Perpetual Swaps: A Justification

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A perpetual swap is an agreement between two parties in which one party buys the exposure to an asset and the other party sells or shorts the same exposure.
The main difference between a regular futures contract and a perpetual swap is that a regular futures contract eventually settles, while a perpetual swap never settles.
This difference means that the price of a perpetual swap will never converge with the price of the underlying asset, which can make it risky.

For today’s episode, I sat down with Su Zhu to learn all about perpetual swaps. There’s probably not a person in crypto who has more authority on this topic than him. The first half of the episode serves as a general introduction to perpetual swaps, while in the second half, we explore how perpetual swaps are coming to DeFi and why they are the single biggest primitive that is still missing from the DeFi puzzle. While the episode can get pretty technical at times, we tried to follow a logical buildup, so no prior knowledge should be required. Please note that I put some links to definitions and followup reading into the show notes. Enjoy the episode. In this episode: What is a perpetual swap and how does it work The history of perp swaps and their usage outside of cryptocurrency How the oracle problem is misunderstood AMM and central limit order book: mapping the two approaches to perpetual swaps in DeFi Tradeoffs between perps in CeFi and DeFi Perpetual swaps as money legos How DeFi perp swaps will enable a new form of stablecoin The role of insurance funds and auto liquidation Hasu Twitter https://twitter.com/hasufl Su Zhu Twitter https://twitter.com/zhusu Episode transcript https://uncommoncore.co/uncommon-core-podcast-episode-8-transcript/ Definitions and further reading: TWAP: https://en.wikipedia.org/wiki/Time-weighted_average_price LIBOR: https://en.wikipedia.org/wiki/Libor CFD: https://en.wikipedia.org/wiki/Contract_for_difference Tom next swaps: https://www.investopedia.com/terms/t/tomorrownext.asp Rolling a futures contract https://www.investopedia.com/terms/r/rollforward.asp yTokens and yVaults: https://anchor.fm/uncommoncore/episodes/6-Andre-Cronje-and-the-Philosophy-of-Yearn-Finance-ei4vds Synthetix tokens and inverse tokens: https://docs.synthetix.io/tokens/ Article on crypto banking https://insights.deribit.com/market-research/the-great-race-to-crypto-banking/ Design space for auto liquidation mechanisms https://insights.deribit.com/market-research/crypto-derivatives-exchanges-liquidation-pioneers/