The highly popular perpetual futures contracts, a staple in the crypto trading world, are now entering the regulated American markets, prompting Wall Street to ponder whether they represent a fleeting retail trend or a lasting challenge to traditional futures. Initial numbers have been impressive, 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's potential to expand beyond bitcoin and other digital assets.
Perpetual futures, also known as 'perps,' are similar to standard futures contracts but lack an expiration date, eliminating the need for traders to close or roll positions into new contracts periodically. Instead, periodic funding payments help maintain the contract's price close to the underlying asset. This product has become a cornerstone of 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 of Kalshi to offer these contracts on May 29, and Coinbase's subsequent approval to list regulated perpetual futures in the U.S., interest in perps is growing within Wall Street. However, this interest does not translate to immediate adoption.
Discussions within the industry suggest that while perps are being considered, 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 more freedom to test new venues and accept operational risks without the stringent capital rules and reputational risks faced by big banks.
The potential applications of perps 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.
Insiders argue that demand must be present to justify the commitment of capital, but the current issue is depth, with institutions facing challenges in moving large positions without impacting the market, particularly during weekends when liquidity is thin. A regulatory battle is also emerging, with questions surrounding the classification of perpetual contracts as futures or swaps, affecting margin rules and registration duties. The debate is becoming increasingly competitive, with CME challenging the CFTC's treatment of Kalshi's bitcoin perpetuals and potential disputes arising as exchanges expand perps into traditional markets. For now, Wall Street's stance is cautious, with trading firms, regulators, and exchanges viewing perps as an opportunity, but the largest banks are unlikely to take the lead, instead waiting for the rules, liquidity, and infrastructure to mature.