On May 20, 2025, Attorney R. Tamara de Silva submitted the following comment to the Commodity Futures Trading Commission (CFTC) in response to its Request for Comment on the potential regulation of perpetual futures contracts (“perpetual swaps”). Drawing on over two decades of experience in the futures markets and digital assets, both as a lawyer and former floor trader, attorney de Silva addresses key legal, operational, and policy considerations around listing perpetual futures on regulated exchanges.
The comment advocates for formal rulemaking to provide regulatory clarity, investor protection, and market stability rather than leaving perpetual derivatives in regulatory limbo or addressing them through enforcement alone. It also discusses how perpetual futures can improve liquidity, broaden market access, and bring existing unregulated activity into the well-supervised crisis free framework of U.S. futures exchanges such as the CME.
The full text of the comment is published below:
May 20, 2025
Via Electronic Submission
Christopher J. Kirkpatrick, Secretary
Commodity Futures Trading Commission
Three Lafayette Centre
1155 21st Street NW
Washington, DC 20581
Re: Comments on Potential Listing and Regulation of Perpetual Futures (“Perpetual Swaps”)
Dear Mr. Kirkpatrick:
I write as the Founder of De Silva Law Offices, LLC, a law firm that has long represented participants in both the traditional futures markets for over decades, and in the digital asset (cryptocurrency) space since 2017. Thank you for the opportunity to comment on the regulatory treatment of perpetual style derivatives (sometimes called “perpetual swaps”) in response to the Commission’s Request for Comment (RFC).
This firm’s experience with a wide range of market participants includes Introducing Brokers, trading firms, proprietary traders, commodity pools, Commodity Trading Advisors, and registered cryptocurrency funds, positions this firm to offer a balanced perspective on perpetual futures products.
Perpetual futures can serve valid economic purposes, including hedging, price discovery, investor protection, and liquidity provision, provided they are subject to appropriate oversight under the Commodity Exchange Act (“CEA”) and related CFTC regulations.
Below, we directly address several questions posed in the RFC and explain why various objections raised by some market participants regarding perpetual derivatives are misplaced.
- Appropriate Definition of “Perpetual Derivative” (RFC Question 1)
A perpetual derivative is a cash-settled futures contract derivative referencing an underlying spot market price or an index. Unlike traditional futures contracts, perpetual derivatives do not have a fixed expiration date. Instead, perpetual derivatives employ an ongoing periodic settlement mechanism, commonly referred to as a “funding rate,” to ensure continuous price alignment with the underlying spot market.
The funding rate is essentially a periodic payment made between holders of long and short positions. When the perpetual derivative trades at a premium above the underlying spot or reference index price, long position holders pay short position holders. Conversely, if it trades at a discount below the underlying price, short holders pay long holders. This mechanism incentivizes price convergence with the underlying asset. The funding rate is typically calculated and exchanged multiple times daily, effectively marking positions to market throughout each trading day. This continuous, periodic settlement mimics the economic effects of constantly rolling traditional expiring futures contracts forward, providing ongoing exposure without a specific expiration date.
The funding rate provides valuable insights into market sentiment. This aspect would likely enhance price discovery by enabling traders to strategically adjust their market positions.
A common objective to perpetual futures is that they are not linked to a physical commodity or asset in a meaningful way because they never settle and therefore cannot promote true price discovery.
Although perpetual swaps do not physically settle or expire, they are meaningfully linked to an underlying asset or index, just like traditional cash-settled futures. The utilization of a continuous settlement mechanism through the funding rate mimicks the economic behavior of rolling expiring futures contracts. As such, perpetual contracts support effective hedging and speculation, by providing ongoing market exposure without the logistical burden of physically settling or regularly rolling expiring contracts.
- Advantages and Unique Risk Management Features (RFC Question 2)
Perpetual derivatives provide significant advantages by eliminating the need for rolling contracts at expiration, simplifying long-term hedging, and reducing operational complexity. These instruments are particularly beneficial for market participants needing continuous exposure without the administrative and cost burdens of managing periodic expirations. Such features cannot be entirely replicated by traditional futures or spot markets.
Perpetual futures retain their legitimate commercial purpose despite lacking a fixed expiration date. Their periodic funding payments replicate traditional futures' carrying and rollover costs, effectively embedding a time-value component. This structure supports continuous, flexible risk management for market participants. As a result, perpetuals offer simplified hedging solutions that are cost-effective and operationally streamlined, removing the need to manage the periodic expiration and renewal of traditional contracts.
Under prudent regulation, perpetuals will broaden market participation and risk management tools. Crypto and commodity businesses often find perpetuals essential for hedging (e.g., stablecoin issuers or crypto miners hedging cryptocurrency exposures). Instead of using unregulated centralized crypto exchanges and decentralized finance platforms, some of the users of perpetuals will migrate to the futures markets. Their participation in the futures markets will add liquidity and increase the use of the futures markets.
