The recent price performance on the Perp DEX track has indeed been less than ideal, with HYPE dropping from its peak to $21, LIT holding steady at $1.7, and ParaDEX experiencing an incident, making the whole sector look a bit gloomy.

But interestingly, the heat on this track does not seem to have cooled down as a result. On the contrary, many players are even more actively farming those projects that have not yet launched their tokens. After all, a bear market is the best time to hoard points, as it will be more exciting when the market is up for token launches.

A couple of weeks ago, I wrote a project introduction titled "After Lighter, the Next Batch of Perp DEX Worth Brushing," which received a lot of feedback from many newbie friends. They learned which platforms are worth paying attention to, but they are still confused about how to operate, open and close positions, and maximize point weight. So, today's detailed practical tutorial is particularly suitable for novice users to get started and get into the game. To demonstrate the operation, I mainly chose Variational and Extended, two Perp DEX platforms with decent trading volume and background.

1. Starting Point: Preparatory Work

Before starting, you need to prepare two EVM wallets (it is recommended to use two different wallet addresses for operation to reduce the risk of being judged as a sandwich attack by the project team). I would recommend Metamask or Zerion wallet.

Currently, most Perp DEX platforms support deposits on the Arbitrum network, so prepare USDC on the Arbitrum network, and you should be able to navigate through the Perp DEX platforms.

On Variational, only USDC on Arbitrum can currently be deposited, while Extended supports more deposit chain options, including Ethereum, Arbitrum, Base, BSC, Avalanche, Polygon, but the currency is still USDC.

Furthermore, the competition on the Perp DEX track is quite intense, and various platforms have special rewards in their invitation mechanisms. Variational currently requires an invitation code to be used. My invitation code is OMNI796TLUPK, or you can also find one on Twitter. Some high-level invitation codes or ambassador invitation codes offer different levels of commission rebates or fee discounts. For example, on the Extended platform, invited users can enjoy a 10% commission discount before reaching a total trading volume of $50 million.

2. Beginner Friendly: Cross-Platform Arbitrage Point Farming

After completing the USDC deposit and preparation work, we will now move on to the practical operation, including selecting the market, setting leverage, and placing orders. Here, we will first use the simplest and most secure arbitrage strategy to farm points.

The core principle is to hedge the price fluctuation risk by taking opposite positions in different DEXs. For example, while longing on the Variational platform, simultaneously short an equivalent size and leverage position on the Extended platform. This way, no matter how the price fluctuates, the P&L on both sides can offset each other. The main cost to you will be the transaction fees, but you can steadily earn point rewards.

In terms of specific operations, because Extended's fee structure is more favorable to Maker order placers, the optimal way is to first place a Maker order close to the market price on Extended. This way, you can enjoy the platform's rebate. Then, when the order on Extended is filled, promptly place a market order on Variational in the opposite direction to directly fill the order. In this way, the positions are hedged, and you essentially wear down some platform fees, spread, and slippage in exchange for point rewards.

Additionally, here is a practical tip to share. In the settings at the top right of Variational, there is a toggle for "Play order fill sound," remember to turn it on. Extended also has a "Disable sound" option in the top right, be sure not to check it. The benefit of this configuration is that when a Maker order on Extended is filled, there will be a sound notification, allowing you to react immediately and place a Taker order on Variational to fill the order. If you manage this time lag well, you can effectively reduce slippage losses caused by price fluctuations.

When closing a position, pre-set the take profit and stop loss prices, which can also be the same P&L ratio or price level. It is recommended to try to keep the Extended account profitable while the Variational account incurs losses. Why do this? Because Variational has an interesting mechanism: once you reach the Bronze level (30-day trading volume of $1 million), there will be a loss refund lottery mechanism. Although the probability is not high, between 0% and 3%, the higher your level, the higher the chance of winning. If you win, the payout amount will be the lower of either 100% of the actual loss or 20% of the total fund in the loss compensation pool. Therefore, by leaving the loss in the Variational account, you still have a chance to recover some of the losses.

