Perpetual Futures “Dengmei” Stuck: Why Did the CME Take the CFTC to Court?

Written by: Andjela Radmilac

Compiled by: Saoirse, Foresight News

Coinbase has launched American-style perpetual futures on its derivatives exchange regulated by the CFTC. The first products are micro Bitcoin and Ethereum contracts. These contracts are pegged to spot prices, come with built-in leverage, and support 24/7 continuous trading.

Perpetual futures carry the vast majority of global crypto leveraged trading, and they have now officially entered the U.S. market. In addition to providing investors with a new channel to bet on Bitcoin price moves, it also brings the full set of trading mechanics that have dominated offshore market pricing logic for years into the United States. Several U.S. exchanges have gradually introduced funding rates, perpetual leverage, and automatic liquidation mechanisms, but their contract design rules differ significantly.

Perpetual futures account for the overwhelming majority of trading volume in crypto derivatives. Coinbase’s statistics show that, under certain measures, perpetual futures make up more than 90% of total derivatives trading volume, while overall derivatives trading volume is about 80% of all crypto trading volume.

For many years, almost all trading of this type took place on exchanges outside U.S. regulatory jurisdiction. If U.S. investors wanted to participate, they could only log into offshore platforms via a virtual private network. That barrier was broken on May 29: the CFTC approved KalshiEX to launch the BTCPERP perpetual contract pegged to the Bitcoin spot price, and also issued a policy statement allowing other exchanges to follow this route to roll out similar products.

On June 12, the CFTC issued new rules allowing licensed designated contract market trading venues, subject to certain conditions, to remove the existing expiration dates for current perpetual-type crypto futures and convert them into truly non-expiring perpetual contracts.

The regulatory framework that has driven this series of changes is now entangled in legal disputes in federal court. The outcome of this judicial battle will determine how far perpetual futures can go in the U.S. market.

On June 18, CME sued the CFTC and its chair Michael Selig in the U.S. District Court for the District of Columbia, requesting the judge to vacate the approval order for Kalshi and its accompanying policy statement. CME’s complaint argues that, based solely on personal approval, the CFTC chair overturned the statutory definition of swap derivatives enacted by Congress, bypassing the entire regulatory framework that Congress set up for such derivatives.

CME’s core claim is that perpetual contracts meet the statutory definition of swaps under the Commodity Exchange Act. If they are classified as swaps, the industry would have to accept stricter regulatory rules, including dealer registration and qualification, stringent capital requirements, high-frequency information reporting, and more. Market pricing power and license resources would return to legacy traditional institutions such as CME. CFTC Chair Selig approved Kalshi’s application in just one day.

The CFTC did not downplay the lawsuit. Its spokesperson said CME chose to use legal means to oppose regulators and the current government’s policy direction encouraging innovation, accusing legacy institutions of fearing market competition in a fair environment, and said the lawsuit is baseless and it would seek dismissal by the court.

This case involves massive commercial interests. In its complaint, CME wrote that, relying on this approval, Kalshi added more than ten types of crypto perpetual contracts for its own launch, and the related trading volume has already exceeded $1 billion. The CFTC is also defending its jurisdiction on other fronts. In late June, it filed a lawsuit against Kentucky to clarify which entity the regulation of the contract market belongs to. The case is still in its early stages, and no court ruling is yet available. This means that all exchanges currently building American-style perpetual products are standing on a legal foundation that could be rewritten by the courts at any time.

Two types of perpetual contract structures in the U.S. today

Traditional futures have fixed expiration dates. If traders want to hold positions long-term, they can only close them and settle, or roll them over to forward contracts. Perpetual contracts have no expiration timeframe. Since there is no expiration delivery mechanism pulling the contract price toward spot, perpetuals rely on periodic settlement of funding rates between the long and short sides to complete the price peg.

When the perpetual contract price is higher than the spot price, longs typically pay funding to shorts, raising the cost of maintaining long positions and encouraging longs to sell. If the contract price is lower than the spot price, the funding flow reverses and shorts pay longs.

Today, the U.S. market has two compliant products both called perpetual contracts, but the legal framework behind them is completely different. Kalshi’s BTCPERP is a truly non-expiring perpetual contract. Coinbase’s product uses a five-year ultra-long-dated futures structure, together with hour-level interest accrual and funding rates settled twice daily. Through this design, it replicates the price behavior of perpetual contracts while also aligning with existing futures regulatory rules.

The CFTC’s conversion scheme implemented in June allows this type of long-dated futures, in the future, to gradually remove expiration dates and upgrade into truly perpetual contracts. This is also why “perpetual futures” in the U.S. refers to two legally distinct products.

The crypto market runs year-round without weekend trading halts and without monthly expiration cycles. Perpetual contracts are exactly the trading instrument designed for this environment. Non-expiring leveraged contracts allow traders to adjust positions and hold positions at any time without needing to choose delivery months. Speculation, hedging, market-making inventory management, and basis trading can all be carried out using a single contract.

Exchanges favor the perpetual model because a single contract can consolidate liquidity that would otherwise be dispersed across multiple expiration contracts, resulting in greater market depth. But highly concentrated liquidity also amplifies the impact of funding rates and forced liquidation. Once market positions become severely imbalanced, the speed at which price volatility propagates is far faster than in traditional futures where positions are segmented across multiple terms.

