Executive Summary

Perpetual futures (“perps”) have become the dominant derivative instrument in digital asset markets, representing over 75% of crypto derivatives volume. Designed as funding-rate balanced instruments with no expiry, perps solved structural inefficiencies of traditional futures markets and created a global, 24/7 leveraged trading product.

Today, perps are not just speculative vehicles — they are evolving into programmable financial primitives that may extend beyond crypto into FX, commodities, and equities. The investable thesis lies in infrastructure enabling perp liquidity, protocol innovations that reduce systemic risk, and the expansion of perp markets into regulated and verifiable contexts.

1. Market Overview

Volume & Dominance

• As of 2025, perp contracts account for >$100B in daily notional volume, outpacing spot trading by >3x.

• Dominated by centralized exchanges (Binance, OKX, Bybit), but DeFi perpetuals (dYdX, GMX, Hyperliquid, Aevo) are gaining share.

User Base

• Primarily retail and high-frequency traders, but increasing hedge fund participation.

• Institutional entry limited by regulatory clarity, custody, and counterparty risk.

Revenue Model

• Trading fees and funding-rate spreads drive exchange revenue.

• Decentralized protocols experiment with fee-sharing to token holders and liquidity providers.

2. Structural Advantages of Perps

• No Expiry, Continuous Roll → Solves inefficiency of quarterly futures rollover.

• Funding Rate Mechanism → Anchors perp price to spot, creating synthetic replication of margin trading.

• High Liquidity & Leverage → Flexible leverage up to 100x on CEXs; DeFi protocols offering sustainable 10–20x.

• Programmability → On-chain perps integrate with composable DeFi primitives, enabling structured products.

3. Evolution from CEX to DeFi

CEX Perps

• Binance, OKX dominate volumes with deep liquidity, but opaque risk management.

• Concerns: counterparty risk, opaque liquidation mechanisms, regulatory scrutiny.

DeFi Perps

• Orderbook-based: dYdX v4 (Cosmos chain), Hyperliquid (custom L1) → near-CEX speed & depth.

• AMM-based: GMX, Perp Protocol → innovative LP models but prone to toxic flow.

• Hybrid models: Aevo (off-chain matching + on-chain settlement).

Key Thesis: DeFi perps will capture structural trust premium as users demand transparency, verifiable solvency, and censorship resistance.

4. Economic Drivers

• Speculation Demand: Perps offer global retail easy access to leverage and hedging.

• Liquidity Recycling: Funding rate dynamics create opportunities for arbitrage and carry trades.

• Synthetic Asset Creation: Perps extend to FX, commodities, equity indices on-chain, unlocking global 24/7 access.

• Treasury Strategies: Protocols and DAOs increasingly use perps for hedging token exposure.

5. Risks

• Funding Rate Distortions: Extreme long/short imbalances (e.g., bull markets) create unsustainable costs.

• Counterparty & Liquidation Risk: CEX opacity and DeFi oracle dependencies.

• Regulatory Pressure: Derivatives remain highly scrutinized; unlicensed perp venues face enforcement.

• Liquidity Fragmentation: Too many protocols splitting open interest across chains.

6. Investable Opportunities

1. Infrastructure & Liquidity Rails

• Decentralized orderbooks, cross-chain liquidity networks, oracle systems.

• Investment Thesis: Critical bottlenecks to DeFi perp adoption.

2. Risk Management Innovations

• Protocols experimenting with dynamic funding, insurance funds, socialized loss mechanisms.

• Investment Thesis: Survivors will be those who engineer sustainable models against toxic flow.

3. Cross-Asset Expansion

• Synthetic perps on FX, equities, commodities, with regulatory-compliant wrappers.

• Investment Thesis: Perps as the default 24/7 market access layer.

4. Verifiable & Compliant Perps

• On-chain proof-of-reserves, zk-based compliance modules (zkKYC, regulated access).

• Investment Thesis: Bridges gap to institutional adoption.

7. Outlook & Implications

Perps will remain the dominant liquidity venue of digital assets, but the frontier is shifting:

• CEX dominance → challenged by DeFi orderbooks (speed + transparency).

• Crypto-native speculation → expanded to global asset access (FX, equities, commodities).

• Opaque structures → verifiable, programmable risk markets.

For early-stage investors, the opportunities are asymmetric in:

1. Next-gen perp protocols (DeFi-native, scalable, risk-aware).

2. Liquidity & oracle infrastructure.

3. Compliance & verifiability layers enabling institutional crossover.

Conclusion

Perpetuals are no longer just crypto’s favorite gambling tool. They represent the most liquid, most adaptable, and most programmable derivative primitive in existence.

At Leland Ventures, our conviction is that perps will become the default market access instrument across digital and traditional assets — the connective tissue of 24/7 programmable finance.