HipoPerp Popular Science: What is A Perpetual Contract? (2025 Latest Edition)

Perpetual contracts are a novel and popular financial derivative in the cryptocurrency industry. Ordinary futures contracts have an expiration date and will be physically delivered in the spot, while cryptocurrency perpetual contracts are actually futures contracts without an expiration date, through some mechanism to keep the price close to the spot price, and help buyers and sellers automatically take delivery and exchange positions on a regular basis. It is similar to Contracts for Difference (CFDs) in the traditional financial world. Although there are slight differences in the calculation of the interest rate mechanism, they can still be considered as derivatives of the same type. The use of leverage to enlarge positions is allowed in perpetual contract trading, but high leverage in the crypto industry also comes with high risks, so please use it with caution! As of 2025, perpetual contracts have become the dominant instrument for crypto derivatives trading, accounting for more than 70% of all crypto derivatives trading volume, with significant innovations including cross-chain integration, advanced risk management, and an improved funding rate mechanism. HipoPerp is at the forefront with refined zk-rollup technology, providing second-level transaction finality while maintaining decentralized security.

Investors who have engaged with the derivatives market must have another question: how do perpetual futures maintain the price of the underlying asset without an expiration date?

The answer is the funding rate.

Latest developments of HipoPerp (Hipo Perptual Futures) in 2025

The Perptual Futures market experienced significant evolution in 2025, with several key developments reshaping the market landscape:

• Market Maturity: Perptual Futures have become the dominant tool in cryptocurrency derivatives trading, accounting for over 70% of all cryptocurrency derivatives trading volume.
• Cross-chain integration: Major platforms now support perpetual trading across multiple blockchain networks and have a unified liquidity pool.
• Advanced Risk Management: Introducing a dynamic liquidation mechanism that reduces the cascading liquidation effect by 40% compared to traditional models.
• Improved funding rate mechanism: Enhanced price convergence algorithm reduces the premium/discount between Perptual Futures and spot prices.

2025 Technological Innovation:

HipoPerp is at the forefront of these innovations with its refined zk-rollup technology, providing second-level transaction finality while maintaining decentralized security. The platform’s hybrid approach combines the security advantages of decentralization with the speed traditionally associated with centralized exchanges.

These developments have significantly improved market efficiency while reducing the systemic risks that previously plagued the high-leverage Perptual Futures trading environment.

HipoPerp Science Popularization: What are Perptual Futures

Perptual Futures

Perpetual Futures are a novel and highly popular financial derivative in the crypto industry. Unlike traditional futures contracts that have an expiration date and physical delivery of assets, cryptocurrency perpetual futures are essentially futures contracts without an expiration date, utilizing certain mechanisms to keep prices close to spot prices while allowing for automatic periodic settlement and position swapping between buyers and sellers. Similar to Contracts for Difference (CFD) in the traditional financial world, although there are slight differences in the calculation of interest rate mechanisms, they can still be regarded as derivatives of the same type. Furthermore, in cryptocurrency perpetual futures, leverage can also be used to amplify positions, but the high leverage ratios in the crypto industry come with high risks, so investors should use caution!

Investors who have been in contact with the derivatives market often have another question: how can perpetual futures maintain their price linkage to the underlying asset without an expiration date?

The answer is – Funding Rate

What is the Funding Rate?

The funding rate is composed of two structural indicators - the interest rate and the premium (discount) index.

Interest Rate :

Each perpetual futures platform’s contract derivatives consist of two parts: the base currency (cryptocurrency) and the quoted currency (USD, USDT).

The interest rate here refers to the borrowing interest rate function between two currencies “(quoted interest rate index - base interest rate index) / funding fee time interval”, which indicates the variation between the quoted currency and the base currency during the funding fee payment time.

Premium Index:

The contract price in the perpetual futures trading market may have a significant premium or discount relative to the marked spot price. In this situation, the premium index mechanism will affect the funding rate for the next period by increasing or decreasing it. Generally, the premium index is the time-weighted average price of the perpetual futures index over 8 hours (Gate, Binance) or 1 hour (FTX).

Funding Rate:

If the initial funding rate is calculated based on the interest rate and premium index within 8 hours, the base interest rate is 0.01%, calculated as follows:

Initial funding rate = premium index + Clamp(0.01% - premium index, 0.05% ~ -0.05%)

Typically, when the premium index is in the range of 0.05% to -0.05%, the funding rate is usually the benchmark interest rate of 0.01%.

The funding fee will be based on the final funding rate at the time of payment.

Apply the final funding rate calculated below to the conversion positions between the buyer and seller of the trader, which will settle the funding fees that the trader’s buyer and seller need to pay or receive within the funding payment time.

