Why would I want a perp on BTC when I can just buy the coin? The example quoted the price of the perp as (close to) the same as the price of BTC, so if I'm not getting leverage why not just buy the coin and avoid counterparty risk?
A perp is a future which is different from buying BTC at its spot price. If you remove the "perpetual" aspect of the future and it was a regular future that was settling soon, likewise it would be similar in price but not the same as the underlying. There's lots of uses for futures and they're often used as hedges against various forms of risk, like currency risk.
Because the exchanges offer 20x leverage on perps but not on spot. In theory perps can have deeper liquidity because they can go beyond the 21M BTC limit. If you don't care about those factors then you shouldn't trade perps; they aren't intended to be magically superior to spot.
It's striking how much the crypto world depends on trust in other parties. The whole point of crypto was supposed to be that it was "trustless". But it's not set up that way. All these crypto derivatives are not set up as contracts on a blockchain, with assets locked up until the derivatives settle. They're book entries with some weakly regulated exchange in Outer Nowhere.
The people who want trustless decentralization and the people who want leveraged gambling and the people who want KYC-free international money transfer may be different people. The only problem with Liberty Reserve was that it got shut down; if a "decentralied" fig leaf can allow it to operate... let there be "decentralization".
> HyperCore includes fully onchain perpetual futures and spot order books. Every order, cancel, trade, and liquidation happens transparently with one-block finality inherited from HyperBFT. HyperCore currently supports 200k orders / second, with throughput constantly improving as the node software is further optimized.
Key part:
> fully onchain perpetual futures and spot order books
This is a common place in any thread about cryptocurrencies on HN unfortunately... I could be convinced of my own message also being a sweeping generalization if anyone can point out a single post where top comments aren't doing exactly this when it comes to this topic, even the technical ones.
whats more important to me is that you don't have to ask anybody if you can deploy an entire financial services suite
and not only will other people worldwide use it immediately, they will also pay for all your infrastructure costs as they update the chain state with every transaction fee that they pay
the permissionless nature means you can deploy anything as cenralized or decentralized as you want, and its up to consumers to be discerning and its only their fault if they are not
cost wise this will always be attractive to developers and for them to bring over every audience they can muster, because web 2.0 cloud cannot compete with that cost structure and permissionless nature
BTC almost exclusively enables crime. It's fundamentally too bad at basically everything to replace any part of the real economy. It is almost exclusively used for crime, admittedly fun technological exploration, and gambling on a valuation based not on actual net utility in current context but on perception of future utility that will probably never materialize.
Web 2.0 based on boring old primitives like ad dollars and banks actually funds things that in real life provide ultimately virtually all the actual utility obtained by the world from software.
You said
> web 2.0 cloud cannot compete with that cost structure and permissionless nature
It appears to me that that is just incorrect on its face because web 2.0 cloud actually DOES compete insofar as its literally everywhere as we speak and web 3.0 is a buzzword from 2014 that has yet to achieve actual meaning.
To rephrase do you feel it is accurate to say that something that represents basically all the real value obtained by network computers doesn't competes with something that provides? What again?
By now crypto-in-practice has violated so many of its supposed founding principles that it's tired and cliche to point it out.
It was supposed to be limited in supply unlike fiat, and yet Tether underpins the whole thing and they print that out of thin air all the time. It was supposed to be decentralized, but in practice a few big exchanges control all the transactions and a few big mining pools control all the minting. It was supposed to be "code is law", and yet if you find a big exploit on smart contracts it'll be unwound later on and the cops will still show up for you. And as you say, it was supposed to be trustless, but counterparty risk is everywhere.
And it turns out nobody cares, because to a first approximation nobody is in crypto for the libertarian principles. It is all about number go up; always has been, always will be. It's not even worth pointing out anymore.
> It was supposed to be limited in supply unlike fiat, and yet Tether underpins the whole thing and they print that out of thin air all the time.
