The Kraken ecosystem plans to issue perpetual bonds in accordance with US regulations
Payward, Kraken's parent company, plans to roll out on-chain perpetual futures contracts to US customers on its Hyperliquid platform, with Bitnomial acting as the HIP-3 implementer.
10/27/20263 min read
The project is part of the Kraken ecosystem.
Bitnomial Exchange, LLC is a designated and regulated contract market by the CFTC, while Bitnomial Clearinghouse, LLC is a derivatives clearing organization registered with the CFTC. Under the proposed agreement, Bitnomial would be the HIP-3 implementer, meaning they would create, own, and manage the market, as well as clear and settle contracts. NinjaTrader Clearing, LLC, a registered futures broker and member of the NFA, would manage client accounts. Payward provides distribution services, with 6.6 million funded accounts as of June 30.
Transactions will be matched and recorded on Hyperliquid's on-chain order book, and only accounts accepted by NinjaTrader and included in both NinjaTrader and Bitnomial's permission lists will be able to trade. That last condition is what makes HIP-3 a suitable mechanism, as it provides licensed markets implemented by the developer, rather than the open access offered by the rest of the exchange. Arjun Sethi's wording in the announcement is an honest description of what is being done: Payward intends to be the pioneer, holding the key and bearing the legal obligations.
The difficult part isn't the licensing issue.
Operating a licensed marketplace on a licenseless chain is fairly straightforward at the order matching layer. The difficulty lies in all the functions that a DCM and DCO must perform, which blockchain doesn't provide readily.
A designated contract market (DCM) has oversight obligations including manipulation, money laundering, and position limits, and it must be able to act on what it detects. A clearinghouse must manage margin, default, and liquidation according to rules it can enforce, which on a public chain means the liquidation logic resides in the code that the clearinghouse must be able to secure before its regulators. If the chain stops, the DCM has an obligation that its infrastructure cannot fulfill. If an oracle misprices, the DCO must be responsible for the resulting margin calls. None of these issues are insurmountable, and all are novel in that no regulator has previously approved a solution.
This is precisely the question Hyperliquid raised in its proposal that the SEC and CFTC should harmonize perpetual contract regulation based on economic structure rather than transaction type. Payward is currently testing a similar question in practice, with named registered entities linking their licenses to results.
Why a perpetual contract, and why at this particular time?
Perpetual futures contracts are the dominant cryptocurrency derivative product globally and are largely unavailable to individual investors in the US, which is why trading volume is concentrated overseas and on Hyperliquid, an exchange that DefiLlama notes has seen over $200 billion in trading volume in the last 30 days. The US-regulated product has been a clear gap for years, and the obstacle is that perpetual contracts have no expiration date, which doesn't fit the definition of futures contracts on which the CEA is built.
The Commodity Futures Trading Commission (CFTC), under the leadership of Chairman Selig, has signaled its intention to change the market structure through rules or legislation, and an application of this kind is compelling the issue to be addressed. Approval would mean accepting a public blockchain as the infrastructure for the derivatives market. Rejection would maintain current trading volumes.
Assessment and Conclusion
The announcement doesn't give a launch date, doesn't name specific contracts, and doesn't list specific approvals, which is consistent with a problem at this stage and also means there's less information than the headline suggests. Three things will make it happen. Bitnomial will need to submit the contract terms to its DCM regulations and ensure they are approved. The custodial and default risk management agreements need to be described in a way that regulators will accept, and that description is entirely new documentation in this process. And the listing mechanism needs to function without fragmenting liquidity so excessively that the price of the licensed market is worse than the open market next door, a commercial risk that no one has yet addressed.
If adopted, the model Calvin Leyon describes as scalable across multiple products and markets would be exactly that, and the advantages of offshore trading locations would narrow considerably. If stalled, it would be stalled in clearing issues rather than trading issues.
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Compiled and analyzed by HCCVenture
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