Wall Street's existential crisis over perpetual futures — the 24/7 security on steroids — CNBC

RESOLVING THE LEDGER

There's an old trader saying: "Don't put on a position that won't let you sleep at night." Perpetual futures, known as "perps" in short, are literally designed to do the opposite. Blockchain-enabled, 24/7-traded, never-expiring 'futures' – a label now legally contested by the Chicago Mercantile Exchange – are growing so fast overseas that they almost stole the show for the biggest IPO of all time and knocked $18 billion off the combined market values of the CME Group , Cboe Global Markets , the Intercontinental Exchange and Miami International Holdings in two days.

Now, after a press conference by President Trump on Wednesday that teased a path to CFTC regulation of Hyperliquid, the fast-growing decentralized venue for trading perps, Wall Street's game plan may need to lean more towards an embrace than a fight.

In its simplest form, you can think of perpetuals as a bet that never expires. They can track almost any asset class, trade around the clock and offer tons of leverage.

Investors are worried perps will disrupt the business model of the traditional exchanges, which make a substantial amount of money off the so-called roll in derivatives, where traders extend the life of an expiring contract by selling a near-dated contract to buy a longer-dated one. Perpetuals never expire, negating the need to roll contracts and depriving exchanges of a lucrative revenue stream. While the initial approval of perpetual futures trading in the U.S. has been limited to cryptocurrencies, the president's comments this week suggest regulated perp trading may soon be available on traditional asset classes like stocks and commodities, which are booming in popularity on Hyperliquid this year. "Traditional exchange economics could be in question," said one current board member of a publicly-traded exchange who requested to remain anonymous. "Perpetual futures, zero-DTE expansion, extending trading – they're all responses to an increasingly competitive market where investors expect continuing access." Brokers and exchanges have extended trading hours for several years now. Charles Schwab's TD Ameritrade pioneered "24/5" trading in 2018, the London Stock Exchange will join next year, and now most brokers, along with Cboe, offer trading in major securities including index options in some form on all but Saturdays and Sundays. The advent of monthly, then weekly, and eventually same-day options expiry also expanded the calendar from the inside-out. In that context, perpetual futures, borne of crypto origins – an asset class whose appeal stemmed in large part due to constant access – look like a natural next step.

But some investors and observers point to the product's internal leverage as a cause for concern and controversy.

While prediction marketplace Kalshi and centralized crypto exchanges like Coinbase and Binance shined a light on the asset class, it's decentralized Hyperliquid that dominates the emerging field. It's a trading-settlement blockchain that together with marketplace operator Trade[XYZ] makes HyperliquidXYZ, a decentralized, international exchange that's become synonymous with perp trading thanks to almost $200 billion in notional volume traded last month, according to data compiled by executives at Hyperliquid Strategies (PURR), a publicly-traded treasury company that invests in the tokens underpinning the exchange blockchain.

In March, Trade[XYZ] received exclusive license by S&P Dow Jones Indices to trade perpetual derivatives on its benchmark stock index S&P 500. In May, the CFTC's approval of perpetual futures on bitcoin made Kalshi the first regulated domestic operator to offer perps, an event that sent shares of incumbent exchanges plunging.

While most popular with retail investors, perpetuals are seeing signs of increased attention from institutional investors as well. "While this is a heavily retail-centered product, there is already some institutional activity," said Ram Vittal, CEO of market-maker Marex Group , whose shares are up 80%-plus this year. Marex covers perpetual futures with other underlying assets globally and has begun issuing crypto perps in London. "Marex is happy to expand that offering to U.S. regulated venues, regardless of the underlying, to support clients' needs," Vittal added. It's hard not to see Hyperliquid's perps exchange as one of the most compelling use-cases of blockchain to-date. Activity on the exchange is powered by HYPE, a crypto token whose value is in part derived by fees collected from transactions. HYPE is up 196% this year and is a key holding in S&P's new Pantera Digital Asset Index tracking revenue-generating crypto projects. Given Hyperliquid's success – averaging $9.6 billion in perpetual notional volume on a daily basis in June – many major incumbent players are already laying the groundwork for related styles of derivatives trading. Robinhood Markets offers crypto perpetuals to European customers, and Cboe late last year launched 120-month-to-expiry "continuous futures."

Cboe Global Markets, YTD Even CME CEO and chairman Terry Duffy, who's been the most vocal critic of perpetuals, said in the company's most recent earnings call that CME has "contract specifications and are prepared to bring these products to market should evolving demand or structural shifts make it appropriate to do so."

"However, we have not heard demand from our customers for these products," he added.

The selloff in exchange stocks has execs in Chicago and New York scratching their heads, according to on and off-the-record conversations with executives. That's particularly the case at Cboe, where options are synonymous with risk management, not risk-taking, and expiration is the primary feature – not bug – that allows both big and small investors to define their risk. Even in the zero-day-expiry market, more than 90% of trades are done with capped risk, according to data provided by the exchange. "Perps as a replacement to options is where it breaks down for ...

Wall Street's existential crisis over perpetual futures — the 24/7 security on steroids — CNBC | AIPROPX