Today, Deribit launched a blazing fast version of the extremely popular Perpetual Swap. We are launching this product in Beta, but it is fully tradable. We expect to come out of Beta and add some additional features soon.
The Perpetual is responsible for between 40 and 50 percent of all global trading in Bitcoin. It allows traders to take positions without any bitcoin actually changing any hands. It features low fees and traders can take very high levels of leverage. This means that the traders can take very large positions with only a small capital outlay.
A Perpetual is a complex product for an exchange to implement. Up till now, the only exchange offering it was BitMEX. Thanks to the Perpetual, this exchange is currently the dominant one globally.
Deribit now offers a version that has a number of large advantages over the conventional product.
Blazing fast execution
Deribit already had one of the most advanced platforms in the market. Over the last half year, Deribit’s developers worked flat out to make sure that our order execution speed remains blazing fast even under extremely high volumes. This means Deribit can handle thousands of order requests per second. Even then, order delays will be at most a couple of milliseconds per order.
The Deribit Perpetual executes orders 20x to 40x faster than the conventional Perpetual on average, and in fast-moving markets, the difference can be significantly larger. Fast execution can have a significant positive effect on profits, especially in the case of large price moves. It also provides our customers with the comfort that there are no preferred parties that are allowed to front run the market.
In order to keep its price close to the Bitcoin price, a Perpetual uses so-called ‘funding payments’ that occur between the buyers and sellers of the contract. The conventional Perpetual transfers the funding payment every 8 hours and this can cause bumps in the contract price around the moment of payment. The Deribit Perpetual makes tiny payments on a microsecond basis. This completely avoids price disturbances and will serve to keep the Perpetual price very close to the Bitcoin level.
Perpetuals and related products like futures enable traders to take large ‘leveraged’ positions on the basis of only a very limited amount of capital. The capital backing a leveraged trade is called ‘margin’. At the moment, Deribit offers 50x leverage so with 1 Bitcoin of margin you can take a 50 Bitcoin position. If the price moves against a leveraged position, eventually the exchange has to close out (liquidate) the position in the market to ensure there is always enough capital to cover the potential losses of the trade.
A number of high profile liquidation related incidents at other exchanges have resulted in large losses for traders. Deribit has designed a fairer liquidation mechanism that executes liquidations on an incremental basis while continuously trying to bring the position back into compliance. If a position is eventually closed out, Deribit customers retain any capital that is left over instead of automatically losing their entire margin.
In most cases, Deribit is able to stop the entire position from being liquidated or return some of the margins to the customer. Deribit has never had to ‘socialise’ liquidation losses by recouping them from other traders.
Another important advantage of Deribit over other exchanges is that they allow unrealized profits to be used as capital. This means that if a position is profitable, the unrealised profits can be used immediately as capital to open new positions, without waiting for a settlement.
The Deribit Perpetual will be in beta initially. We expect it to come out of beta soon with some interesting new features. Other cryptocurrencies like ETH and BCH will follow pretty soon.
For a more technical explanation about the Deribit Perpetual, see our documentation (link needs to be updated)
Deribit was founded by John Jansen, an early crypto investor with a background in options trading on the Amsterdam Options Exchange. In 2014, after a period trading cryptos on different exchanges, he developed a vision of an exchange where it would be possible to trade Futures, Options and other ‘derivative’ products in a secure – high performance – environment. John then proceeded to team up with a group of technical experts to turn this vision into a reality.
After two years of intensive development, Deribit went live in June of 2016. Currently, Deribit is a top 3 crypto futures exchange and the number one crypto options exchanges globally. We run our business from our office in Amsterdam (The Netherlands) and our development team is located in Poland.
A Perpetual on (for example) Bitcoin is a product that aims to closely track the Bitcoin price. It is based on the underlying price of Bitcoin without any real Bitcoins being involved. This makes the product a so-called ‘derivative’ product. This means that traders enter into ‘contracts’ with the exchange instead of doing an actual Bitcoin transaction.
In these contracts, Perpetual traders pay or receive the difference between the price when they entered into the position and the price when they unwind it. So, if the price level of the Perpetual was USD 7500 when someone bought a position and USD 8000 when they sold it the payout is USD 500 worth of Bitcoin for every Bitcoin of exposure.
Traders can buy contracts – called long positions – that benefit from a rise in the price. Conversely, traders can sell contracts – called short positions – that benefit from a price decline. There are always as many long as short positions outstanding, so the exchange has no position itself.
The product makes it very easy to quickly trade in and out of both long and short positions and features low trading fees. Perpetuals also allow for high leverage. This means that for every single Dollar of collateral in the account a trader can take up to 100 Dollar of Bitcoin exposure.
The product is related to the futures contract. But, unlike a futures contract, a Perpetual does not have a finite term and that is where its name comes from. The price of the Perpetual is kept close to the Bitcoin price by funding payments between the longs and the shorts.
If the Perpetual trades higher than the Index, traders that are long the perpetual need to make funding payments to the shorts. This will make the product less attractive to longs and more attractive to shorts. Consequently, this will serve to push the Perpetual price back down to the level of the Index. If the Perpetual trades lower than the index the shorts will have to pay the longs.
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