The price performance of tokens in the Perp DEX sector has indeed been less than ideal recently. HYPE has fallen from its high to $21, LIT has remained at $1.7, and ParaDEX has experienced an incident. The entire sector looks somewhat sluggish.
Interestingly, the hype surrounding this sector doesn't seem to have cooled down. On the contrary, many players are even more actively farming projects that haven't yet launched their own tokens. After all, a mini bear market is the best time to accumulate tokens, which will be even more valuable when the market recovers and tokens are launched.
Two weeks ago, I wrote a project introduction article titled " After Lighter, the Next Batch of Perp DEXs Worth Trading ," which received a lot of feedback. Many new users now know which platforms are worth paying attention to, but they're still confused about how to operate them, how to open and close positions, and how to maximize their points weight. Therefore, this is the basis for today's more detailed practical tutorial, perfect for beginners. For demonstration purposes, I've primarily chosen Variational and Extended, two Perp DEXs with respectable trading volumes and backgrounds.
I. Essentials for the Start: Preliminary Preparations
Before you begin, you'll need to prepare two EVM wallets (it's recommended to use two different wallet addresses, not the same one, to reduce the risk of being flagged as a Sybil attack by the project team). For wallets, I would recommend Metamask or Zerion wallet.
Most Perp DEXs currently support deposits through the Arbitrum network, so having USDC on the Arbitrum network is generally enough to navigate Perp DEXs smoothly.
Variational currently only supports deposits of USDC on Arbitrum. Extended supports more deposit chains, including Ethereum, Arbitrum, Base, BSC, Avalanche, and Polygon, but the currency is still USDC.
Furthermore, the competition in the PERP DEX market is quite fierce right now, with each platform offering special rewards for referrals. Variational currently still requires an invitation code to use; my code is OMNI796TLUPK, or you can find it on Twitter. Some higher-level or ambassador invitation codes offer varying degrees of commission rebates or fee discounts. For example, on the Extended platform, invited users can enjoy a 10% commission discount until their total trading volume reaches $50 million.
II. Beginner-friendly: Dual-platform hedging and score-boosting method
After completing the USDC deposit and preparation, we'll move on to the practical part: selecting a market, setting leverage, and placing an order. Here, we'll use the simplest and safest hedging strategy to accumulate points.
The core principle is to hedge against the risk of price fluctuations by opening opposite positions on different DEXs. For example, while long on Variational, you can simultaneously short on Extended with an equal and multiple of the position size. This way, no matter how the price fluctuates, the profits and losses on both sides can offset each other. Your main expense is transaction fees, but you can steadily earn points rewards.
In practice, because Extended's fee structure is more favorable to Maker order placers, the optimal approach is to first place a Maker order close to the market price on Extended, thus enjoying the platform's rebate. Then, once Extended's order is filled, quickly open a taker order in the opposite direction on Variational at the market price to execute the trade. This back-and-forth hedging effectively offsets the position size, meaning we essentially incur some platform fees, spreads, and slippage in exchange for reward points.
Here's another practical tip: In the Variational settings at the top right, there's a switch to "Play order execution sound," remember to turn it on. Extended also has a "Disable sound" option at the top right, but don't check that. The benefit of this setting is that when an Extended Maker order is executed, there will be an audio notification, allowing you to react immediately and open a Taker order on Variational to capture the order. If this time difference is managed well, it can effectively reduce slippage losses caused by price fluctuations.
When closing positions, pre-set your take-profit and stop-loss prices, which can also be the same profit/loss ratio or price level. We recommend keeping your Extended account profitable while your Variational account incurs losses. Why? Because Variational has an interesting mechanism: once you reach Bronze level (1 million USD in trading volume over 30 days), there's a loss refund lottery. While the probability is low, between 0% and 3%, the higher your level, the higher the chance of winning. If you win, the payout will be the lower of either 100% of your actual loss or 20% of the total loss compensation pool. Therefore, keeping losses in your Variational account gives you a chance to recover some of them.
