¶ What are Perpetual Futures?
Sovryn Perpetual Futures are trading contracts that provide flexible options for taking a position within a given market. For example, with a BTCUSD trading pair, you can take a leveraged long or short position on BTC relative to USD. You can take on the risks and rewards of the spot price movement without actually buying or selling spot. You cover the risk by supplying margin assets that cover any losses you experience if the price moves against your position. Perpetual futures use an incentive mechanism that causes the contract price to track the spot price closely. Sovryn perpetual futures are similar to traditional futures contracts but without any expiration date.
Sovryn is launching perpetual futures, beginning with a BTCUSD contract. Sovryn plans to add more contracts as this product matures. The system allows users to gain exposure to other assets without selling BTC or buying a different asset. This opens the possibility for trading on basically any asset that has a publicly trackable price using a perpetual futures contract.
¶ How it works
Perpetual futures offer a straightforward way to take a leveraged long or short position relative to an asset but without having to buy or sell the asset itself. This is similar to traditional futures contracts. However, traditional futures have an expiration date, which forces the price to track the spot price due to arbitrage between the contract and spot with the settlement date in view.
Perpetual futures use a different mechanism—called a funding rate—to keep the price aligned to the asset reference price. The funding rate specifies the rate at which a long or short position pays for the privilege of holding that position. If the contract price is higher than the reference price, then long positions pay a premium to short positions. This premium incentivizes longs to sell to avoid the premium and for traders to short to collect the premium being paid by longs. The selling pressure on the contract created by the premium moves the price back toward the reference price. Likewise, if the contract price falls below the spot price, then the funding rate goes negative and shorts pay the premium to longs. This creates upward pressure on the contract price that moves it back in line with the reference price. The funding rate changes as the contract price and reference price change relative to one another as a way to adjust the incentive.
¶ Perpetual Futures use cases
Perpetual futures can be used in a number of different ways:
- Traders can easily take leveraged long or short positions on BTC.
- BTC holders can diversify their BTC exposure. You can take a position in other assets without liquidating the notional (full) value of the asset in BTC so that you can purchase the asset outright.
- BTC holders can hedge their exposure to BTC by entering an unleveraged short position of the same size, which will offset losses or gains in BTC without requiring that BTC be sold. This avoids a taxable event in some jurisdictions.
¶ Advantages of Perpetual Futures
Perpetual Futures have a number of specific advantages over perpetual futures on centralized exchanges and other DeFi platforms:
- Traders can participate in leveraged DeFi trading—noncustodial, fully decentralized, and without KYC requirements.
- Traders and investors can get leveraged exposure to another asset without selling BTC. For example, you could go long on a BNBUSD perpetual future if you believe BNB will rise relative to USD. Margin collateral could be held in BTC without selling it to buy BNB. If the BNB price goes up, you earn BTC rather than BNB or USD. If the price goes down, you pay BTC.
- Liquidity providers can participate in the Sovryn Perpetuals AMM (automated market maker) pool, which has no impermanent loss as standard AMM pools do. Instead, liquidity providers take on the risk of the system and participate in its profits and losses.
- The Sovryn Perpetuals AMM is a unique, capital-efficient design. It can offer lower slippage to traders than other DeFi perpetual AMMs with comparable capital reserves.
- The Sovryn Perpetuals AMM is designed so that any asset can serve as margin collateral. Margin does not have to be one of the assets in the trading pair.
¶ Perpetual Futures interface
¶ Walkthrough Video
¶ Terms
Index Price: The current spot price is based on a bucket of distributed price sources provided by the Chainlink oracle.
Mid Price: The current nominal contract price of the perpetual contract, midway between the prices a buyer and a seller would receive for a given size order when slippage is taken into account. If the AMM is in balance, the mid-price is equal to the index price.
Mark Price: Moving average of the mid-price. The Mark Price smooths out rapid variations in the mid-price to provide a steadier estimate of the current contract price. The Mark Price is used to calculate unrealized PnL and to determine ongoing margin requirements. The use of the Mark Price rather than the instantaneous mid-price prevents price manipulation.
Slippage: The difference between the current quoted price (the mid-price) and the price a buyer or seller would get for a given transaction. Slippage occurs because buying or selling actually moves the price as the complete quantity of the trade is transacted.
24hr Volume: Total volume of transactions of the contract within the last 24 hours.