Final funding fee = Initial funding rate x (Next funding fee payment countdown / Funding fee payment interval)

When the proportion of long positions in the market is relatively high, it causes the Perpetual Futures market price to be higher than the spot price, and the funding rate at this time will be positive. Long traders need to pay the funding rate to the short side in accordance with the funding rate to maintain the contract market price close to the spot market price. The higher the Perpetual Futures price is above the spot price and the more long positions there are, the higher the funding rate will be, and the long side will need to pay more fees to the short side.

Similarly, when the short position has a higher ratio, and the perpetual futures market price is lower than the spot market price, the funding rate will be negative at this time. Short investors need to pay fees to long positions according to the funding rate to maintain the market price.

Through this mechanism, it can effectively maintain the peg between Perptual Futures prices and the spot market.
Generally, the funding rate payment is settled every 8 hours (for example: Gate, Binance) and every 1 hour (for example: FTX).

Perptual Futures leverage and forced liquidation

As mentioned at the beginning of this article, in cryptocurrency Perptual Futures, the use of high leverage is allowed. In other words, traders can use margin (collateral) such as cryptocurrencies, which are divided into coin-based (BTC, ETH, …) and U-based (USDT, USDC), fiat currencies (USD), or a mixed margin model (non-stablecoin + stablecoin) to open a position greater than the value of their own collateral. If there is a significant price fluctuation in the market, and if the margin (collateral) falls below the standard level for maintenance margin (liquidation price line), then the trader’s position will be forcibly liquidated by the platform’s mechanism.

Many platforms for Perptual Futures are divided into cross margin mode and isolated margin mode. When using cross margin mode, even if you operate with a smaller margin, under high leverage when amplifying positions, if the price falls below the liquidation line, all assets in the entire account position will be liquidated. Please make sure to confirm whether you are using cross margin or isolated margin mode before opening a position!!

High leverage certainly allows investors to use less capital to strive for higher profits, but for investors with high leverage, there is a risk that cannot be ignored, namely the chain reaction of forced liquidation.

For example, suppose that the market price drops significantly today, and there are many high-leverage positions close to the liquidation line in the market. These high-leverage positions are easy to be liquidated due to insufficient margin value. If a more severe black swan event occurs, causing a systemic large-scale drop in the market, many high-leverage positions will be consecutively liquidated one after another. This will cause the overall market price to drop even more sharply, and since there is no circuit breaker mechanism in the crypto market, it will collapse like an avalanche, leading to a chain reaction of price drops and a large number of positions being liquidated.

In addition, since some platforms offering Perptual Futures allow collateral to be in the form of both stablecoins and non-stablecoin cryptocurrencies, and since non-stablecoin cryptocurrencies are inherently volatile digital assets, there is a possibility that traders using high leverage could be forced into liquidation. This can occur when they use highly volatile small coins as margin, causing the overall collateral position’s value to fall below the minimum margin level (liquidation price line) even when the market price itself does not fluctuate significantly, due to a crash in the value of that small coin.

In summary, moderate use of leverage is indeed an advantage in investing, but leverage is like a double-edged sword; excessive use can expose it to significant risks. Be sure to clearly understand the underlying risks and regularly check the margin position level!

Perptual Futures products possess a certain level of complexity. Although Perptual Futures have developed relatively maturely on centralized exchanges, they are still in their infancy in the decentralized field, with many attempts at decentralization being made by various parties. As a new generation public chain focusing on user asset security and decentralized trading, GateChain provides strong guarantees for Perptual Futures in terms of fund security and reconciliation mechanisms. The GateChain team believes that the best solution for Perptual Futures is a combination of decentralized security and centralized trading experience. To this end, the GateChain team has developed a layer2 Perptual Futures product solution based on zk-rollup - HipoPerp.

About HipoPerp

HipoPerp is a decentralized perpetual futures trading platform built on GateChain, allowing users to trade without intermediaries. HipoPerp’s trading engine utilizes Zk-rollup technology to provide users with a better decentralized trading experience. HipoPerp is a part of the HipoDeFi ecosystem, which offers multi-chain trading and cross-chain services, aggregating price fluctuation data from different projects and trading pairs across multiple chains, helping users understand the market and access it with one click.

About Gate Chain

Gate Chain is a new generation public chain focused on the security of user assets and decentralized trading. It features an innovative online hot insurance account and a liquidation guarantee system that creatively addresses core industry issues such as theft of digital assets, loss or damage of private keys, decentralized trading, and cross-chain transfers. With six years of blockchain technology accumulation, two years of focused research, and a team of over a hundred technical experts, Gate Chain is built on exceptional innovation capabilities and strong financial strength to create a revolutionary blockchain.