Perps usage is proliferating across user demographics.

• Seven-day volume on decentralized perpetuals exchanges recently crossed $100 billion.
• Hyperliquid, the leading decentralized perps protocol, recently topped $2.6 trillion in cumulative perps volume just two and a half years after launching.
• Bitnomial, Cboe, Coinbase, and CME have rolled out perpetual or perpetual-style products to U.S. users.

Although perps have largely been unavailable to U.S. retail traders due to their perceived risk, they have many of the same benefits as traditional hedging vehicles, which is why they’re booming offshore. In other words, they aren’t merely mass gambling tools for people trying to get rich quick, but can actually help traders reduce risk. They should be regulated accordingly. 

This post explains the utility of perps as hedging vehicles, then offers a regulatory framework for evaluating the benefits and legality of different perps products entering the U.S. market.

Perps 101

A perp (or perpetual future) is a type of derivatives product that has no expiry date and is therefore “perpetual.” Since perps don’t expire or settle like classic derivatives, they need a way to prevent their price from drifting too far away from the underlying asset. 

That mechanism is called the “funding rate.” If the perp trades above the spot price (meaning longs are paying a premium), the funding rate is positive. In this case, longs pay shorts, incentivizing new shorts to enter and push the perp price back down toward spot. If the perp trades below spot, the funding rate is negative, so shorts pay longs, incentivizing more longs to enter and lift the perp price up. This mechanism of incentivization is designed to keep the perp price in line with the spot. 

Perps vs. traditional options and CFDs

In 2017, Robinhood opened access to traditional options for retail users. Eight years later, Robinhood reports nearly 200M options contracts per month. Margin on Robinhood varies by stock, contract, and account type, but in practice, a user can essentially trade at least 2x portfolio value. The primary risk taken on by the user here is a margin call. Similarly, a user who is 2x long on a perps position will face a liquidation at a 50% price drop. Moreover, mastering traditional options trading is relatively difficult and requires managing variables like gamma, vega, rho, and theta decay — no easy feat. Yet inexperienced U.S. traders can place options trades in a matter of minutes.

In perps, by contrast, the payoff is linear, and the risks come down to managing three things: liquidation, leverage, and funding rates, with no expiry to consider. Today, perps traders on decentralized, smart contract-based exchanges primarily face two types of risk: 

• Smart contract risk, which is similar to counterparty risk in the case of derivatives trading on a centralized platform like Robinhood
• Liquidation risk, which occurs when the market moves sharply against a trader’s position, causing their margin to fall below maintenance levels and triggering an automatic liquidation. In longer-term positions, this can also happen gradually as funding payments accumulate against the trader (though this is unlikely, given that most quantitative trading strategies are short-term by design).

Perps are often compared to contracts for difference (CFDs). But unlike a CFD, where a broker must be trusted, perps can be traded on decentralized blockchain rails. These rails drastically minimize, if not eliminate, counterparty risk and remove the need for regulators to oversee thousands of individual brokers. Instead, regulators can focus on ensuring exchange smart contracts are developed and governed properly, and that interfaces offering access to these contracts do so compliantly — arguably a far more efficient approach than attempting to supervise every broker directly.

How can perps make trading less risky?

Grasping the speculative features of perps — and how they compare to traditional options contracts and CFDs — is the precursor to seeing their real value for retail traders: the hedge. 

One way to illustrate this benefit is by looking at the increase in overall crypto trading in the past five years: As of October 2025, the total cryptocurrency market is valued at just over $4.2 trillion, much of it in naked long positions with no downside protection. A perp position as a hedge could be the difference between losing one’s net worth and losing a bit of upside in exchange for safety. From December 4, 2024, to April 8, 2025, the price of ETH fell 61%, from $3,839 to $1,471. For anyone trying to use ETH as collateral for a serious purchase like a house, this would have been catastrophic (and hence another reason why crypto assets have been hindered as acceptable collateral). 

