How a perp DEX works, from funding rates to liquidation

A perp DEX is an exchange where you trade perpetual futures from your own wallet. A perpetual future is a derivative with no expiry date, so a position stays open until you close it or the venue closes it for you. This guide works one trade through funding, margin and liquidation.

The mechanics come from the published docs of Hyperliquid, Lighter, Paradex, Extended and Pacifica, read on October 7, 2026. We add GRVT where its documents cover architecture. We could not find GRVT's funding or liquidation rules in the pages we could read, so it stays out of the comparison tables.

What a perpetual is, and what funding does

A normal futures contract expires, and at expiry its price converges on the spot price. A perpetual never expires, so something else has to pull its price toward spot. That something is the funding rate, a recurring payment between traders.

When the rate is positive, longs pay shorts. When it is negative, shorts pay longs. Hyperliquid's docs say funding is purely peer to peer and no fees are collected on it. Lighter's docs say the same.

The rate has two parts. The premium measures how far the perp trades from an index price, using what it costs to push a fixed notional through the order book. The interest component is a fixed baseline, 0.01 percent per 8 hours on the crypto markets of every venue below. Hyperliquid samples the premium every 5 seconds, averages it over the hour and pays one eighth of the 8-hour rate each hour.

Cadence and caps differ by venue. This table shows what each venue's docs publish.

A cap limits how hard funding can punish a crowded side. It also limits how fast funding can pull a drifting perp back to spot.

Margin and liquidation, with one worked trade

Margin is the collateral you post to hold a position. Initial margin is what you need to open it. Hyperliquid defines it as position size times mark price, divided by leverage. Maintenance margin is the smaller amount needed to keep the position open. On Hyperliquid and Pacifica it is half the initial margin at the market's maximum leverage.

When account value, including unrealized profit and loss, falls below maintenance margin, the position is liquidated. The check runs on the mark price, not the last trade. Hyperliquid takes the median of three inputs: one built from an oracle price, one from its own book and one from other exchanges' perp prices. A median makes a single stray trade harder to use as a trigger.

Now the trade. Take a hypothetical asset priced at $100. You deposit $1,000 and buy 100 units, a $10,000 position at 10x leverage. Assume the market allows 20x at most, so initial margin at maximum leverage is 5 percent and maintenance margin is 2.5 percent of position value. Assume isolated margin, so only the $1,000 backs this trade, and ignore fees for now.

For a long, Hyperliquid's docs give the liquidation price as the entry price minus margin available, divided by position size and by (1 minus l). Here l is one over maintenance leverage, and margin available is margin minus the maintenance requirement. The requirement is $250, so margin available is $750. Maintenance leverage is 40x, so l is 0.025. The liquidation price is $100 minus $7.50 divided by 0.975, which is $92.31, a fall of 7.69 percent.

Leverage cuts both ways. A 5 percent rise earns 50 percent on the $1,000, and a 5 percent fall loses 50 percent. Pacifica's published formula, built on maximum leverage, gives the same $92.31 for this trade.

Funding then erodes the cushion, because a positive rate means the long pays. At the baseline 0.01 percent per 8 hours, a $10,000 position pays $1 every 8 hours, or $3 a day. After ten days that moves the liquidation price from $92.31 to $92.62, which is $0.31 closer. The table assumes the price stays flat and the position stays at $10,000.

Fees come out of the same cushion. Hyperliquid's base taker fee is 0.045 percent, which is $4.50 each way on $10,000. The numbers are hypothetical, and the formula is Hyperliquid's. Paradex tracks a margin ratio instead and liquidates an account when that ratio passes 100 percent.

Liquidation rarely closes everything at once. The usual escalation looks like this.

The venues fill in the steps differently. Hyperliquid liquidates positions above 100,000 USDC 20 percent at a time. If the account is still below the line within 30 seconds, the next order covers the entire position. If equity falls below two thirds of maintenance margin before the book fills the order, a liquidator vault takes the position and the maintenance margin is not returned to the user.

Paradex reduces positions in steps of 20 percent until the margin ratio drops below 90 percent. It charges a penalty of 70 percent of the maintenance margin for a full liquidation and sends it to the insurance fund. Extended closes perps in five 20 percent steps and pays a 1 percent fee to the Extended Vault when it beats the bankruptcy price. Lighter takes up to 1 percent into its LLP insurance fund. Pacifica charges the larger of 0.75 percent and 40 percent of the maintenance margin ratio.

Order books, sequencers and pools

Most perp DEXs run a central limit order book, the structure a centralized exchange uses. Buyers and sellers post prices, and the engine matches them by price and then arrival time. What differs is where the matching and the proofs happen.

Hyperliquid's docs describe a fully on-chain book in HyperCore, with price-time priority, a median end-to-end latency of 0.2 seconds and about 200,000 orders per second on mainnet. Lighter runs a zero-knowledge rollup. A sequencer orders transactions first in, first out, and the posted data lets anyone rebuild user state. If withdrawal requests go unprocessed, an escape hatch lets users withdraw directly on Ethereum.