This is a joke right? Tether (USDT) is pegged to the dollar... and there is not really a limit to the USD printing machine, nobody ever claimed a stablecoin would have a limited supply. It's literally the main critique of the fiat system levied by crypto proponents.
The only asset which has made and still hold promises of not increasing its supply over its limit set through its consensus code is Bitcoin. And it is nowhere close to ever change... as a matter of fact if it changed, most people wouldn't call that fork Bitcoin.
Well they publish attestations from third-parties, but no full audits, so sure they could be much more transparent.
But the claim about USDT ever claiming that its supply wouldn't increase is pure fantasy. It literally makes no sense if you understand how the peg is maintained (technically by minting and burning tokens).
I took their comment to mean that tokens valuations are tied to stablecoins. Sufficiently tied enough as to be de facto properties of tokens themselves.
Yes. Cryptocurrencies operate within the larger econo-political system we live in, and as long as cryptocurrencies replace only a part of that system, the rest of the system will continue to operate as it does otherwise. Its quite clear that the way capitalism operates in practice is that most markets end up being oligopolish, and that people with guns are needed to keep the system stable. So not at all surprising.
> And it turns out nobody cares, because to a first approximation nobody is in crypto for the libertarian principles. It is all about number go up; always has been, always will be. It's not even worth pointing out anymore.
I agree 100% - Meme stocks go brrrrrrrr
The idea that it's a currency that lives beyond the reach of governments is laughable (as soon as something goes bang a lot of the owners call for... regulators and government oversight)
People putting their self-interests before maintaining support for more general principles is par for the course.
Even the vast majority of free-market maximalists will support a government bailout of large banks or the auto industry if it will save their investment portfolio.
I spent a few years leading dev on decentralized exchanges, building bridges to other chains and building a sophisticated margin system on top of the trading pools.
A few things I think I've learned:
In its current state, most retail investors are simply supplying to the sophisticated investor.
Although some DeFi projects make a genuine effort to provide analysis tools to level the playing field, it's not nearly enough.
The safest least volatile yields in DeFi are lending your stable coins into a system such as aave. The yield is not far from a high yield USD savings account.
Exchanges such as Uniswap may be the most important legit tool in DeFi. The biggest problem is the liquidity provider's ability to protect their downside...so the investor adds on more sophisticated monitoring/hedging schemes. This gets us back to the retail investor being at a severe disadvantage.
Yes if you start doing analysis on DeFi and a lot of cryptocurrency markets, you can see very quickly that retail investors ("dumb money") are just providing liquidity to the smart money. There's a lot of unsophisticated money in these markets which makes it pretty fun to compete as someone trying to be smart.
It's even more brutal in the more established, traditional markets though. Obviously if you're going long and managing a portfolio that's a different perspective, but it's very hard as an outsider to compete with the smart funds in the world. You might be smart but most of those funds are very smart, well capitalized, and have a very deep understanding of market structure.
It appears to me that majority of the article is about (unregulated) leveraged trading, with perps being an instrument to get leverage. I seen similar stories of blowing up outside us in forex market, for example, where no one were talking about futures, it was just 100x leverage that was biting many (most?) traders.
>The basis trade, classically executed, is delta neutral: one isn’t exposed to the underlying itself. You don’t need any belief in Bitcoin’s future adoption story, fundamentals, market sentiment, halvings, none of that. You’re getting paid to provide the gambling environment, including a really important feature: the perp price needs to stay reasonably close to the spot price, close enough to continue attracting people who want to gamble. You are also renting access to your capital for leverage.
Patrick is largely correct on perp futures being mostly used as a leverage instrument to gamble on bitcoin or ether by retail. However I think he's missing one point which is that actually some institutional players also use CME futures to gain exposure to Bitcoin (e.g., BITO ETF or a pension fund that wants to gain exposure to crypto and have a fiduciary duty to hold assets with AAA custodians).