Open Interest: The total amount of contracts held by longs or shorts, whichever is larger.
Funding Rate: Rate at which longs pay shorts for the privilege of holding a long position (negative means shorts pay longs). The funding rate is quoted in an 8h rate and is refreshed with every contract interaction or block, whichever comes first. The AMM calculates and charges the funding rate continuously but uses a time average to produce the 8h rate. The funding rate provides an economic incentive that drives the contract price toward the index price.
Lot Size: Minimum incremental amount of the asset that can be traded (currently 0.0001 BTC for BTCUSD).
Minimum Trade Amount: Minimum position that can be traded (currently 0.0010 BTC for BTCUSD).
AMM Depth: Indicates how the price will change for a given size order. If the AMM pool contains a large amount of collateral, the price will be smaller for a given order size.
Trade Leverage: The multiplier on the margin (the order cost) a buyer or seller supplies that will determine the order value, which is the size of the trade established by a buy or sell order.
¶ How to trade Perpetual Futures
Note that the perpetual futures interface was temporarily made available on testnet for the competition. It will be released on mainnet once all the feedback and improvements have been implemented.
¶ Step-by-step guide
The following step-by-step guide will walk you through the process of buying and selling perpetual futures on the Sovryn platform.
¶ 1. Access the Perpetual Futures interface
- URL to access the interface of the perpetual futures will be provided here once perpetual futures are released on mainnet.
¶ 2. Connect your MetaMask or Liquality wallet
Currently only MetaMask and Liquality wallets are supported when connecting extension wallets to the Perpetual Futures interface.
Only MetaMask and Liquality are supported for the perpetual futures interface. If you do not already have MetaMask or Liquality wallet configured to connect to Sovryn, visit the MetaMask Wallet Setup Guide or the Liquality Wallet Setup Guide before proceeding further. Instead of entering the settings for RSK as listed in the setup guide, you will set up Binance Smart Chain mainnet or testnet. You can do this in one of two ways:
1) Visit https://bscscan.com . Select BSC Mainnet or Testnet in the upper right corner. At the bottom of the page, select “Add BSC Network” and approve in your Metamask wallet.
2) If you want to enter the settings manually, following the wallet setup guide above, enter these settings for mainnet:
- Network Name: BSC Mainnet
- New RPC URL: https://bsc-dataseed.binance.org/
- ChainID: 56
- Currency Symbol: BNB
- Chain's currency decimals: 18
- Block Explorer URL: https://bscscan.com
For testnet:
- Network Name: BSC Testnet
- New RPC URL: https://data-seed-prebsc-1-s1.binance.org:8545/
- ChainID: 97
- Currency Symbol: BNB
- Chain's currency decimals: 18
- Block Explorer URL: https://testnet.bscscan.com
Once you have the network settings entered, select the network and proceed as follows:
- Connect your wallet by clicking the Connect Wallet button in the center-right of the interface.
- Sovryn perpetual futures will operate on BSC Mainnet at the beginning since BSC is currently faster than RSK and has very low fees. Once rollups are ready on RSK, Sovryn perpetual futures will move to RSK.
¶ 3. Choose Gas Station Network (GSN) settings
- Note: GSN isn't currently available on testnet. You will need to pay fees in test BNB. See fund your BSC testnet wallet (iv) for details.
- The GSN setting in the top right determines whether you will pay gas fees in BNB (off), the native token of BSC, or in BTC (on).
- GSN is used for meta-transactions or fee payments in BTC even if the chain has another native token.
Note that multiple approvals might be required when trading with GSN enabled.
