The Struggle for Pricing Power of Global Assets: Starting from a Trading Volume of 500 Billion Dollars

Author: Ryan Weeks, Spe Chen, Muyao Shen, Bloomberg reporters

Compiled by: Jiahua, ChainCatcher

On the last Saturday of February this year, while the U.S. and Israel launched airstrikes against Iran, the major global oil markets were closed, but crude oil prices did not stop changing.

On Trade.xyz, built on the crypto trading platform Hyperliquid, traders were buying and selling an on-chain oil derivative throughout the weekend. By the time the traditional futures market reopened, on-chain traders had already spent hours pricing in the potential impacts of the conflict.

For decades, modern financial markets have operated around a common framework: recognized trading venues, fixed trading hours, and benchmark prices that provide references for other markets. The crypto market has broken this convention. It can operate around the clock, easily cross borders, and is increasingly filling the gaps left by traditional exchanges during their off-hours.

Trade.xyz is one of the typical cases to test how far this change can go.

This startup has a team of only about a dozen people, yet in less than a year, it has launched perpetual contracts linked to crude oil, precious metals, stock indices, and companies like SpaceX that are expected to go public. Since its launch in October last year, these markets have generated approximately $500 billion in trading volume, accounting for over 99% of the total trading activity in Hyperliquid's third-party market system, HIP-3.

This achievement has led Trade.xyz and Hyperliquid to pursue larger goals. They are lobbying U.S. regulators to allow pre-IPO perpetual contracts to enter the U.S. market, stating that such products can facilitate more comprehensive price discovery before a company officially goes public, thereby modernizing the traditional IPO process.

Currently, Hyperliquid operates outside the U.S. and has not officially opened to U.S. traders, and Trade.xyz is similarly restricted.

However, Hyperliquid seems to have secured an important ally. U.S. President Trump, who supports the crypto industry and whose family is widely involved in related businesses, stated last week that regulators are exploring how to allow Hyperliquid to enter the U.S. market.

Unlike traditional futures contracts that settle on fixed dates, perpetual contracts have no expiration date. Investors can hold positions for the long term without repeatedly converting soon-to-expire contracts into new ones. These products may also offer extremely high leverage, with some platforms allowing investors to borrow $100 for every $1 they invest.

Walter Li, a former ETF trader at the Royal Bank of Canada who now primarily manages his personal trading portfolio through Trade.xyz, stated that "there's always somewhere in the market that's in a bull market."

He added that if a popular asset class has not yet been moved to the blockchain, Trade.xyz can create a market for it.

Bloomberg's analysis of Trade.xyz contracts during the U.S.-Iran conflict shows that during relatively mild volatility phases, these contracts generally followed traditional oil prices; when traditional markets were closed, they could also reflect traders' market sentiment in real-time.

However, during some of the most turbulent periods of the conflict, the price fluctuations of Trade.xyz contracts were smaller than the volatility that occurred after traditional markets resumed trading.

Trade.xyz employs a mechanism known as "price discovery bounds" to limit extreme price changes during periods of market turbulence. As the market matures, the platform has gradually relaxed these restrictions.

A spokesperson for Trade.xyz stated that the purpose of this mechanism is to allow the market to discover prices while preventing manipulation of weekend markets.

The participants and sources of liquidity for these weekend contracts differ from those of the traditional crude oil futures market used for comparison. Several professional oil traders indicated that they view these contracts as indicators of market sentiment but do not necessarily see them as predictive tools for the reopening prices of Brent crude or West Texas Intermediate crude.

Trade.xyz was developed by Unit Labs, whose team members mostly use pseudonyms. Sources revealed that Unit Labs received investment from the venture capital firm Paradigm over a year ago. Both Unit Labs and Paradigm's spokespersons declined to comment on the deal.

Today, Trade.xyz's business has penetrated traditional financial markets.

In March of this year, Trade.xyz launched what both parties call the first officially authorized perpetual contract linked to the S&P 500 index in collaboration with S&P Global. The current open interest of this product is approximately $450 million. Trade.xyz also offers perpetual contracts tracking the Nasdaq 100 index.

The largest markets in HIP-3 are all developed by Trade.xyz, linked to the S&P 500 index, SK Hynix stock, and gold, with a total open interest value of about $1.2 billion.

Regulatory Challenges of 24/7 Trading

Before Hyperliquid launched the HIP-3 system, perpetual contracts linked to assets like stocks already existed, but HIP-3 has greatly accelerated the market's shift towards global distribution and 24/7 trading.

Yesha Yadav, a professor at Vanderbilt University Law School focusing on digital asset research, stated that Wall Street regulators, who were accustomed to markets only trading on weekdays, "must now confront the possibility of liquidity migrating to other markets and price discovery occurring in offshore markets, especially during traditional market closures."

