Coinbase and Kalshi are racing for compliance, with a battle over funding rates, cross-platform clearing, and regulatory control of a multi-billion dollar market.

Written by: Andjela Radmilac

Translated by: Saoirse, Foresight News

Coinbase has launched American-style perpetual futures on its derivatives exchange regulated by the CFTC, with the first products being micro Bitcoin and Ethereum contracts. These contracts are anchored to spot prices, come with leverage, and support continuous trading around the clock.

Perpetual contracts account for the vast majority of global crypto leveraged trading and have now officially entered the U.S. market. In addition to providing investors with a new channel to bet on Bitcoin trends, it also brings the trading mechanisms that have long dominated offshore market pricing logic to the United States. Several American exchanges have introduced funding rates, perpetual leverage, and automatic clearing mechanisms, but there are significant differences in contract design rules among them.

Perpetual contracts make up the majority of trading volume in crypto derivatives. According to Coinbase's statistics, under certain metrics, perpetual contracts account for over 90% of total derivatives trading volume, while overall derivatives trading volume represents about 80% of all cryptocurrency trading.

For years, this type of trading has predominantly occurred outside of U.S. regulatory jurisdiction. American investors wishing to participate could only log in to offshore platforms using a virtual private network. This barrier was broken on May 29: the CFTC approved KalshiEX to launch the BTCPERP perpetual contract pegged to the Bitcoin spot price, while also issuing a policy statement allowing other exchanges to follow this path to launch similar products.

On June 12, the CFTC introduced new regulations allowing licensed designated contract markets to remove the expiration date of existing perpetual crypto futures, transforming them into true perpetual contracts with no expiration period.

The regulatory framework that has facilitated this series of changes is now embroiled in legal battles in federal court; the outcome of this judicial tug-of-war will determine how far perpetual contracts can go in the U.S. market.

On June 18, CME filed a lawsuit in the U.S. District Court for the District of Columbia against the CFTC and its chairman Michael Selig, asking the judge to revoke the approval orders and accompanying policy statements concerning Kalshi. The CME's complaint states that the CFTC chairman has overturned the statutory definition of swap derivatives set by Congress based solely on personal approval, bypassing the entire regulatory framework Congress established for such derivatives.

The core argument of the CME is that perpetual contracts fall under the statutory definition of swap products in the Commodity Exchange Act. If classified as swaps, the industry would have to adhere to stricter regulatory rules, including trader qualification registration, stringent capital requirements, high-frequency information reporting, etc., with market pricing power and licensing resources returning to established traditional institutions like CME. CFTC Chairman Selig approved Kalshi's application in just one day.

The CFTC does not underestimate the significance of this lawsuit. Its spokesperson stated that CME has chosen to use legal means to confront the regulatory agency and the current government's policies that encourage innovation, accusing established institutions of fearing competition in a fair environment, claiming that this lawsuit is baseless and will seek to have the court dismiss the suit.

This lawsuit involves significant commercial interests. According to CME's complaint, Kalshi has added over ten types of crypto perpetual contracts based on this approval, with related trading volumes exceeding $1 billion. The CFTC is also defending its jurisdiction on other fronts, having filed a lawsuit against Kentucky at the end of June to clarify the regulatory jurisdiction of contract markets. The case is still in the early stages, and no court ruling has been made yet. This means that all exchanges currently building American-style perpetual products are based on a legal foundation that could be rewritten at any time by the court.

Current U.S. perpetual contracts are classified into two structural types

Traditional futures have a fixed expiration date; if traders wish to hold positions long-term, they can only close out or roll over to a forward contract. Perpetual contracts have no expiration limit. Since there is no expiration delivery to pull prices closer to the spot price, perpetual contracts rely on periodic settlement of funding rates from both long and short positions to achieve price anchoring.

When the price of a perpetual contract is higher than the spot price, typically, longs pay funding fees to shorts, raising the cost of long positions and incentivizing long holders to sell; conversely, if the contract price is below the spot price, the funding flow reverses, with shorts paying longs.

Currently, there are two types of compliant products in the U.S. both referred to as perpetual contracts, but the legal frameworks are completely different. Kalshi's BTCPERP is a true perpetual contract with no expiration date; while Coinbase's product uses a five-year long-dated futures structure, with hourly interest calculation and bi-daily funding fee settlements, this design replicates the price movement of perpetual contracts while aligning with existing futures regulatory rules.

The CFTC's conversion plan implemented in June allows such long-dated futures to gradually eliminate their expiration dates in the future, upgrading to true perpetual contracts. This is also why "perpetual futures" in the U.S. refers to two types of legally different products.

The crypto market operates year-round without breaks on weekends or monthly expiration cycles; perpetual contracts have emerged as a trading product designed to fit this environment. Non-expiration leveraged contracts allow traders to adjust positions and hold positions at any time without needing to select delivery months, enabling speculation, hedging, market-making, inventory management, and basis trading to be completed with a single contract.

Exchanges favor the perpetual model because a single contract can aggregate liquidity that would otherwise be dispersed across multiple expiration contracts, resulting in higher market depth. However, the concentration of liquidity also amplifies the impact of funding rates and forced liquidations: once the market positions are severely imbalanced, price volatility transmits much faster than traditional futures segmented by multiple expiration periods.

