Hedging with a perpetual means opening a position that offsets the price risk already sitting in another holding, so a move in the underlying leaves the combined position closer to flat. A treasury holding ETH, a miner holding BTC, or a trader sitting on an illiquid token can all use a perpetual short to neutralize downside without selling the underlying asset itself. The tool is the same instrument used for speculation; the intent is what makes it a hedge.
A spot holding has one-directional exposure: its value rises and falls one-for-one with price. Opening a perpetual short against that holding adds a second position whose value moves in the opposite direction. When both are sized to match, gains on one leg offset losses on the other, and the combined position's value stops tracking price. The spot asset stays where it is, in cold storage or on a balance sheet; only the hedge leg sits on the perpetual venue, posted as collateral against a short.
This differs from simply reducing exposure by selling part of the spot holding. A hedge is reversible in one transaction, closing the short restores full exposure instantly, while selling spot and buying back later involves two trades, two spreads, and a decision about timing the re-entry.
A direct hedge shorts the same asset that is held: an ETH treasury hedged with an ETH perpetual short. A proxy hedge uses a correlated asset instead, because no perpetual market exists for the asset actually held, or because the venue's terms for that asset are worse. The trade-off is basis risk: a proxy only protects value to the extent the two assets keep moving together, and that relationship can weaken exactly when it matters most.
A hedge ratio close to 1.0 means the notional value of the short roughly matches the notional value of the holding being protected. Under-hedging leaves residual directional exposure; over-hedging flips the combined position net short, so a rally would produce a net loss instead of a neutral result. For a direct hedge the ratio is straightforward: match the dollar notional. For a proxy hedge, the ratio should also account for the volatility relationship between the two assets, since a 1% move in the proxy rarely maps to an exact 1% move in the asset being hedged.
Consider a treasury holding 10 ETH, worth roughly $30,000 at a $3,000 price. A direct hedge opens a short with $30,000 of notional exposure on the ETH perpetual. If ETH falls 10% to $2,700, the spot holding loses about $3,000 in value, while the short gains close to the same amount, before fees and funding. The combined position ends the period close to unchanged in dollar terms, which is the entire point: the hedge traded upside participation for downside protection over the period it was open.
A hedge is not free to hold. Opening and later closing the short position costs a 0.14% round-trip fee (0.07% on each side), and the position accrues funding every hour for as long as it stays open. Funding on a perpetual can run in either direction: a short receives funding when the market trades below the index and pays funding when it trades above the index. A hedge held during a period of positive funding on the long side effectively gets paid to sit there; a hedge held while the market is skewed short can cost real money over weeks. On a $10,000 short held 30 days at Canborsa's fixed 10% annualized holding-cost benchmark, that carry alone runs to roughly $82 on top of the $14 round-trip fee, a reference point worth comparing against the value actually being protected before treating a hedge as costless insurance.
Canborsa lists 86 markets spanning crypto, US equities, commodities and indices in a single margin account, so a proxy hedge does not require moving collateral between separate venues. A trader holding BTC who wants a macro hedge against a broad risk-off move can open a short on gold or an index perpetual from the same account used to hold the BTC exposure, without a second KYC process or a second collateral deposit. This is a structural convenience; the correlation itself still has to be judged trade by trade.
Basis risk is the main failure mode for a proxy hedge: the correlated asset can decouple during the exact stress event the hedge was meant to cover, leaving both legs losing value at once. A direct hedge fails differently, usually through sizing drift, as the value of the underlying holding changes over time while the hedge notional stays fixed, the ratio quietly moves away from 1.0 unless it's rebalanced. A hedge position also carries its own liquidation risk on the perpetual leg: if the short is undercollateralized and the market moves against it sharply, the hedge can be liquidated exactly when it's needed most, leaving the original holding unprotected again.
The remedy for both failure modes is the same discipline applied to any leveraged position: keep the hedge leg well-collateralized relative to its own liquidation price, and check the hedge ratio periodically. A hedge opened at the start of a quarter against a treasury holding that has since grown in value no longer covers the full position unless the notional was adjusted along the way. Treating a hedge as a static, one-time trade is the most common way hedging programs quietly stop doing their job.
Hedging means opening a perpetual position that offsets the price risk already held elsewhere, typically a short against a spot holding of the same or a correlated asset. When sized correctly, gains on one leg offset losses on the other, so the combined position stops tracking price the way the spot holding alone would.
An effective hedge matches notional value closely to the holding being protected and accounts for the ongoing cost of funding, which settles hourly and can add up over weeks. A direct hedge on the same asset carries less basis risk than a proxy hedge on a correlated one, which only protects value as long as that correlation holds.
Perpetual markets for stocks, gold, indices and pre-IPO names — settled on-chain, no wallet-to-exchange transfers.
