Pantera: Perpetual Contracts and the Rise of Hyperliquid

Source: Pantera Capital July Blockchain Letter; Compiled by: Jinse Finance Claw

Perpetual futures contracts (or "perpetual contracts") are moving towards becoming one of the dominant trading tools in global financial markets. Perpetual contracts are evolving from a crypto-native phenomenon into a fundamental shift in market structure, a trend that traditional investors can no longer ignore. The idea itself is not new. However, its supporting infrastructure is now mature, especially in the on-chain realm of decentralized finance (DeFi). And just last week, with a series of actions by the U.S. Commodity Futures Trading Commission (CFTC), the U.S. regulatory system has begun to formally embrace it.

Advantages of Perpetual Contracts

The first formal futures market was the Dojima Rice Exchange, established in 1730, designed to help Japanese rice farmers hedge crop price risks.

Off-exchange speculators realized they could use these contracts to make directional bets on rice prices through margin and leverage, without physical delivery (only cash settlement). Capitalism has developed according to its own laws, and today futures cover all major asset classes (commodities, foreign exchange, stocks), with most futures trading involving leveraged directional bets. A perpetual contract is a futures contract that never expires. It has no expiration date; instead, there is a funding rate, which is a small, periodic payment between long and short positions (e.g., every hour, or most commonly every eight hours on crypto exchanges): when the perpetual contract price trades at a premium to the spot price, the long position pays the short position; when it trades at a discount, the short position pays the long position. Basis arbitrageurs intervene, anchoring the contract price to the spot price. The seemingly simple design choice of having no expiration date brings significant advantages over existing derivatives (such as term futures and options), including easier management in practical execution, easier understanding of risk, and inherent support for 24/7 trading. From a practical execution perspective, perpetual contracts require less management than traditional futures. Traditional futures have expiration dates (e.g., monthly), hence the term "term futures." To hold a position for an extended period, traders must continuously roll over the position from one contract to the next, sometimes managing portfolios containing multiple contracts with different expiration dates, each with its own futures-spot basis. Perpetual contracts simplify these complexities into a continuous position with no expiration date, thus eliminating the need for rollovers. Traders can hold for a few seconds, or theoretically indefinitely, without worrying about managing the trade. From a risk management perspective, perpetual contracts are also easier to understand than other derivatives. Term futures require judgments on a specific time frame. Options also have specific expiration dates; traders may correctly predict the direction but still lose money due to time decay or changes in implied volatility. Perpetual contracts eliminate these complexities, allowing traders to express their views more directly and almost purely (though not entirely) based on price. Perpetual contracts are also always online, trading 24/7, with no market closures or weekend gaps. For internet-native users living in a globally interconnected, 24/7 economy, continuous access is not a feature, but an expectation. Traditional exchanges have begun to move in this direction in response to these market demands. Looking to the future, perpetual contracts are a natural choice. Given their origins, futures contracts now seem somewhat "outdated." For most participants seeking leveraged directional exposure, perpetual contracts are a more natural tool, possessing all the advantages mentioned above. Digital assets lay the foundation for perpetual contracts. The design of perpetual contracts is not new; the concept can be traced back to a 1993 paper by Nobel laureate Robert Shiller. However, the existing market structure of traditional exchanges creates too much friction, making it difficult for them to become popular. Shedding the burdens of legacy systems and being internet-native, the digital asset industry has created an environment conducive to the booming development of perpetual contracts. The detailed mechanisms that enable perpetual contracts to operate were first solved on a large scale on the Bitcoin exchange BitMEX in 2016, and the platform achieved tremendous growth thanks to this innovation. Perpetual contracts have gained tremendous momentum. By 2025, the total trading volume of perpetual contracts on centralized exchanges (CEXs) reached $62 trillion. This is roughly several times the spot trading volume ($19 trillion) and accounts for a large portion of the total derivatives trading volume ($86 trillion), showing that the market's preference for perpetual contracts exceeds that for options. For most of its history, perpetual contracts have been traded on centralized exchanges (CEXs). But a more interesting story recently is their migration to on-chain decentralized exchanges (DEXs). Previous attempts have yielded some success, most notably GMX and Synthetix using pooled trading models, and dYdX using a central limit order book and a dedicated blockchain. However, they have struggled to compete with centralized venues in terms of latency, liquidity, and user experience. Hyperliquid has taken DEX perpetual contracts to a new level, significantly increasing the market share of on-chain perpetual contracts. DEX perpetual contract trading volume has reached 14% of CEX perpetual contract trading volume, compared to less than 1% when Hyperliquid first launched in early 2023.

