Beyond Perps: Abstract Futures

For decades, traders were seeking directional exposure to assets with leverage.

Today, Derpetual introduces abstract futures - a new financial primitive that expands this idea beyond standard assets and prices.

Exposure and leverage

Dated futures expire.

If you want to keep your position open, you have to move to another contract. Some contracts also involve physical delivery. You must physically collect the subject of the contract and bear the cost of storing it.

Perpetual futures solved this.

In 1992, Robert Shiller proposed perpetual futures to enable better derivatives markets for assets. There is no expiration date and physical delivery. That allows traders to keep positions open without constantly switching to new contracts.

More than 30 years later, perpetual futures are processing billions of dollars a day in trading volume. They are, however, bounded by real assets.

Abstract futures expand this.

What we consider tradable is changing. In our complex world quantified by numbers, there is an emerging need for exposure to things that are not simply measured by price.

Introducing: abstract futures

You can already trade S&P500 without buying shares in 500 different companies. The index itself is an abstraction of these assets. It exists to simplify managing exposure.

Abstract futures take this idea one step further. They allow combining assets (or different numeric values) into any viable rational function.

\text{Market Price}(\mathbf{p}) = \frac{R(\mathbf{p})}{Q(\mathbf{p})}, \qquad \mathbf{p} = \begin{bmatrix} p_1 & p_2 & p_3 & \cdots & p_n \end{bmatrix}

The output of this function becomes the price of the market. This is the value traders get long or short exposure to.

The price function is composed of different oracles (prices of assets/other numeric values) using the mathematical operators: + - * / (and brackets).

Fundamentals

To make it a reality, abstract futures employ the following mechanisms.

No price discovery

You open a position at the current price of the market (as computed by the price function). Transactions do not impact the contract price.

Funding discovery

Funding helps balance the market between longs and shorts. While you hold a position, you either pay or receive funding.

The rate goes up over time when the long side is larger. A larger short side makes it go down. If both sides match, the funding is also balanced.

Positive funding rate → longs pay shorts
Negative funding rate → shorts pay longs

Abstract futures use higher funding to balance demand, instead of letting traders bid up contract price.

Edge Balancing

Abstract futures were designed to work in edge-case scenarios. Since they enable an infinity of markets to be created, they must hold in low-liquidity and high-skew circumstances.

If a market is heavily skewed and not liquid enough to cover the dominant side's profits, these positions will be automatically deleveraged. It equally affects every trader on that side. These positions will automatically increase the leverage back to the set amount with more liquidity. Positions on the opposite (smaller) side will not be deleveraged at all.

Trade everything anything

While perpetuals made everything tradable (as in: the assets you know and want to trade), abstract futures make anything tradable (as in: the combinations of assets and numeric values that did not exist before).

Abstract futures are a new primitive and their limitations are not yet known. Derpetual is actively conducting research and collaborating with the world's best academic institutions to discover their possibilities.

Known things trade on perpetual futures.

Unknown things trade on abstract futures.