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Today, we are looking into one of crypto's most common use cases, perpetual trading, and how it fares with the centralised alternatives and the trading volume of some of the leading protocols.

Derivative protocols consist of various products, including futures, options, structured notes, and bonds. However, one of the most user-friendly and accessible derivatives in the crypto space is perpetual contracts. Their popularity stems from two key factors: the flexibility of contract duration and the superior alignment with spot price through funding rates, making them a confident choice for many investors.

Centralised exchanges use the central limit order book model for trading, as it is one of the most efficient ways to match buyers and sellers. This approach helps sophisticated players such as market makers to secure optimal prices with minimal slippage. However, replicating the limit order book model in DeFi has been challenging due to blockchain limitations, like block finality, speed, and gas costs.

Despite these challenges, the market has shown resilience and innovation, leading to the emergence of automated market makers (AMMs) that allow permissionless token trades and liquidity providers (LPs) to take over the role of market makers. This innovative solution demonstrates the crypto market's adaptability and potential. AMMs have one downside: higher slippage, especially for large trade sizes during periods of market volatility.

Given these constraints, leading market participants still prefer the order book model. Thus, 99% of the perpetual market is still captured by centralised exchanges, and only 1% belongs to decentralised exchanges.

The perpetual swap trade volume has significantly consolidated since the peak of the 2021-22 bull market cycle. It soared to an all-time high of $15 billion daily volume in February 2022, with dYdX contributing almost entirely to this figure. While other leading protocols like Synthetix, GMX, and Perpetual Protocol provide support, dYdX still holds the lion's share of the volume among these protocols. As of now, the daily volume hovers between $0.5 billion and $1 billion this year, occasionally spiking to as much as $3.1 billion.

Decentralised perpetual protocols have evolved to improve trading efficiency and unlock new earning possibilities for users. Top protocols like dYdX, Synthetix, GMX, and Perpetual Protocol operate with different models and have varied offerings, particularly regarding supported assets and maximum leverage.

While perpetual trading fits well within the crypto trading sphere, the challenges faced by perpetual DEXes extend beyond mere improvements in speed, volumes, and trading fees. There is obvious growth potential here, but it will take a long time to overtake CEXes in trading volume as they have larger marketing budgets and the ability to easily onboard retail. Further, there are some regulatory uncertainties as the yield paid to token holders resembles securities to a great extent.

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