However, with an active perp short open to hedge, this user could have offset a substantial amount of that on-paper loss. In an uptrending market, the same short position would also generate funding payments while the user holds ETH spot — giving up some upside but earning a yield and protecting against downside risk at the same time. That’s the power of the perps hedge. 

If that wasn’t illustrative enough, it’s worth comparing the perps hedge with how derivatives are traditionally used for hedging. An investor holding $10M in S&P 500 stocks buys put options with strike ~5% below current market. If the market falls >5%, the put increases in value, offsetting portfolio losses. This is a strategy often used by pension fund managers to hedge risk safely — another example of how derivatives, often framed as purely speculative instruments, can be effectively used to protect portfolios at scale. 

A clear demonstration of the power and scale of perps as a hedging vehicle can be seen in the Ethena synthetic dollar: USDe maintains a price near $1 by holding BTC/ETH spot along with an equivalent BTC/ETH short perp. This position is deemed “delta neutral,” as it is not exposed to the upside or downside of BTC and can earn the funding rate as yield, typically anywhere from 7-10%, creating a novel source of yield. 

Let’s envision a product flow here:

> User goes to buy BTC on Coinbase or another crypto brokerage. 

> User is presented with an option to buy BTC flat or buy with a 20% hedge or a 50% hedge.

> User sees the potential return based on current price action 1 month, 3 months, and 6 months out; user can visualize the effect of the hedge + yield on returns (similar to visualizing the return profile of different options contracts on Robinhood).

> User accepts the potential liquidation risk + counterparty risk on the part of the perp.

> User holds BTC-Hedge-20%.

Now, this user has crypto asset exposure and a hedge on this volatile asset, making the asset more suitable for real-world use cases like collateral and opening the ability for downside risk mitigation.

Bringing DeFi Perps to U.S. Traders

Now that we’ve explored what DeFi perps are, compared their risk profiles with traditional derivatives, and discussed how they can serve as powerful hedging tools for retail traders, the question becomes: How do we bring them to the U.S. market? 

Historically, the Commodity Futures Trading Commission (CFTC), which has jurisdiction over commodity derivatives, has viewed perps as swaps, not futures. Swaps are specialized derivatives that can only be traded by sophisticated participants, leaving perps out of reach to retail traders. But there are clear steps regulators could take to make perps retail-ready. And bridging the gap between U.S. traders and DeFi perps (what we’ll use to refer to perps trading on decentralized protocols, which are walling off U.S. investors) could require a few extra steps, depending on whether regulators respond surgically or through broader exemptions.

How perpetual derivatives are regulated (or unregulated) today

The legal foundation for derivatives is the Commodity Exchange Act (CEA), which sets out U.S. derivatives law and puts the CFTC in charge of oversight. 

Under the CEA, most commodity derivatives fall into one of two categories: futures or swaps. Both are regulated by the CFTC, but the law draws a sharp line between how retail and institutional traders can access them. Futures must generally trade on a designated contract market (DCM), which retail traders are permitted to use. Swaps, by contrast, generally must trade on a swap execution facility (SEF), which is reserved for institutional traders and “eligible contract participants.” The separation was deliberate: Swaps were historically viewed as more complex and risky, so they were kept out of reach of everyday retail customers.

As for perpetual derivatives specifically, the CFTC’s enforcement record under the Biden administration expressed a clear view on policy: Perps should not be permitted for U.S. retail traders. In its 2023 lawsuit against Binance, the Commission alleged that Binance illegally offered U.S. customers access to perps on Bitcoin, Ether, and other assets; it treated them as swaps. Earlier cases against BitMEX in 2020 and more recent actions against DeFi protocols like Deridex followed the same logic: perps were considered swaps, and offering them to U.S. retail traders without a SEF registration was unlawful. Essentially, the CFTC’s interpretation has prevented retail from trading perps, and since the real value in perps is allowing retail access, this interpretation has effectively kept perps outside of the U.S. market.

