The popularity of perpetual futures in the crypto market has been undeniable, with some estimates suggesting an annual trading volume of around $90 trillion. Now, with the introduction of regulated perpetual futures in the US, Wall Street is weighing the potential risks and benefits of this trading product. Unlike traditional futures contracts, perpetual futures do not expire, and traders are not required to close or roll over their positions.
Instead, periodic funding payments help maintain the contract's price in relation to the underlying asset. The Commodity Futures Trading Commission (CFTC) has given the green light to companies like Kalshi and Coinbase to offer regulated perpetual futures, with Kalshi's launch already surpassing $1 billion in trading volume within a week.
However, big banks are taking a more cautious approach, opting to study the product rather than launching it immediately. This is largely due to stricter capital rules, client obligations, and reputational risk.
In contrast, proprietary trading firms and market makers are more likely to be the first movers, as they 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 and provide a source of price discovery. Nevertheless, the lack of depth and regulatory clarity are significant challenges that need to be addressed before institutional investors can commit large sums to this market. As the regulatory landscape evolves, it is likely that we will see a more competitive market emerge, with incumbent exchanges and new players vying for market share.