Collins Belton, Chief Operating Officer and General Counsel of Unit Labs, stated at an industry conference in July that this emerging field faces a government that is "very willing to provide support." He originally expected institutions and regulators to express more concerns.

This has also led to conflicts between regulators and the world's largest derivatives exchange, CME Group.

In June of this year, CME sued the U.S. Commodity Futures Trading Commission and its chairman Michael Selig, claiming that the guidance issued by the commission was seen as paving the way for the launch of crypto perpetual contracts on U.S. platforms.

The U.S. Commodity Futures Trading Commission stated at the time that the lawsuit was "baseless."

Pre-IPO Pricing Experiment for SpaceX

Compared to oil contracts, contracts for private companies fill another type of market gap.

Companies like SpaceX do not have a continuously traded public stock price before going public, and their valuations are typically assessed based on different rounds of financing and secondary market transactions, which may be months apart.

The perpetual contracts launched by Trade.xyz and its competitors do not grant traders ownership of the related company's stock. Since these companies are not yet public, there are no public securities that can anchor the contract prices through direct arbitrage.

The role of these contracts is to publicly reflect traders' judgments about the company's value before it goes public.

So far, Trade.xyz's pre-IPO perpetual contracts have generally accurately predicted the opening performance of the related stocks. In several major stock listings this year, including SpaceX and SK Hynix, these contracts indicated in advance that the stock prices would be higher than the issue price set by the underwriting banks when trading officially began.

David Schamis, CEO of Hyperliquid Strategies, which focuses on accumulating Hyperliquid's native tokens, stated:

"A group of market participants who have never really seen the company's stock are actually closer to the actual results in their judgment of the opening price than the underwriting team that spent two weeks marketing the deal."

In a letter to Vanessa Countryman, Secretary of the U.S. Securities and Exchange Commission, on August 18, Trade.xyz and a lobbying group associated with Hyperliquid cited the previous performance of pre-IPO perpetual contracts, arguing that such products can provide public market signals before a company goes public, thereby improving the IPO pricing process.

High Leverage Amplifying Anomalous Volatility

The extremely high leverage has also quickly exposed problems in this emerging market.

In mid-June, just days after SpaceX stock began trading, a short squeeze occurred with the Trade.xyz perpetual contract linked to the Musk-owned rocket and satellite company, temporarily pushing its implied valuation to $30 trillion, surpassing that of Amazon or Microsoft at the time.

More than $50 million in short positions were automatically liquidated as a result.

About a month later, the same market mechanism caused the Trade.xyz perpetual contract linked to SK Hynix to experience unusually large reverse volatility.

After the contract dropped 20%, holders were forced to close nearly $60 million in long positions. Previously, SK Hynix stock had dropped 30% in pre-market trading. The cause of this drop was a single stock trade on the Nextrade market that executed at a suspiciously anomalous price.

Trade.xyz stated that it would compensate for losses caused by the abnormal price fluctuations of SK Hynix.

The platform stated, "In the future, we will further improve the pricing system to address extreme events."

Liquidity as a Competitive Barrier

To open a perpetual contract market on Hyperliquid, operators must stake 500,000 HYPE tokens, which is valued at approximately $39 million at current prices.

Some early entrants have already shut down their businesses. Meanwhile, new competitors supported by institutions like Multicoin Capital and Hyperion DeFi are targeting markets that Trade.xyz has not yet dominated.

The Hyperion-backed Skew plans to focus on developing "hard-to-replicate" pricing data. Hyperion CEO Hyunsu Jung stated that this will become the platform's differentiation direction.

However, Trade.xyz's liquidity remains a difficult barrier to overcome. This advantage comes from the platform's earlier launch of new markets and lower fee levels than its competitors.

Although Trade.xyz's perpetual contracts reached a total trading volume of $107 billion in July this year, data compiled by DefiLlama shows that its annualized revenue is only about $27 million at current levels.

Pratik Kala, portfolio manager at the digital asset hedge fund Apollo Crypto, stated:

"I wouldn't even look at other markets. The most important thing is liquidity, and the liquidity in other markets is very poor. If I want to place even a $500,000 order, the bid-ask spread will quickly widen."

Yadav stated that a potential risk arising from Trade.xyz's rapid development is the large-scale forced liquidations seen in perpetual contracts like those for SpaceX and SK Hynix, which could transmit to traditional markets in the future.

In the worst-case scenario, a market crash occurring over the weekend could put institutions holding traditional financial assets into an "asset-liability crisis."

She stated, "By Monday morning, do they still have enough funds to continue trading in traditional markets? That is the danger that could arise in the future."

In contrast, former ETF trader Walter Li is more concerned about missing trading opportunities while he sleeps.

He stated that he designed a monitoring system using ChatGPT to scan market activity on Trade.xyz. Whenever the activity of any 24/7 trading perpetual contract increases, the system sends him an alert.

"If you have the right monitoring system and really know what to look for, you don't need to sit at the trading desk all the time."