State of Crypto Perpetual Swaps 2025
2025 was by no means an easy year for traders or exchanges, to say the least.
For years, perpetual swaps have been a great source of alpha for yield: farm the funding, capture the spread, and trust the exchange engine to maintain the walls. That era of easy yield and structural stability appeared to end in 2025, as evidenced by the 10 – 11 October market crash.
But markets, like nature, have a way of recycling their own wreckage. As predatory „B-Book“ exchanges began seizing profits and fragile liquidation engines triggered destructive Auto Deleveraging (ADL) loops, the industry faced a reckoning. The failure of unproven, high-risk platforms has cleared the air for battle-tested exchanges and genuine innovations to thrive. 2025 saw the birth of some true innovations such as funding rate trading markets.
In our latest report, the State of Crypto Perpetual Swaps in 2025, we take a trip down memory lane – outlining five core insights from the crypto derivatives market in the past year.
TL;DR:
The 10 – 11 Oct crash triggered a record ~$20bn liquidation cascade, the most destructive event for sophisticated market makers in crypto history. Auto Deleveraging (ADL) feedback loops broke „neutral“ hedges, forcing market makers to pull liquidity and leaving orderbooks at multi-year lows.
Funding rate arbitrage has become overcrowded. Funding rates have collapsed to ~4%, killing the funding rate trade.
The market has split into „fair“ matchers (e.g., BitMEX) and predatory B-Book exchanges who are invoking „abnormal trading“ clauses to void profitable trades. Where you trade is as important as what you trade.
Perp DEXs are on the rise, but risks arose with targeted attacks.
New innovations such as Equity Perps and funding rate trading are arising, redefining what’s coming next for the derivatives market.
1. The Auto Deleveraging (ADL) Crisis: 10 – 11 October Market Crash
The defining event of 2025 was not a macro-driven selloff, but rather a microstructure failure among most crypto exchanges. The 10-11 October crash will be studied for years – not for the price depth, but for the ADL feedback loop that harmed the market’s liquidity providers.
While the headlines focused on price action, the real story was a systemic failure of market plumbing. The 10-11 October crash triggered a record $20 billion liquidation cascade—the largest in history and far more destructive to professional market makers than any event in previous cycles. For the first time, „safe“ delta-neutral strategies were cannibalised by the very engines meant to protect them, leaving the market with the thinnest order books since 2022.
The Delta-Neutral Slaughter: Historically, retail traders are the victims of liquidation cascades. On 10 Oct, it was the Market Makers (MMs). MMs running standard Delta-Neutral strategies (Long Spot / Short Perp) found their profitable short legs aggressively auto-deleveraged by exchange engines desperate to cover bankrupt long positions.
Forced Exposure: When ADL mechanisms forcibly closed MM short hedges, these firms were left holding naked spot bags in a free-falling market.
The Aftermath: This breach of the „neutrality“ promise caused MMs to pull liquidity globally in Q4, resulting in the thinnest orderbooks seen since 2022.
BitMEX Insight: We warned about the fragility of crowded structural trades early in the year in our Q3 Derivatives report: The Anchor and the Ceiling: Understanding the Structure of Funding Rates. What’s more, we provide a thorough review of the systemic risks in this cycle including mitigation strategies in our article, BitMEX Alpha: Understanding Systemic Risk Before Your Next Trade.
2. The Funding Rate Arbitrage Saturation: The End of „Free Money“
If 2024 was the year Ethena (USDe) successfully productised the funding rate arbitrage trade, 2025 was the year the trade fell victim to its own success. The Long Spot/Short Perp strategy didn’t blow up; it simply grounded to a halt.
The „Copycat“ Dilution: What began as Ethena’s novel mechanism was rapidly commoditised by major centralised exchanges. The debut of exchange-native delta-neutral margin assets—most notably Binance’s BFUSD and similar sUSDe clones—flooded the market with structural short inventory. Every dollar minted into these products automatically sold a perpetual swap to hedge.
The Funding Compression: With billions in automated hedging flow hitting the orderbooks, the supply of shorts overwhelmingly outpaced organic long demand. The result was a collapse in funding rates.
Below Baseline: For the first time in a bull cycle, funding rates consistently trended below the industry standard baseline of 0.01% per 8 hours (approx. 11% APY).
The 4% Reality: By mid-2025, the „risk-free“ crypto yield had compressed to sub-4%, often underperforming US Treasury Bills.
The Takeaway: The era of double-digit passive yields on stablecoins was increasingly rare in 2025. The arbitrage has been closed by massive institutional participation and exchange-level integration.
BitMEX Insight: We anticipated this mean reversion. In our detailed study, 9 Years of Funding Rate Analysis, we highlighted that while funding rates spike, it inevitably trends toward efficiency as markets mature. Recognising this yield compression early, we pivoted our users toward more sophisticated yield harvesting strategies, such as the opportunities detailed in The BitMEX-Pendle sENA Arbitrage, proving that in 2025, alpha requires activity, not just passivity.
