The Development and Future of Perpetual Futures DEX

Perptual Futures DEX is rapidly developing in the cryptocurrency market, making significant progress in efficiency, speed, and scalability. This article will explore how Perptual Futures DEX expands the scope of blockchain applications and paves the way for large-scale adoption of Web3.

Exchanges are the core of the cryptocurrency market, supporting market operations through transactions between users. DEX innovates on the basis of CEX, eliminating trust assumptions, avoiding intermediaries and centralized control, allowing users to retain control over their funds, and enabling community participation in product updates and governance.

However, DEX often comes at the cost of high latency and low liquidity. Currently, DEX spot trading volume accounts for 15%-20% of the total, while Perptual Futures trading only accounts for 5%.

CEX has advantages in Perptual Futures trading:

1. Better product experience
2. Market makers provide more refined spreads
3. Better liquidity
4. Multifunctional One-stop Combination

The centralization and monopoly of CEX have become issues that users cannot ignore, especially as the FTX collapse has intensified this trend. Increasing the usage rate of DEX can effectively reduce systemic risks and promote the sustainable development of the crypto ecosystem.

The rise of Layer2 and multi-chain ecosystems has created favorable conditions for the development of DEX. This article will delve into the current status of Perptual Futures DEX and introduce some design concepts.

Perptual Futures in the Product Market Fit of the Crypto Ecosystem

Perptual Futures allow traders to hold positions indefinitely, similar to traditional over-the-counter futures trading. Perptual Futures introduce the concept of funding rates, enabling retail investors to participate while preventing excessive imbalance in long and short structures.

Currently, the Perptual Futures market has a monthly trading volume exceeding 120 billion USD, thanks to a good user experience, an order book that facilitates trading efficiency, and a vertically integrated clearing system.

Perptual Futures have four major advantages over traditional futures:

1. Eliminate rollover fees and related costs
2. Avoid more expensive forward contracts
3. The funding rate system provides continuous real-time profit and loss, simplifying backend processing.
4. Provide a smoother price discovery process

Since BitMEX introduced Perptual Futures in 2016, there are now over 100 DEXs supporting Perptual Futures in the market. The trading volume of Perptual Futures on DEXs increased from $10 billion on July 2021 to $120 billion in July 2024, with a compound annual growth rate of 393%.

However, the Perptual Futures DEX faces bottlenecks due to blockchain performance limitations, needing to address low liquidity and high latency issues. High liquidity can reduce slippage, and low latency allows market makers to quote tighter prices.

Perptual Futures DEX Pricing Model

Oracle mode

Obtain price data from leading exchanges. For example, GMX uses Chainlink oracles to create a friendly environment for price takers and provide generous rewards for price makers. However, it is highly dependent on data sources from leading exchanges and cannot proactively engage in price discovery.

Virtual Automated Market Maker vAMM

Inspired by Uniswap, but the liquidity pool is virtual. Supports Perptual Futures trading without the need to invest large amounts of capital. Adopted by Perpetual Protocol, Drift Protocol, and others. There are issues of high slippage and impermanent loss, but the characteristics of transparency and decentralization remain attractive.

Off-chain order book combined with on-chain settlement

Transaction matching is completed off-chain, while settlement and asset custody are done on-chain. This retains the security and transparency of decentralized finance while reducing MEV risks. Models such as dYdX v3, Aevo, and Paradex adopt this approach.

Full Chain Order Book

All order-related data and operations are fully processed on-chain. High security but limited by blockchain latency and throughput, facing risks of front-running and market manipulation. Projects like Hyperliquid, dYdX v4, Zeta Markets, and LogX are innovating in this field.

Liquidity Acquisition and User Experience Improvement of DEX

Obtaining initial liquidity is a challenge faced by exchanges. Emerging DEXs gain liquidity through incentives and market forces, but struggle to achieve "effective scale".

Recently, two new ideas have emerged: community-supported active liquidity vaults and cross-chain liquidity acquisition. Hyperliquid adopts community-supported active liquidity vaults, while Orderly Network and LogX Network propose cross-chain liquidity allocation.

In terms of user experience, DEX competes by introducing gas-free transactions, session keys, and social logins. DEX aggregators like Vooi.io are developing smart routing systems that integrate multiple DEXs and cross-chain bridge functions. Telegram trading bots are also optimizing user experience, but there are security risks involved.

Innovative Financial Products in Perptual Futures DEX

Variance Perptual Futures

The trading content is asset volatility rather than price. Opyn has developed four products: Stable Perps, Uniswap LP Perps, Normal Perps, and Squared Perps, which can be combined into complex strategies.

Pre-Launch Perptual Futures

Allows speculation on its future price before the Token is officially launched. Aevo, Helix, and Hyperliquid have pioneered this model.

RWA Perptual Futures

It may become the main way to put real assets on the blockchain. Companies like Ostium Labs and Sphinx Protocol are developing in this field.

ETP Perptual Futures

Can be used to create ETPs that hold expiring futures contracts, reducing trading fees and NAV depreciation risks.

Prediction Market

Perptual Futures DEX can change the prediction market through a flexible and continuous trading mechanism, especially suitable for irregular events. It allows for the creation of prediction markets based on the continuously updated data of the market itself, providing users with short-term trading opportunities.

Future Prospects of Perpetual Futures DEX

The future design focus may be on leveraging the advantages of decentralization, finding a balance between efficiency and security. There is an increasing emphasis on community and developer participation, enhancing users' sense of belonging and loyalty.

To promote widespread adoption, it is necessary to develop a more intuitive user interface to ensure a smooth usage process. DEXs like Hyperliquid, LogX, and dYdX cover multiple fields such as finance, elections, and sports, providing new avenues for public participation.

In the next decade, DeFi may intersect and merge with fields such as news, politics, and sports, becoming a widely used tool that further drives the mass adoption of cryptocurrencies.