The perennially popular perpetual futures contracts have finally made their way into regulated American markets, leaving Wall Street to ponder whether they are a fleeting retail fad or a lasting challenge to traditional futures. The initial numbers are undeniable, with Kalshi's perpetual futures reaching $1 billion in trading volume within a week of launch in June, making it the company's most successful product debut since prediction markets.
The exchange has since sought regulatory approval to offer perpetual futures tied to gold and silver, indicating the product may not remain exclusive to bitcoin and other digital assets. Perpetual futures, also known as perps, differ from standard futures contracts in that they do not expire, eliminating the need for traders to close or roll over positions.
Instead, periodic funding payments help maintain the contract's price in proximity to the underlying asset. This product has become an integral part of global crypto trading, with Bank of America estimating annual perpetual futures volume at approximately $90 trillion.
On May 29, the Commodity Futures Trading Commission (CFTC) granted Kalshi approval to offer the contracts, and Coinbase also received clearance to list regulated perpetual futures in the US. However, within Wall Street, interest does not necessarily translate to immediate adoption.
People familiar with the discussions noted that perps are being mentioned more frequently, partly due to US regulators allowing offshore markets to move onshore. Nevertheless, most large financial institutions are still studying the products rather than preparing major launches.
The first movers are likely to be proprietary trading firms, market makers, and newer clearing firms. Unlike large banks, prop shops trade their own capital, affording them greater freedom to test new venues, accept operational risk, and withdraw if the economics cease to work. Big banks, on the other hand, face stricter capital rules, client obligations, and reputational risk, making the profit available in a young market potentially not worth the cost of building compliance, clearing, and risk systems. This disparity is significant because the term 'Wall Street' encompasses several groups moving at different speeds.
Individual traders and smaller firms often arrive first, followed by market makers once volume grows, and banks typically require years of data, clear regulatory treatment, and stable infrastructure before committing substantial sums. The potential use cases for perps extend beyond speculation, as they could help traders manage weekend risk. Traditional futures markets close for part of the weekend, despite the fact that wars, elections, and policy decisions do not.
A liquid 24-hour perpetual market could change this, allowing firms to adjust positions as events unfold and use weekend prices to estimate where CME futures may reopen. Insiders stated that perps could be useful as both a hedge and a source of price discovery.
One industry insider argued that firms won't commit balance sheet until customer activity justifies it, emphasizing that demand must be present for capital to follow. The issue lies in depth, as a contract may trade around the clock without necessarily enabling institutions to move large positions without impacting the market. Weekend liquidity remains thin, and collateral systems do not always move as quickly as the markets they support. A regulatory battle is also taking shape, with one key question being whether some perpetual contracts should be treated as futures or swaps, affecting margin rules, registration duties, and who can provide liquidity.
Industry insiders noted that these legal questions may become more important as exchanges push perps into commodities, equities, and other traditional markets. The debate is also becoming a competitive one, with CME challenging the CFTC's treatment of Kalshi's bitcoin perpetuals and arguing that the contracts should be regulated differently.
Similar disputes could emerge if exchanges seek to expand perpetuals into equities and other asset classes. Another industry insider suggested that some opposition reflects incumbent exchanges protecting existing businesses as much as concerns about market structure. For now, Wall Street's view is cautious rather than hostile, with trading firms seeing a product they understand, regulators seeing a market moving onshore, and exchanges seeing a chance to capture new volume.
However, the largest banks are unlikely to lead, instead waiting for the rules, liquidity, and infrastructure to catch up.