The perpetual ecosystem implemented in the U.S. differs from the offshore market in many ways, so multiple perpetual trading tracks are being built domestically in parallel. Kalshi launched true perpetuals, and the product category has already covered several tokens including Bitcoin, Ethereum, and XRP. On the one hand, Coinbase has launched perpetual-style futures on the domestic exchange; on the other hand, on May 29 it opened a compliant channel so that U.S. investors can access global perpetuals and options liquidity via its subsidiary platform Deribit. Deribit is a leading global crypto options platform, and by the end of May, the open interest in Bitcoin options exceeded $31 billion.

On the same day, CME upgraded its own expiring crypto futures and options to 24/7 trading, closing the weekend trading time gap with the spot market. CME’s crypto derivatives had a notional trading volume of $3 trillion last year. This year, its average daily contract trading volume is about 407.2k contracts.

The contract architecture, leverage ratios, liquidation rules, collateral requirements, and pricing reference benchmarks of these trading routes are all different. As more compliant trading channels become available, liquidity, margin, and open positions are split across multiple platforms, collateral cannot be used interchangeably across platforms, and capital utilization efficiency is relatively low.

The dispute over funding rates, forced liquidation mechanisms, and global pricing power

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

When large amounts of leveraged longs push perpetual prices higher so they remain above spot, arbitrageurs can short perpetuals while buying Bitcoin spot, Bitcoin ETFs, or traditional futures to earn funding. These arbitrage trades also drive spot orders and ETF creation/redemption, and they further affect the basis of CME futures.

Large-scale arbitrage can cause the open positions of perpetual contracts to feed back onto the spot market they are supposed to be pegged to. Liquid, U.S. perpetuals can form a domestic funding-rate curve, turning it into a regulated leverage sentiment indicator and creating a contrast with offshore funding rates that traders refer to over the long term. If there is a stable long-term spread in funding rates between the U.S. and offshore venues, it can clearly reflect differences in user structure, leverage limits, and the flexibility of cross-border capital flows—helping the market judge whether price action comes from directional speculation or hedging demand.

Leverage allows traders to control large positions with a small amount of margin, but the trade-off is that even a modest price drop can quickly drain the margin. Once an account’s margin falls below the maintenance collateral line, the exchange will automatically liquidate the position. Forced liquidation of longs brings market sell orders, while forced liquidation of shorts brings market buy orders. Concentrated forced liquidations can break through more traders’ margin thresholds, triggering a chain-reaction cascade.

With 24/7 trading, high leverage, and fragmented liquidity, crypto assets are highly prone to chain-reaction blowups. Bringing perpetual contracts to the U.S. will make the domestic spot pricing trajectory more continuous, but prices are also more easily influenced by self-reinforcing trading behavior: Bitcoin’s rise and fall can be driven purely by mass liquidation of margined accounts, unrelated to changes in the asset’s intrinsic value expectations.

Compliant trading venues can control some risks: segregated client funds, fully public contract rules, end-to-end monitoring of the market, standardized liquidation processes, and investors having access to U.S. judicial remedies. However, compliance cannot reduce volatility, capital costs, or leverage itself, and it cannot guarantee that large liquidations will not reverse-impact market moves. Even if perpetual contracts are fully compliant end-to-end, traders will still be subject to the system’s automatic forced liquidation.

The likely deciding points in future competition across the derivatives segment will be the ability to use collateral across product categories—allowing traders to share margin across spot, ETFs, futures, options, and perpetuals. Currently, capital is split across multiple systems including spot accounts, futures brokers, clearinghouses, brokers, and offshore exchanges. When funds are fragmented, it creates additional costs, and the margin in one account cannot be used as collateral to support hedged positions in another market.

For example: holding a Bitcoin ETF cannot directly be used as margin to serve as collateral for a perpetual short position; CME futures positions and domestic perpetual contracts belong to two separate margin pools. The core of the next round of competition in the derivatives industry is to remove collateral barriers across markets.

Coinbase derivatives, together with Nodal Clear, the clearing arm of the EEX Group of Deutsche Börse, has applied to use USDC stablecoin issued by Circle as margin collateral for U.S. futures. Coinbase will custody the USDC through a trust it administers, and the proposal is awaiting CFTC approval. If approval is granted, this will be the first time in the U.S. futures market that a stablecoin is used as collateral in a compliant manner. Traders would not need to convert crypto assets into fiat; they could directly use native crypto stablecoins to provide margin for compliant positions.

This kind of capital efficiency determines the arbitrage cost of price spreads among major platforms. Compared with adding more and more tokens, capital efficiency is the more central competitive advantage.

The number of contracts newly listed by exchanges will not be the final watershed. Major platforms can quickly launch large volumes of new tokens. The real tests are twofold: first, when Bitcoin enters a new round of severe volatility, will domestic perpetual contracts absorb the move, lead it, or amplify volatility? Second, will the court ultimately rule that these contracts are fundamentally futures or swaps? This ruling will either cement the compliant perpetual derivatives ecosystem that the U.S. has spent more than half a year building, or force the industry to accept the stricter swap-style regulatory rules advocated by CME.