The thesis being that if you're an institution, you don't trust the relatively "fly-by" offshore crypto or even US-regulated custodians of crypto. When you trade CME bitcoin futures, your settlement is guaranteed by the clearing entities of Chicago Mercantile Exchange which are bulge bracket firms of TradFi. So why CME futures largely reflect a premium over the spot BTC price - and this premium is a function of the demand of bitcoin at anytime and the Fed fund rate. As the bitcoin futures market is highly efficient, the CME futures premium is arbitraged across the various DeFi and CeFi exchanges with basis points added relative to the default risk of each venue.
And the basis trade itself is not a "risk-free" arbitrage. The seller on the other side of gamblers are exposed to "right-tail" risk - your premium you get paid to "carry" the bitcoin is fixed while the collateral you must hold in theory to "hold" the coin on behalf of the buyer could be in theory infinite if bitcoin skyrockets to infinity. Sell too much and you might not have enough collateral before the futures settlement happens (for a fixed term futures, not perps) kind of like a reverse but still deadly scenario with Silicon Valley Bank (i.e., you incur "paper loss" that goes away if you can hold it to expiry; but you get force liquidated before then).
If the price of Bitcoin increases, you collateral value increases along the losses from the short. This is why it's "delta neutral".
The real risk is to be auto-deleveraged when the other side blows up and no one is here to buy its long. Then the perp exchange closes your short and you have a naked long.
> When you trade CME bitcoin futures, your settlement is guaranteed by the clearing entities of Chicago Mercantile Exchange which are bulge bracket firms of TradFi.
The CME clearinghouse itself is the guarantor. And below it are the clearing firms. The trading firms don't guarantee trades, the clearing firms do.
In fact, for many products, the CME is the counterparty for both sides of a trade.
Crypto at this point is neither decentralized nor anonymous. It’s a Ponzi scheme wrapped in increasing level of complexity and involving an increasing number of banks, and controlled by a decreasing number of very large players. This crypto octopus is putting tentacles in Fidelity, and major US banks, and pension funds, and 401k accounts, and any other money holder. They are putting debt on banks at leverage levels beyond any reason. So when the music stops playing the octopus can slurp the real money liquidity out of as many US banks and savings institutions as possible, to eventually collapse the savings even of people who have nothing to do with Crypto.
That's really not true. Sure, there are huge amounts of scams and ponzi schemes and that's what gets attention, but crypto is absolutely used every day by many in a decentralized and effectively anonymous way.
Dark markets are still active and people move large amounts across international borders effortlessly.
As an example of being effectively anonymous, I can easily take some cash, meet up at a cafe nearby with someone from a p2p site to swap it to crypto, and then pay a foreign company for hosting services for years with that crypto, sharing zero personal information.
I don't think many people on HN realize how globally systemically important public blockchains are on track to become, especially Ethereum.
The understandable hatred of the casino and many scams has blinded most of HN as to the true potential of the technology and its associated new public institutions.
That's what a decentralized public blockchain is, a new kind of public institution.
One small example of this is that the most state-of-the-art perpetual futures market in the world is an Ethereum Layer 2 named Lighter https://app.lighter.xyz/markets/
Why would I want a perp on BTC when I can just buy the coin? The example quoted the price of the perp as (close to) the same as the price of BTC, so if I'm not getting leverage why not just buy the coin and avoid counterparty risk?
A perp is a future which is different from buying BTC at its spot price. If you remove the "perpetual" aspect of the future and it was a regular future that was settling soon, likewise it would be similar in price but not the same as the underlying. There's lots of uses for futures and they're often used as hedges against various forms of risk, like currency risk.
Because the exchanges offer 20x leverage on perps but not on spot. In theory perps can have deeper liquidity because they can go beyond the 21M BTC limit. If you don't care about those factors then you shouldn't trade perps; they aren't intended to be magically superior to spot.
You can buy (go long) a BTC future with only $10,000 or less of collateral. So you can get lots of leverage.
