How Does a Sudden Price Spike Impact a Decentralized Perpetual Futures Contract?
A sudden price spike can rapidly push a perpetual futures contract's mark price away from its index price. This can trigger a cascade of liquidations for traders with insufficient margin, especially on leveraged positions.
The funding rate mechanism will react sharply, potentially flipping its sign to incentivize arbitrageurs to bring the contract price back in line with the underlying asset's spot price.
