Chatgpt: Here is a complete breakdown of the three things you asked from the perspective of 'perpetual contract mechanism + market structure':
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1. Why have many perpetual contract coins on Binance maintained high prices this year, but the funding rate has been negative for a long time?
This situation is actually a combination of 'decoupling of the perpetual contract market from the spot market' + 'insufficient spot supply' + 'market maker strategies'.
Possible reason one: Tight supply in the spot market (insufficient liquidity)
New currency, popular narrative coins often have low liquidity upon listing.
However, perpetual contracts have high leverage, low thresholds, and a large number of retail investors trading them directly.
If most people are shorting perpetuals (expecting a correction), and the short volume far exceeds longs, then:
Shorts need to pay the funding rate → negative funding (negative funding rate).
But perpetual prices do not necessarily drop, because the trading volume of spots is low and prices are supported.
Possible reason two: market makers or large players are maintaining spot prices.
Some project teams + market makers will maintain a price range for the spot market to avoid being crashed.
Spot prices are supported, so perpetual shorts will not pull down perpetual prices.
Thus, perpetual shorts "cannot bet on declines," and the funding rates remain negative.
Possible reason three: extreme sentiment in the perpetual market.
Retail investors often like to "chase high then short for correction."
If a large number of retail investors pile up shorts:
The perpetual contract market will show strong short demand → perpetual prices tend to be lower than spots.
Funding rate = negative.
Even if spots do not drop, perpetuals may show negative funding due to the pressure from shorts.
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2. How is the funding rate algorithm for Binance perpetual contracts determined?
The funding rate formula is actually very simple and can be broken down into two main parts:
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(1) Premium Index.
Reflecting "the gap between the prices of perpetual contracts and spot prices."
Simplified formula:
Premium = (perpetual contract mark price - spot index price) / spot index price.
Perpetual > Spot → Premium > 0 → longs pay shorts (positive funding).
Perpetual < Spot → Premium < 0 → shorts pay longs (negative funding fee).
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(2) Interest Rate.
Binance is preset to 0.01% (fixed).
Used to balance long and short demand.
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Complete funding rate formula (simplified).
Funding Rate = Premium Index + Interest Rate.
But to avoid violent fluctuations, there are usually upper and lower limits (e.g., ±0.75% / 8hr).
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3. Why does the situation where "perpetual contract prices are high" and "negative funding does not return to zero for a long time" occur?
This is the phenomenon you observed:
Prices hold steady, but shorts are forced to keep paying.
Common reasons are as follows:
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Situation one: the demand to short perpetuals far exceeds the selling pressure of spots.
The large number of retail investors shorting in the perpetual market will push the perpetual prices down.
→ Perpetual prices are lower than spots.
→ The funding rate turns negative.
But spot liquidity is too low, and perpetuals cannot pull down spots → prices remain stable.
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Situation two: market makers arbitrage through "long in spot / short in perpetual."
Professional traders will do:
Buy spots (long).
Short perpetual (short).
Charging negative funding (because shorts earn).
If they enter in large numbers:
Spots are being bought up → spot prices are supported.
The more perpetual shorts, the more negative the funding rate.
This will form a negative funding "self-reinforcing cycle."
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Situation three: new coins or low market cap coins are easily maintained in price.
Project teams + market makers often "lock positions and control" spots to stabilize prices.
Even if the short volume in the perpetual market is huge, it cannot drag down spots.
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Summary (brief version).
✔ Why maintain high prices but long-term negative funding?
Because the perpetual market is generally shorting, perpetual prices are lower than spots;
And the spot prices are supported by market makers or low circulation, and will not drop immediately.
✔ How is the funding rate calculated?
Mainly based on:
The premium (the price of perpetual contracts relative to spots).
Fixed interest rate.
✔ Why does negative funding exist long-term?
Because:
Short demand is higher than long demand (everyone is shorting).
Professional arbitrageurs continuously expand perpetual shorts.
Spot prices are maintained and are not influenced by perpetuals.
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Q: There is a rule here I do not understand. Since there are many shorts in perpetuals, why can't they push down the spot prices or at least let the contract and spot prices decouple significantly?
A: The problem you observed is very crucial and is often something that beginners do not understand:
> The short volume in the perpetual market is large (many people are shorting), why can’t it push down the spot prices?
Shouldn't perpetuals and spots be more severely decoupled?
