[Week 36 of 2026] Perp

Welcome back to Price and Prejudice with a few musings from Week 36 of 2026.

Perpetual Exposures

When you buy a stock, you are essentially buying a claim on cash flows with no maturity date. This is an important distinction relative to bonds, which usually feature a maturity date with a few exceptions. Another category of assets that come with expiry dates are derivatives – futures, options, and swaps – which begs the question of why derivatives should have a shorter life when the underlying thing it tracks does not.

Perpetual futures are the answer to this question – they are assets that let you bet on the future price of an asset (i) without ever actually owning it and (ii) not worrying about the contract expiration. The idea is often credited to Robert Shiller's proposal in 1993 to create cash-settled markets that never mature. More recently in May 2026, the CFTC approved Kalshi's bitcoin perpetual future, and in June its staff let exchanges convert existing futures into perpetuals by removing the expiration date. Usually these regulatory approvals herald the mainstream-ification of an initially obscure product, and it looks like this case is no exception.

A normal futures contract is tethered to the spot price by its expiry date. In other words, at expiration, the future becomes the asset and the two prices must meet. A perpetual future (with the unfortunate nickname of "perp"), on the other hand, never expires, so by construction there is no convergence. But you still want the P&L of the futures contract to track the underlying, since this exposure is at the heart of the demand for such products.

To solve this issue, the design for perpetual futures effectively replaces the "boundary condition" in a normal futures contract with a "flow condition." Basically, if the perpetual future trades above the spot, long pay shorts in proportion to the gap, and if it trades below, shorts pay longs. It's important to note that this is not a fee to the exchange but simply a transfer between the two parties, which makes the crowded side expensive to hold and pays arbitrageurs to lean against the gap. So mispricing isn't corrected at a date but rather taxed continuously.

From an arbitrageur's perspective, who wants to profit off of potential gap in prices between the future and the spot, this is actually risky business. There's no date at which convergence is guaranteed, so the trade only pays if the gap closes or the funding accrues long enough. In a recent paper, this is formalized as what they refer to as "random-maturity arbitrage," who show that the price of the perpetual future ends up being a weighted average of expected future spot prices, with the weights set by how aggressive the funding is.

None of the mechanics described above is crypto-specific. Coinbase lists stock perpetual futures on the Magnificent 7 for non-US traders, the S&P 500 has been licensed for a perpetual on Hyperliquid, and Kalshi has filed for a US large-cap index perpetual future. Why would anyone want a stock perp when the stock itself is a click away? The obvious answer is access (especially from offshore), and probably better access to leverage (through the crypto pools) if you want to be more speculative.

The other answer is that synthetic exposure has always been how sophisticated money strips ownership of its legal attachments. For example, hedge funds ran this trade through total return swaps for decades, collecting the return on a stock while shedding dividend withholding and avoiding disclosure, until regulators caught up with rules like 871(m). A stock perpetual future on an offshore or on-chain venue is effectively the same trade minus the swap desk. And since there is often no intermediary left to file the paperwork (and to go after), it's probably a bigger headache for the regulators as well.

Other Stuff This Week

• 30-year yields have been on the rise, i.e. 30-year treasury bond prices have been falling. From what I can tell there has been various interpretations to it, including the role of AI in driving long-term rates and how this is signalling higher growth going forward.
• This WSJ article highlights another tax-saving hack using life insurance. As with many things, opportunities open up if you're wealthier, but the cost savings from these opportunities also make more sense if you have enough wealth to compensate for the fixed cost.