Unlike conventional derivatives, the perpetual future never deviates from the spot price of the crypto it is referencing. Usually, if you trade one-month, two-month, or three-month futures of anything, the price will reflect premiums or discounts relative to the reference price — something known as basis. The perpetual swap’s design, by creating an active price for intraday funding, prevents that.

The combination of being able to trade crypto synthetically and without basis cost has helped turn BitMEX, the derivative exchange that first introduced the contract, into a key destination for crypto trading and a billion-dollar enterprise. The perpetual swap has since been replicated at many other exchanges in response to popular demand from users.

And yet, despite becoming one of the most important financial innovations to come out of the crypto space, the perpetual swap remains largely unknown in the world of traditional finance. This is mainly because the role that the contract plays in pricing intraday crypto vs. dollar liquidity is not well understood, even by crypto traders who use the contract frequently.

It’s important to remember that all overnight funding issues originate from intraday ones that cannot be matched effectively in time. The only reason the market never engineered its own tools to better trade intraday funds is because there was little to no stigma from using Fed overdraft facilities up until the global financial crisis. Since then, quantitative easing has obscured the imbalance issue. The Fed’s tightening path, however, is likely to change that.

Luckily, thanks to the perpetual swap, we have the tools to trade intraday funding more efficiently. They should be creatively deployed as soon as possible.