The answer is: no matter how large the trading volume of perpetual contracts is, it fundamentally "will not directly affect spot prices."
Let me explain in the clearest and most core way below.
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⭐ The first key: perpetual contracts are not spots, they do not create "real selling pressure."
Perpetual contracts are "contracts," not the essence of "tokens."
Shorting perpetuals ≠ selling spot.
Going long in perpetual ≠ buying in spots.
The price in the contract market is an "internal game between the buyers and sellers of the contract."
It will not directly create sell orders in the spot market.
So even if perpetual shorts explode, it won't:
Sell orders are placed in the spot market.
Issuing real tokens.
Pushing down prices through supply and demand.
Perpetual short volume ≠ spot selling pressure.
The perpetual market is just "numbers and leverage," and the exchange uses risk control to let it run by itself.
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⭐ The second key: the linkage between perpetuals and spots relies on "arbitrageurs" rather than the shorts themselves.
The perpetual market cannot directly drag down the spot, the only one that can pull the prices of both together is "arbitrageurs."
The logic of arbitrageurs:
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If perpetuals are lower than spots (perpetual < spot, negative funding).
Arbitrageurs do:
Buy spots (spot buying pressure).
Short perpetual (perpetual selling pressure).
→ This will push:
Spot prices will go up.
Perpetual prices will be pushed down more.
Here comes the problem:
> ❗ Because arbitrageurs are buying a large amount of "spot," the spots are actually more capable of holding up the prices.
This is exactly the situation that confuses you!
The lower the perpetual (because there are more bears) → the more arbitrageurs buy spots → the less likely the spots will drop.
→ Forming a structure where "the bears cannot push down the spots."
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⭐ The third key: why won't there be a major decoupling?
To decouple perpetuals from spots, you need to have conditions that can defeat arbitrageurs and market makers.
But in reality, it is very difficult:
1. The volume of arbitrage coins is more stable and larger than retail perpetual positions.
Professional arbitrageurs have:
Large amounts of spot.
Large amounts of USDT.
Automated systems.
Low transaction fees.
And the special depth liquidity of the exchange.
Retail perpetual shorts need to "pressure" the spot market, just like you use a water gun to try to push back a fire truck.
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2. Market makers will "maintain the price gap."
Market makers do not allow perpetuals and spots to decouple too far; otherwise, arbitrageurs will harvest wildly.
As long as arbitrage remains profitable, decoupling will be corrected.
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3. Small tokens have thin liquidity, making them easier to support.
The smaller the market cap token:
Circulating spots are very few.
Trading volume relies on market makers.
A little buying pressure can hold up the K-line.
Although the perpetual market is fierce, the spot market is actually very "light."
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⭐ The fourth key: why are there so many perpetual shorts, yet prices are still being supported?
Because arbitrageurs will:
The more negative the funding rate → the more people want to short perpetuals.
The lower the perpetual → the more arbitrageurs buy spots → the more spots are supported.
This is a counterintuitive but true result:
> The more perpetual shorts, the less likely spot prices are to drop.
It may even form a "bearish hell pool":
Perpetuals are always at negative funding.
Bears keep paying.
Spot prices are extraordinarily stable.
Arbitrageurs keep collecting money.
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⭐ Conclusion (super simplified version).
Perpetual shorts will not directly push down spots.
Because contracts ≠ spots, they do not create real selling pressure.
The chain between perpetuals and spots is "arbitrageurs."
Arbitrageurs will buy spots → support prices → offset bearish effects.
The more negative the perpetual, the higher the spot is supported.
Because the deeper the negative funding, the sweeter the arbitrage, the more buyers for spots.
Q: Why has this kind of market condition appeared so much this year? Is it because there are more market makers, or is it due to some reasons that everyone knows about this system loophole?
This year (2024–2025), the wave of "negative funding in perpetuals + spot prices hard support + perpetual bears being worn down" is indeed more frequent and extreme than in the past.
And you have observed very accurately—this is not accidental; it is caused by structural changes.
Let me explain in the most precise and crucial way below why there has been a large emergence of this "bearish hell pool" pattern this year.
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⭐ 1. Market makers are indeed more numerous than in previous years, and are also stronger and have more money.
This year's market making power is "the strongest ever":
A large number of projects have raised money (VCs returning).
High-frequency market-making institutions (Jump, GSR, Wintermute) return to the scene.
New institutional market making teams join (bringing AI arbitrage, fully automated orders).
