Perpetual Futures

Perpetual futures are derivative contracts that allow traders to speculate on the price of an asset without an expiration date. They are a crucial component of Stasis's delta-neutral strategy, providing the mechanism for hedging and yield generation.

What are Perpetual Futures?

Basic Definition

Perpetual futures (or "perps") are futures contracts that:

  • Never expire - unlike traditional futures with set expiration dates

  • Track spot prices - designed to closely follow the underlying asset price

  • Allow leverage - traders can control larger positions with less capital

  • Settle in cash - no physical delivery of the underlying asset

Key Characteristics

  • Perpetual: No expiration date, can be held indefinitely

  • Margined: Require collateral to open positions

  • Leveraged: Typically offer 1x to 100x+ leverage

  • Liquid: High trading volume and tight spreads

How Perpetual Futures Work

Price Mechanism

Perpetual futures prices are kept close to spot prices through:

  1. Funding Rates: Periodic payments between long and short positions

  2. Arbitrage: Traders profit from price differences between spot and futures

  3. Mark Price: Exchange-calculated fair value based on spot price and funding

Position Types

  • Long Position: Profits when price goes up, loses when price goes down

  • Short Position: Profits when price goes down, loses when price goes up

Margin Requirements

Initial Margin = Position Size / Leverage
Maintenance Margin = Position Size × Maintenance Rate
Liquidation occurs when: Account Value < Maintenance Margin

Funding Rates Mechanism

Purpose

Funding rates serve to:

  • Keep perpetual futures prices close to spot prices

  • Incentivize arbitrage when prices diverge

  • Balance long and short interest

Calculation

Funding Rate = (Interest Rate + Premium) / Funding Interval

Where:
- Interest Rate ≈ 0% for crypto markets
- Premium = TWAP(Futures Price - Spot Price) / Spot Price
- Funding Interval = 8 hours (typically)

Payment Direction

  • Positive Funding: Longs pay shorts (futures trading at premium)

  • Negative Funding: Shorts pay longs (futures trading at discount)

  • Zero Funding: No payments (futures = spot price)

Example Calculation

ETH Spot Price: $2,000
ETH Perpetual Price: $2,010 (0.5% premium)
Funding Rate: +0.05% (8-hour rate)

Long Position: Pays 0.05% of position size
Short Position: Receives 0.05% of position size

Stasis's Use of Perpetual Futures

Strategic Implementation

1. Hedging Component

  • Purpose: Offset spot price exposure

  • Mechanism: Short perpetuals hedge long spot positions

  • Result: Delta-neutral portfolio

2. Yield Generation

  • Source: Funding rate payments received as short position holder

  • Frequency: Every 8 hours on Hyperliquid

  • Stability: Historically positive funding rates in crypto markets

3. Capital Efficiency

  • Leverage: Use less capital for same hedge effectiveness

  • Liquidity: Maintain cash for user withdrawals

  • Flexibility: Easily adjust position sizes

Position Management

Opening Positions

// Simplified example
function openShortPosition(uint256 size) external {
    // Calculate required margin
    uint256 margin = size / leverage;
    
    // Transfer margin to exchange
    transferToExchange(margin);
    
    // Open short position
    hyperliquid.openShort(asset, size);
    
    // Update portfolio delta
    updateDelta();
}

Monitoring and Rebalancing

  • Delta Tracking: Continuous monitoring of portfolio delta

  • Automatic Rebalancing: Triggered when delta exceeds thresholds

  • Risk Management: Position limits and stop-losses

Closing Positions

  • Partial Closes: Adjust position sizes for rebalancing

  • Full Closes: Exit positions during strategy changes

  • Emergency Exits: Rapid unwinding during extreme conditions

Benefits for Stasis Strategy

Market Neutrality

  • Price Independence: Portfolio value unaffected by crypto price movements

  • Consistent Returns: Yield generation regardless of market direction

  • Risk Reduction: Lower volatility compared to directional strategies

Yield Enhancement

  • Funding Income: Regular payments from funding rates

  • Leverage Benefits: Amplified returns through position sizing

  • Compounding: Automatic reinvestment of earned funding

Operational Advantages

  • Liquidity: Easy entry and exit from positions

  • 24/7 Markets: Continuous trading and risk management

  • Transparency: On-chain settlement and clear pricing

Risks and Considerations

Market Risks

  • Funding Rate Volatility: Rates can change rapidly

  • Negative Funding: Periods where shorts pay longs

  • Extreme Volatility: May require rapid position adjustments

Operational Risks

  • Exchange Risk: Dependence on Hyperliquid platform

  • Liquidation Risk: Extreme price movements could trigger liquidations

  • Slippage: Large position changes may impact execution prices

Technical Risks

  • Oracle Risk: Price feed accuracy for mark price calculation

  • System Risk: Exchange downtime or technical issues

  • Connectivity: Network issues affecting position management

Hyperliquid Integration

Platform Features

  • High Liquidity: Deep order books for major cryptocurrencies

  • Low Fees: Competitive trading fees

  • Advanced Features: Sophisticated order types and risk management

  • API Access: Programmatic trading capabilities

Supported Assets

Stasis typically uses perpetual futures for:

  • ETH: Ethereum perpetual futures

  • BTC: Bitcoin perpetual futures

  • Other Major Cryptos: Based on liquidity and funding rate opportunities

Risk Management

  • Position Limits: Maximum exposure per asset

  • Leverage Limits: Conservative leverage usage (typically 2-3x)

  • Monitoring: Real-time position and risk tracking

  • Emergency Procedures: Rapid position unwinding capabilities

Performance Metrics

Key Indicators

  • Funding Rate Capture: Percentage of available funding earned

  • Position Efficiency: Return per unit of risk taken

  • Delta Accuracy: How well market neutrality is maintained

  • Execution Quality: Slippage and timing of position changes

Monitoring Tools

  • Real-Time Dashboard: Live position and P&L tracking

  • Risk Metrics: Delta, leverage, and exposure monitoring

  • Performance Analytics: Historical funding capture and strategy performance

Next: Funding Rates

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