After years of popularity in the crypto space, particularly among international investors, perpetual futures are now entering the US regulated market, prompting Wall Street to assess whether they are a fleeting retail trend or a lasting challenge to traditional futures. The initial numbers are noteworthy, with Kalshi's perpetual futures reaching $1 billion in trading volume within a week of launch in June, marking 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's potential to expand beyond bitcoin and other digital assets.
Perpetual futures, or 'perps,' are akin to standard futures contracts but lack an expiration date, eliminating the need for traders to close or roll positions into new contracts. Instead, periodic funding payments maintain the contract's price alignment with the underlying asset. This product has become integral to global crypto trading, with Bank of America estimating annual perpetual futures volume at approximately $90 trillion. Following the Commodity Futures Trading Commission's (CFTC) clearance for Kalshi to offer these contracts, and Coinbase receiving approval to list regulated perpetual futures in the US, interest within Wall Street is growing, albeit cautiously.
Discussions about perps are increasing, partly due to US regulators allowing offshore markets to move onshore. However, large financial institutions are approaching with caution, focusing on studying the 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 and accept operational risks without the stricter capital rules and client obligations that big banks face. The potential applications of perps extend beyond speculation, as they could help traders manage weekend risk by providing a liquid 24-hour market for hedging and price discovery.
Despite the demand, firms won't commit capital until customer activity justifies it, highlighting the need for depth in the market. Regulatory battles are also emerging, with questions over whether perpetual contracts should be treated as futures or swaps, affecting margin rules and registration duties.
The debate is becoming increasingly competitive, with incumbent exchanges potentially protecting their existing businesses. For now, Wall Street's stance is cautious, with trading firms, regulators, and exchanges all watching the development of perpetual futures with interest, but the largest banks are unlikely to lead the charge, waiting instead for the rules, liquidity, and infrastructure to mature.