Perptual Futures Get Liquidated Algorithm: altcoin bull run's driving force

Author: danny Source: X, @agintender

The crypto bull market of 2025 may (already) be coming, but the way its engine roars is vastly different from before. If you are still closely watching spot trading volume to gauge market heat, you may have only seen the tip of the iceberg. The true main character of this bull market is perpetual contracts (Perps) — a huge, highly leveraged PVP arena driven by intense competition between long and short positions. The liquidity, narratives, and wealth effects here are defining the entire market in unprecedented ways.

Why liquidity has unprecedentedly concentrated in the contract market, and a numerical case reveals how "short squeezes" become rocket fuel, driving the core mechanism of spiraling asset price increases.

Disclaimer: It’s all made up; any resemblance to actual events is purely coincidental.

Entertainment statement: It's just for fun, don't take it too seriously.

Troll statement: If you think I'm wrong, then you are right.

1. Data Pivot: When the "tail" starts wagging the "dog"

The phenomenon is the best proof of the theory. We first verify an astonishing fact through data: the trading volume of perpetual contracts has completely crushed the spot market.

• Trading Volume Comparison: According to data from data platforms such as TokenInsight in the second quarter of 2025, the trading volume of cryptocurrency derivatives (mainly perpetual contracts) on mainstream exchanges is usually 10 to 15 times that of spot trading volume. This means that when the spot market has a trading volume of 10 billion USD, the trading volume of the contract market may have reached 100 to 150 billion USD.
• Open Interest: By observing the open interest of mainstream cryptocurrencies such as BTC and ETH, as well as popular new coins, we can see that their scale far exceeds the corresponding spot inventory of these currencies on exchanges. This indicates that the vast majority of market participants' risk exposure and capital are deployed in the derivatives market.
• Funding Rate: During most of this bull market, the funding rate has remained positive and high for an extended period. This has attracted a large number of "arbitrageurs" who earn stable funding rates through the strategy of "shorting perpetual contracts + buying an equivalent amount of spot." This operation further drains liquidity from the spot market and locks it into hedged positions.

Conclusion: The data clearly indicates that there has been a structural shift in the market's capital, attention, and focus of competition. Perpetual contracts are no longer an adjunct to spot trading; rather, they have become the core battlefield that dominates short-term price fluctuations. The market has transitioned from "spot driving contracts" to "contract competition pushing spot."

"At this moment, spot trading has unexpectedly become an 'accessory'."

II. Core Mechanism Revealed: How is the "Short Squeeze Rocket" Launched?

The "weird phenomenon" in the market - the price increase did not start with spot buying but is driven by the clearing of contracts. This is the core mechanism of the current "Perps bull market."

Let’s explain this process using a simplified numerical example.

Case: New Coin "RocketCoin" (RKT)

• Background Setting:
• RKT is a popular new project with an extremely low initial circulation of only 1 million coins (1/10) available in the market. (Assuming a total circulation of 10 million coins)
• The exchange has launched RKT's U-based perpetual contract.
• Current spot price: $10.
• Due to the consensus of "new coins should be shorted", the futures market has accumulated a large number of short positions. Assuming there are short positions worth $10 million (300,000 RKT) waiting to be liquidated between $11 and $15.

Launch process:

1. Initial ignition: A certain whale or project party invests a small amount of funds in the spot market, for example, using $200,000 to buy 20,000 RKT, forcibly pushing the spot price from $10 to $11. The spot market has low circulation (shallow market), making the cost of raising prices extremely low.
2. First-level rocket drop (first round of liquidation): The RKT price reaches $11, and the first batch of short positions set with a stop-loss at this price level is forcibly liquidated (i.e., margin call). Assuming this batch of positions is worth 1 million dollars.

• Liquidation mechanism: The operation of "closing a short position" is "buying". The liquidation engine needs to immediately buy RKT contracts worth 1 million USD in the market.
• Market Maker Hedging: Market makers providing liquidity to the clearing engine will immediately buy an equivalent amount of RKT spot in the spot market to hedge against their own naked short risk while selling contracts.
• Price feedback: This spot buy order from the market maker further pushed up the already thin spot price, for example, from 11 to 12. market makers buy spot to hedge

2. Entering the orbit: This cycle forms a positive clearing spiral. The liquidation of each layer of short positions becomes the fuel for the next round of price increases, pushing the price of RKT from $11 all the way to $15 or even higher. In this process, the initial "ignition" capital of $200,000 has leveraged passive buying of millions or even tens of millions of dollars.

Conclusion: This is the essence of the simple version of "Perps Bull Market": leveraging extremely low spot liquidity as a pivot for leverage, creating a counterparty in the futures market (a large number of shorts), and ultimately driving prices to seemingly "rise out of nowhere" through the mechanism of "liquidation." The rise in the spot market is more like a result and manifestation of this process rather than the cause. (Clearly, in practice, it is not such a smooth operation.)

3. Why is it "this version"? Timing, location, and harmony among people.

This phenomenon was not as evident in previous cycles and is the result of multiple factors working together:

1. Timing (Project Team Strategy): The projects in this cycle generally adopt the "Low float, High FDV" issuance model. This creates a perfect "necessary and sufficient condition" for artificially controlling the spot market and leveraging the high-leverage contract market.
2. Geographical Advantage (Market Infrastructure): The perpetual contract product itself has become extremely mature after years of development. The smooth trading experience, deep liquidity, comprehensive API, and market maker system enable it to handle massive amounts of capital and complex games.
3. People and (Market Consensus and Narrative):

• The paradigm of "empty new currency": This rendered "consensus" actively creates a large amount of "fuel" for the market.
• Myth of Getting Rich Quickly: The hype from contract gods promising hundreds of times returns continues to attract players eager for high risk and high reward. Especially the extreme trading operations of various whales on Hyperliquid have provided ample imagination space for this "getting rich (negative)" narrative.
• The allure of mechanisms: Complex strategies like funding rate arbitrage and liquidation hunting have transformed the market from a simple long-short battle into a multi-role, multi-dimensional financial game, further locking in liquidity.

Conclusion

Everyone, please don't take it seriously. This round is called the "Bull Market of Perps," and it is merely a "nickname" for the deep structural changes in the market. While it signifies a story of wealth growth, it is more about a complex financial fable concerning leverage, liquidity, mechanisms, and the game of human nature, rather than simple value discovery.

In this version, spot trading has become the ultimate embodiment of hedging and prices, while perpetual contracts are the core carrier that integrates narrative, funds, and mechanisms, truly defining the pulse of the market. Understanding and adapting to this game rule of "using your liquidation as fuel" is key to navigating this cycle.

Finance or gaming is just like that; PvP will always bring new experiences.

May we always have a heart that reveres the market.