The alternative is a pool. On GMX, liquidity providers deposit into GM pools, and trades execute at oracle prices. GMX's docs say the pool is the counterparty, so trader profits come out of the pool's value. The pool earns from fees and from trader losses, and it loses when traders win.

That shifts the risk. On a book, a thin market shows up as a wide spread. In a pool, it shows up as price impact and borrowing fees, and liquidity providers carry the directional exposure. GMX's auto-deleveraging triggers when pending profit grows large relative to pool value. Its docs name synthetic markets, where the index token differs from the pool's collateral token, as the most likely place for that.

Why perp DEXs dominate airdrop season

Perp venues earn from volume, and volume is easy to count per wallet. That makes a points program simple to run: score trading, liquidity and referrals each week, then convert points into a token when the venue is ready. In our analysis, the token also lets a young venue pay for liquidity it would otherwise have to rent.

The record so far is mixed. Lighter airdropped 25 percent of its fully diluted supply to its first two points seasons when LIT launched on December 30, 2025, CoinMarketCap Academy reported. The Block reported that Grvt raised its community and airdrop share to 28 percent of a 1 billion token supply.

Paradex announced on January 30 that 25 percent of DIME supply would go to XP holders, fully unlocked at launch. Over Season 2 its average daily volume rose from $68 million to $2.1 billion, Decrypt reported.

Others have paid nothing yet. Extended's docs say weekly points go to traders, liquidity providers and referrers, with 69,235,805 distributed as of October 6. They also say that qualifying activity creates no entitlement to any allocation. Pacifica distributes 10,000,000 points a week, and our tracker records no confirmed token. Paradex's Season 3 pays 4,000,000 XP every Wednesday, and its XP page links XP to no token.

Our trackers for Hyperliquid, Lighter, Paradex, Extended, Pacifica and GRVT keep the dated status of each.

Farming a perp venue is not free. The worked trade above pays $4.50 in fees each way and $3 a day in baseline funding, and it can be liquidated. Those costs apply whether or not a token follows. Our farming guide covers sizing.

The risks that decide outcomes

Oracle and mark price. A perp is only as sound as the price feed behind it. Hyperliquid's oracle is a weighted median of centralized exchange prices, published by validators about every 3 seconds, and its docs say it does not depend on Hyperliquid's own market data. Pacifica weights Binance twice and OKX, Bybit and Hyperliquid once. Lighter combines Chainlink, Stork and Pyth, and Paradex uses Pyth and Stork.

A feed that lags a fast move can liquidate a position late or early. A thin market can be pushed for a short time, and venues smooth their marks for that reason.

Liquidation cascades. Liquidations are forced market orders. When many positions share a trigger zone, each liquidation can push the price toward the next one. Hyperliquid's 20 percent rule exists to slow that. If the book still cannot absorb the flow, the backstop and then auto-deleveraging take over.

On Hyperliquid, ADL closes profitable opposite positions at the previous mark price, ranked by profit ratio and leverage. A winning trader on a crowded side can therefore be closed involuntarily. Paradex instead charges a socialized loss factor on withdrawals made during a shortfall.

Token unlocks. Airdrop tokens arrive on schedules. Hyperliquid's team unlock on October 6 was scheduled at 9.92 million HYPE, but Hyperliquid Labs committed to claim 3.75 million, worth $336.75 million. It said it is selling the batch over the counter to one institutional buyer, Tokenomist reported.

Lighter's team and investor shares carry a one-year lock and three-year linear vesting from the December 30, 2025 launch. On our reading, none of it unlocks before late December 2026. Grvt releases its airdrop in batches, and its help center says each batch must be claimed within 30 days or it is lost.

Smart contracts and venue risk. Custody models differ. Lighter and Extended hold funds in contracts backed by proofs. Pacifica keeps most funds in a multisig cold vault on Solana and runs its matching engine off-chain. A bug in a contract, a compromised signer or a halted sequencer would hit every user at once.

The business side matters too. On September 29 Robinhood said its US crypto perpetuals will run through Bitstamp, not Lighter, and LIT fell more than 14 percent on September 30. Rules also differ by venue type: the CFTC approved a bitcoin perpetual on Kalshi's regulated exchange on May 29, 2026, so perps now also trade inside the US regulatory perimeter.

Five checks before you deposit anywhere:

• Compute your liquidation price at your size, using the venue's own formula.

• Look at the market's funding history, not only today's rate.

• Find out what the mark price is made of.

• Read the custody model and what the docs say happens if the sequencer halts.

• Treat points as unpromised until the venue publishes terms.

This page describes mechanisms and risks. It is not advice to trade, and the hypothetical trade above is arithmetic, not a forecast.