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Chapter 1: What does the approval of the first U.S.-regulated Bitcoin perpetual futures contract mean?
But we're excited to make sure that the new frontier finance is built here in the US. And that means new products, new services, new platforms. And we can't fear that. We have to embrace it and come up with a pathway for it. Because in my view, if we erect barriers, if we push this activity offshore, it will go offshore.
And it's not going to benefit the American people because they're going to go use a VPN and access it anyway. And they have none of the protections. So if we can come up with a path for the United States, we'll do it. And we're going to certainly work on it.
Bankless Nation, I am once again joined by Mike Selig. He is the CFTC chairman back on Bankless. Mike, great to have you. Glad to be here. Two weeks ago, the CFTC announced the order for approval to CalSheetX for the listing of the BTC Perp contract. This is a pretty big landmark for the perpetual as an instrument.
Chapter 2: How is the CFTC changing its approach to crypto regulation?
It's also the first onshore US Bitcoin perpetual futures contract. from a CFTC registered exchange. At the same time, the CFTC also gave Coinbase a no action letter, allowing them to pipe their customers to Deribit in order to access futures options and perps on Coinbase access through Deribit. Pretty landmark approval. Mike, are we about to see more of these?
Is the CFTC opening up the gate for onshore perps? What can we expect as an industry or people who are just interested in the perpetual future instruments?
Well, thanks for having me on the show. And this is really, as you say, a watershed moment, a pivotal moment, where we've turned the tide on the years of regulation by enforcement, a lack of clear rules, kind of this offshoring, pushing things out of the country. And we want it to be here in the United States. We want the industry to survive, to thrive, and to build here in the U.S.
And part of that means having a futures market, having perpetual contracts that are tradable on U.S. exchanges, under U.S. regulation, on U.S.
Chapter 3: What implications does bringing liquidity onshore have for U.S. exchanges?
soil, and not something that you have to go use a VPN to be able to figure out how to trade. So that starts with exchanges like Kalshi, exchanges like Coinbase, and there's a long list of others who will be launching the product soon.
We started off with this initial order for a Bitcoin perpetual contract that was listed on Kalshi's exchange, and we also approved the ability to access through Coinbase's broker offshore perpetual contracts. And all of these are regulated products. And that's really the theme here. This administration cares about regulation, but we also care about innovation.
So we are opening the doors to new products. And we think this is the beginning. It's certainly not the end. There's many more crypto and other types of products that people want to offer here in the U.S. that for so long have existed only offshore. So this is the beginning and not the end for sure.
The beginning and not the end. And I think that's why people in my neck of the woods are just so excited. Perps as an instrument, as perps platforms, incredibly successful as an adoption metric.
Chapter 4: How does blockchain transparency impact the new U.S. perp market?
So like just the adoption of the perp has gone incredibly well. And perps platforms are just generating some of the greatest profits out of crypto that we've seen. And so this is why people are excited. First, we can start with Bitcoin, but we have a whole industry of assets that we would like to maybe in the same way that we had the ETFs.
You know, first we started with Bitcoin and then Ether came and then there are even more ETFs. Is that something that's going to happen with perps as well?
Well, one important point is just in the week since we saw the green lighting of the Bitcoin perpetual contract, we've now seen a number of products self-certified as perpetual contracts in the digital commodity world. So we break down at the SEC and CFTC crypto assets using clear rules, unlike the last administration, uh, the, the crypto assets in the category.
So we have digital commodities and these are assets that derive their value from a network or a protocol or an application, things like Bitcoin, Ethereum, Solana, uh, Uniswaps token, these types of tokens that derive value from a, from a network or product or application, uh,
all of those products with certain requirements around the product being listed, the products have to have a ready market, have to be not readily susceptible to manipulation, and so on and so forth. But provided that the contract meets our requirements, those can be self-certified. That means that the exchange can list those products without having to ask for permission first.
They can essentially submit them and we...
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Chapter 5: What are the potential assets for future perpetual contracts in the U.S.?
We can reject the contract if we believe there's an issue with our regulations, but they can be listed fairly easily. So we've seen a number of those be listed in the past week. We expect to see more in the future. But then moving into other categories, digital collectibles, for example, meme coins, those sorts of assets, we would expect a process with the staff.
We want those to go through a full approval with the CFTC agency. and then moving into things beyond crypto, equities, which we can certainly get into, metals, other types of products. We would not be expecting those to be listed right away. There would be a process with the staff, but we're interested to engage with the exchanges on listing new products.
So there are some crypto assets that are being given clarity by Clarity. And I think what I heard from you just now is those assets that have already kind of gone through the legislative process are able to be self-certified by CFTC approved platforms already. And this is just kind of how this goes.
And so if you are a CFTC compliant exchange, you can self-certify given the asset itself has already been given some sort of approval, Clarity through Clarity Act.
Did I hear that correctly? Well, it's not the Clarity Act itself. So a couple months ago, or maybe even three or four months ago now, Chairman Atkins and I came together, worked together on an interpretation that divided up crypto assets into categories.