The Rise of Hyperliquid

Hyperliquid is the largest decentralized perpetual contract exchange, accounting for approximately 40% of on-chain perpetual contract trading volume. Hyperliquid was conceived by Jeff Yan, a Harvard University Math 55 alumnus, a former high-frequency trader, and previously ran a low-profile market-making firm, Chameleon Trading, for many years. The collapse of FTX was the catalyst for building Hyperliquid; Yan shifted his trading team's efforts to creating a decentralized alternative to replace the centralized exchanges that had just let users down, recognizing that existing blockchains were too slow for professional on-chain trading. The team built its own Layer 1 blockchain specifically designed for trading and released it to the world at the end of February 2023. One improvement included adding a "speed bump" feature to prevent the most aggressive high-frequency trading firms from exploiting market makers, which, while impacting trading volume in the short term, contributed to healthier growth. To address the cold start problem faced by all exchanges, the team opened up their proprietary trading algorithm to the public through an on-chain vault called HLP (Hyperliquidity Provider), thereby driving liquidity. An added benefit of making this high-performance strategy freely available was the support of the community, who became consistent advocates, further fueling Hyperliquid's growth. Due to concerns about regulatory uncertainty in the US regarding DeFi and perpetual contracts, they moved to Singapore in the spring of 2024, one of many significant losses suffered by the US due to its previous regulatory stance, which is now being corrected. Through a highly talented core team, a unified stakeholder spirit representing the best ideas in the crypto space, and outstanding execution, Hyperliquid has surpassed its competitors to become the largest and most profitable decentralized perpetual contract exchange, with monthly trading volume exceeding $250 billion and annualized revenue of $800 million. Hyperliquid's trading volume continues to grow, and its relative share compared to centralized exchanges has been increasing over time.

From Digital Assets to "Making Everything Tradeable in Finance"

This year, Hyperliquid's growth has accelerated further as it expands its business from crypto-native assets to stocks, commodities, indices, and private companies.

Mainstream Markets Are Taking notice

Hyperliquid's momentum has garnered mainstream attention this year. We are hearing more and more traditional asset hedge funds referencing Hyperliquid's prices and even considering trading on the platform to react more promptly to global events.

Hyperliquid is becoming the exchange for price discovery while all other markets are closed. This is increasingly not just limited to weekends, but also includes private companies before their IPOs (Initial Public Offerings). On the day of Cerebras' (the largest IPO so far this year) listing, the banks underwriting the IPO were monitoring prices on Hyperliquid. A picture circulated showing a banker's screen displaying the Hyperliquid trading interface before trading opened. Existing participants in Wall Street exchanges are also watching. On May 27, at Bernstein's strategic decision-making meeting, Jeffrey Sprecher, founder and CEO of Intercontinental Exchange (ICE), called Hyperliquid "bigger than Nasdaq," noting that ICE had met with its founder multiple times. Just two weeks earlier, it was reported that ICE and CME were pressuring regulators to restrain Hyperliquid, indicating they viewed it as a genuine competitive threat. The significance lies in the fact that one of the world's major exchange operators is now publicly acknowledging Hyperliquid as a serious competitive challenge, not a fringe experiment. This interest is also reflected in the public stock market. Hyperliquid Strategies Inc. (Nasdaq: PURR), a digital asset treasury company ("DAT") focused on Hyperliquid, with Pantera as its anchor investor, holds HYPE on its balance sheet. It is chaired by former Barclays CEO Bob Diamond and CEO David Schamis. The two have directly brought HYPE's case to mainstream US financial media, including CNBC's Squawk Box and Bloomberg, giving the crypto-native asset traditional financial background and credibility to generate buzz. As of June 1, 2026, PURR has risen over 200% year-to-date and is one of the few DATs consistently trading at a premium to its net asset value (NAV), indicating strong demand. The next catalyst to watch is SpaceX's IPO, reportedly targeting later this month. Hyperliquid offers a SpaceX perpetual contract, providing traders with a way to express their opinions on its pricing before the company opens to public stock investors on Nasdaq. As of June 1, 2026, SpaceX is trading at approximately $200 per share on Hyperliquid, higher than the level bankers have rumored to be hoping for. Every market participant is watching this IPO closely, and it's reasonable to expect that Elon Musk, SpaceX's well-known active internet user and cryptocurrency advocate, may influence bankers and potential investors to consider SpaceX's trading price on Hyperliquid, thereby driving a leap in platform awareness. How Big is the Hyperliquid Market? Hyperliquid is an on-chain protocol based on a token capital structure. HYPE is the native token, through which Hyperliquid's protocol economics accumulates value, most notably through a programmatic buyback mechanism that uses 99% of the platform's revenue—similar to the capital allocation policies of many stocks with fundamental value. The investment rationale for Hyperliquid is based on several pillars: A Huge and Growing Target Market: Hyperliquid is a disruptive platform targeting an attractive and expanding end-market. Perpetual contracts are an innovative product that better meets the needs of a broad range of investors than traditional derivatives, historically monetized with highly attractive transaction fees. As Hyperliquid expands from the crypto-native market toward its goal of "making everything tradable in finance," its Total Addressable Market (TAM) has grown exponentially. Strong Execution and Scale Flywheel: The protocol has captured significant market share by scaling faster and more successfully than previous generations of decentralized perpetual contract exchanges. In this market, scale creates a flywheel effect: higher trading volumes drive order book liquidity, which in turn continuously improves the user experience and attracts more funds. Superior Product Experience: Hyperliquid delivers a superior user experience by operating on its custom Layer 1 blockchain built specifically for derivatives trading. User feedback consistently highlights that the platform significantly outperforms other decentralized exchanges and directly rivals major centralized exchanges in terms of speed and user experience. Direct and Strong Value Accumulation for Token Holders: Crucially, these strong fundamentals directly translate into protocol profitability and token value. Hyperliquid's annualized revenue of $800 million[11] comes almost entirely back through its programmatic token buyback mechanism. This creates an unusually tight alignment between protocol growth and token holder value.

