The Quantopian Podcast Quant Radio: Arbitrage in Perpetual Crypto Contracts
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Jun 10, 2025 Dive into the intriguing world of perpetual crypto contracts, where expiration is a thing of the past and high leverage reigns. Discover how a unique clamping function alters traditional arbitrage dynamics, creating unexpected price discrepancies. Explore the challenges traders face due to liquidity issues and transaction fees, and uncover the hidden mechanisms that shape market behavior. Perfect for anyone curious about the complexities of digital asset pricing!
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Clamping Creates Dead Zone
- The clamping function creates a dead zone where small price deviations between perpetual and spot contracts persist without correction.
- This stops the funding rate from adjusting for minor gaps, allowing prices to diverge within a stable range by design.
Clamp Alone Sets Price Range
- The clamping function alone, even with zero transaction fees, produces an interval of no-arbitrage rather than a single price point.
- This functions as a fundamental market design mechanism stabilizing price deviations without forcing immediate convergence.
Data Validates Clamping Model
- Empirical Binance data shows perpetual to spot price ratios mostly stay within clamp-adjusted bounds, matching the new theoretical model.
- Old pricing bounds ignoring clamping fail to explain persistent deviations seen in actual markets.