Binance itself provides deeper and more stable liquidity contracts (Market Maker Program).
These market makers are capable of doing:
✔ Holding up the spots hard, preventing collapse.
Because the spot liquidity is thin, a little capital can control prices.
✔ Let the perpetual prices follow the bearish sentiment, leading to negative funding.
But it also avoids a large decoupling between perpetuals and spots.
More market makers + stronger automation → this year it is easier to form this structure.
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⭐ 2. Perpetual trading volume hits a historical high—everyone is playing perpetuals, not spots.
In Q4 2024–2025, a phenomenon will obviously appear in the whole market:
> Everyone directly plays perpetuals and does not touch spots.
The reason is:
The UI of exchanges is becoming increasingly like "playing a game."
Perpetual 50x, 100x is more exciting than spots.
Beginners do not understand what "spot depth" means; they only know how to short or long.
90% of Generation Z traders only look at perpetual markets.
This causes:
✔ The sentiment in the perpetual market is extreme (large amounts of shorting → negative funding).
✔ But not many people are selling in the spot market (prices remain stable naturally).
Perpetuals and spots are completely two different worlds, and the explosive trading of perpetuals will not pressure spots, but instead attract arbitrageurs to buy spots (to support prices).
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⭐ 3. Market makers + arbitrageurs know that "the bears will keep shorting," thus forming a stable profit formula.
This is not a "loophole," but it is indeed a profit model that everyone is using this year:
**Classic arbitrage formula:
Buy spot + short perpetual = earn funding fees every hour**
When there are more bears:
→ The lower the perpetual.
→ The higher the negative funding.
→ The more arbitrageurs want to short perpetuals, the more they want to buy spots.
→ The more stable the spot.
→ The more painful the bears are.
This is a cycle of "the more the bears attack, the harder the spot becomes."
This is more evident this year because:
✔ A large amount of market capital flows back (BTC ETF + institutions).
✔ Market maker costs are decreasing (high level of automation).
✔ Negative funding arbitrage is a low-risk, stable profit strategy, widely adopted.
✔ Retail investors are bearish, and the leverage in perpetuals has exploded.
The result is what you see:
The more bears, the more stable the spots, the deeper the negative funding, the more bears are squeezed.
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⭐ 4. The narrative coins and token circulation this year are extremely concentrated, further strengthening this effect.
This is an often overlooked but extremely important factor.
New coins listed in 2024–2025:
Circulation rates are generally only 5% to 15%.
Most tokens are in the hands of VCs and teams.
Market makers can easily control the depth of the spot market.
This means:
> The spot market is weak and easily controlled, while the perpetual market is violent but does not affect spots.
This will make negative funding more likely to exist long-term.
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⭐ 5. This year, retail investors are generally "bearish" and used to shorting high, turning into an ATM for market makers.
You should also feel:
Every time a coin rises significantly, the first reaction of retail investors is "this is unreasonable, I will short."
Retail investors believe there will "always be a correction" → a large number of perpetual shorts.
As a result, prices do not drop → perpetual negative funding → retail investors do not want to stop loss → increase short positions.
What market makers like most is:
Obvious bearish sentiment.
This year, retail investors' bearish sentiment is more exaggerated → negative funding becomes more normalized.
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⭐ 6. This is not an arbitrage loophole, but a "market structure change."
Simply put:
✔ Perpetual market: retail investors dominate → extreme sentiment → bearish.
✔ Spot market: market makers dominate → controllable depth → stable prices.
✔ The price gap is continuously corrected by arbitrageurs → long-term negative funding remains stable.
This is a healthy and stable system, not a loophole.
For market makers and arbitrageurs:
This year is the most comfortable year ever to profit from bearish money.
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⭐ (Summary) Why has this kind of market condition appeared so much this year?
✔ Market makers are stronger this year, making it easier to control spots.
✔ Perpetual trading volume grows explosively (retail investors are using leverage wildly).
✔ Retail investors are generally bearish, and perpetual shorts are extremely concentrated.
✔ Negative funding arbitrage is popular (buy spots + short perpetuals).
✔ New coins have low circulation, making it easier for spots to be supported.
✔ A large amount of market capital flows back (BTC ETF, institutional capital).
In conclusion, in one sentence:
> It is not a loophole, but the result of a market maturity where "market makers dominate, retail investors go perpetual."
Retail investors especially love to short this year → the entire market has turned into a structure of a bearish ATM.
