uses for futures and they're often used as hedges against various forms of risk, like currency risk.
trotro 10mo ago
If the goal is just to buy and hold, then you wouldn't use perps, not only because of counterparty risk but also because the funding rate is typically positive, meaning you pay (usually ~10% APR) to be long. The point of perps is: - Easy access to leverage. Unlike options or futures, there's no need to roll over. - It's the easiest way to short a coin. Most of the time you even get paid the funding rate to be short. - Trading fees are typically much lower than for spot. - Volume and liquidity can be better for perps than for spot. The BTC/USDT perp did 10x the volume of the spot pair in the last 24h on Binance.
10mo ago

hippich 10mo ago

It appears to me that majority of the article is about (unregulated) leveraged trading, with perps being an instrument to get leverage. I seen similar stories of blowing up outside us in forex market, for example, where no one were talking about futures, it was just 100x leverage that was biting many (most?) traders.

trhway 10mo ago

>In cases where management deems paying winners from the insurance fund would be too costly and/or impossible, they automatically deleverage some winners. that's deep, in all senses.