3. The Trust Crisis: B-Book Exchanges vs. Fair Markets
2025 exposed the ugly underbelly of the B-Book „Casino“ exchange model. While volume numbers on many crypto exchanges often looked impressive, the reality for profitable traders was starkly different.
The „Profit Confiscation“ Scandal: The industry witnessed a major breakdown in trust as certain exchanges were caught invoking „abnormal trading behaviour“ clauses to seize funds from profitable traders. It became clear that aggressive B-Book operations were taking the other side of user trades and refusing to pay out when they lost.
The Momentum ($MMT) Squeeze: The weaponisation of low-float listings were evidenced by the MMT incident —where a coordinated entity cornered spot supply to squeeze perp Open Interest (OI). This proved that pre-market and low-cap perps had become venues for insider wash trading.
BitMEX Insight: In the era of B-Book opacity, BitMEX’s commitment to a fair, transparent derivatives trading engine remains our core value proposition. We are a true peer-to-peer exchange and do not confiscate profit. We explored these dynamics in our article, BitMEX Alpha: Understanding Systemic Risk Before Your Next Trade, emphasising that where you trade is as important as what you trade.
4. Rise of Perp DEXs: Innovation and Their Vulnerabilities
Following the airdrop hunting era, crypto trading volumes migrated aggressively to high-performance Perp DEXs like Hyperliquid. However, 2025 proved that decentralisation is not a panacea for market manipulation.
The „Pre-Token Generation Event (TGE) Oracle“ Attack (Plasma Incident): The new attack vector of 2025 involved manipulating illiquid pre-TGE tokens with no real oracle to trigger liquidations on on-chain perp positions. The Plasma ($XPL) incident demonstrated that on-chain transparency cannot protect users as much as credible CEXs can. Because on-chain orderbooks publicly broadcast every user’s position size and liquidation threshold, they effectively hand attackers a ‘liquidation map’. Sophisticated actors can calculate the exact capital required to manipulate the internal price, target these visible levels, and force a profitable liquidation cascade especially when the oracle does not take into account other exchanges’ prices. Unlike decentralised protocols that treat transparency as a virtue even when it becomes a vulnerability, credible exchanges can prevent targeted liquidation hunting and battle-tested risk engines. Most importantly, CEXs offer accountability: when a system error occurs, they are liable to make users whole, whereas decentralised protocols often absolve themselves of responsibility under the guise of ‘the code is the law’.
Platform Risk: In December 2025, a user (operating as @SystemicStratHL on X) identified a mispricing in Paradex’s options market where implied volatility was quoted significantly below market value. The user executed trades to capitalise on this pricing error—a standard practice in efficient markets known as arbitrage. However, instead of honouring the trade, Paradex froze the user’s account and voided ~$219,000 in profits, labeling the user an „attacker“ for exploiting their bad data.
BitMEX Insight: We actively covered the opportunities in the Perp DEX space, such as in our article, Hyperliquid Ecosystem Airdrop Opportunities. However, we would advise caution regarding aping in size for new perp DEXs and to read their documentation carefully before placing any trades.
5. New Frontiers: Equity Perps & Funding Rate Trading
As traditional strategies failed, the market evolved into two distinct camps: High Frequency Trading (HFT) predation and exotic speculation.
The 24/7 Wall Street Meta – Equity Perps: Crypto derivatives found true product-market fit as the backend for trading TradFi assets. The demand to leverage trade US stocks like Nvidia and Tesla outside the 9:30 AM – 4:00 PM window exploded, and crypto exchanges like BitMEX are becoming the primary venue for speculation, especially ahead of earning reports.
Trade perpetual swaps on top US stocks and indices such as Nvidia and Tesla 24/7 with up to 20x leverage on BitMEX. You can start here.
Funding Rate Trading: In response to the volatility of funding rates, the market moved to trade the rate itself. Traders stopped passively farming and began speculating on funding volatility (hedging spikes vs. betting on spirals).
BitMEX Insight: We were at the forefront of the crossover between crypto and traditional equities meta. For starters, we launched Equity Perps on BitMEX allowing traders to use crypto as collateral to gain exposure to top US stocks and indices – 24/7/365.
We make a thorough analysis of TradFi and crypto convergence in our article, DAT Stocks vs Crypto and further extend it to provide specific strategies in BitMEX Alpha: Equity Perp Funding Arbitrage on Hyperliquid.
Furthermore, our detailed review of Boros, Pendle’s funding rate trading platform, is provided in our article The Boros Blueprint, to help define the mechanisms of this new asset class.
A Fairer, More Grounded Future
2025 was the year the crypto perpetual swaps market faced a reckoning, marked by the ADL crisis and the end of easy funding arbitrage yield. This environment made transparency and fair dealing essential. BitMEX’s commitment to being a fair market matcher was validated, as we avoided the trust issues of ‚B-Book‘ rivals and demonstrated foresight by leading the charge into the new frontiers of Equity Perps. The market has matured, and only battle-tested exchanges focused on fairness, security, and reliable infrastructure will thrive.
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