Blockchain’s $500 billion 24/7 market experiment
When the US and Israel initiated their aerial assault on Iran on the last Saturday of February, the primary oil markets globally were not operational. The price of crude continued to fluctuate regardless of external factors. On Trade.xyz, a relatively obscure marketplace operating atop the crypto exchange Hyperliquid, speculators engaged in the buying and selling of a blockchain-based oil derivative throughout the weekend. By the time conventional futures reopened, traders had already invested considerable time assessing the price implications of the conflict’s impact. Modern finance has dedicated decades to constructing markets based on a unified framework: acknowledged venues, established trading hours, and benchmark prices that serve as reference points for all participants. Cryptocurrency has deviated from that established norm. The markets operate incessantly, traverse borders with ease, and are progressively addressing the voids left by conventional exchanges. Trade.xyz serves as a definitive examination of the extent to which that break can progress. Operated by a team of approximately twelve individuals, the startup has dedicated less than a year to the development of perpetual futures linked to crude oil, precious metals, stock indexes, and companies poised for initial public offerings, including SpaceX. Since its launch in October, those markets have generated approximately $500 billion in trading volume and represent over 99% of the activity within Hyperliquid’s third-party market system, referred to as HIP-3.
That success has strengthened Trade.xyz and Hyperliquid to pursue a more ambitious objective. They are advocating for regulators to permit pre-IPO perpetuals in the United States, asserting that these instruments could enhance the traditional initial public offering process by facilitating better price discovery. Hyperliquid functions beyond the borders of the United States and is not formally accessible to American traders. Trade.xyz is subject to the same restrictions. Hyperliquid – and by extension, Trade.xyz – seem to have secured the support of a significant ally. President Donald Trump, an industry advocate with extensive family interests in cryptocurrency, stated last week that regulators are making efforts to facilitate the entry of Hyperliquid into the country. In contrast to conventional futures contracts that have a predetermined settlement date, perpetual contracts do not have an expiration date. Investors have the ability to maintain their positions indefinitely without the necessity of transitioning from one contract to another. The instruments can also carry extraordinary leverage. Certain platforms enable investors to leverage their capital by borrowing $100 for each $1 they invest. “There’s always a bull market somewhere,” stated Walter Li. If a hot asset class isn’t already on a blockchain, Trade.xyz can establish a market for it, he added. Analysis of Trade.xyz contracts during the US-Iran conflict revealed that they generally mirrored traditional oil prices during periods of reduced volatility, while simultaneously providing a real-time gauge of market sentiment during the closure of conventional markets.
During some of the conflict’s most volatile periods, however, the movements were less pronounced than those that occurred when established markets resumed operations. Trade.xyz employs “discovery bounds” to mitigate extreme fluctuations during volatile periods, and these limits have been progressively expanded over time. Their purpose is “to allow for price discovery while also preventing manipulation” over the weekends, a spokesperson for the platform stated. The weekend contracts engage a distinct set of participants and liquidity, diverging from the traditional crude futures markets with which they are being compared. Professional oil traders indicated that they observe them as a sentiment proxy, rather than as predictions of where Brent or West Texas Intermediate will reopen. Trade.xyz is the creation of Unit Labs, a team that predominantly functions under pseudonyms. The firm secured funding from venture capital firm Paradigm just over a year ago, as reported by sources familiar with the situation. Representatives for Unit Labs and Paradigm refrained from providing commentary on the agreement. The platform’s reach now extends significantly into traditional finance. In March, Trade.xyz and S&P Global Inc. introduced what they characterised as the inaugural officially licensed perpetual contract linked to the S&P 500. The product has approximately 450 million in open interest. Trade.xyz also provides a contract that mirrors the Nasdaq 100.
The largest HIP-3 markets, all developed by Trade.xyz, are those associated with the S&P 500, SK Hynix Inc. shares, and gold, boasting a combined open interest of approximately $1.2 billion. While perpetual futures linked to assets such as stocks were present prior to the introduction of the HIP-3 system by Hyperliquid, this development has significantly accelerated the transition toward continuous global trading activity. Wall Street regulators, traditionally familiar with trading limited to weekdays, now “must face up to the potential for liquidity to migrate and for price discovery to occur offshore, especially during off-hours,” stated Yesha Yadav. Collins Belton, Unit Labs’s chief operating officer and general counsel, stated at an industry conference in July that the emerging sector is engaging with a “very willing” administration. Belton expressed that he had “expected more concern” from institutions and regulators. That has placed regulators in conflict with CME Group Inc., the preeminent derivatives marketplace globally. In June, CME initiated legal action against the Commodity Futures Trading Commission and Chairman Michael Selig regarding guidance perceived as facilitating the introduction of crypto perpetual futures on US platforms. In a statement at the time, the CFTC characterised the lawsuit as “frivolous.”