Once you're proficient at this operation, we can increase the difficulty by increasing the spread on Variational. (The spread is the difference between the buy and sell prices, and it's also the transaction cost for users to enter a trade. The smaller the spread, the lower the transaction cost.)
Even though Variational's points weighting fluctuates slightly each week, it essentially profits through spread arbitrage via the Omni Liquidity Provider. Variational has only one market maker: itself. Therefore, when you open an order on Variational, the platform charges a spread of 4-6 basis points and simultaneously hedges the risk by opening a reverse position on another external trading platform, profiting from the price difference. Many experienced traders have discovered a pattern through repeated testing: the larger the spread, the more Variational earns, and the higher the points weighting for the user. This gives us an idea: to maximize points weighting, we need to find a way to increase the spread.
Based on the principles discussed earlier, we know that reducing spreads can be achieved by: trading mainstream cryptocurrencies, such as BTC or ETH; and choosing time periods with high liquidity. Conversely, increasing spreads can be achieved by: trading smaller, less liquid Altcoin, as their spreads are often larger than those of mainstream coins; and by choosing time periods with lower liquidity, such as weekends or Asian nighttimes. This will increase the weighting of your trading data. Building on this, you can further increase your trading volume by switching cryptocurrencies (don't always stick to the same ones), increasing the number of trades, holding time, and the amount per trade.
In addition to crypto, both Extended and edgeX support trading in traditional financial assets. Extended currently offers a wider selection, covering stock indices like the S&P 500 and Nasdaq, forex (EUR/USD), precious metals like gold and silver, and commodities like oil—a total of six instruments. edgeX currently only lists the S&P 500 and Nvidia.
Since both platforms offer the S&P 500 index, this provides another hedging opportunity. We can also use Extended and EdgeX to trade the S&P 500, enriching our trading system. The operation method is exactly the same as the Variational and Extended same-currency hedging mentioned earlier: go long on one and short, locking in risk and earning points. However, due to TradeFi's market-closed mechanism, it's best to trade during US stock market opening hours for easier operation.
III. Advanced Strategy: Long-Term Holding Strategies for Mainstream Cryptocurrencies
The previously mentioned hedging strategies involving smaller cryptocurrencies and TradeFi assets, while offering large spreads and high ranking weights, have a significant drawback—poor liquidity. This means these strategies are only suitable for short-term trading, quickly entering and exiting positions to generate volume, and are not ideal for long-term holding. After all, when liquidity is poor, price fluctuations can be quite volatile, and holding for an extended period can actually increase risk.
Therefore, to improve the entire trading system and increase the IO (Input/Output) metric, IO is a very important component. We can intersperse long-term holdings of mainstream cryptocurrencies during times when we're not monitoring the market. For example, when we're at work during the day or before going to bed at night, we can open some hedging positions in highly liquid mainstream cryptocurrencies like BTC and ETH, naturally extending the holding time.
In practical terms, you can use Variational to implement a hedging strategy between BTC and ETH. You can observe the relative strength of these two coins. When one rises 2-3% more than the other, long on the slower-rising one and short on the faster-rising one. The logic behind this strategy is that BTC and ETH have a high long-term correlation, and short-term deviations often revert to their previous movements. You can hold the position for a slightly longer period, 8 to 12 hours or even longer. Once one coin starts to generate profit, you can consider closing the position. Even if you are temporarily experiencing a paper loss, don't rush to stop the loss; just hold according to your plan.
The advantage of this strategy is that it makes up for the shortcoming of the previous strategy, which only placed market orders on Variational. This strategy can use limit orders more often, which makes it look more like real trading rather than wash trading.