The perpetual system established in the U.S. differs significantly from the offshore market, with several concurrent tracks being built domestically: Kalshi launched true perpetual contracts covering various tokens such as Bitcoin, Ethereum, and XRP; Coinbase has launched perpetual-style futures on its domestic exchange while also opening a compliant channel on May 29, allowing American investors to connect with global perpetual and options liquidity through its subsidiary platform Deribit. Deribit is the leading global crypto options platform, with Bitcoin options open interest exceeding $31 billion at the end of May.

On the same day, CME upgraded its expiring crypto futures and options to trade around the clock, bridging the weekend trading time gap with the spot market. In the past year, CME's crypto derivatives nominal trading volume reached $3 trillion, with an average daily contract trading volume of approximately 407,200 contracts this year.

The contract architecture, leverage ratios, clearing rules, collateral requirements, and price reference benchmarks across various trading paths are all entirely different. While the number of compliant trading channels is increasing, liquidity, margin, and open interest are split across multiple platforms, and collateral cannot be used interchangeably, resulting in lower capital efficiency.

Funding rates, forced liquidation mechanisms, and the global pricing power struggle

Funding rates are often simply understood as fees, but a more accurate interpretation is that they reflect the real-time distribution of market leverage between longs and shorts, continuously pulling perpetual prices closer to the spot price.

When a large number of leveraged longs push the perpetual price higher than the spot, arbitrageurs can short the perpetual contract while simultaneously buying Bitcoin spot, Bitcoin ETFs, or traditional futures to earn the funding fee. Such arbitrage trades can drive spot orders, ETF subscriptions and redemptions, and simultaneously influence the basis of CME futures.

Large-scale arbitrage actions can inversely affect the position situation of perpetual contracts in the spot market they are supposed to anchor. Well-capitalized American perpetual contracts will form a unique domestic funding rate curve, becoming a regulated sentiment indicator of leverage, contrasting with the offshore rates that traders reference long-term. If there is a stable divergence between U.S. and offshore funding rates, it can clearly reflect differences in user structures, leverage caps, and the freedom of cross-border capital flows, helping the market determine whether trends come from directional speculation or hedging demand.

Leverage allows large positions to be controlled with minimal margin, but the cost is that even a slight price drop can deplete the margin. Once the account margin falls below the maintenance margin level, the exchange will automatically liquidate the position. Forced liquidations of longs will bring market sell orders, while forced liquidations of shorts will result in market buy orders; concentrated forced liquidations can easily breach more traders' margin thresholds, triggering a chain reaction.

Round-the-clock trading, high leverage, and fragmented liquidity make crypto assets particularly prone to chain liquidations. The introduction of perpetual contracts in the U.S. will enhance the continuity of domestic spot price trends, but prices are also more easily influenced by trading behavior: Bitcoin's price movements are solely a function of large margin liquidations and unrelated to the inherent value expectations of the asset itself.

Compliant trading venues can manage some risks: customer funds are held in segregated accounts, contract rules are fully transparent, markets are monitored throughout, liquidation processes are standardized, and investors have access to U.S. judicial channels for rights protection. However, compliance cannot reduce volatility, cost of funds, or the leverage itself, nor can it guarantee that large liquidations won't adversely impact market trends. Even with full compliance of perpetual contracts, traders will still risk being automatically liquidated by the system.

The decisive point in future derivatives market competition is likely to be the universal capability of cross-asset collateral, supporting traders in using margin interchangeably between spot, ETFs, futures, options, and perpetual contracts. Currently, capital is split across various systems such as spot accounts, futures brokers, clearing houses, brokerages, and offshore exchanges, leading to additional costs due to capital separation, where the margin for one account cannot be used to guarantee positions in another market.

For example, holding Bitcoin ETFs cannot be directly used as collateral for a perpetual short; CME futures positions and domestic perpetual contracts belong to two different margin pools. The next round of competition in the derivatives industry will focus on breaking down the barriers of cross-market margin.

Coinbase's derivatives team is collaborating with Deutsche Börse Group's clearing house Nodal Clear to apply for Circle's USDC stablecoin to be used as margin for U.S. futures, with Coinbase's trust responsible for holding USDC, awaiting CFTC approval. If approved, this would be the first compliant use of stablecoins as collateral in the U.S. futures market. Traders will not need to convert crypto assets into fiat currencies but can directly use native crypto stablecoins to provide margin for compliant holdings.

This efficiency of funds determines the arbitrage cost of price differences between major platforms; compared to introducing new tokens, capital efficiency is the more crucial competitive chip.

The number of new contracts introduced by exchanges will not be the ultimate watershed; all major platforms can quickly launch a large number of tokens. There are two true tests: first, when Bitcoin experiences a new round of severe volatility, will domestic perpetual contracts absorb the trend, lead it, or amplify the volatility; second, when the court eventually rules on the nature of these contracts, determining whether they are futures or swaps. This ruling will either solidify the compliance ecosystem for perpetual contracts that the U.S. has spent over half a year building or force the industry to accept the strict swap regulations advocated by CME.