The $500 billion experiment to build 24/7 markets on blockchain

When the US and Israel launched their aerial assault on Iran on the last Saturday of February, the world's main oil markets were closed. The price of crude kept moving anyway. 

On Trade.xyz, a little-known market built on top of crypto exchange Hyperliquid, speculators bought and sold a blockchain-based oil derivative through the weekend. By the time conventional futures reopened, traders had already spent hours putting a price on the conflict's impact.

  Modern finance spent decades building markets around a common architecture: recognized venues, set trading hours and benchmark prices that anchored everyone else. Crypto has broken from that convention. Its markets run continuously, cross borders easily and are increasingly filling the gaps that traditional exchanges leave blank.

 

  Trade.xyz is one of the clearest tests of how far that break can go. Run by a team of about a dozen, the startup has spent less than a year creating perpetual futures tied to crude oil, precious metals, stock indexes and companies about to go public, including SpaceX. Since launching in October, those markets have already generated some $500 billion in trading volume and account for more than 99% of activity across Hyperliquid's third-party market system, known as HIP-3.

  That success has emboldened Trade.xyz and Hyperliquid to chase a more ambitious goal. They're lobbying regulators to open the door to pre-IPO perps in the US, where they say the instruments could help modernize the traditional process for initial public offerings by improving price discovery. Hyperliquid operates outside the US and isn't officially open to American traders. Trade.xyz is subject to the same restrictions. 

  Hyperliquid - and by extension, Trade.xyz - appear to have already won over one crucial ally. President Donald Trump, an industry advocate whose family has wide-ranging interests in crypto, last week said regulators are working to bring Hyperliquid into the country. 

  Unlike traditional futures contracts, which settle on a fixed date, perps never expire. Investors can hold positions indefinitely without rolling from one contract into another. The instruments can also carry extraordinary leverage. Some platforms allow investors to borrow $100 for every $1 invested.

  There's "always a bull market" somewhere, said Walter Li, a former exchange-traded fund trader at the Royal Bank of Canada who now runs his own book, much of it through Trade.xyz markets. If a hot asset class isn't already on a blockchain, Trade.xyz can create a market for it, he added. 

  A Bloomberg News analysis of Trade.xyz contracts during the US-Iran conflict found they broadly tracked traditional oil prices during less volatile stretches and gave a live reading of sentiment while conventional markets were shut.

  During some of the conflict's most volatile periods, however, moves were smaller than those that followed when established markets reopened. Trade.xyz uses so-called "discovery bounds" to dampen extreme moves during such periods, and over time, those limits have been widened. Their purpose is "to allow for price discovery while also preventing manipulation" over the weekends, a spokesperson for the platform said.

  The weekend contracts draw on a different pool of participants and liquidity from the traditional crude futures markets they are being compared with. Professional oil traders said they watch them as a sentiment proxy, not necessarily as forecasts of where Brent or West Texas Intermediate will reopen.

  Trade.xyz is the work of Unit Labs, whose team operates largely under pseudonyms. The firm raised money from venture capital firm Paradigm a little over a year ago, according to people familiar with the matter. Spokespeople for Unit Labs and Paradigm declined to comment on the deal. 

  The platform's reach now extends well into traditional finance. In March, Trade.xyz and S&P Global Inc. unveiled what they described as the first officially licensed perpetual contract tied to the S&P 500. The product has about $450 million in open interest. Trade.xyz also offers a contract that tracks the Nasdaq 100. 

  The largest HIP-3 markets - all developed by Trade.xyz - are those tied to the S&P 500, SK Hynix Inc. shares and gold, with combined open interest of about $1.2 billion. 

  Challenge for Regulators

  While perpetual futures tied to assets like stocks existed before Hyperliquid introduced the HIP-3 system, the change has turbocharged the shift toward all-hours activity dispersed across the globe. 