Another reason is that the future may be trading slightly below the spot price of BTC due to lots of traders shorting.
It's striking how much the crypto world depends on trust in other parties. The whole point of crypto was supposed to be that it was "trustless". But it's not set up that way. All these crypto derivatives are not set up as contracts on a blockchain, with assets locked up until the derivatives settle. They're book entries with some weakly regulated exchange in Outer Nowhere.
The people who want trustless decentralization and the people who want leveraged gambling and the people who want KYC-free international money transfer may be different people. The only problem with Liberty Reserve was that it got shut down; if a "decentralied" fig leaf can allow it to operate... let there be "decentralization".
That's not true with decentralised exchanges like hyperliquid, no?
Hyperliquid and similar exchanges aren't decentralized. That is their long term goal but they are very far from achieving it.
The few actual decentralized exchanges are too slow and expensive.
I mean, as soon as synchronisation is required in any system, block chain, distributed SAAS, even Peer to Peer sharing, decentralisation fails hard
That's one of the sticking points I have with the /idea/ of the technology
> HyperCore includes fully onchain perpetual futures and spot order books. Every order, cancel, trade, and liquidation happens transparently with one-block finality inherited from HyperBFT. HyperCore currently supports 200k orders / second, with throughput constantly improving as the node software is further optimized.
Key part:
> fully onchain perpetual futures and spot order books
Being on a blockchain and being decentralized are two different things. The HyperCore client isn't even open source.
This comment makes sweeping generalizations.
This is a common place in any thread about cryptocurrencies on HN unfortunately... I could be convinced of my own message also being a sweeping generalization if anyone can point out a single post where top comments aren't doing exactly this when it comes to this topic, even the technical ones.
whats more important to me is that you don't have to ask anybody if you can deploy an entire financial services suite
and not only will other people worldwide use it immediately, they will also pay for all your infrastructure costs as they update the chain state with every transaction fee that they pay
the permissionless nature means you can deploy anything as cenralized or decentralized as you want, and its up to consumers to be discerning and its only their fault if they are not
cost wise this will always be attractive to developers and for them to bring over every audience they can muster, because web 2.0 cloud cannot compete with that cost structure and permissionless nature
Isn't basically virtually 100% of the money that isn't crime adjacent web 2.0 implying it can compete?
What are you asking? Can you rephrase that in a different way?
Can I leverage trade derivatives and also earn fees from liquidity pooling with Robux?
BTC almost exclusively enables crime. It's fundamentally too bad at basically everything to replace any part of the real economy. It is almost exclusively used for crime, admittedly fun technological exploration, and gambling on a valuation based not on actual net utility in current context but on perception of future utility that will probably never materialize.
Web 2.0 based on boring old primitives like ad dollars and banks actually funds things that in real life provide ultimately virtually all the actual utility obtained by the world from software.
You said
> web 2.0 cloud cannot compete with that cost structure and permissionless nature
It appears to me that that is just incorrect on its face because web 2.0 cloud actually DOES compete insofar as its literally everywhere as we speak and web 3.0 is a buzzword from 2014 that has yet to achieve actual meaning.
To rephrase do you feel it is accurate to say that something that represents basically all the real value obtained by network computers doesn't competes with something that provides? What again?
By now crypto-in-practice has violated so many of its supposed founding principles that it's tired and cliche to point it out.
It was supposed to be limited in supply unlike fiat, and yet Tether underpins the whole thing and they print that out of thin air all the time. It was supposed to be decentralized, but in practice a few big exchanges control all the transactions and a few big mining pools control all the minting. It was supposed to be "code is law", and yet if you find a big exploit on smart contracts it'll be unwound later on and the cops will still show up for you. And as you say, it was supposed to be trustless, but counterparty risk is everywhere.
And it turns out nobody cares, because to a first approximation nobody is in crypto for the libertarian principles. It is all about number go up; always has been, always will be. It's not even worth pointing out anymore.
