In-Depth Analysis: The Price Mechanism and Market Philosophy Behind Perpetual Futures Trading

Introduction: A Contract Storm Reveals the Battle Between Centralization and Decentralization

In March 2025, the JELLYJELLY contract triggered a market upheaval on a decentralized trading platform. Within just a few hours, the contract price soared by 429%, nearing a large-scale liquidation. If liquidation occurs, short positions will be forced into the on-chain liquidity vault, resulting in massive floating losses. Meanwhile, a centralized exchange quickly launched JELLYJELLY's Perptual Futures trading.

At the brink of a crisis, validators on decentralized platforms urgently voted to intervene, forcibly delisting, liquidating, and freezing transactions. This incident not only sparked intense discussions within the crypto community but also exposed a core issue: what exactly determines prices on decentralized trading platforms? Who bears the risks?

This article will use this event as a starting point to analyze the algorithmic differences in the core mechanisms of perpetual futures — index price, mark price, and funding rate — among the three major trading platforms, and delve into the financial philosophy and risk transmission mechanisms behind them.

Perptual Futures Trading Overview

Perptual Futures trading mainly consists of three key elements:

1. Index Price: Tracks the price changes in the spot market as a theoretical benchmark.
2. Mark Price: The decisive price used to calculate unrealized profits and losses, liquidation, and other key events.
3. Funding Rate: An economic mechanism that connects the spot and futures markets, guiding the futures price to revert to the spot.

Comparison of Price Mechanisms of Three Major Platforms

Index Price/Oracle Price

A certain decentralized platform uses oracle prices, independently constructed by validator nodes, employing a weighted median method to resist extreme price fluctuations. This method is more resistant to manipulation, but the update frequency is relatively slow (once every 3 seconds).

Price Mechanism

The mark price algorithm of a certain centralized platform A is based on the median of three types of prices: the mid-price of the contract market's best bid/ask, the transaction price, and the impact price. The median constructed after EMA processing ensures that the mark price changes smoothly and is resistant to spikes.

A certain centralized platform B adopts a more aggressive approach, using only the mid-price of the bid-ask spread as the source for the mark price. This algorithm is extremely sensitive to small trades and can easily cause severe fluctuations.

The marked price structure of a certain decentralized platform integrates the two aforementioned methods, controlled by multiple nodes, taking into account oracle prices, internal platform prices, and the perpetual average prices from multiple exchanges.

Funding Rate Algorithm

A certain decentralized platform has introduced a premium index based on the model of a centralized platform A, using oracle prices instead of index prices. To compensate for the slow price rebound, the platform has set a higher funding rate cap and charges funding fees on an hourly basis.

The funding rate of a centralized platform A relies on a longer settlement period, calculated in conjunction with the order book Depth and borrowing rates, aiming to provide institutional investors with stable funding costs.

The funding rate algorithm of a centralized platform B is relatively simple, calculated based on the deviation of the market price, with a longer settlement period, but it is highly volatile.

Trading Strategies and Financial Philosophy Adapted to Different Platforms

Centralized Platform A: The Design of Rational Institutions

• Core Philosophy: Making the Market Predictable
• Mechanism Features: Smooth marking price, finely modeled funding rate, and a sound risk buffer mechanism
• Suitable for: Institutional investors and medium to long-term traders seeking stable returns with controllable risks.

A centralized platform B: The design of trading instinct.

• Core Idea: The market is a reflection of human nature.
• Mechanism Characteristics: Mark Price Sensitivity, High Funding Rate Volatility, Direct and Rapid Liquidation Mechanism
• Suitable for: high-frequency traders, short-term traders, adept at capturing instantaneous price deviations

A certain decentralized platform: Design of on-chain structuralists

• Core Concept: Algorithm Sets Order
• Mechanism Features: Validator Consensus Price, On-Chain Liquidity Vault, High-Frequency Funding Rate, On-Chain Transparency
• Suitable for: Traders who pursue verifiable code and decentralized governance.

Conclusion: The End of Algorithms is the Human Heart

The design of the price mechanisms of different trading platforms reflects their respective ways of building trust in the market. Whether through institutional buffers, market behavior supremacy, or on-chain consensus, they all attempt to address the core question of how to trust an invisible market.

However, in extreme cases, human factors are still inevitable. Ultimately, the price is not determined by algorithms, but by whom we choose to believe to decide. Every trader should be responsible for their own values and maintain a sense of awe towards the market.