However, it's important to note that even for mainstream cryptocurrencies, holding positions overnight is not recommended. The crypto market operates 24/7, and in the event of a sudden market crash or black swan event, your hedging positions might not have enough time to adjust before being liquidated, resulting in significant losses. Also, don't use excessively high leverage; keeping it below 20x for mainstream cryptocurrencies is sufficient. Safety first.
Extended Vault Shares (XVS) also allows for strategic adjustments based on the characteristics of its vault. A clever design feature of XVS is that 90% of its value is simultaneously credited to your account equity and available trading balance, a feature more comprehensive than Hyperliquid's.
Let's say you have 1000 USDC in your account. At this point, your net worth and available balance are both $1000. When you deposit this 1000 USDC into a vault, you receive an equivalent amount of XVS, and your net worth and available balance become $900. Next, you open a $1000 long position in BTC using 4x leverage. Your net worth is still $900, but your available balance becomes $650 (900 minus the margin required by dividing $1000 by 4). If this BTC long position has a floating profit of $100, your net worth rises to $1000, and your available balance rises to $750. Throughout this process, your principal is constantly accumulating APR in the vault while simultaneously supporting your trading position.
Extended Vault's returns are divided into two parts: basic returns and additional returns. The APR over the past 30 days is 24.92%. Basic returns are available to all depositors and are currently at 4.14% APR, reflected in the continuous rise of XVS prices. Vault's returns are similar to other Perp DEXs, primarily coming from market-making transactions and clearing fees. Additional returns are linked to the account's trading activity, starting from Knight level, and currently reach a maximum of 20.78% APR.
IV. Essential Skills for Experts: Funding Rate Arbitrage
The previous methods focused on accumulating points through hedging. Next, we'll discuss a more advanced approach: profiting from differences in funding rates between different platforms. The advantage of this strategy is that it not only earns points but also generates real profits. However, it's slightly more complex to implement and not suitable for beginners.
Before discussing strategies, let's explain what the funding rate is. Perpetual contracts differ from traditional futures in that they have no expiration date. To anchor the contract price to the spot price, exchanges have designed a mechanism where long and short positions periodically pay each other funding fees. When market sentiment is bullish and the contract price is higher than the spot price, the funding rate is positive, meaning those long pay those short. Conversely, when the market is panicked and the contract price is lower than the spot price, the funding rate is negative, meaning those short pay those long.
Because the funding rates for the same cryptocurrency can vary significantly across different platforms, this presents an arbitrage opportunity. Ideally, long on the platform with lower rates and short on the platform with higher rates, earning fees from both sides. However, generally, finding a rate difference is sufficient to meet the trading criteria, and the operation remains the same as before, with the same leverage and position size.
What are the advantages of this approach? First, by hedging your long and short positions, you become completely neutral to BTC price fluctuations; neither increases nor decreases affect your total assets. Second, on Variational, you pay funding fees for long, but on Extended, you short. If Extended's fees are higher, you can profit from this difference.
For example, on January 15th, the arbitrage opportunity for IP across different platforms reached an annualized rate of 953%. What does that mean? Assuming you invest $10,000, theoretically you could earn $9,530 a year. Of course, this is an ideal scenario; in reality, funding rates fluctuate and cannot remain this high indefinitely. BERA also offered an arbitrage opportunity of 435% annualized on that day. For more details, please refer to @0xfarmed 's post .
In practice, these high-yield opportunities often appear in new cryptocurrencies with low FDV (fully diluted valuation). These coins have small circulating supply, making market sentiment prone to extremes and resulting in particularly large fluctuations in funding rates.
Here we need to monitor funding rates on different platforms and identify the funding rates of perpetual contracts on both platforms. Therefore, we can use tools such as SmartArbitrage, which can display arbitrage opportunities on various platforms in real time, and Variational's API and Extended also have visual rate comparison interfaces. In addition, there's the Telegram bot @lighter_arbitrage_bot, which will automatically push arbitrage opportunity alerts. Once we find that the rate difference starts to narrow, or that the rate on one side turns negative, we can consider closing the position.
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