Under the Trump administration, however, various platforms have self-certified perpetual-style derivatives. Some, like Bitnomial, marketed them directly as perpetual futures, while others, like Coinbase, framed them more conservatively as perpetual-style futures. Either way, these listings, among others, gave U.S. retail traders access to perpetual-style derivatives on centralized platforms. If the CFTC had viewed these derivatives as unlawful, it could have blocked them by rejecting the self-certification, but it chose not to do so, instead allowing them to trade.

Regardless, the Commission has yet to adopt clear rules around perps. In a recent Request for Comment, the CFTC expressed interest in shaping future regulatory work with industry input, but firms that list perp products today are taking on regulatory risk. The only durable solution is for the CFTC to provide clarity through rulemaking.

Perps for the people

Fortunately for U.S. traders, the regulatory environment has shifted. This new chapter for crypto, in which the CFTC is more open to innovative products, has brightened the outlook for U.S. perps trading. Just last month, the CFTC and SEC released a joint statement sharing their ambition to collaborate on regulatory work and hosted a roundtable to discuss several issues, including the explosive growth of perps offshore and the need to explore safe frameworks for domestic access. While the statement didn’t outline concrete rules, it signaled that both agencies recognize perps as a priority.

The CFTC’s goal here must be clear: to create a sustainable path for retail to access perps, ideally through rulemaking. Anything less would fall short of onshoring the massive economic activity now dominated by offshore markets. Achieving this requires a reverse logic approach: start with the objective of safely delivering perps to the people and work backward to craft a predictable framework that allows the best structures for perps trading to emerge.

In practice, this means allowing access to perpetual futures on DCMs.

To do that, we must define the specific characteristics that would allow perps to be traded as futures on DCMs — rather than retail-restricted swaps. Futures don’t have a statutory bright-line definition in the CEA; instead, the CFTC and the courts have built a body of precedent identifying common characteristics that make a contract a future (futurity, risk transferrence, and offset). Perps should be judged similarly, on their economics and trading characteristics, not shoved into the swap bucket where retail access is cut off. This allows innovators to build to spec, rather than having to wait for larger incumbents to succeed as a green light for them to disrupt.

In the meantime, founders shouldn’t sit idle. Until the CFTC provides further clarity (and even if explicit guidance never comes), the best path for founders is to design products that fit the mold of a futures contract. It gives founders the strongest argument for listing perps on a licensed DCM and keeping them open to retail. In other words, regulatory fit has to be part of product-market fit. If founders design too far outside the futures construct, they risk forcing their products into an infertile market that walls off retail.

CeFi vs. DeFi perps

U.S. derivatives law is built around mandatory intermediation. The CEA assumes brokers, clearinghouses, and other middlemen are essential to managing systemic risk. 

DeFi flips that model by embedding those risk controls directly into code. Unlike perps trading on centralized platforms, DeFi perps don’t rely on intermediaries. Smart contracts automate the entire process: order matching, settlement, margining, and liquidation. That design dramatically reduces counterparty risk and increases transparency. 

The challenge is that DeFi doesn’t fit neatly into the CEA. Traditional rules assume there is a legal entity — an exchange operator — that can apply for and hold a DCM or SEF license. In DeFi, the market exists onchain without a centralized operator. There’s no broker, clearinghouse, or platform entity to register. That structural mismatch makes it effectively impossible to shoehorn DeFi perps into the existing categories.

Another possibility for the CFTC to create a regulatory path for DeFi perps is broader-strokes exemptive relief: The CFTC could recognize that certain DeFi protocols achieve the policy goals of the CEA (fair pricing, orderly margining, transparent settlement) without fitting the exact form of a DCM or SEF. That would allow DeFi perps to exist within a tailored regulatory sandbox.

This matters because the innovation DeFi brings — removing counterparty risk and embedding compliance functions in code — directly addresses many of the concerns that derivatives regulation was designed to solve. After Dodd-Frank, the CEA’s focus has been less about delivery mechanics and more about ensuring the CFTC has visibility into leverage in the system, since excessive leverage is what can destabilize markets. In DeFi, margining and liquidation are handled transparently and automatically onchain, creating a system where hidden leverage build-ups are less likely to occur in the first place. A forward-looking framework would recognize that reality. If regulators only create a path for centralized players and ignore DeFi protocols, they will risk pushing the most important opportunities and benefits of perps to U.S. traders offshore.

