Kwenta Protocol, a perpetual futures-focused decentralized exchange (DEX), has outperformed the crypto market in the past week as traders have migrated to decentralized platforms to produce relatively risk-free gains via direction-neutral methods.
The DEX’s native token (KWENTA) rose from around $250 in mid-February to over $670 on Wednesday, reaching a market valuation of over $150 million at its high. According to CoinGecko, bitcoin dropped 5%.
Staking and platform governance are KWENTA’s main responsibilities to incentivize Kwenta DAO growth. KWENTA tokens have risen several times in recent weeks. (DEXTools) Synthetix, a popular Exchange for crypto, equities, and currency futures, partners with Kwenta. Synthetix stakers oppose every trade on Kwenta. . Smart contracts replace middlemen in DEX exchanges.
DEX traders profit from perpetual futures funding arbitrage by using the funding rate spread between exchanges. Traders can profit from the funding rate differential between the futures contract and the underlying asset by taking bullish long and bearish short positions.
On Thursday, Kwenta bitcoin (BTC) perpetual futures had an hourly funding rate of -0.001935%, giving short position holders a daily rate of -0.04%. .
dYdX, another DEX, pays BTC perpetual futures traders 0.003% daily at 0.000164%.
The trader can avoid market volatility and pocket the funding rate difference. Funding resembles interest. Regularly, traders pay or receive a percentage of their position size. Shorts pay longs when financing is negative and vice versa. Funding rates change the contract price to match the underlying asset price.
Based on market demand, traders pay and get money. This can increase directional position profit and loss or be employed in a more complex strategy. Funding diminishes trade profitability and raises liquidation risk. Kwenta’s technical documents suggest 87% annualized hourly funding of 0.01%. Basis trading and funding rate arbitrage can be created using funding rates. Delta Neutral techniques balance short and long exposure and return regardless of market direction.
