Perpetual Swap on DefiTuna
Last updated
Last updated
Key Characteristics of a Perpetual Swap:
No Expiration: Users can hold a position indefinitely without an expiry date.
Leverage: Funds are borrowed and instantly swapped to amplify exposure in a specific direction.
Funding Rate: To maintain an open position, a funding rate mechanism is implemented to keep the price of the perpetual swap as close to the underlying asset's price as possible.
Some things to consider: It is not enough to simply borrow an asset to short it. Once the asset is borrowed, it must be swapped immediately to allow for repurchase at a later date. A trader realizes gains when the swapped funds are exchanged back into the borrowed asset.
Example: Imagine I borrow an iPhone with a market value of $1,000. After borrowing it, I immediately sell it for dollars and wait for a few months. Six months later, the market price of the same iPhone falls to $600. I then repurchase the iPhone and keep the difference, which is $400.
If I hadn’t swapped the iPhone for $1,000, I wouldn’t truly be "short" on the iPhone. Instead, I would remain exposed to its downside price depreciation.
Steps to Enter a Short Position:
Borrow a token.
Immediately swap it into a different token.
Wait for the borrowed token to depreciate.
Swap back into the borrowed token and realize the profit (the difference between the borrowed amount and what is returned).
Simulating a Short Perpetual Position on DeFiTuna: Now that we've established a core understanding of the basic characteristics, we can simulate this event on DeFiTuna. Let’s explore some key parameters we can adjust. For this simulation, let’s assume the current price of Solana (SOL) is 190 USDC per SOL.
Step 1 : Setting up Leverage + Borrow
In the following scenario, we've set the Leverage to 3.5 and adjusted our Borrow Ratio entirely to SOL, as shown in the green rectangular box on the left-hand side under Collateral.
Collateral: 100 SOL
Leverage: 3.5x
Borrow Ratio: 250 SOL (100% SOL borrow)
Total Position Size: 350 SOL
In CLMM, what determines your directional bias isn’t strictly what you borrow but what you end up holding immediately after initiating the borrow. Remember the iPhone analogy we used earlier? If you borrow an iPhone but never convert it into dollars, you’re not truly "short" on the iPhone. Similarly, in this scenario, although we’ve borrowed Solana, we haven’t yet executed the correct conversion or swap to establish a directional position.
CLMM uses the Constant Product Formula to determine the price of an asset. This means you will always hold a combination of two tokens within the specified range at any given moment. However, if the range is set outside the current price, all your tokens will be converted into a single asset.
Let’s take a look at an example:
Your swap is directly correlated with the range you set up. If we want to swap all tokens into USDC, we need to select a range that lies to the left of the current price.
The following example demonstrates how a full short SOL position can be set up as a perpetual:
The above example would start closing your short position all the way from 184$ to 170$.
Another way to set up the range is by placing it much further from the current price. For example, you could set the "min price" to $2 and the "max price" to $3. As long as you have your limit orders in place, you would effectively replicate a perpetual futures position. By doing so, you eliminate linear dependencies.
Step 3 : Setting up Take Profit / Stop Loss
Use "Limit Orders" to designate the price point at which you'd like to take profit and stop-loss.
What you borrow is what you short!
Your Borrow Ratio is only half the equation—what you swap the borrowed asset into is equally important!
Always pay close attention to your range setup.
Use our limit orders as stop-loss or take-profit orders.
