Written by: Wall Street Insights
The U.S. derivatives regulatory agency officially greenlights "perpetual contracts," introducing previously regulated high-leverage tools into the traditional market system.
On May 29, Friday, the U.S. Commodity Futures Trading Commission (CFTC) announced that it approved the listing and trading of perpetual contracts linked to the spot price of Bitcoin, and stated it would review applications for contracts tied to other assets on a case-by-case basis.
This move was triggered by the explosive growth of the decentralized exchange Hyperliquid, which has built a large user base and trading volume in an unregulated environment from its headquarters in Singapore.
Predictive market operator Kalshi and cryptocurrency exchange Coinbase quickly announced that they have received CFTC approval and will "soon" launch regulated perpetual contract products in the U.S.
This regulatory easing will further promote the application of such high-risk high-leverage contracts in the U.S. market. Typically, perpetual contracts allow traders to bet on asset prices with leverage of up to 40 times.
What are Perpetual Contracts?
Perpetual contracts are derivatives with no expiration date, allowing traders to bet on asset price directions without physical delivery.
The core attraction of this type of contract lies in its operational simplicity and the ability to significantly amplify leverage, thus achieving higher returns.
The decentralized exchange Hyperliquid allows users to bet on the prices of cryptocurrencies, oil, traditional stocks, and even non-public private companies, with leverage ratios reaching up to 40 times.
Moomoo US CEO Neil McDonald describes its user base as "a 24-hour crypto trading community seeking extreme volatility." He stated:
People are chasing the volatile market.
According to CoinDesk Data, since its launch in 2023, WTI and Brent crude oil contracts have accounted for nearly half of Hyperliquid's total trading volume. Silver futures and Nasdaq 100 index futures followed closely behind.
This structure suggests that during recent market volatility, user demand for speculation on real assets rather than crypto tokens remains strong.
The Iran War as a Catalyst
Hyperliquid was relatively unknown outside the crypto sphere until the outbreak of the Iran war shifted the situation.
Energy markets experienced severe turbulence, prompting many traders to rush to bet on energy prices after the workweek trading hours and over the weekend, leading to a sharp increase in trading volume for Hyperliquid's oil-linked contracts.
Piper Sandler senior research analyst Patrick Moley pointed out:
The weekend trading at the onset of the Iran war clearly exposed the structural gaps in traditional markets.
This surge has made Hyperliquid quite profitable. The platform's revenue by 2025 is expected to reach approximately $960 million, yet the total number of employees, including founder Jeff Yan, is less than ten.
Jeff Yan previously worked at high-frequency trading firm Hudson River Trading.
Hyperliquid's native token HYPE has seen an almost 70% increase over the past year, in stark contrast to mainstream cryptocurrencies, which have struggled to recover since plummeting last October.
Regulatory Gaps and User Evasion
As a decentralized platform, Hyperliquid does not meet the mainstream "Know Your Customer" (KYC) and Anti-Money Laundering (AML) regulatory requirements, and regulations do not permit users within the U.S. to access its exchange.
However, regulatory barriers have not truly stopped users.
Similar to offshore predictive markets like Polymarket, a large number of U.S. users easily circumvent geographic restrictions using VPNs and other location-masking tools to participate in trading as usual.
Hyperliquid's rapid growth has drawn significant attention from traditional exchanges and regulatory bodies.
Crypto market maker Wincent's senior director Paul Howard stated that Hyperliquid "is one of the greatest challengers to the entire infrastructure system," and pointed out, "There is less investor protection there, which is precisely what attracts some people."
Traditional Giants Accelerate Entry
In the face of the rising perpetual contract market, traditional exchanges are accelerating their "catching up".
Last week, the parent company of the New York Stock Exchange, Intercontinental Exchange (ICE), announced a partnership with crypto group OKX to launch oil perpetual futures contracts in Europe and Asia.
ICE CEO Jeff Sprecher admitted at an industry conference this month:
This is a warning to the entire industry. While these offshore exchanges are largely unregulated foreign entities, our customers can't even trade on those platforms... but everyone is watching closely.
OKX Chief Marketing Officer Haider Rafique added:
For traditional institutions burdened with regulatory compliance, it is reasonable for a small company to break through and say we want to offer a regulated version as well.
He also warned:
If Hyperliquid encounters issues, the impact will ripple through the entire industry and even Wall Street. In the event of sharp volatility or settlement failures, it could potentially cause billions of dollars in losses in an instant, which is an obvious risk.
Hyperliquid: We Are the "Superior Product"
Faced with competition pressure from all sides, Hyperliquid has not backed down.
In February of this year, the company invested $29 million to establish a policy center and hired a team of lobbyists to actively promote its policy goals in Washington.
Bob Diamond, former head of Barclays, is now the chairman of Hyperliquid Strategies (a public company investing in HYPE tokens). He countered that the concerns of traditional exchanges are "groundless" and stated:
Perpetual contracts are a superior product for non-professional investors, so these traditional venues will naturally strive to protect their market share.
Regarding external doubts about the possibility of price manipulation at Hyperliquid, he dismissed them as "nonsense."
Diamond expressed optimism about the recent discussions between the company and its allies with regulators and policymakers in Washington.
Founder Jeff Yan also posted on platform X earlier this month, expressing hopes for "driving the legitimate access of U.S. users to Hyperliquid into reality."
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