The digital assets industry has started exporting its innovations to traditional finance. Stablecoins were the first export, followed by tokenized assets. The next will be perpetual futuresโa type of derivative contract without an expiration date. On Friday, May 29, the CFTC approved the first perpetual futures contract on a US regulated venue. This is a positive step for regulated U.S.-based platforms like Kalshi and Polymarket and we see it as a step toward a future in which decentralized finance (DeFi) platforms specializing in perpetual futures, such as Hyperliquid, are available to US users as well (see our full report Hyperliquid Breaks the Mold).
Traditional futures have an expiration date and often require delivery of the underlying asset. Perpetual futures have no expiration date, and no one ever takes or receives delivery. So how does the price stay connected to the underlying? Perpetual futures use a mechanism called the funding rateโa small periodic payment between longs and shorts. When the futures price trades above the spot price, longs pay shorts; when it trades below, shorts pay longsโthe bigger the difference, the larger the payment (Exhibit 1). The funding rate therefore creates an economic incentive to bring the perpetual futures price back toward the underlying market. Perpetual futures, like total return swaps, allow investors to create pure financial exposure to an asset or price index.
Key Takeaway: The CFTCโs approval of US perpetual futures contracts can be seen as a step toward a future in which trading on decentralized exchanges such as Hyperliquid is available to US users.
Exhibit 1: Perpetual futures use a funding rate mechanism to help keep futures prices close to spot
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