The highly popular perpetual futures, a staple in crypto trading, have finally arrived in regulated American markets, prompting Wall Street to assess their staying power. Following the launch of Kalshi's perpetual futures, which reached $1 billion in trading volume within a week, the company is now seeking regulatory approval to offer contracts tied to gold and silver. These contracts, often referred to as 'perps,' are similar to standard futures but lack an expiration date, eliminating the need for traders to close or roll over positions.
The periodic funding payments maintain the contract's price alignment with the underlying asset. With an estimated annual volume of $90 trillion, according to Bank of America, perpetual futures have become a cornerstone of global crypto trading.
The Commodity Futures Trading Commission (CFTC) has cleared Kalshi and Coinbase to offer these contracts in the US. However, large financial institutions are adopting a wait-and-see approach, studying the products rather than preparing for major launches. Instead, proprietary trading firms, market makers, and newer clearing firms are likely to be the first movers.
This cautious stance can be attributed to the stricter capital rules, client obligations, and reputational risk faced by big banks. In contrast, prop shops have more freedom to test new venues and accept operational risk.
The potential use cases for perpetual futures extend beyond speculation, as they could help traders manage weekend risk by providing a liquid 24-hour market. This could enable firms to adjust positions in response to events and use weekend prices to estimate where traditional futures may reopen.
Despite the demand, firms won't commit balance sheet until customer activity justifies it, and the problem of depth remains, with institutions facing challenges in moving large positions without shifting the market. A regulatory fight is also taking shape, with questions surrounding the treatment of perpetual contracts as futures or swaps, affecting margin rules and registration duties.
The debate is becoming increasingly competitive, with incumbent exchanges protecting their existing businesses. For now, Wall Street's view is cautious, with trading firms, regulators, and exchanges eyeing the potential of perpetual futures, but the largest banks are unlikely to take the lead, waiting instead for the rules, liquidity, and infrastructure to mature.