> It was supposed to be limited in supply unlike fiat, and yet Tether underpins the whole thing and they print that out of thin air all the time.
This is a joke right? Tether (USDT) is pegged to the dollar... and there is not really a limit to the USD printing machine, nobody ever claimed a stablecoin would have a limited supply. It's literally the main critique of the fiat system levied by crypto proponents.
The only asset which has made and still hold promises of not increasing its supply over its limit set through its consensus code is Bitcoin. And it is nowhere close to ever change... as a matter of fact if it changed, most people wouldn't call that fork Bitcoin.
The problem with Tether is that they are tight-lipped about their backing assets. No one knows if the peg is real, it's just "trust me bro"
Well they publish attestations from third-parties, but no full audits, so sure they could be much more transparent.
But the claim about USDT ever claiming that its supply wouldn't increase is pure fantasy. It literally makes no sense if you understand how the peg is maintained (technically by minting and burning tokens).
I took their comment to mean that tokens valuations are tied to stablecoins. Sufficiently tied enough as to be de facto properties of tokens themselves.
Yes. Cryptocurrencies operate within the larger econo-political system we live in, and as long as cryptocurrencies replace only a part of that system, the rest of the system will continue to operate as it does otherwise. Its quite clear that the way capitalism operates in practice is that most markets end up being oligopolish, and that people with guns are needed to keep the system stable. So not at all surprising.
> And it turns out nobody cares, because to a first approximation nobody is in crypto for the libertarian principles. It is all about number go up; always has been, always will be. It's not even worth pointing out anymore.
I agree 100% - Meme stocks go brrrrrrrr
The idea that it's a currency that lives beyond the reach of governments is laughable (as soon as something goes bang a lot of the owners call for... regulators and government oversight)
People putting their self-interests before maintaining support for more general principles is par for the course.
Even the vast majority of free-market maximalists will support a government bailout of large banks or the auto industry if it will save their investment portfolio.
I spent a few years leading dev on decentralized exchanges, building bridges to other chains and building a sophisticated margin system on top of the trading pools.
A few things I think I've learned:
In its current state, most retail investors are simply supplying to the sophisticated investor.
Although some DeFi projects make a genuine effort to provide analysis tools to level the playing field, it's not nearly enough.
The safest least volatile yields in DeFi are lending your stable coins into a system such as aave. The yield is not far from a high yield USD savings account.
Exchanges such as Uniswap may be the most important legit tool in DeFi. The biggest problem is the liquidity provider's ability to protect their downside...so the investor adds on more sophisticated monitoring/hedging schemes. This gets us back to the retail investor being at a severe disadvantage.
Yes if you start doing analysis on DeFi and a lot of cryptocurrency markets, you can see very quickly that retail investors ("dumb money") are just providing liquidity to the smart money. There's a lot of unsophisticated money in these markets which makes it pretty fun to compete as someone trying to be smart.
It's even more brutal in the more established, traditional markets though. Obviously if you're going long and managing a portfolio that's a different perspective, but it's very hard as an outsider to compete with the smart funds in the world. You might be smart but most of those funds are very smart, well capitalized, and have a very deep understanding of market structure.
It appears to me that majority of the article is about (unregulated) leveraged trading, with perps being an instrument to get leverage. I seen similar stories of blowing up outside us in forex market, for example, where no one were talking about futures, it was just 100x leverage that was biting many (most?) traders.
>The basis trade, classically executed, is delta neutral: one isn’t exposed to the underlying itself. You don’t need any belief in Bitcoin’s future adoption story, fundamentals, market sentiment, halvings, none of that. You’re getting paid to provide the gambling environment, including a really important feature: the perp price needs to stay reasonably close to the spot price, close enough to continue attracting people who want to gamble. You are also renting access to your capital for leverage.