Interestingly, a lesson can be learned where the law has previously allowed retail to access more risky derivatives: cleared swaps. Put simply, cleared swaps can be listed on DCMs, since clearing through a derivatives clearing organization (DCO) mitigates the risks that make traditional swaps available only to institutions on SEFs. 

In DeFi, clearing is effectively baked in: Smart contracts perform the role of a DCO by providing certainty through trustless, immutable, and automated settlement. The analogy isn’t perfect — we’re not arguing that DeFi perps should be classified as cleared swaps or that a protocol should be regulated as a DCO — but the point stands. If the CFTC is comfortable letting retail access cleared swaps because clearing ensures safety, then DeFi perps should be given the same consideration, since the blockchain itself delivers those protections in code. Regulation should focus on ensuring consistent consumer protection outcomes across market structures, not sidelining innovation simply because the protections are achieved through technology rather than red tape.

That said, the elephant in the room is leverage. Much of the appeal of perps offshore has been the extreme leverage on offer — sometimes 50x or even 100x — but no U.S. framework will ever bless that kind of exposure. For DeFi perps to be viable onshore, the CFTC will need to permit enough leverage to make hedging worthwhile, without enabling the kinds of excesses that destabilize markets. This balance doesn’t need to be solved on day one. A path forward could involve authorizing DeFi perps with moderate leverage limits, while leaving the calibration of leverage to an ongoing policy workstream between regulators and industry.

The path forward

Here’s the current reality: progress is stalled until the CFTC has permanent leadership. Brian Quintenz is officially out of the running for chair, leaving the White House back at square one in its search. While the acting chair has released encouraging statements and a promising rulemaking agenda for 2026, definitive guidance on perps and other crypto issues won’t come until after a new chair is confirmed.

Once the CFTC does have a chair, there are two predictable routes. The Commission could launch a full rulemaking process, which would be slow but create durable rules. Or it could move faster by granting exemptive relief from the CEA, which would give U.S. retail a quicker path to accessing perps on decentralized protocols. 

That said, TradFi incumbents will continue to push against the innovation exemptions that would sanction experimentation in DeFi perps. Fortunately, both the most recent iteration of market structure legislation from the Senate and statements from regulators indicate that we have champions who will continue to keep the needs of developers near the top of the policy agenda.

These counter-efforts are important because the stakes are high. Offshore venues already dominate perp trading, particularly DeFi protocols. If the United States continues to sit on the sidelines, American users and builders will be left behind. By contrast, a measured but proactive approach would give founders clarity and bring one of crypto’s most versatile financial tools to U.S. trading strategies.

++

Thank you to Katherine Kirkpatrick Bos (Starkware) for her thoughtful feedback and expertise on this article.

Thank you to Jake and Jack for the invaluable discussions and debate on this topic.

+++

About the authors:

++++

All information contained herein is for general information purposes only. It does not constitute investment advice or a recommendation or solicitation to buy or sell any investment and should not be used in the evaluation of the merits of making any investment decision. It should not be relied upon for accounting, legal or tax advice or investment recommendations. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment. None of the opinions or positions provided herein are intended to be treated as legal advice or to create an attorney-client relationship. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by Variant. While taken from sources believed to be reliable, Variant has not independently verified such information. Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by Variant, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by Variant (excluding investments for which the issuer has not provided permission for Variant to disclose publicly as well as unannounced investments in publicly traded digital assets) is available at https://variant.fund/portfolio. Variant makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. This post reflects the current opinions of the authors and is not made on behalf of Variant or its Clients and does not necessarily reflect the opinions of Variant, its General Partners, its affiliates, advisors or individuals associated with Variant. The opinions reflected herein are subject to change without being updated. All liability with respect to actions taken or not taken based on the contents of the information contained herein are hereby expressly disclaimed. The content of this post is provided “as is;” no representations are made that the content is error-free.