For today’s episode, I sat down with Su Zhu to learn all about perpetual swaps. There’s probably not a person in crypto who has more authority on this topic than him. The first half of the episode serves as a general introduction to perpetual swaps, while in the second half, we explore how perpetual swaps are coming to DeFi and why they are the single biggest primitive that is still missing from the DeFi puzzle.

While the episode can get pretty technical at times, we tried to follow a logical buildup, so no prior knowledge should be required. Please note that I put some links to definitions and followup reading into the show notes. Enjoy the episode.

In this episode:

What is a perpetual swap and how does it work

The history of perp swaps and their usage outside of cryptocurrency

How the oracle problem is misunderstood

AMM and central limit order book: mapping the two approaches to perpetual swaps in DeFi

Tradeoffs between perps in CeFi and DeFi

Perpetual swaps as money legos

How DeFi perp swaps will enable a new form of stablecoin

The role of insurance funds and auto liquidation

Hasu Twitter https://twitter.com/hasufl

Su Zhu Twitter https://twitter.com/zhusu

Episode transcript https://uncommoncore.co/uncommon-core-podcast-episode-8-transcript/

Definitions and further reading:

TWAP: https://en.wikipedia.org/wiki/Time-weighted_average_price

LIBOR: https://en.wikipedia.org/wiki/Libor

CFD: https://en.wikipedia.org/wiki/Contract_for_difference

Tom next swaps: https://www.investopedia.com/terms/t/tomorrownext.asp

Rolling a futures contract https://www.investopedia.com/terms/r/rollforward.asp

yTokens and yVaults: https://anchor.fm/uncommoncore/episodes/6-Andre-Cronje-and-the-Philosophy-of-Yearn-Finance-ei4vds

Synthetix tokens and inverse tokens: https://docs.synthetix.io/tokens/

Article on crypto banking https://insights.deribit.com/market-research/the-great-race-to-crypto-banking/

Design space for auto liquidation mechanisms https://insights.deribit.com/market-research/crypto-derivatives-exchanges-liquidation-pioneers/