Perpetual futures, a staple in the crypto trading world, have officially landed in the US, with Kalshi's launch reaching $1 billion in trading volume within a week. The product's popularity has been hard to ignore, with Bank of America estimating annual perpetual futures volume at approximately $90 trillion. These contracts, often referred to as 'perps,' resemble 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 keep the contract's price aligned with the underlying asset.
The Commodity Futures Trading Commission (CFTC) has cleared Kalshi and Coinbase to offer regulated perpetual futures in the US, marking a significant milestone in the product's onshore journey. However, interest from Wall Street does not translate to immediate adoption, as large financial institutions are still assessing the product rather than preparing for major launches. Proprietary trading firms, market makers, and newer clearing firms are more likely to take the lead, given their greater 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 and provide a hedge against market fluctuations. A liquid 24-hour perpetual market could revolutionize the way traders adjust positions and estimate market reopening prices. Nevertheless, the demand for perpetual futures must be substantial to justify the commitment of balance sheet capital from firms.
The current challenge lies in depth, with weekend liquidity remaining thin and collateral systems not always moving in tandem with the markets they support. A regulatory battle is also unfolding, with questions surrounding the classification of perpetual contracts as futures or swaps, affecting margin rules, registration duties, and liquidity provision. As the debate becomes increasingly competitive, incumbent exchanges are likely to protect their existing businesses, while trading firms, regulators, and exchanges see an opportunity to capture new volume and move the market onshore.