Ondo exec explains how perpetual futures stay in line with spot prices

Perpetual futures, often called perps, differ from traditional derivatives in one important way. They never expire and never settle through delivery of the underlying asset.

That design raises a basic question for traders. If perps are purely synthetic contracts, what prevents their prices from drifting far away from spot markets.

During a recent interview with TheStreet Roundtable discussion, Ondo Finance’s head of DeFi, Matt Blumberg, explained that perps stay in line with spot prices because traders are paid to correct any gaps.

Related: Ondo unveils Ondo Perps for equity perpetual futures trading

Perps are typically quoted in stablecoins or dollars and trade independently of spot markets in the short term. When demand is heavily skewed toward buyers, the perp price can move above spot.

“There’s never any delivery of the underlying,” Blumberg said, which allows prices to respond quickly to shifts in trader positioning.

That divergence is short lived. Exchanges track the gap between perp prices and spot prices and apply funding rates to close it. When a perp trades above spot, funding turns positive. Long position holders pay a periodic fee to traders holding short positions.

“If the price that the perp is trading at is high relative to spot, the funding is positive,” Blumberg said.

That payment creates pressure on both sides of the market. Long traders face rising costs and may close positions, while short sellers are incentivized to enter the market to collect funding.

Many of those shorts are hedged. Traders often short the perp while holding the underlying asset, earning funding payments with limited exposure to price moves.

“It’s very similar to cash and carry in the traditional markets,” Blumberg said.

As more traders adopt that strategy, selling pressure increases and pulls the perp price back toward spot.

The process also works in reverse. If perps trade below spot, funding flips direction, encouraging longs and discouraging shorts until prices realign.

Over time, the funding mechanism acts as a self correcting system that keeps prices anchored without relying on expirations or settlement dates.

“It sounds like it might not work,” Blumberg said. “But over time, the funding rate does bring the perp price back into line with the spot price.”

As perp future markets have grown, this mechanism has proven resilient. In Blumberg’s view, that reliability explains why perps have become a core part of crypto market structure.