Perpetual Contracts: DeFi’s Next Major Battleground
Perpetual contracts, also known as „perps,“ have become the next major battleground for the decentralized finance (DeFi) industry. These contracts are modified futures contracts that have no expiration dates, allowing traders to borrow capital and open leveraged positions on certain assets. Unlike traditional futures contracts, perpetuals never expire and are always cash-settled.
Perpetuals have gained popularity for their utility in placing hedges and high-stakes investments. They have amassed immense capital and interest from crypto traders, with the combined market capitalization of perpetual exchange tokens currently sitting at over $1.1 billion. It is not uncommon for the 24-hour trading volume on perpetual contracts to surpass $100 million. Given this success, perpetuals show no signs of slowing down.
Getting Perps Right: The Entry Point to the 2023 DeFi Scene
The DeFi space is currently dominated by a small group of elite protocols that control swaps, lending markets, order routing, and liquidity aggregation. Breaking into the DeFi scene by targeting spot markets and swaps is becoming increasingly difficult. However, perpetual contracts have become a favorite among traders who are looking to take big risks.
Perpetual contracts provide traders with the freedom to bet long or short, regardless of where the market is headed. They also offer leverage, allowing traders to increase their stakes and capitalize on their predictions. This flexibility and potential for high returns have attracted active traders to perpetual exchanges.
Existing DeFi incumbents have perfected the spot market experience, making it challenging for newcomers to compete. However, the perpetuals scene presents an opportunity to win over users. By simplifying process flows, providing an intuitive interface, and offering a transparent fee structure, new perpetual exchanges can solve pain points for traders and onboard them onto an entirely new DeFi ecosystem.
The Recipe for the Perfect Perps
When it comes to attracting interest from perpetual traders, there are three key ingredients to developing the perfect perpetuals exchange.
- Choosing the right chain: Selecting a chain that can support a full-featured perpetual exchange, ensure high performance, and keep trading fees in check is crucial.
- Providing essential features: Supporting popular assets and stablecoins, offering significant leverage, and incentivizing liquidity provision are essential for a successful perpetual exchange.
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Providing educational content: Perpetual contracts are complex financial instruments that require a nuanced understanding. Offering free educational content helps users interpret analytics, understand liquidation functions, and assess collateral requirements. By going above and beyond to educate users, a development team can demonstrate its dedication to the community.
Satisfied Perpetual Traders Become Loyal Community Members
Once traders are satisfied with their experience on a perpetual exchange, they tend to explore other offerings within the platform’s native DeFi ecosystem. Traders are eager to see the next DeFi giant emerge and build the next DeFi empire. Starting with perpetual contracts is a strategic move in the 2023 DeFi scene, as it allows platforms to capture user interest and expand their offerings.
In conclusion, perpetual contracts have emerged as the next major battleground for the DeFi industry. By targeting this sector and providing a seamless trading experience, new perpetual exchanges can disrupt and compete with existing DeFi incumbents. Choosing the right chain, offering essential features, and providing educational content are the key ingredients to success in the perpetuals market. Once traders are satisfied with their experience, they become loyal community members, contributing to the growth of the platform’s DeFi ecosystem.
*Note: This article is written by Alexi Atlas, the founder of the Kinetix DeFi hub.
