Complex Systems with Patrick McKenzie (patio11)11 Des 2025

Understanding perpetual futures

In this episode, Patrick McKenzie (patio11) walks through how perpetual futures work, from funding rates to liquidations to the surprise of automatic deleveraging. Perps are the dominant trading mechanism in crypto (6-8X larger than spot volume) and exist primarily to let exchanges and market makers run casinos more capital-efficiently. He explains why this intellectually interesting innovation probably won't escape crypto, despite what crypto enthusiasts might expect.
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Full transcript available here: www.complexsystemspodcast.com/understanding-perpetual-futures/

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Links:

Bits about Money, Perpetual futures, explained www.bitsaboutmoney.com/archive/perpetual-futures-explained/

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Timestamps:
(00:00) Intro
(02:36) Beginning with the problem
(06:49) Perps predate crypto but found a home there
(08:19) Multiple settlements a day
(10:30) Convergence in prices via the basis trade
(13:44) Sponsor: Framer
(15:11) Leverage and liquidations
(18:46) We have altered the terms of your unregulated futures investment contract
(21:50) An aside about liquidations
(25:14) Will crypto successfully "export" perps

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