# Perps & Derivatives

Perpetual swaps (“perps”) and other derivatives allow you to take synthetic exposure to an asset without owning it directly. In yield strategies, derivatives can hedge downside risk, amplify directional bets, or generate funding income that complements base yields.

### Perpetual Swaps in a Nutshell

* **No Expiry:** Unlike futures, perps do not settle on a fixed date. Positions remain open as long as margin requirements are met.
* **Funding Rate:** A periodic payment between longs and shorts keeps the perp price close to the spot price.

  ```
  Funding Payment = Position Size × Funding Rate
  ```

  Positive funding means longs pay shorts; negative funding means shorts pay longs.
* **Leverage:** Exchanges often allow high leverage (5×–20× or more). Use with caution; liquidation thresholds are tight.

### How Perps Complement Yield

* **Delta Hedging:** Offset price exposure from staked assets by shorting perps. The goal is to lock in yield while neutralizing price swings.
* **Directional Boost:** Pair looping strategies with perp longs to magnify upside when conviction is high.
* **Funding Farming:** If funding is consistently positive, short perps to collect funding while earning base yields elsewhere.

### Key Formulas

* **Margin Requirement:**\
  `Initial Margin = Notional Value / Leverage`
* **Liquidation Price (simplified):**

  ```
  Liquidation Price ≈ Entry Price × (1 − Maintenance Margin × Leverage)
  ```
* **Net Yield with Hedge:**\
  `Net Yield = Base Yield ± Funding Income − Borrow Costs − Trading Fees`

### Risk Checklist

* **Volatility:** Sudden price moves can liquidate hedges or directional positions. Keep buffer margin.
* **Funding Variability:** Funding flips sign; monitor averages and volatility before committing.
* **Execution Risk:** Slippage and latency matter when rebalancing hedges or unwinding loops.

### Integrating Perps in Stazys

* Combine perp funding signals with lending yields to decide when to open or close hedges.
* Use math nodes to calculate net yield after funding and borrowing costs.
* Automate deleveraging when maintenance margin approaches thresholds.

#### Related Protocols

* Hylo Overview — DeFi stablecoin system with leveraged SOL exposure that can complement perp hedging strategies.

Perps are powerful but complex. Start with low leverage, add rich signal monitoring, and ensure your strategy contains fail-safe paths when volatility spikes.


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