Bitcoin Perpetuals: Funding, Leverage, and Liquidation Design
Summary
This article introduces Deribit’s Bitcoin perpetual swap and explains how perpetual contracts track spot without exchanging the underlying Bitcoin. Long and short traders settle price changes in the contract, while periodic funding payments encourage the contract price to stay near an index. When the perpetual trades above the index, longs pay shorts; below it, shorts pay longs. Unlike dated futures, perpetuals have no expiry.
The article describes Deribit’s design choices: frequent, small funding transfers intended to reduce price disruption, and incremental liquidations that try to restore a position’s margin compliance while returning any remaining capital if the position closes. It also notes that unrealized profits may be used as collateral for new positions. The discussion is an exchange’s product introduction, not independent evidence: execution-speed comparisons and claims about liquidation outcomes are presented without supporting data. High leverage magnifies losses, and the article’s leverage figures describe the product at publication, not current terms.
Key ideas
- Perpetual swaps provide long or short exposure to Bitcoin without transferring the underlying asset.
- Funding payments between longs and shorts help keep the contract price near its index.
- Unlike dated futures, perpetual contracts have no expiry.
- The described liquidation system closes positions incrementally and may return leftover margin.
- High leverage increases exposure relative to posted capital and can amplify losses.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.