Once you are proficient in this operation, we can increase the difficulty by widening the spread on Variational. (The spread is the difference between the buying and selling prices, also the cost for users to enter a trade. A smaller spread results in lower trading costs).

Even though there will be slight weekly fluctuations in Variational's scoring weight, fundamentally, as Variational profits from spread arbitrage through the Omni Liquidity Provider, there is only one market maker on Variational, which is Variational itself. So when you place an order on Variational, the platform will charge a spread of 4-6 basis points and then synchronously hedge the risk by opening a reverse position on other external trading platforms, earning the difference between internal and external prices. Many experienced players have discovered a pattern through repeated testing: the larger the spread, the more Variational earns, correspondingly giving users a higher scoring weight. This gives us an idea that to maximize the scoring weight, we need to find ways to increase the spread.

Based on the principles discussed earlier, we know that ways to reduce the spread include: trading mainstream currencies, such as BTC or ETH; choosing periods of high liquidity. Therefore, conversely, ways to increase the spread are: trading small currencies, where the spread of low-liquidity altcoins is larger than that of mainstream coins; additionally, you can select periods of low liquidity, such as weekends or Asian nighttime. This way, the weight will be relatively higher. Building on this, you can swap currencies (don't always stick to the same currency), increase the number of trades, holding period, single trade amount, and other factors to expand the trading volume data.

In addition to the common cryptocurrencies in the crypto space, the Extended and edgeX platforms also support the trading of traditional financial assets. Extended currently offers a relatively rich selection, covering indices like the S&P 500 and NASDAQ, forex trading for EUR/USD, precious metals like gold and silver, as well as commodities like oil, totaling six types of assets. edgeX has only listed the S&P 500 and NVIDIA as of now.

So, since both platforms have the S&P 500 index, there is another hedging opportunity. We can also completely arbitrage between Extended and edgeX using the S&P 500, enriching the entire trading system. The operational method is exactly the same as the same-currency hedge between Variational and Extended mentioned earlier: one goes long, and the other goes short, locking in the risk to earn points. However, due to the closed market mechanism of TradFi assets, it is best to trade during the U.S. stock market opening hours to keep the operation simpler.

3. Advanced Gameplay: Mainstream Coin Long-Term Holding Strategy

The previously mentioned strategy of holding small coins and TradFi assets for hedging, while having a large spread and high score weight, also has a significant drawback—limited liquidity. This means that such a strategy is only suitable for short-term trading, quick in-and-out trades to boost trading volume, and is not ideal for long-term holding. After all, when liquidity is poor, price fluctuations can be quite volatile, increasing the risk of holding for a long time.

Therefore, to make the entire trading system more robust and also incorporate the Holding Duration (HD) metric, which is a very important score weight, we can intermittently engage in long-term holding of mainstream coins during times when we are not actively monitoring the market. For example, during the day when working or before going to bed at night, open positions to hedge in highly liquid mainstream coins like BTC and ETH, allowing the holding period to naturally extend.

Specifically in terms of operation, for example, a hedge strategy between BTC and ETH can be implemented on Variational. You can observe the relative strength between these two coins, and when one has gained 2-3% more than the other, you can long the slower-moving coin and short the faster-moving one. The logic behind this strategy is that BTC and ETH have a high long-term correlation in price movement and tend to revert after a short-term deviation. The holding period can be slightly longer, ranging from 8 to 12 hours or even longer. Once one side starts to profit, consider closing the position. Even if there is a temporary unrealized loss, do not rush to stop the loss; just hold according to the plan.

The advantage of this strategy is that it compensates for the drawback of only placing market orders on Variational in the previous strategy. In this strategy, limit orders can be used more frequently, making it appear more like real trading rather than volume boosting.

However, it is still worth mentioning that even with mainstream coins, overnight holding is not highly recommended. The crypto market operates 24/7, and in case of a sudden market crash or any black swan event, the hedged position may not be able to adjust in time, leading to liquidation, resulting in a loss. Leverage should also not be set too high; keeping leverage within 20x for mainstream coins is sufficient, with safety being the top priority.

