We recently connected with Jonathan Chang, the COO of Nibiru, the new Layer-1 chain co-founded by veterans from Google, Tendermint, and JP Morgan.
In addition to a throughput-optimized infrastructure with a comprehensive developer toolkit suite, Nibiru provides an open, permissionless version of interconnected CEX-style applications, enabling anyone to trade leveraged derivative and spot markets, earn staking yield, and provision bonded liquidity.
One of the most significant developments of the crypto space is ‘Perps’ or perpetual futures. Unlike traditional asset futures which have an expiration date, perpetual futures do exactly what they say: they can be held and traded indefinitely. Perps are particularly relevant to leveraged exposure of trading tokens but are increasingly being applied to real-world assets and financial instruments.
We sat down with Jonathan to learn more about “Perps” and how they promise to transform the investment landscape.
Our conversation is shared below.
Crowdfund Insider: What are Perps and how do they work?
Jonathan Chang: Not a basic question at all. Perpetual futures are likely the largest financial market most people have never heard of. The public is already aware of crypto like Bitcoin and Ethereum. Well, in the past the only way to invest or trade in crypto was to hold and trade the tokens simply: in other words, trade spot exposure coins. Similar to traditional futures, perps are instruments that enable people to speculate or gain exposure to an asset without holding it themselves. And not just crypto, but any asset that can be digitalized. Perps can be used for hedging, leveraged trading, and shorting.
Perps aren’t a niche instrument either: considering trading volume across major exchanges reaches trillions of notional USD value each year. It’s not uncommon for daily trading in BTC perps to exceed the volume of bitcoin itself.
Perps are a type of futures contract that enables investors to have much greater control over how they invest in an asset by enabling them to hold it with leverage without an expiration date. For example, you might buy an individual bitcoin for $60,000 and hold that position until it reaches a certain level—say $100k. Once the desired value is reached, they place an exit order.
Crowdfund Insider: What stops perps’ valuation from running away from the underlying asset’s spot price?
Jonathan Chang: Another great question. These contracts are designed to leverage collateral, providing an instrument that’s both highly liquid and that closely tracks the spot trading price, so it is vital that perps remain close to the actual asset price.
That’s controlled by the funding rate mechanism, which helps keep perpetual futures’ price aligned with the spot price. This mechanism involves a periodic payment between those holding long positions (buyers) and short (the sellers), based on the difference between the perp and the spot values. When the perp is trading higher than spot, buyers pay a percentage of their open position to sellers. This gives an incentive for new traders to take positions that keep the two prices fairly close.
When the perp price is significantly higher or lower than the spot, the funding rate increases, which encourages traders to take the opposite position.
Crowdfund Insider: Are perps for everyone, or are they only appropriate for experienced investors?
Jonathan Chang: The web3 and digital asset revolution has genuinely lowered the barrier to entry across the board for financial services and investment. Anyone can now buy, hold and trade assets or indices that would previously be out of their reach because of their complexity or cost.
It’s the same with perps, in that anyone can buy them on specialist exchanges. However, there are several caveats. First, you need to understand that while perps provide traders with several advantages, such as leverage, hedging, and arbitrage opportunities, they also involve some risks. These include over-leveraging, liquidation, and volatility —especially when the underlying asset is a crypto coin.
It’s not something to jump into lightly; as with crypto itself, you need to understand how it works, what the risks are, and how to make the most of this new investment opportunity.
Crowdfund Insider: So, if you have that knowledge, it’s fairly easy to hop onto an exchange and buy your first Perp, right?
Jonathan Chang: At a high level, some might call it easy, but please don’t just ‘hop’ onto an exchange without doing your own research. It’s just as crucial to understand the exchange and blockchain ecosystem as the perp and underlying asset you’re choosing.
The most important thing any investor should know is that, like the Wild West days of crypto, not every exchange venue is created equal. To take just one example, while most trading platforms are designed with off-chain order books, perp implementations can differ greatly from exchange to exchange. More than that, however: there are still major obstacles to overcome before the blockchain infrastructure underneath perp contracts can be as fast, reliable and robust as it should be.
These challenges include high latency, especially during periods of high volatility; complex pricing rules; minimizing imbalances in open interest; the relatively low number of unique traders on the platform; and reducing the bleeding of the Perp Fund. This last point is particularly important: it’s important to develop protocols that keep the funding rates of the listed perps at parity with other perpetual futures exchanges while monitoring opportunities for arbitrageurs. This is one of many priorities with Nibi-Perp, currently in testnet.
Crowdfund Insider: When can we expect these technical challenges to be addressed?
Jonathan Chang: We’re making excellent progress on all fronts, but we’re particularly excited about solutions to the latency / throughput problem. You see, with many existing blockchains, including Ethereum and a range of EVM-based networks derived from it, there’s a reliance on sequential processing. This inevitably leads to far too much traffic than the network can come with, and unacceptable delays as a result.
At Nibiru, we’re solving this problem with a methodology known as parallel optimistic execution, which enables our network to process multiple independent transactions simultaneously.
Think of it like turning a congested single-lane track into a multi-lane expressway, where transactions can navigate alongside each other. By ‘widening the road’ we don’t just eliminate delays and sky-high fees for traffic; we’re protecting against transaction frontrunning and ensuring rapid order fulfillment.
Perps may not have entered every investor’s lexicon, and it may be a short while yet before they are fully accessible to the general public. But as we’ve seen, they’re already a high-volume financial instrument and the technology is maturing fast. As one of the most compelling products built on blockchain so far, perps need to be on every serious investor’s radar.