  Wall Street watchdogs accustomed to trading that's confined to the working week now "must face up to the potential for liquidity to migrate and for price discovery to occur offshore, especially during off-hours," said Yesha Yadav, a professor at Vanderbilt Law School who focuses on digital assets. 

  Collins Belton, Unit Labs's chief operating officer and general counsel, told an industry conference in July that the nascent sector is dealing with a "very willing" administration. Belton had "expected more concern" from institutions and regulators, he said. 

  That has put regulators at odds with CME Group Inc., the world's largest derivatives marketplace. In June, CME sued the Commodity Futures Trading Commission and Chairman Michael Selig over guidance seen as paving the way for US platforms to launch crypto perpetual futures. 

  In a statement at the time, the CFTC called the lawsuit "frivolous."

  Private-company contracts fill a different gap to those tracking oil. Companies such as SpaceX have no continuously traded share price before they list, and their valuations are pieced together from funding rounds and secondary transactions that can be months apart.

  Tracking SpaceX

  Perpetual contracts from Trade.xyz and its rivals convey no ownership of the underlying shares, and no public security exists to anchor them through direct arbitrage. Instead, they provide a public indication of how traders value the companies before they debut.

  So far, Trade.xyz's pre-IPO perps have given a largely accurate signal of where shares will open. In several major stock market debuts this year - including SpaceX and SK Hynix - the contracts correctly indicated that the shares would start trading above where the banks managing the deals priced them.  

  "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 Hyperliquid Strategies Inc. Chief Executive Officer David Schamis, whose firm focuses on accumulating Hyperliquid's native token.  

  In an Aug. 18 letter to Securities and Exchange Commission Secretary Vanessa Countryman, Trade.xyz and a lobby group associated with Hyperliquid cited the early record of pre-IPO perps to argue that they could help improve the IPO process by providing a public market signal ahead of a listing.

  Hyperliquid was co-founded by Jeff Yan, a former trader at Hudson River Trading. The main developer of the platform, Hyperliquid Labs, is based in Singapore.

  The use of sky-high leverage has contributed to some early hiccups. In mid-June, a few days after SpaceX shares began trading, a short squeeze in Trade.xyz perps linked to Elon Musk's rocket and satellite company sent its implied valuation to $3 trillion - more than Amazon.com Inc. or Microsoft Corp. at the time. Over $50 million of short positions in the perps were automatically liquidated. 

  About a month later, the same mechanics triggered an outsize move in the opposite direction for a Trade.xyz perp tied to SK Hynix. Holders were forced to close nearly $60 million in long positions after the contract fell 20%. 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 said it would cover losses caused by the "anomalous" portion of the SK Hynix move. "Going forward, our pricing systems will be further improved to handle tail events," it said. 

  Liquidity Moat

  To open a perps market on top of Hyperliquid, operators must stake 500,000 HYPE tokens, worth about $39 million at current prices. Several early entrants have shuttered, while newer rivals backed by firms including Multicoin Capital and Hyperion DeFi Inc. are targeting markets Trade.xyz does not already dominate. Hyperion-backed Skew plans to focus on pricing data "not so easy to emulate," said Hyperion CEO Hyunsu Jung.

  Trade.xyz's liquidity - itself a result of being early to introduce new markets and charging less than competitors - remains a formidable barrier. Even though total trading in Trade.xyz perps reached $107 billion in July, data compiled by DefiLlama indicate an annualized revenue run-rate of just $27 million. 

  "I don't even look at the other markets," said Pratik Kala, a portfolio manager at digital-asset hedge fund Apollo Crypto who trades Trade.xyz contracts. "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 like those in perps tied to SpaceX and SK Hynix could cascade into traditional markets, said Yadav. In the nightmare scenario, a weekend blowup could throw an entity with holdings in regular markets into "a balance sheet crisis," she said. 

  "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, is more worried about missing opportunities while asleep. He said he uses monitoring systems designed with the help of ChatGPT to scan Trade.xyz and send alerts when activity picks up in any of the various perps that now trade all day, every day. 

  "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.