The good and the bad of perps, according to crypto traders

Talk about crypto trading with any savvy trader, and the first thing that comes up these days is perpetual futures, or “perps” — derivatives contracts that allow traders to control a much larger position than the money held in the account. Perps work like standard futures, but with one key advantage: there is no expiry.

While bitcoin and ether traders can dabble in spot, futures, options, perpetual futures and even structured products, for traders of other altcoins, perps are perhaps the only avenue for derivatives available to them. Dated futures (those with expiry) for altcoins are illiquid, and the spot market is an afterthought for anybody who doesn’t plan to hold.

So, CoinDesk talked to traders who have thrived in the perpetual futures market to explain what makes perps different from other derivatives, how they help efficiently manage the needs of institutional traders and retail traders alike and what perps trading actually costs.

Their answers were clear and nearly unanimous: everyone loves perps because of their deep liquidity, cheap trading fees and brutal margin efficiency, which is the amount of trading exposure you can get per unit of collateral you post.

But trading fees aren’t the only expense for traders. There’s also a recurring cost for keeping positions open, called funding rates. Think of it as an interest charge that builds up the longer you hold, and the traders we spoke with are concerned about how much this could add up.

Why perps?

If you ask traders why crypto perps average a daily volume of over $200 billion, they’ll tell you it’s not a matter of choice, but one of necessity.

Lucas Krenn, a derivatives trader at market-making firm STS Digital, and an independent trader for six years, said perps are the plumbing underneath everything the firm does.

“Outside bitcoin and ether, dated futures liquidity is thin to the point of being unusable,” he said. “So perps are not one tool among several. For a crypto native firm, they are the tool.”

Dated futures aren’t popular mainly because they have to be replaced with new contracts at expiry, and that process costs money. Those same costs are why futures-based ETFs tend to be less efficient than spot ETFs.

Liquidity refers to the market’s ability to absorb large buy and sell orders at stable prices. Per Krenn, standard dated futures are largely illiquid, meaning a few big orders can easily sway prices in either direction, raising slippage and spoiling execution for traders. (Slippage is the price at which the trade was submitted and the price at which it was actually executed.

Kenneth Ong, an independent trader for six years, with most of his trading activity concentrated in perps, explained a similar draw to perpetual futures from the perspective of a retail trader. According to Ong, perps offer better fills, meaning your order is executed at a more favorable price than you expected or than the ongoing market quote when you sent the order, lower fees, and the ability to run both sides at once via hedge mode. In simple terms, the hedge mode allows the trader to hold longs (bullish bets) and shorts (bearish plays) on the same token at the same time in the same account. These are treated as separate positions, not netted against each other.

That’s a big advantage over a regulated venue like CME, which offers standard futures in which a single account is typically netted by default.

Ong started in the spot market and drifted almost entirely into perps once he saw the difference. Spot, for him now, is “for actually holding something long term.”

Both Ong and Krenn told CoinDesk that margin efficiency was the real draw to perps. As noted earlier, for most tokens, perps listed across different exchanges are the only real venue to trade. That fragmentation is an issue for perps, but the leverage they offer, which is significantly greater than that of standard futures, helps manage risk efficiently across different venues and tokens.

Because perps require only a fraction of a position’s value as collateral, the same pool of capital can be split across a dozen venues and still back meaningful positions at each one.

Perps and price discovery

The always-on nature of perps has shifted price discovery to occur whenever the news breaks, not just whenever markets are open.

Ong found himself in the middle of this during the Iran conflict, which flared up repeatedly across the first half of 2026. It started with the conflict’s opening weekend in late February, when tokenized oil trading on Hyperliquid saw its first real surge in volume.

“That opening weekend, all the real reaction happened on crypto/tokenized commodity perps while the ‘official’ market was straight up closed,” Ong said. “By Monday, a chunk of the repricing already happened somewhere else.”

Krenn sees the same mechanism playing out in perps tied to other traditional assets.