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Chapter 6: How will U.S. leverage differ from offshore exchanges?
And so we have crypto assets that are digital commodities, digital collectibles, digital tools, things like liquid staking receipts, digital securities, tokenized stocks, and all of that, and stable coins. And so this perpetual order that we granted allows for self-certification of crypto assets in the digital commodities category.
And then beyond that, whether it's in crypto or in stocks or anything else, we would expect a process with the staff, but the staff's ready to engage on other asset classes as well.
I see. Okay, so like the big assets, the ones that are commonly found to be the layer one native assets, Bitcoin, Ether, Solana, one could imagine as well, are all in that category that you just said of just like it's going to be, exchanges are going to be able to self-certify.
And then as we maybe get a little bit further into more of the newer or more exotic assets in the crypto industry, that is a little bit of facts and circumstances about the nature of those things.
That's absolutely right. And we have seen, I think there's about 17 other assets beyond Bitcoin that we saw self-certified by exchanges or in the process of being self-certified in the past week.
What are these exchanges? Because there is a bit of a gold rush for the United States perps market that players are just chomping on the bit. Like Coinbase, Robinhood, Kraken, OKEx, they all have United States entities that they want to offer perps for.
We have the prediction market platforms, Kalshi, which you guys gave the Bitcoin perp contract for originally, but also Polymarket was in this game as well. But then we also have some of the more crypto native on chain platforms like Hyperliquid, Lighter, a few of the other ones. So many players want access to this in the United States purpose market.
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Chapter 7: What challenges do incumbents face against disruptors in the perp market?
How do you guys delineate between the different nature of all these platforms?
We're working with virtually all of these platforms. So Coinbase and Kalshu were the first two to launch. But we also have Bitnomio that's had a perpetual style contract for some time now. It's not a true perpetual. You can probably expect them to move in the same direction as well as other exchanges.
I believe Kraken and Gemini, which Kraken actually owns, Bitnomio, believe they've made announcements on social media. So there's many others that are looking to offer the product and we're excited to work with these different exchanges.
And then when you get into the on-chain space, many of the considerations around on-chain products are different, but we're certainly engaging with these protocol developers and firms to help get on-chain markets to the U.S. as well.
As you would expect, the perp market has grown offshore and now we're seeing it come onshore. Is the goal to get all of it onshore or how do you expect the equilibrium to kind of settle out between some offshore markets will remain offshore? Or, you know, Chairman Mike Selig, is it your job as the chairman of the CFTC to like get everything onshore as much as possible?
Well, look, I think my goal as the chairman is to get everything within a regulated market structure here in the U.S. So to the extent that the product exists offshore and it's something that there's interest in in the United States, we want to bring it here.
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Chapter 8: Why are real-world asset perps gaining traction over crypto perps?
We want the volume. We want the liquidity. We want that ability to engage in productive economic activity here in the United States. But we have to protect investors. We have to make sure customer funds are safe. I do not want another FTX to happen. And I will add on that point, the CFTC regulated FTX entity was the only one that was safe, that protected customer funds.
And so regulation works well. This administration believes in regulation, but also in innovation. And so... whether it's crypto, AI, prediction markets, new derivatives like perpetuals. We want it here in the US, but we're going to set guardrails around it. And those guardrails, we believe, will be best in class, the gold standard we expect other countries to follow. But we are going to lead.
We are going to make sure the United States is a leader in innovation.
How will the perps inside the United States work different than what is typically found offshore? So what are those guardrails that will just kind of change the nature of the perp found in the compliant U.S. market versus what may be found elsewhere?
One important consideration is that each of our exchanges is CFTC registered. It has to offer a rulebook. It has to comply with certain core principles that are laid out in our statute. It's overseen by the CFTC. We examine each of these exchanges and then also the clearinghouse. So each Contract is run through a central counterparty clearinghouse.
That means that there are certain controls that protect customer funds. Oftentimes, you're using a broker to access the clearinghouse, to access the exchange. You're not going direct to the market, but we are starting to see many exchanges offer direct access, which we also think is a valuable thing for our markets. We like competition. We like optionality.
So there's a wide range of regulations that apply here in the U.S. to these platforms relative to, say, something on-chain that doesn't have a regulator. We also, of course, approve contracts for listing. So each contract has to not be readily susceptible to manipulation. I mentioned that some of these go through a self-certification process, which means that we don't have to individually approve
approve each one, but we have the ability to reject when something's submitted for listing. So that's very important. Leverage is a big issue. So leverage offshore, you see 250x, sometimes beyond that even. In the United States, we've seen more 5 to 7x range, sometimes getting up to 10x. Some products like the S&P products moving outside of crypto have a higher leverage.
But all this is based on certain parameters that are set by our regulations. And we work with the clearinghouses and with the exchanges on getting right. So for Bitcoin perpetuals and some of these products, expect to see five to seven, maybe getting up to 10x leverage, but nothing like you're getting offshore. And that's helpful for investors. That does protect customer funds.
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