Looking ahead, Hyperliquid's TAM (Total Addressable Market) is approximately $10 trillion in nominal trading volume per day. Currently, the stock market has approximately $200 billion in daily trading volume from zero-date options (ODTEs) and leveraged ETFs, which are the tools investors currently use for simple, highly leveraged directional exposure. Commodity derivatives have $2 trillion in daily trading volume, and Hyperliquid has shown its ability to make progress, especially on holidays and weekends. Foreign exchange derivatives have approximately $8 trillion in daily trading volume, which is almost entirely untapped on-chain and represents a huge greenfield opportunity. Even if it continues to capture a low single-digit percentage of this combined trading volume, it means that the revenue potential is 5 times that of today, and the valuation expansion potential may be similar. That said, Hyperliquid also carries real risks, and it's important to acknowledge this. The biggest risk Hyperliquid faces is regulation.Perpetual contracts are not currently fully freely available in the US, although there have been movements toward legalization and listing them. Hyperliquid is a decentralized exchange, meaning it doesn't have KYC (Know Your Customer) requirements, and while it geofences US users, workarounds are not impossible.

That being said, Hyperliquid also carries real risks, and it's important to acknowledge this.The biggest risk Hyperliquid faces is regulation. If perpetual contracts are legalized in the US, Hyperliquid will face a more challenging competitive landscape, potentially losing some trading volume as US users migrate to regulated venues. One mitigating factor is the possibility that Hyperliquid, like other companies, may launch a regulated exchange instance in the US.

Regulatory Dynamics: The Doors Are Opening

The single biggest limiting factor for the growth of perpetual contracts in the US is regulation, and it is this uncertainty that pushed the Hyperliquid team to Singapore. True perpetual futures contracts have never been open to US users; both centralized and decentralized venues have geofenced US users.

This situation began to change last week.

The CFTC has approved Kalshi's submission of a Bitcoin reference perpetual futures contract for a US-registered exchange, and its staff has also paved the way for Coinbase to offer certain crypto perpetual contracts through foreign affiliates, treating them as foreign futures. The main point is that the CFTC has paved the way for regulated crypto perpetual contracts within the existing futures framework, rather than requiring entirely new rules. Some policy advocates argue that the historical lack of perpetual contracts in the US was less a deliberate regulatory choice than a commercial accident of which products existing players chose to list, and that the CFTC has never had a fundamental reason to prohibit them. If exchanges apply to list more perpetual contracts, the CFTC only needs to act now to clarify that. The more pressing issue is how to bring decentralized perpetual contracts to US users, and the path there remains unclear. Centralized entities can register as US exchanges today, and we've already seen other companies like Coinbase and Kalshi hoping to list true perpetual contracts. For a permissionless on-chain protocol, the CFTC needs to provide exemptions, both for the requirement that derivatives must be traded on a registered exchange and for rules regarding who can access certain contracts. Both the SEC and CFTC hold a supportive stance on innovation and have previously stated their support for the view that anything in the core stack of an on-chain protocol does not necessarily require registration. However, maintaining permissionlessness and KYC-free operation while addressing legitimate concerns about sanctions and market integrity will require some effort. Perpetual contracts originated on the fringes of the crypto world because that's where market structures can evolve the fastest. Perpetual contracts are now moving to the heart of global finance. The CFTC's recent actions haven't solved all regulatory issues, particularly regarding permissionless on-chain venues, but they do mark a significant shift. The US is beginning to embrace, rather than reject, the product. Hyperliquid is at the center of this shift. It combines the best attributes of DeFi—open access, 24/7 marketplaces, transparent settlement, and exceptionally strong stakeholder alignment—with a product that increasingly appears more suited to modern trading than its competitors. The question is no longer whether perpetual contracts can function outside the crypto world; the market is already answering that question. The question is whether the infrastructure initially built by the blockchain industry can become the venue for the increasing global financial markets to price risks, trade, and discover prices.