The popularity of perpetual futures in the crypto space has been evident for years, particularly among international investors. Now, with their introduction to regulated American markets, Wall Street is grappling with whether these contracts represent a fleeting retail fad or a lasting challenge to traditional futures. Notable trading volumes have been difficult to disregard, with Kalshi's perpetual futures surpassing $1 billion in trading volume within a week of their launch in June, marking the company's most successful product debut since prediction markets. The exchange has subsequently sought regulatory approval to offer perpetual futures tied to gold and silver, indicating the product's potential expansion beyond bitcoin and other digital assets.
Perpetual futures, often referred to as 'perps,' are akin to standard futures contracts but lack an expiration date. Traders are not required to close or roll over their positions into new contracts on a monthly or quarterly basis, as periodic funding payments help maintain the contract's price in proximity to the underlying asset. This product has become a cornerstone of global crypto trading, with Bank of America estimating annual perpetual futures volume to be approximately $90 trillion. Following the Commodity Futures Trading Commission's (CFTC) clearance of Kalshi to offer these contracts on May 29, and Coinbase's approval to list regulated perpetual futures in the US, interest in perps is growing within Wall Street.
However, this interest does not necessarily translate to immediate adoption. Discussions among industry insiders reveal that while perps are being considered more frequently, partly due to US regulators allowing previously offshore markets to move onshore, most large financial institutions are still in the process of studying these products rather than preparing for major launches. Proprietary trading firms, market makers, and newer clearing firms are more likely to be the first movers, as they have the freedom to test new venues, accept operational risks, and withdraw if the economics cease to be favorable. In contrast, big banks face stricter capital rules, client obligations, and reputational risks, making them more cautious.
The potential applications of perps extend beyond speculation, as they could aid traders in managing weekend risk. Traditional futures markets are closed for part of the weekend, despite the fact that significant events such as wars, elections, and policy decisions can occur during this time. A liquid 24-hour perpetual market could provide a solution, enabling firms to adjust their positions in response to events and utilize weekend prices to estimate where CME futures may reopen, thus making perps useful for both hedging and price discovery. Nevertheless, industry insiders argue that demand must be present to justify the commitment of capital.
The primary challenge lies in depth, as a contract may trade around the clock but institutions may still struggle to move large positions without significantly impacting the market. Weekend liquidity remains limited, and collateral systems do not always operate as quickly as the markets they support. A regulatory battle is also emerging, with a key question being whether certain perpetual contracts should be treated as futures or swaps, a distinction that affects margin rules, registration duties, and who can provide liquidity. As exchanges push perps into commodities, equities, and other traditional markets, these legal questions may become more pressing.
The debate is also becoming increasingly competitive, with CME challenging the CFTC's treatment of Kalshi's bitcoin perpetuals and arguing for different regulation. Similar disputes may arise if exchanges seek to expand perps into equities and other asset classes. For now, Wall Street's stance is one of caution rather than hostility, with trading firms recognizing a product they understand, regulators viewing a market moving onshore, and exchanges seeing an opportunity to capture new volume. However, the largest banks are unlikely to take the lead, instead waiting for the rules, liquidity, and infrastructure to mature.