¶ 4a. Fund your mainnet wallet
To trade Sovryn Perpetuals you must have BTC or RBTC, which will be bridged to BSC in the form of BTCs. Follow these steps for BSC Mainnet:
a. Add the aggregator token, BTCs, to your Metamask wallet:
i. Switch to BSC Mainnet
ii. Click on Import Tokens
iii. Enter the address of the aggregator token: 0x6a7F2d2e5D5756729e875c8F8fC254448E763Fdf
iv. The remaining fields should autofill
b. To fund your BSC wallet:
i. Go to the perpetuals page and connect the wallet you will use for trading
ii. Click on Fund Account:
- If you wish to bridge BTC to BTCs, click on Deposit BTC and follow the instructions
- If you wish to bridge RBTC into BTCs, click on RSK Transfer and follow the instructions
¶ 4b. Fund your testnet wallet
You may wish to try out the Sovryn Perpetuals trading interface without risking any funds. You can do this by using the following steps to trade on BSC Testnet:
¶ a. Add the testnet aggregator token, BTCs, to your Metamask wallet:
i. Switch to BSC Testnnet
ii. Click on Import Tokens
iii. Enter the address of the aggregator token: 0xcF3D22A034Fa157985F0Fe71F15477446f80Be26
iv. The remaining fields should autofill
¶ b. To fund your BSC testnet wallet:
i. Go to the perpetuals page and connect the wallet you will use for trading
ii. Go to https://faucet.rsk.co/ and enter your RSK testnet address to request test RBTC.
iii. Click on Fund Account. To bridge test RBTC into test BTCs, click on RSK Transfer and follow the instructions
iv. Currently, you cannot use GSN on testnet. Therefore, you will need to obtain test BNB from https://testnet.binance.org/faucet-smart for gas.
¶ 5. Customize Layout
You can customize the layout of the trading window by using the Customize layout in the upper right corner of the window and selecting and unselecting panes as desired.
¶ 6. Select Buy or Sell
- Click the Buy button to go long or the Sell button to go short.
¶ 7. Select market, limit, or stop order
¶ 8a. For a market order, specify order size
- This specifies the position size your order will establish.
¶ 8b. For a limit order: specify order size, limit price, and expiry period
Limit orders can be used to establish a new position at a more desirable price than the current price. They can also close out a position by placing an order of equal size in the opposite direction of a current position, which will effectively cancel the current position.
Specify:
- the position size your order will establish if executed
- the limit price (the most unfavorable price you will accept)—the execution price will be at or below the limit price for buy orders and at or above the limit price for sell orders
- the time until the order expires
¶ 8c. For a stop order: specify order size, trigger price, limit price, and expiry period
Specify:
- the position size your order will establish if executed
- the trigger price—executes a limit order if the mark price is above the trigger price for a buy order or below the trigger price for a sell order
- the limit price (the must unfavorable price you will accept)—the execution price will be at or below the limit price for buy orders and at or above the limit price for sell orders (Note that a stop-loss order can be specified if the limit price is below the trigger price for a sell order or above the trigger price for a buy order.)
- the time until the order expires
¶ 9. Specify position leverage
- The order cost will be calculated so that the leverage times the order cost equals the order size.
- The maximum allowable leverage varies depending on trade size but is always at least 10X. Higher leverage is possible for smaller position sizes. The maximum allowable leverage for your particular trade is indicated by the max value displayed.
If a position already exists when an order is executed, the position leverage will remain unchanged if the order partially closes the existing position by canceling part of the position. If the order increases the existing position size, the order will add margin according to the Trade Leverage level you set. The resulting position leverage depends on how much margin was added with the trade and the amount of margin in the existing position before the trade.
If you check Keep Position Leverage, the resulting position will be calculated to match the leverage of the existing position rather than using the Trade Leverage slider to set the leverage of the final position.
¶ 10. Set slippage tolerance (optional)
- If you wish, adjust the slippage tolerance setting using the gear wheel icon.
- The default slippage tolerance is 0.5%. This means that if the trade is too large to get within 0.5% of the quoted mid-price or the market moves quickly so that the current price is no longer within 0.5% of the quoted mid-price, then the trade will not be executed. In such cases, the user may need to try again or adjust the slippage tolerance.
Once you have set the slippage tolerance, click the left arrow above this area to close slippage tolerance slider and return to the main window.
¶ 9. Execute the buy or sell order
- Click the Buy or Sell button.
¶ 11. Review and confirm
- Review and confirm the transaction.
Please note: You may be asked to sign the transaction twice. This occurs if the first ‘relay-worker’ does not respond to the request.
Rest assured, both confirmations will result in only one transaction.
- For information about your Current position, closed positions, order history, and funding payments, observe the trading details section at the bottom of the perpetual futures page for information about your current position, closed positions, order history, and funding payments.
Congratulations! You have successfully completed a perpetual future trade on the Sovryn platform.
¶ Related documentation
¶ FAQ
¶ Q: I have a long position open for more than 8 hours but still have no data in the funding payment column in the funding table.
