The funding rate is how the price of a perpetual swap is kept close to the price of the underlying asset. It works by sending periodic payments between long and short traders. This is critical: a poorly designed funding rate makes perpetual swaps riskier, more volatile, and costlier.

To be sure, though perpetuals have become super popular, the broader market is still mired in a downturn. Open interest -- or the amount of open contracts -- tends to be high during bullish periods because rising prices attract speculators to the market. But OI has declined roughly 40% since the fall. Aggregate futures trading volume has also declined -- during the first half of 2021, it was typical to see trading volumes between $70 billion to $80 billion per day. As of the end of April, that had dropped by roughly 60% to around $30 billion daily, according to Glassnode, though it ticked up amid the last few weeks’ volatility.

Bitcoin perpetual contracts -- which, unlike traditional calendar futures, don’t expire -- have long been a crypto retail-investor favorite, with a bigger number of professional and institutional traders also shifting toward them and away from traditional calendar futures. Such contracts have grown to account for around 66% of open interest and roughly 93% of trading volume, according to data from Glassnode. Traders say these instruments mimic the spot market, and are easy to use and access on exchanges. And their dominance has ballooned as they’ve become the preferred source of leverage, according to the researcher.