Perpetuals enable continuous risk management for producers, holders of underlying assets, and sophisticated investors who seek indefinite hedges. Their liquidity can enhance overall price discovery for the referenced spot asset.
The absence of a fixed expiry does not negate legitimate economic usage. Traders who routinely roll positions in traditional futures can find perpetuals more cost-effective and flexible. Their liquidity can enhance overall price discovery for the referenced spot asset.
Formal expiration is not the only way to tether a derivative’s price to its underlying. Perpetuals incorporate continuous price alignment that accomplishes many of the same objectives as expiring futures contracts.
Perpetual futures are unique in that they combine features from traditional futures and spot markets and thereby offer significant operational flexibility. By eliminating the administrative complexity and the cost of rolling over contracts at expiration, they have a strong appeal to market participants engaged in both short-term speculation and long-term hedging.
- Unique Risks and Required Safeguards (RFC Questions 3 and 6)
An oft repeated objection to perpetual derivatives is the possibility that they could facilitate market manipulation and abusive short selling. But this objection can be stated about any trading market. It is even more reason to bring perpetuals under the umbrella of the well-regulated futures markets.
The risks associated with perpetual derivatives, such as potential manipulation or abusive short selling, are comparable to those posed by traditional futures contracts. Proper regulatory oversight, including stringent margin requirements, robust position limits, and active surveillance protocols mandated by the Commission and exchanges, can effectively mitigate these risks.
Short selling is not intrinsically harmful. Short-selling can and often does improve market efficiency and price discovery. It should be noted that the inherent design of perpetual derivatives, featuring periodic funding payments, actively discourages persistent one-sided market positioning.
Under the CEA, the Commission and Designated Contract Markets (DCMs) can impose real-time monitoring, position limits, and rigorous compliance regimes to minimize manipulative behavior.
In other words, perpetual derivatives are not uniquely susceptible to manipulation or abusive short selling compared to other cash-settled futures any more so than other contracts. With appropriate regulatory measures, including margin standards, position limits, and comprehensive surveillance, these risks can be effectively managed. Additionally, perpetuals’ ongoing funding rate mechanism actively mitigates persistent imbalances in market positioning, promoting equilibrium and enhancing overall market integrity.
- Risk Disclosures and Customer Protection (RFC Question 4)
Another objection that is often raised is that perpetual derivatives may exploit unsophisticated retail investors. Were the CFTC to sit this one out and not offer perpetual futures, retail investors would be largely at the mercy of fintech companies playing the part of exchanges. But without the regulatory oversight of the Commission or SROs. Without any meaningful customer protection or oversight, the users of fintech companies that purport to be exchanges often cannot reach a human being or customer support even during a market crash. At best, they regulation lite by FINCEN, which would leave retail investors much less protected.
Current disclosure frameworks can adequately address risks if extended explicitly to perpetual derivatives. The Commission has already done this with virtual currencies. Enhanced transparency about the funding mechanism, potential for leverage, and periodic settlement requirements would further equip investors to understand and manage their risk exposure effectively.
Perpetual futures typically allow higher leverage compared to traditional futures, which enables traders to control larger market positions with relatively modest initial capital outlays. This capital efficiency can boost market participation and overall liquidity, although it also emphasizes the importance of disciplined risk management.
Access should not be conflated with exploitation. Perpetual derivatives would bring the benefits of the well-regulated futures markets to an even broader audience that currently does not benefit from well-regulated and trading markets like the futures markets. There is already an immense amount of retail participation in perpetuals in centralized and decentralized exchanges, which are mostly completely unregulated or nominally regulated with largely absent customer protection and risk disclosure.
- Impact on Market Integrity, Liquidity, and Volatility (RFC Questions 7, 8, and 11)
Some have argued that perpetuals could induce excessive volatility and destabilize markets.
While volatility is a concern in any leveraged derivative market, perpetual derivatives do not inherently exacerbate market instability. There is no evidence that they would do so. It is inarguable that established futures exchanges with robust margining systems and liquidity mechanisms can manage volatility effectively.
Arbitrage opportunities between perpetual derivatives, traditional futures, and spot markets naturally incentivize price convergence, thereby improving price discovery and liquidity rather than diminishing market stability.
In short, perpetual derivatives are not uniquely prone to excessive volatility compared to any other leveraged instruments, despite the greater use of leverage.
While leverage can amplify market movements, this risk is present in traditional futures, options, and margin trading as well. The futures markets have a history of handling leveraged markets well as they are effectively managed by margin requirements and robust regulatory oversight. Additionally, perpetual futures naturally encourage arbitrage opportunities, helping to align prices closely with the underlying spot market and reduce volatility.