A: Even though funding payments are accrued with most blocks (3-second average), the funding payment is not paid out in a regular manner. Instead, you get or make a funding payment as soon as you change the position size (place a market order, execution of a limit order or stop limit order). Unrealized P&L contains funding payments.
¶ Q: How can the funding rate be an 8h-rate even though it is not paid every 8 hours?
A: It is a market convention for perpetual futures to quote funding rates using an 8-hour rate, just as it is a market convention to quote mortgage rates at an annual rate even when paid quarterly. So the quotation rate does not necessarily coincide with the payment frequency. For example, if the 8-hour rate of 0.01% applies to 4 hours, the payment is equal to the position size times 0.01% * 4h/8h = 0.01% /2.
¶ Q: When the BTC/USD pair is selected, the lot size given is 0.0001 but the order size automatically changes to 0.0010 BTC. Why?
A: There is a minimal position size. So if you have no open position your trade size has to be at least equal to the minimal position size.
¶ Q: Why does the resulting leverage not match my desired leverage of 7x?
A: There is a trade leverage and a position leverage. If you have no position and enter a trade with 7x leverage your position will have approximately 7x leverage. This leverage can vary a bit if the price moves quickly, but it should be very close to 7x. If you already have an open position, the leverage will reflect the combination of the current position and this new trade. Please note that the frontend shows you the approximate position leverage too, just above the buy/sell button, labeled "Resulting Position".
¶ Q: The actual position seems to be a short one instead of a long one like I entered. Why is that?
A: You are entering trades, not positions. The position size will be equal to the current position size plus the trade size. For example, if you have a short position of -0.25 BTC and you enter a (long) trade of 0.2 BTC, the resulting position will be short 0.05 BTC.
¶ Q: I am trading BNBUSD in the BTC pool, and nowhere can I see my BNB balance. Why don't you show me how much BNB I have to trade?
A: The BNBUSD perpetual in the BTC pool is margined in BTC. All profits and losses will be accounted in BTC. So you only need BTC for the trade. You might need BNB to pay gas fees (see “GSN”), but you don’t need BNB for the actual trade costs. This is why we only show you BTC.
¶ Q: I had a position that showed an unrealized P&L of 2%. However, when I closed the position my profit was only 1.5%.
A: The unrealized profit consists of accrued funding payments and the profit calculated at the Mark Price. Using the Mark Price is a market convention widely adopted for Perpetuals. When you close the position you get a price that differs from the Mark Price and is often worse than if you had closed at the Mark Price because of slippage and fees. Note that the realized P&L also includes funding payments; funding payments are displayed in a separate tab too.
¶ Q: I entered a position of 5x leverage. I did not change my position leverage or size, nor did I remove margin. Why is the position leverage suddenly 7x?
A: Leverage is equal to the position size divided by the current margin balance. The margin balance is the profit plus the deposited margin. Because the position profit changes over time with price changes and funding rates, the leverage changes too. If the leverage gets too high, the position can be liquidated. On the other hand, if the position shows a profit, the leverage decreases.
¶ Q: I entered a stop buy limit order with trigger price $500 and limit price $500. The price is now $550 and my buy order is still pending. Why was my buy order never executed?
A: For a stop order on Sovryn Perpetuals to be executed, two conditions must be satisfied at the same time. First, the Mark Price must cross the trigger price, and second the AMM price for the submitted quantity must be better or equal to the limit price. Remember that the Mark Price is a moving average that moves slowly. So it is possible that when the Mark Price reached $500, the mid-price was already quite above $500 and therefore your buy order could not be executed because you would have had to pay more than $500. Therefore it is advisable to choose the limit buy price above the trigger price to increase the probability that the buy limit will be executed. If you enter, say $550, it does not mean that the price you get will be $550; it only means that the worst price would be $550.
¶ Q: I entered a market order with size equal to the maximal order size, but it failed. Why?
A: If the underlying index price moves fast or there haven’t been many trades recently, it is possible that the maximal order size has decreased below the displayed value once you execute the order. Therefore, in this case it is advisable to choose an order size that is below the maximal size.
¶ Q: Are there partial executions of limit orders or stop limit orders?
A: No, orders are either executed fully or not executed.
¶ Q: The order fee shows zero. Are there no fees?
A: Fees are low, so if you enter a small order, the fee charged is lower than the displayed number of digits.