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

Translation: Jiahua, ChainCatcher

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

On Trade.xyz, built on the crypto trading platform Hyperliquid, traders were buying and selling a chain-linked 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 serve other markets. The crypto market has broken this norm. It can operate around the clock, easily cross borders, and is increasingly filling the gaps left by traditional exchanges during 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 but has launched perpetual contracts linked to crude oil, precious metals, stock indices, and pre-IPO companies like SpaceX in less than a year. Since its launch in October last year, these markets have produced approximately $500 billion in trading volume, accounting for more than 99% of the total trading activity of Hyperliquid's third-party market system HIP-3.

This achievement has prompted Trade.xyz and Hyperliquid to pursue larger goals. They are lobbying U.S. regulators to allow pre-IPO perpetual contracts into the U.S. market, asserting that such products can facilitate more comprehensive price discovery before a company's official listing, thereby modernizing the traditional IPO process.

Currently, Hyperliquid operates outside the U.S. and is not officially open to U.S. traders, and Trade.xyz is likewise subject to this restriction.

However, Hyperliquid seems to have gained 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 into 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 expiring 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 a personal trading portfolio through Trade.xyz, stated that "there is always some place in the market that is in a bull market."

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

An analysis by Bloomberg of Trade.xyz contracts during the U.S.-Iran conflict shows that during relatively mild phases of volatility, these contracts largely 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 tumultuous periods of the conflict, the price movements of Trade.xyz contracts were less than the fluctuations seen in traditional markets after trading resumed.

Trade.xyz uses a mechanism called price discovery boundaries to limit extreme price changes during periods of significant market volatility. 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 during weekend markets.

The participants and sources of liquidity for these weekend contracts differ from the traditional crude oil futures market used as a reference. 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 oil.

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

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

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

The largest markets in HIP-3 have all been developed by Trade.xyz, each linked to the S&P 500 index, SK Hynix stock, and gold, with a combined open contract value of approximately $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 greatly accelerated the market's shift toward global distribution and 24/7 trading.

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

Collins Belton, Chief Operating Officer and General Counsel of Unit Labs, stated at a July industry conference that this emerging field is facing a "very supportive" government. He initially expected that institutions and regulators would express more concerns.

This has also led to a conflict between regulators and the world’s largest derivatives exchange, CME Group.

In June this year, CME sued the U.S. Commodity Futures Trading Commission and its chairman Michael Selig, citing 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 released a statement at the time declaring that the lawsuit was "baseless."

Pre-IPO Pricing Experiments 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 usually determined based on various rounds of financing and secondary market trades, which may be months apart.

The perpetual contracts launched by Trade.xyz and its competitors do not grant traders ownership of shares in the relevant companies. Since these companies have not yet gone public, there are no public securities to anchor contract prices through direct arbitrage.

The role of these contracts is to publicly reflect traders' assessments of a company's value before it goes public.

So far, Trade.xyz's pre-IPO perpetual contracts have generally predicted the opening performance of relevant stocks accurately. In several large stock listings this year, including SpaceX and SK Hynix, these contracts showed in advance that the prices at which stocks began formal trading would be above the issue price set by the underwriting banks.

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 stock of this company are, in their judgment of the opening price, actually closer to the real result than the underwriters who 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, along with a lobbying group related to Hyperliquid, cited the previous performance of pre-IPO perpetual contracts, arguing that such products can provide public market signals before a company's listing, thereby improving the IPO pricing process.

High Leverage Amplifies Anomalous Volatility

Extremely high leverage has also caused this emerging market to quickly expose issues.

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

This resulted in the forced liquidation of short positions exceeding $50 million.

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

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

Trade.xyz stated it will compensate for losses incurred due to the anomalous price fluctuations of SK Hynix.

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

Liquidity Becomes a Competitive Barrier

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

Some early entrants have already closed their businesses. Meanwhile, new competitors supported by organizations 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 "pricing data that is hard to replicate." Hyperion CEO Hyunsu Jung stated that this will become the platform's differentiation direction.

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

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

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

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

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

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

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

In contrast, former ETF trader Walter Li is more worried 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 level of any 24/7 trading perpetual contract rises, the system sends him an alert.

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

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