Private-company contracts address a distinct need compared to those monitoring oil. Companies like SpaceX do not have a continuously traded share price prior to their listing, and their valuations are constructed from funding rounds and secondary transactions that may occur months apart. Perpetual contracts from Trade.xyz and its competitors do not confer ownership of the underlying shares, and there is no public security available to provide a basis for direct arbitrage. Instead, they offer a public signal of how traders assess the value of the companies prior to their market entry. To date, Trade.xyz’s pre-IPO perps have provided a predominantly reliable indication of the opening prices for shares. In several significant stock market debuts this year – including SpaceX and SK Hynix – the contracts accurately suggested that the shares would commence trading at levels exceeding the valuations set by the banks overseeing the transactions. “A market that had never seen a share of the company was closer to the print than the syndicate that spent two weeks marketing it,” said David Schamis. In a letter dated August 18 to Securities and Exchange Commission Secretary Vanessa Countryman, Trade.xyz, along with a lobby group linked to Hyperliquid, referenced the initial performance of pre-IPO perpetual contracts to contend that these instruments could enhance the IPO process by offering a public market signal prior to a listing. Hyperliquid was co-founded by Jeff Yan, who previously worked as a trader at Hudson River Trading. The primary developer of the platform, Hyperliquid Labs, operates out of Singapore.
The utilisation of elevated leverage has led to certain initial setbacks. In mid-June, shortly after the commencement of trading for SpaceX shares, a short squeeze in Trade.xyz perps associated with Elon Musk’s aerospace and satellite enterprise propelled its implied valuation to $3 trillion, surpassing that of Amazon.com Inc. and Microsoft Corp. during that period. More than $50 million in short positions within the perpetual contracts were subject to automatic liquidation. Approximately one month later, the same mechanisms prompted a significant movement in the contrary direction for a Trade.xyz perpetual contract associated with SK Hynix. Holders were compelled to liquidate approximately $60 million in long positions following a 20% decline in the contract. The move followed a 30% pre-market slump in the Korean chipmaker’s shares, triggered when a single share changed hands on Nextrade at what appears to have been a rogue price. Trade.xyz announced that it would compensate for losses attributed to the “anomalous” segment of the SK Hynix movement. “Going forward, our pricing systems will be further improved to handle tail events,” it stated. To establish a perps market on Hyperliquid, operators are required to stake 500,000 HYPE tokens, which is approximately valued at $39 million based on current prices. Several early entrants have ceased operations, while newer competitors supported by firms such as Multicoin Capital and Hyperion DeFi Inc. are focusing on markets that Trade.xyz does not currently control. Hyperion-backed Skew intends to concentrate on pricing data that is “not so easy to emulate,” according to Hyperion CEO Hyunsu Jung.
Trade.xyz’s liquidity, a consequence of its early entry into new markets and competitive pricing, continues to serve as a significant barrier. Despite total trading in Trade.xyz perps hitting $107 billion in July, data compiled by DefiLlama reveals an annualised revenue run-rate of merely $27 million. “I don’t even look at the other markets,” said Pratik Kala. “The most important thing is liquidity, and liquidity on the other markets is incredibly poor. If I wanted to put on even a half-million-dollar order, the spreads would blow out.” One risk presented by Trade.xyz’s rapid rise is that a mass liquidation event, similar to those seen in perps linked to SpaceX and SK Hynix, could cascade into traditional markets, according to Yadav. In a dire situation, a weekend explosion could plunge an entity with investments in conventional markets into “a balance sheet crisis,” she stated. “Would they then have the capital to wake up with on Monday to trade in traditional markets? That is the potential danger down the line,” said Yadav. Li, the former ETF trader, expresses greater concern regarding the potential for missed opportunities during periods of sleep. He mentioned using monitoring systems powered by ChatGPT to scan Trade.xyz and alert him when activity spikes in the various perps trading around the clock. “If you build the correct monitoring systems, and you really know what to look for, then you don’t have to be at your desk all the time,” he said.