For instance, building a proper tokenized equity product is genuinely hard primarily because it requires recreating the full legal, operational, and regulatory machinery of traditional share ownership on-chain. A perpetual that references the price sidesteps all of it, and is handy for those looking to just trade rather than invest for the long-term.

“That is why the instrument is so powerful and why it keeps spreading into new asset classes,” Krenn said.

Both traders see this perpification of various assets gaining momentum in the coming years. Ong said that tokenized oil trading over the weekend “is basically a preview” of what’s to come for other commodities. Deepen that liquidity across commodities and equities, and “it kills one of the last reasons to bother with dated futures at all,” he said.

Beware the funding rate

Ask any crypto trader what’s wrong with perps and you’ll usually get “liquidations,” or forced closure of long and short positions on account of margin shortage. But, according to Krenn and Ong, the funding rate is more of a cause for concern.

A dated futures contract tells you the interest rate of the trade right away. The trader knows exactly what he is getting into. A perpetual futures contract, on the other hand, has a funding rate that changes over time and is typically charged every eight hours. The trader, therefore, remains exposed to the floating rate while holding the position, with no built-in mechanism to lock it in. And if the market doesn’t move as expected, that funding rate becomes a burden.

“It is unquantifiable at the point of trade and unhedgeable afterwards,” Krenn said.

Ong was blunter in expressing his concern: “That funding’s not just some tiny fee you can ignore. It’s not. If you hold positions for long periods, it can potentially balloon to the point where a profitable trade loses money.”

The myth of the safe trade

Bitcoin’s current bear market kicked off with the Oct. 10 crash last year, which triggered widespread deleveraging across both losing and profitable positions. In a sense, it was the opposite of the Fed’s quantitative easing response to past crises, in which liquidity injections lifted both weak and strong assets alike.

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On Oct. 10, exchanges socialized losses to protect their own systems. Longs got liquidated on price, which is normal. Then, profitable shorts were force-closed anyway, because the exchange’s insurance fund couldn’t absorb losses coming from the other side. Being right and being well-capitalized didn’t matter, and perpetuals faced a lot of criticism then.

But Krenn said the problem wasn’t with perps..

“It is not a perpetual problem. It is a crypto exchange margin model problem,” Krenn said. “Dated futures on those same venues sit behind the same insurance funds and the same deleveraging queue.”

“The distinction that matters is not perpetual versus dated [futures]. It is whether you are facing a proper clearing house with a mutualized default fund, or an exchange that socializes losses onto the winners,” Krenn added.

The asymmetry almost nobody prices correctly

Krenn, the institutional trader, offered one insight that inverts what most people assume about perp risk.

“Being long is the structurally safer side,” Krenn said.

His logic is that positive funding is easy to arbitrage away. Anyone holding stablecoins can buy spot, sell the perp, and pocket the spread, thereby compressing positive funding.

However, when the funding rate is negative, the arbitrage, involving a long position in the per and short position in the spot, the so-called reverse cash-and-carry is easier said than done. This only works if you can short the underlying token and only existing holders can readily short, and it becomes even more difficult if the circulating supply is small and concentrated. With arbitrage constrained, the gap between perp and spot prices can persist, meaning funding rates can stay extremely negative for long stretches.

Funding rates can stay extremely high or low for a long time.

“So the long side has a bounded cost and an unbounded upside. The short side has a bounded upside and an unbounded cost,” Krenn explained. “That asymmetry sits in very few risk models.”

He pointed to lending protocol Euler’s token this year as an example: a hard run on a listing, a small and concentrated float, funding on the perp going deeply negative, a situation where shorts “paying in the region of one percent every four hours,” to longs with almost nobody able to compress it because almost nobody had the token stash.

The takeaway

Perps seem to have democratized futures trading by solving the problem of access, cost and margin efficiency, but they are not without unique pain points, namely, the

volatile funding-rate exposure that can’t be quantified while taking bets and can’t be hedged once the trade is on.

As Krenn put it: “Until there is a liquid dated curve in crypto, the whole market is carrying an interest rate exposure it cannot price and cannot hedge.”

In the meantime, funding is the tax everyone pays for easy access to this leveraged market.