Perpetuals

What are Perpetuals?

Perpetual futures contracts are leveraged trading instruments that allow traders to speculate on asset prices without an expiration date. Unlike traditional futures, perpetuals remain open indefinitely and are cash-settled, eliminating the need for physical delivery of the underlying asset.

On Helix, perpetual contracts are margined with stablecoins (e.g., USDT), making them more accessible and reducing the need to hold or store the underlying asset. Perpetuals also tend to be more liquid than traditional futures, minimizing slippage during trades.

To maintain alignment with the underlying asset's spot price, perpetuals rely on a funding mechanism. Funding payments are exchanged periodically between long and short positions based on the funding rate, which adjusts for price deviations between the perpetual contract and the underlying asset. This mechanism ensures the price remains close to the spot price, preventing significant overpricing or underpricing.

Key Concepts & Mechanisms

Realized vs. Unrealized Profit and Loss (PNL)

• Realized PNL: Profit or loss locked in when a position is closed, accounting for entry/exit prices and fees (e.g., trading fees, funding payments).

• Unrealized PNL: Potential profit or loss on an open position based on the current market price, fluctuating with the mark price.

Mark Price

The fair value price used to calculate unrealized PnL and liquidation events, preventing manipulation from temporary price changes. Helix uses decentralized oracles like Pyth and Stork for accurate mark price data.

Margin Requirements

• Initial Margin: Margin required to open a position, based on position size and leverage.

• Maintenance Margin: The minimum margin needed to keep a position open. Falling below this threshold triggers liquidation, automatically closing the position to prevent further losses.

Liquidation

Triggered when the margin balance drops below the maintenance margin. To avoid liquidation, traders can add more margin, reduce their position size, or monitor market conditions closely.

Funding Payments

Periodic payments exchanged between long and short positions to align the perpetual price with the spot price. On Helix, funding occurs hourly.

• Positive funding rates: Longs pay shorts.

• Negative funding rates: Shorts pay longs.

This mechanism incentivizes traders to bring the perpetual price back in line with the underlying market.

Leverage and Risk Management

Higher leverage reduces the buffer between the initial and maintenance margin, increasing the risk of liquidation. Traders should calculate liquidation prices and adjust their strategies to manage risks effectively.

Unique Use Cases

Helix perpetual futures go beyond standard trading applications, enabling innovative use cases like Pre-IPO Perpetuals, Index Perpetuals, and - at relevant times - Election Perpetuals.

Pre-IPO Perpetuals

Pre-IPO perpetuals are derivatives that track the price of a pre-IPO asset.

Key Features

• Leverage: Trade with up to 5x leverage.

• Funding Mechanism: Funding payments align the contract price with the index. Due to the nature of these products, funding is capped at ~2% annually, or 0.000275% hourly.

• Mark Price: Uses a proprietary oracle from SEDA, which pushes data on chain every four hours from Caplight, taking into account recent funding rounds and disclosed private market transactions.

Example: For OPENAI/USDT PERP, the mark price reflects the fair market value of pre-IPO OpenAI shares as traded OTC on the private market, or as recognized through traditional funding rounds (e.g. Series A, Series B).

Index Perpetuals

Index perpetuals are derivatives that track the price of an index instead of a single asset. These contracts are perpetual futures tied to indices, such as baskets of cryptocurrencies or on-chain metrics like the total supply of a product. For example, the BUIDL/USDT Index Perp tracks the net asset value (NAV) of BlackRock's BUIDL fund.

Key Features

• Leverage: Trade with up to 5x leverage.

• Funding Mechanism: Funding payments align the contract price with the index.

• Mark Price: Uses a proprietary oracle from Stork, which applies a 1-hour TWAP to smooth price fluctuations.

Example: For the BUIDL/USDT Index Perp, the mark price reflects the total supply of the BUIDL fund based on its smart contract on Ethereum. The NAV is scaled down for readability (e.g., 500 million tokens equates to a price of 5000).

Index perps provide flexible and innovative trading opportunities, allowing traders to speculate on broader market movements or specific on-chain metrics without holding the underlying assets.