Several major entities within the crypto industry have responded to the CFTC’s request issued in April. Their views outline how perpetual contracts could be reestablished within the United States.
Calls have been made by leading crypto firms for regulators to adopt crypto perpetual futures contracts, with the argument presented that, under appropriate regulation in the U.S., these financial instruments hold the potential to transform the landscape of derivatives trading.
Perpetual futures were proposed in 1992 by American economist and Nobel Laureate Robert Shiller as a means to facilitate the trading of illiquid assets such as human capital and real estate.
These contracts were designed without expiration dates and were settled on a daily basis between long and short holders, with payouts determined by price indices.
Though originally introduced as a theoretical concept, practical implementation has since been achieved within the crypto sector. It is estimated that these instruments now represent approximately 93% of all crypto derivatives trading.
An evaluation is currently being conducted by the Commodity Futures Trading Commission to determine whether existing regulations are adequate for overseeing perpetual derivatives, or if new frameworks must be introduced to address associated risks—especially considering their rapid expansion in crypto markets and possible use in traditional asset classes.
In reaction to the CFTC’s request for comment issued in April, responses were submitted by industry leaders such as Coinbase, OKX, Paradigm, and Hyperliquid, emphasizing that perpetuals have emerged as the prevailing type of crypto derivatives.
A clear message is being delivered by crypto firms to the CFTC: perpetuals represent the most significant financial innovation within the crypto space, and with proper regulation in the United States, access could be granted to a multi-trillion-dollar market that has largely thrived overseas.
Strength Meets Simplicity
It was stated by Coinbase Derivatives that “integrating offshore crypto derivatives markets within the U.S. regulatory framework would significantly benefit both domestic markets and consumers.” The exchange further observed that perpetuals account for “more than 90%” of crypto futures trading volume, even exceeding the volume of spot trading.
The greater accessibility of perpetual futures was attributed to their “simplicity,” allowing retail investors to obtain leveraged exposure “without the complexities associated with traditional futures contracts or spot crypto,” the statement added.
The Commission has been encouraged by the research-focused crypto investment firm Paradigm to adopt decentralized trading protocols, rather than confining perpetuals solely to conventional exchange platforms.
It was noted by Paradigm last week that “although perpetual contracts offered by registered entities hold significance, they represent only the initial and most surface-level portion of the broader perpetual contracts landscape.”
The formation of a dedicated advisory committee for perpetuals has also been proposed by Paradigm, with the aim of exploring DeFi perpetuals. This initiative is intended to harness “the power of smart contracts and blockchain technology” to help “accelerate the evolution of broader financial markets.”
Clarity Enabled by Technology
Three primary advantages of decentralized perpetuals have been outlined by Hyperliquid Labs, the principal development team behind Hyperliquid, a specialized Layer-1 blockchain.
Firstly, an unmatched level of transparency is achieved when all user activities—such as order placement, cancellation, execution, and liquidation—are immutably recorded and made publicly auditable. This stands in stark contrast to conventional systems, where trading data is typically kept proprietary.
It has been suggested by Hyperliquid Labs that the CFTC explore how blockchain’s open architecture fosters composability, enabling various protocols to interconnect and collaboratively develop within the ecosystem.
It was further noted that composability enables participants and developers to create “a broad spectrum of applications and strategies,” thereby promoting product and market innovation while opening the door to new potential use cases.
Self-custody was advocated by Hyperliquid Labs, highlighting that it enables traders to directly manage their collateral within personal wallets, thereby minimizing dependence on centralized exchanges. This method was presented as a safeguard against risks associated with “centralized intermediary failures, hacks, or mismanagement of funds.”
Perpetuals’ liquidity benefits have been emphasized by OKX, pointing out that these instruments assist in concentrating trading volume, unlike traditional futures, which tend to fragment liquidity across various expiration dates.
OKX stated that “the absence of multiple expiration periods enables perpetual futures to draw in more liquidity compared to traditional futures, especially for contracts with distant maturity dates.” It was also noted that perpetuals are attractive to “options traders aiming to hedge their positions,” along with “basis traders pursuing arbitrage opportunities across different exchanges.”
Remarks from crypto firms have been issued as the CFTC expresses its intention to see crypto perpetuals “trading live very soon,” as stated by outgoing CFTC Commissioner Summer Mersinger.
