Skip to main content
DeFiInjectiveMultiversxPerp Markets

The Benefits, Opportunities & Risks of DeFi Perpetual Markets

By 13 November 2023February 7th, 2024No Comments

🧵 Exploring the Benefits, Opportunities & Risks of On-Chain Perpetual Markets in DeFi

🏦 Decentralised Finance (DeFi) has revolutionised the traditional financial landscape by offering a wide array of financial services built on blockchain technology. One of the exciting developments within DeFi is the emergence of on-chain perpetual markets. These markets provide traders with opportunities to trade with leverage to amplify the potential benefits of their position, offering a unique set of benefits and opportunities, but they also come with risk. In this educational post, we’ll explore the advantages and opportunities of on-chain perpetual markets in DeFi, while also discussing potential risks.

Here JB (settingthetempo) takes you through a first look at AshPerp – the first perp exchange built on MultiversX

🔥 Benefits and Opportunities:

➡️ Accessibility: On-chain perpetual markets enable global participation, allowing anyone with an internet connection to trade 24/7. Traditional financial markets have limitations, such as geographical restrictions and operational hours. In DeFi, anyone can participate, at any time, regardless of their location or background and the markets stay open at all times due to the decentralised nature of the protocol and the infrastructure.

➡️ Decentralisation: On-chain perpetual markets operate on decentralised blockchain networks, reducing reliance on intermediaries like banks and brokers. This decentralisation enhances trust and transparency, reducing the risk of centralised fraud and manipulation made possible by the opaque nature of traditional trading platforms and institutions.

➡️ Liquidity: DeFi platforms often incentivise liquidity providers through yield farming and rewards, ensuring a robust liquidity pool that aligns collective incentives between both traders and liquidity providers. When well designed this allows traders to execute large orders without experiencing significant price slippage & allows liquidity providers to collect trading & platform fees.

➡️ Programmability: Smart contracts underpin on-chain perpetual markets, which can be programmed to execute trades automatically based on predefined conditions. This smart contract automation can eliminate the need for manual intervention, reduces human error, and enables advanced trading strategies.

➡️ Diversity: DeFi platforms offer a wide range of assets for trading, including cryptocurrencies, synthetic assets, and commodities. This diversity allows traders to diversify their portfolios and hedge against various market conditions.

➡️ Leveraged Trading Opportunity: Perpetual markets often support leveraged trading, allowing traders to amplify their positions. While this can lead to higher profits, it’s essential to exercise caution, as it also increases the risk of liquidation & loss when position size is not well managed.

Here JB (settingthetempo) takes us through making your first trade on Helix – the premier decentralised exchange on Injective with a range of spot and perp markets available.

❌ Risks:

➡️ Asset Volatility: DeFi markets & assets can be quite volatile in terms of price. While this can present opportunities, it also exposes traders to risks when not managed well. It’s crucial to be aware of these possibilities and implement appropriate position sizing to mitigate potential losses.

➡️ Smart Contract Risk: DeFi relies on smart contracts, which are not immune to bugs or vulnerabilities if designed poorly. Hackers can exploit these weaknesses to steal users funds. Before participating, conduct thorough research on the platform’s security and consider using audited contracts and platforms. Even still, be aware of the potential platform, system and smart contract risks that DeFi poses.

➡️ Regulatory Uncertainty: DeFi is a rapidly evolving space, and regulatory frameworks are still in development. Traders and participants may face legal and compliance challenges, depending on their jurisdiction. Staying informed of the regulatory environment is advisable to make sure that you are in compliance.

➡️ Liquidation Risks: Leveraged trading can lead to liquidation if the market moves against a trader’s position. Managing leverage responsibly and setting stop-loss orders is essential to avoiding destructive losses.

✅ Conclusion

💡 On-chain perpetual markets in DeFi offer exciting opportunities for traders, investors, and liquidity providers, providing access to new and exciting financial opportunities through the potential of decentralisation and programmability. 

🧬 Helix are the leading decentralised exchange on Injective with a range of spot and perp markets including BTC, ETH, SOL, AVAX, SUI, SEI & of course, the native INJ token.

🔥  AshPerp is the first decentralised perp exchange built on MultiversX with their main net launch scheduled for Q1 2024.

🤓 However, it’s crucial to exercise caution and understand the potential risks, including volatility, smart contract vulnerabilities, regulatory uncertainty & liquidation risks.

🔥 Remember to DYOR regarding the security of the platforms you use, and understand the conditions of the trades & positions you are entering.

📈 By adopting responsible and sustainable trading practices, conducting thorough research, and staying informed, users can harness the potential of on-chain perpetual markets to grow their portfolios.