CEX vs DEX Perptual Futures: The Battle of Algorithms

The competition in the perpetual futures market is becoming increasingly fierce, and the algorithms used by different trading platforms reflect distinctly different trading philosophies. This article will delve into the differences in core mechanisms such as index price, mark price, and funding rate among the three major platforms: Hyperliquid, Binance, and OKX, exploring the financial concepts and risk management approaches behind them.

Three Pillars of Perpetual Futures Trading

Perptual Futures trading is primarily composed of three key elements:

• Index Price: Tracks changes in spot market prices, serving as a theoretical benchmark.
• Mark Price: The decisive price used to calculate unrealized profits and losses, liquidation, and other key events.
• Funding Rate: An economic mechanism connecting the spot and contract markets, guiding contract prices to revert to the spot.

Comparison of Algorithms of the Three Major Platforms

Index Price/Oracle Price

Hyperliquid uses oracle prices independent of its own market, constructed by validator nodes, employing a weighted median method to combat extreme volatility, with a slower update frequency of once every 3 seconds. This mechanism is more resistant to manipulation but sacrifices some real-time performance.

( Mark Price

The mark price algorithm of Binance is based on the median of the contract market's buy and sell prices, transaction prices, and impact prices, combined with EMA processing, aiming for price smoothness and reflecting market depth.

OKX adopts a simpler and more direct approach, using only the mid-price of the bid-ask spread, which is highly sensitive to small trades and exhibits greater volatility.

Hyperliquid combines the features of Binance and OKX, integrating Oracle prices, the platform's own prices, and the perpetual mid-prices from multiple CEXs, maintained collectively by on-chain validators, enhancing the decentralized nature of the algorithm and its resistance to manipulation.

![The Contract Algorithm Battle between CEX and DEX: Hyperliquid, Binance, OKX])https://img-cdn.gateio.im/webp-social/moments-a015d8c69e96bbf6c5a303d32a9b4cd5.webp###

( Funding Rate

Hyperliquid introduces a premium index based on the Binance model, replacing index prices with Oracle prices, and implements high-frequency settlement and extreme cap settings to accelerate price convergence.

The funding rate of Binance relies on a longer settlement cycle, combined with order book depth and fixed borrowing rates, providing institutional investors with a stable and predictable cost of capital.

The algorithm of OKX is relatively simple, based on the calculation of order book price deviations, with significant fluctuations, making it suitable for high-frequency short-term strategies.

![The Battle of Contract Algorithms between CEX and DEX: Hyperliquid, Binance, OKX])https://img-cdn.gateio.im/webp-social/moments-d70c8e1b137a0ceb5f5ce4c36fb3ca7d.webp###

The Trading Philosophy Behind the Algorithm

Binance adheres to the philosophy of "systematic rationality", pursuing market predictability to attract institutional investors seeking stable returns.

OKX tends to favor "trading instinct", believing that the market is full of irrationality, suitable for high-frequency traders and short-term operations.

Hyperliquid is committed to creating a new financial paradigm by integrating decentralized governance and programmable pricing mechanisms to attract on-chain arbitrageurs and large funds pursuing extreme trading.

Conclusion

The algorithm design of different platforms reflects different understandings of the essence of the market. Whether pursuing stability, embracing volatility, or on-chain consensus, they all attempt to find a balance in imperfection. In extreme cases, human intervention is still inevitable, reminding us to always maintain a sense of awe towards the market.