The real-time pricing mechanism inherent in perpetual futures allows market participants to respond promptly to volatile market conditions. This enhances market efficiency by facilitating rapid adjustments to trading positions, thus reducing potential risks from sudden price movements.
Lastly, perpetual futures naturally create arbitrage opportunities between the perpetual and underlying spot markets, further ensuring continuous price alignment. Arbitrage activity helps stabilize markets by swiftly correcting pricing discrepancies, thus contributing to reduced volatility and improved market integrity.
- User Base and Market Participation (RFC Questions 9 and 10)
Perpetual derivatives are likely to attract the same diverse participant base as traditional futures such as commercial hedgers, asset managers, hedge funds, and speculators. But they will also bring in new users of the futures markets from the digital asset space. These traders and hedgers currently use unregulated platforms and centralized exchanges.
Given their flexibility, some market participants may prefer perpetuals for ongoing exposure, while traditional hedgers accustomed to expiring contracts might initially be cautious. Nevertheless, I expect perpetual derivatives to function efficiently, given proper regulatory oversight and clear market rules.
The perpetual futures market structure simplifies operational requirements and removes expiration constraints, thus attracting new participants from digital asset markets who otherwise are forced to use less regulated or completely unregulated platforms. Their inclusion enhances overall market liquidity and bolsters the integrity of the U.S. regulated futures markets.
I support the Commission’s mission to ensure transparent, competitive, and financially sound markets. Perpetual futures, though different in form from expiring contracts, can fulfill similar economic functions such as hedging, price discovery, and efficient risk transfer…when subject to robust regulatory oversight.
The objections raised against perpetual derivatives largely hinge on assumptions about manipulation, volatility, or a lack of legitimacy that are equally applicable to many standard futures contracts absent appropriate rules.
The CEA, and the Commission’s existing regulatory framework, provides ample authority to manage the risks associated with perpetual contracts, just as they do with expiring contracts. By imposing suitable margin requirements, position limits, funding rate transparency, and market surveillance, the Commission can ensure that perpetual futures serve market participants responsibly.
Coinbase’s intention to acquire Deribit deserves attention from the CFTC because it highlights a significant expansion of perpetual derivatives trading beyond traditional regulatory boundaries. The reality is that demand for these instruments is already substantial and it is growing swiftly. Major players are positioning themselves to facilitate that demand. If U.S. regulators do not act, perpetual futures activity will continue to migrate to quasi-exchanges and offshore venues, drawing liquidity away from domestic markets and leaving American investors exposed to less oversight and significantly less, or no investor protection.
Exchanges like the CME Group, Inc, which already have a strong foundation and proven infrastructure for clearing, self-regulatory mechanism, margining, and risk management, offer a more robust environment for perpetual futures. Established futures exchanges like the CME already have the self-regulatory structure, long-standing credit and margining protocols, and capacity to handle rapid changes in market conditions would bring much-needed transparency, investor protection, and systemic integrity to perpetual futures.
- Regulatory Clarity
The CFTC should address perpetual futures contracts through formal rulemaking rather than through enforcement actions. In the 2023 Deridex, Inc. enforcement action (CFTC Docket No. 23-42), the Commission determined that the perpetual contracts “are swaps and leveraged or margined retail commodity transactions” that must be offered “only on a registered exchange”cftc.gov.
Although this case-by-case enforcement action clarified the regulatory status of perpetual futures after the fact, formal rulemaking would ensure clear, consistent regulatory treatment from the outset. Formal rules provide market participants with greater certainty about how to structure compliant products and reinforce investor protections by establishing uniform standards, rather than leaving regulatory boundaries to piecemeal enforcement or, worse, retroactive regulatory interpretations.
Without formal rulemaking or explicit encouragement of perpetual futures trading on regulated exchanges, perpetuals will continue to be avoided by CFTC registrants. The use of perpetuals will continue to grow. This will leave the Commission in the challenging position of policing these widely used instruments on numerous unregistered platforms, where they remain popular with market participants. This does nothing to advance investor protection.
I appreciate the opportunity to submit these comments and would welcome any further dialogue on how best to regulate and oversee perpetual futures within the existing framework.
Before I was a lawyer, I was also a floor trader and I remember the arguments made against overnight trading and electronic trading. The futures markets have adapted and never looked back. They continue to be among the most liquid and well run, crisis-free trading markets in the world. Perpetuals are another adaptation.
Respectfully submitted,
R Tamara de Silva
Founding Attorney
De Silva Law Offices, LLC
Counsel on behalf of our clients in the traditional futures and digital asset sectors
cc. The Hon. Caroline D. Pham, Acting Chairman
The Hon. Kristin N. Johnson
The Hon. Christy Goldsmith Romero
The Hon. Summer K. Mersinger