Onchain Perpetual Futures: Closing The Gap Between CeFi And DeFi For Institutional Traders

Blockchain might be decentralized, but the assets issued on these networks were first traded on centralized exchanges. Back when Bitcoin was the only coin in town, simple order book exchanges sprung up to meet the demand from new users eager to acquire the cryptocurrency.

These spot exchanges enabled price discovery and, although initially illiquid, gradually improved over the years as more professional platforms arrived. Then, around five years into crypto’s existence, the first futures exchanges appeared. These too were centralized. And thus, for the first decade of its existence, crypto existed in a curious state whereby its assets were decentralized but trading them was centralized and thus entailed custodial risk.

But in 2020, decentralized exchange Uniswap went viral, ushering in what came to be known as the glorious DeFi Summer, in which DEX trading became popularized. Onchain trading is now huge, recording billions of dollars in daily volume across hundreds of spot and perps exchanges. But despite this growth, CEXs still dominate.

For all the advantages DEXs offer – self-custody; instant access to new tokens; liquidity incentives – CEX infrastructure has retained an advantage. For professional trading especially, where speed and reliable execution are critical – which is particularly true of perps – centralized platforms prevail.

But the gap between CEXs and DEXs has finally begun to shrink. And at the center of this shift is the maturation of onchain perps and the Layer 3 execution frameworks designed to power them.

Feeding Demand for Onchain Derivatives

Derivatives consistently account for around 80% of crypto trading volume. And if there’s one instrument in particular traders flock to for leverage and hedging, it’s the perpetual futures contract or perp. Retail loves them. Pros love them. And institutional traders rely on them for everything from directional exposure to portfolio risk management.

Institutions overwhelmingly use CEXs to facilitate this activity, because empirically, DEXs have lacked the execution depth required for large-scale trading. Add to that the complexity of managing liquidations and risk parameters in a decentralized setting, and it’s easy to see why DEXs have always played second fiddle when it comes to perps.

The problem has never been about demand, then, but about architecture. The first decentralized perps exchanges attempted to replicate centralized order books directly on L1 or 2 networks. But perpetual markets are not simple swap contracts. They require continuous price feeds, sophisticated liquidation engines, margin monitoring, dynamic funding rate calculations and much more.

Running this logic directly on base layers is expensive and computationally heavy. As a result, the first wave of perps DEXs cornered the onchain futures market but failed to entice institutional players away from their centralized exchanges. But the next wave of perps DEXs is designed differently, thanks in no small part to the emergence of L3s that can handle the complex execution, allowing perps protocols to offer true CEX-grade trading.

Intent-Based Execution Arrives Onchain

The solution to making perps DEXs perform like their CEX counterpartslies in intent-based execution implemented on Layer 3. In this model, the user effectively states the desired outcome e.g. “I want to open a $50,000 ETH long at this price.” This “intent” is then picked up by a network of specialized solvers – basically off-chain agents – that compete to find the most efficient path to  fulfill it.

It could be routed through onchain pools, other DEXs, or even tap into centralized liquidity. But the end user sees none of this: from their perspective, their trading intent is flawlessly fulfilled and without requiring them to custody or manually bridge their funds. To visualize this process in action, consider Orbs’ Perpetual Hub Ultra (PHU), which was recently integrated with Gryps, a high-performance DEX on Sei Network.

Orbs is the Layer 3 which acts as the decentralized execution layer, while Perpetual Hub Ultra is the product that decentralized exchanges integrate in order to offer institutional-quality perps trading. Gryps was designed as a perps platform from day one, but having added Perpetual Hub Ultra, these capabilities have been significantly enhanced.

PHU allows Gryps to pull liquidity from a combination of onchain sources and major centralized exchanges, ensuring greater depth and tight spreads even for large orders. Orbs’ L3 logic, meanwhile, handles high-frequency tasks such as automated liquidations and real-time funding rate adjustments.

Finally, Perpetual Hub Ultra utilizes a modular Request-for-Quote (RFQ) system powered by Symm.io smart contracts. This ensures that Gryps traders get the exact price they’re quoted – just as they would if trading on a centralized perps exchange.

Making It Modular

On the surface, the innovation being engendered by L3’s entry into the game is better user experience. You can now trade on a decentralized exchange that feels every bit as responsive and liquid as a centralized equivalent. But the real benefit of routing logic and liquidity through Layer 3 is felt by the decentralized exchanges themselves, which now have a modular toolkit at their disposal.

“Modularity” is one of those phrases that’s thrown around a lot in DeFi, and in the case of perps trading it can be accompanied by a clear example of how this actually manifests. Instead of forcing each exchange to build its own matching engine and liquidation logic from scratch, modular L3 infrastructure enables plug-and-play derivatives frameworks.

If we consider Orbs’ Perpetual Hub Ultra, for example, rather than operating as a standalone exchange, PHU functions as an execution layer that integrates with any DEX. Gryps has been able to deliver advanced perps trading functionality without custom-building a derivatives engine from the ground up.

This improvement in modular infrastructure is democratizing institutional-grade trading. Outsourcing the heavy lifting to a specialized layer means that DeFi protocols are no longer constrained by network or developer capabilities. All the tools they need to create an institutional-grade perps trading platform are fully integratable with just a few lines of code.

Thanks to this innovation, trading onchain perps no longer feels like settling for second best. The leading perps DEXs are now every bit as good as anything CeFi can muster.

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