Additionally, strategies can also be carried out based on the characteristics of the Extended vault. Extended Vault Shares, or XVS, has a clever design where 90% of the XVS value is simultaneously included in both your account's net value and available trading balance, which is more comprehensive than what Hyperliquid offers.

Assuming you have 1000 USDC in your account, your net value and available balance are both $1000. When you deposit this 1000 USDC into the vault and receive an equivalent amount of XVS, your net value and available balance become $900. Next, if you use 4x leverage to open a $1000 long position on BTC, your net value remains at $900, but your available balance decreases to $650 ($900 minus the margin used, which is $1000 divided by 4). If this BTC long position gains $100, your net value will increase to $1000, and your available balance will correspondingly increase to $750. Throughout this process, your principal continues to earn APR in the vault while also supporting your trading position.

Extended Treasury's yield is divided into two parts: Base Yield and Bonus Yield, with a 30-day APR of 24.92%. The Base Yield is available to all depositors, currently at 4.14% APR, reflecting the continuous increase in the price of XVS. The Treasury's revenue model is similar to other Perp DEX platforms, mainly relying on providing liquidity and earning trading fees. The Bonus Yield is linked to the account's trading activity, starting from the Knight level, users can enjoy Bonus Yield, currently peaking at 20.78% APR.

IV. Advanced Strategy: Funding Rate Arbitrage

Everything discussed so far focused on scoring points through hedging. Now, let's talk about a more advanced strategy, which involves profiting from the variance in funding rates across different platforms. The strength of this strategy lies in not only earning points but also real profits. However, the operation is slightly more complex and is not suitable for beginners.

Before discussing the strategy, let's first explain what the Funding Rate is. Unlike traditional futures contracts, perpetual contracts do not have an expiration date. To peg the contract price to the spot price, exchanges have designed a mechanism where long and short positions periodically pay a funding fee to each other. When the market sentiment is bullish, and the contract price is higher than the spot price, the Funding Rate is positive, requiring long positions to pay shorts. Conversely, when there is market panic and the contract price is lower than the spot price, the Funding Rate is negative, and shorts pay longs.

Due to significant differences in funding rates for the same asset across different platforms, it presents an arbitrage opportunity. Ideally, on a low-rate platform, one would go long and on a high-rate platform, one would go short, benefiting from both sides. However, in most cases, identifying a rate difference is sufficient to meet the trading conditions. The operation remains the same as before regarding leverage and position size.

What are the benefits of this approach? Firstly, after hedging long and short positions, you are completely neutral to BTC price fluctuations, which do not affect your total assets. Secondly, while you pay a funding fee for going long on Variational, you receive a funding fee for going short on Extended. If Extended has a higher rate, you can earn the difference.

For example, on January 15th, there was a funding rate arbitrage opportunity for the IP asset between different platforms, reaching an annualized rate of 953%. What does this mean? If you invested $10,000, theoretically, you could earn $9,530 in a year. However, this is an ideal scenario, as funding rates fluctuate and cannot sustain such high levels indefinitely. The BERA asset also had an arbitrage opportunity on that day with an annualized rate of 435%. For more details, you can refer to @0xfarmed's post here.

In practice, these high-yield opportunities often arise in new coins with a low FDV (Fully Diluted Valuation). Such coins have low circulation, easily polarized market sentiment, and significant fluctuations in funding rates.

Here, we need to monitor funding rates on different platforms and identify the funding rates in the perpetual contract markets of two platforms. Therefore, we can use some tools, such as SmartArbitrage, which can real-time display arbitrage opportunities across various platforms. Variational's API, Extended, also have a visual rate comparison interface. In addition, there is a Telegram bot @lighter_arbitrage_bot, which automatically pushes arbitrage opportunity alerts. Once the rate differential starts to narrow, or if one side's rate turns negative, it may be time to consider closing the position.

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