Onchain Atlas

Perpetual Futures

A leveraged trading contract that lets you bet on an asset's price with no expiration date, kept in line with the spot price by periodic payments between traders.

Also called: perps · perpetual swaps

What it is

A perpetual future ("perp") is a derivative contract that tracks the price of an underlying asset (like BTC or ETH) without ever expiring, unlike traditional futures contracts that settle on a fixed date. Traders can open long (betting price goes up) or short (betting price goes down) positions with leverage, borrowing exposure many times larger than their deposited collateral (margin).

How it works

  1. A trader deposits collateral (margin) into the platform and opens a long or short position sized as a multiple of that margin — for example, 10x leverage on $1,000 of margin controls a $10,000 position.
  2. Because the contract never expires, it needs a mechanism to keep its price tethered to the actual spot market price; this is done through a "funding rate" — a periodic payment exchanged directly between longs and shorts.
  3. If the perpetual's price trades above the spot price (more demand for longs), longs pay shorts a funding fee, making it more expensive to stay long and pulling the perp price back down toward spot; if it trades below spot, shorts pay longs, pushing the price back up.
  4. The platform continuously tracks each position's margin ratio (collateral value relative to position size); as the price moves against a trader, their margin ratio shrinks.
  5. If losses erode the margin below a maintenance threshold, the position is automatically liquidated — closed out by the platform or by third-party keepers/liquidators — to prevent the trader's losses from exceeding their deposited collateral and creating bad debt for the platform.
  6. Positions can be held indefinitely (subject to paying or receiving funding each period) as long as margin requirements are maintained, and closed at any time by taking the opposite trade.

Why designers use it

  • Removes the need for traders to roll over expiring contracts, simplifying long-term directional or hedging positions into a single ongoing position.
  • The funding-rate mechanism is a simple, market-driven way to keep a derivative's price anchored to spot without needing physical delivery or an expiration-based convergence.
  • Enables efficient price discovery and leverage for assets that may be hard to short or trade with leverage in spot markets alone.
  • On-chain, non-custodial versions let traders access leveraged derivatives without depositing funds with a centralized exchange operator.

Failure modes

  • Cascading liquidations: sharp price moves trigger liquidations, whose forced market selling (or buying) pushes price further in the same direction, triggering further liquidations in a self-reinforcing spiral — a repeated pattern in both crypto and traditional leveraged markets.
  • Oracle and price-feed manipulation: because liquidations and funding depend on a reference price, manipulating the underlying oracle or a thin spot market can trigger unjust liquidations or unfair funding payments, a pattern exploited in several real-world incidents.
  • Funding rate extremes during crowded trades: when positioning becomes heavily one-sided (nearly everyone long or short), funding payments can become very large and persistent, silently eroding position value even without adverse price movement.
  • Insufficient liquidation buffers: if maintenance margin thresholds or liquidation engines are too slow or thinly resourced during high volatility, losses can exceed a trader's collateral, leaving the platform to cover the shortfall from an insurance fund or by socializing losses.
  • Leverage-amplified losses: the same leverage that magnifies gains magnifies losses, and inexperienced traders frequently underestimate how quickly high-leverage positions can be wiped out by ordinary volatility.

What to check before using it

  • Understand exactly how the funding rate is calculated and how frequently it's paid, since it can materially affect the cost of holding a position over time.
  • Check what reference price (and how manipulation-resistant it is) the platform uses for marking positions and triggering liquidations.
  • Verify the size and funding of the platform's insurance fund or backstop for covering liquidation shortfalls during extreme volatility.
  • Confirm the platform's liquidation engine has been stress-tested under fast, thin-liquidity market conditions, not just normal trading.
  • Assess your own real risk tolerance for the leverage level you're using — model a plausible worst-case price move against your position size.

Experiments that used it · 2

Shown oldest first, so you can watch the design evolve.

Mango Markets
Solana's flagship cross-margin lending and perpetuals DEX, drained of ~$110M via oracle manipulation of its own MNGO token in 2022, then wound down in 2025 citing regulatory constraints.
2021 exploited
Mango Markets Exploit
A single trader manipulated the MNGO oracle price to inflate a perpetual-futures position, then borrowed against it to drain roughly $110-116M from the Solana lending protocol Mango Markets.
2022 exploited