Patrick is largely correct on perp futures being mostly used as a leverage instrument to gamble on bitcoin or ether by retail. However I think he's missing one point which is that actually some institutional players also use CME futures to gain exposure to Bitcoin (e.g., BITO ETF or a pension fund that wants to gain exposure to crypto and have a fiduciary duty to hold assets with AAA custodians).
The thesis being that if you're an institution, you don't trust the relatively "fly-by" offshore crypto or even US-regulated custodians of crypto. When you trade CME bitcoin futures, your settlement is guaranteed by the clearing entities of Chicago Mercantile Exchange which are bulge bracket firms of TradFi. So why CME futures largely reflect a premium over the spot BTC price - and this premium is a function of the demand of bitcoin at anytime and the Fed fund rate. As the bitcoin futures market is highly efficient, the CME futures premium is arbitraged across the various DeFi and CeFi exchanges with basis points added relative to the default risk of each venue.
And the basis trade itself is not a "risk-free" arbitrage. The seller on the other side of gamblers are exposed to "right-tail" risk - your premium you get paid to "carry" the bitcoin is fixed while the collateral you must hold in theory to "hold" the coin on behalf of the buyer could be in theory infinite if bitcoin skyrockets to infinity. Sell too much and you might not have enough collateral before the futures settlement happens (for a fixed term futures, not perps) kind of like a reverse but still deadly scenario with Silicon Valley Bank (i.e., you incur "paper loss" that goes away if you can hold it to expiry; but you get force liquidated before then).
If the price of Bitcoin increases, you collateral value increases along the losses from the short. This is why it's "delta neutral".
The real risk is to be auto-deleveraged when the other side blows up and no one is here to buy its long. Then the perp exchange closes your short and you have a naked long.
> When you trade CME bitcoin futures, your settlement is guaranteed by the clearing entities of Chicago Mercantile Exchange which are bulge bracket firms of TradFi.
The CME clearinghouse itself is the guarantor. And below it are the clearing firms. The trading firms don't guarantee trades, the clearing firms do.
In fact, for many products, the CME is the counterparty for both sides of a trade.
Is there a good resource on how perps actually work? i.e a technical specification on how to implement them?
BitMEX and Hyperliquid have fairly detailed documentation about how they implement perps and there are probably open source projects out there.
Crypto at this point is neither decentralized nor anonymous. It’s a Ponzi scheme wrapped in increasing level of complexity and involving an increasing number of banks, and controlled by a decreasing number of very large players. This crypto octopus is putting tentacles in Fidelity, and major US banks, and pension funds, and 401k accounts, and any other money holder. They are putting debt on banks at leverage levels beyond any reason. So when the music stops playing the octopus can slurp the real money liquidity out of as many US banks and savings institutions as possible, to eventually collapse the savings even of people who have nothing to do with Crypto.
There are some new-ish attempts to improve crypto anonymity and decentralization. For example zcash and monero.
That's really not true. Sure, there are huge amounts of scams and ponzi schemes and that's what gets attention, but crypto is absolutely used every day by many in a decentralized and effectively anonymous way.
Dark markets are still active and people move large amounts across international borders effortlessly.
As an example of being effectively anonymous, I can easily take some cash, meet up at a cafe nearby with someone from a p2p site to swap it to crypto, and then pay a foreign company for hosting services for years with that crypto, sharing zero personal information.
I don't think many people on HN realize how globally systemically important public blockchains are on track to become, especially Ethereum.
The understandable hatred of the casino and many scams has blinded most of HN as to the true potential of the technology and its associated new public institutions.
That's what a decentralized public blockchain is, a new kind of public institution.
One small example of this is that the most state-of-the-art perpetual futures market in the world is an Ethereum Layer 2 named Lighter https://app.lighter.xyz/markets/
I don't realize, care to enlighten us?
I guess you could help educate us by giving some non-gambling and non-criminal examples of innovation powered by Ethereum that justify its importance.
Only missing the bit about the insurance fund and so on.
Sad to see patio11 fell victim to Mammon. The great beast tempts us all.