In the rapidly evolving world of cryptocurrencies, perpetual contracts have become one of the hottest—and most controversial—trading instruments of 2025. This unique type of derivative, which allows traders to hold leveraged positions indefinitely, has skyrocketed in usage across global markets. Its rise has been accompanied by both explosive profits for some investors and devastating losses for others, underlining the double-edged nature of leveraged products.
Just this past Monday, the markets experienced a dramatic shock when more than $1.5 billion in long positions were liquidated, sparking the sharpest flash crash seen in weeks. Bitcoin managed to rebound toward $114,000, but other assets such as Ethereum remained under intense selling pressure. Analysts have been quick to point out that perpetual contracts—rather than traditional spot trading—were largely responsible for amplifying the swings.
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What Exactly Are Perpetual Contracts?
Unlike traditional futures, which have an expiration date, perpetual futures contracts can be held indefinitely. Their price tracks the spot price of the underlying cryptocurrency, with no requirement to settle at a given time. To maintain alignment, exchanges implement a funding rate system—periodic payments between traders who are long and short, depending on whether the contract trades above or below the spot price.
This system, while elegant in theory, creates market dynamics that can heavily punish traders who are on the wrong side of sentiment. For instance, when bullish speculation pushes perpetual prices above spot, long traders must pay funding to shorts, gradually eroding their returns. Conversely, bearish markets may penalize short traders with recurring payments to longs.
As explained by Kaiko Research, funding rates have become a widely used market sentiment indicator, with persistent positive rates reflecting sustained bullishness and negative rates indicating prolonged bearish pressure.
U.S. Adoption: Coinbase and Cboe Enter the Arena
Coinbase’s leap into perps
One of the biggest breakthroughs for perpetual contracts in the U.S. came earlier in 2025, when Coinbase introduced CFTC-compliant perpetual futures for retail investors. The exchange initially launched nano Bitcoin and Ethereum perpetuals with up to 10x leverage, providing U.S. traders with access to products previously available only on offshore exchanges.
Coinbase framed the launch as part of its broader push to democratize derivatives trading under a regulated umbrella. The exchange noted that these contracts were designed to be capital-efficient while incorporating strict safeguards to reduce systemic risks.
Cboe’s “Continuous Futures”
Meanwhile, Cboe Global Markets announced it will roll out long-dated “Continuous Futures” for Bitcoin and Ether in November 2025. Structured as 10-year contracts with daily price adjustments, these instruments replicate perpetual behavior while remaining compliant with U.S. futures regulations.
Catherine Clay, Cboe’s Head of Global Derivatives, highlighted that the contracts were designed for efficiency and transparency, giving U.S. investors a safer way to access perpetual-style exposure without relying on offshore platforms.
Why Perps Are So Popular
Perpetual contracts are attractive for two main reasons: capital efficiency and round-the-clock liquidity.
With leverage, traders can amplify their exposure far beyond their actual capital. For example, a $500 margin deposit can control a $5,000 Bitcoin position at 10x leverage. If Bitcoin’s price increases modestly, the returns can double quickly. However, if the price dips slightly, the entire position can be liquidated.
The allure of rapid profits explains their popularity. According to Kaiko, perpetual contracts now account for about 68% of Bitcoin’s trading volume in 2025—a figure that has grown steadily as exchanges and traders alike embrace the instrument.
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Recent Market Events Highlight the Risks
In mid-September, more than $300 billion in value evaporated from the cryptocurrency market in just a few days. Analysts from the Economic Times attributed much of this to cascading liquidations in perpetual contracts.
Research from The Block further revealed that Ethereum perpetuals saw nearly $490 million in long positions wiped out during the downturn—almost double the size of Bitcoin’s liquidations. This demonstrates a shift in leveraged trading away from Bitcoin and toward altcoins like Ethereum, where traders perceive greater short-term upside.
Platforms Compete for Derivatives Dominance
Robinhood’s derivatives revenue boom
The lucrative nature of derivatives trading hasn’t gone unnoticed by mainstream brokerages. Robinhood reported that cryptocurrency and options trading accounted for nearly 80% of its total trading revenue in Q2 2025, compared to just 12% from equities. This pivot has propelled Robinhood’s stock higher and secured its inclusion in the S&P 500 Index.
Gemini’s aggressive leverage offerings
Meanwhile, Gemini has been offering perpetual contracts with leverage as high as 100x in offshore markets. While such extreme leverage is prohibited in the U.S., it underscores the appetite among some traders for maximum risk exposure.
Coinbase’s expansion
Coinbase’s Head of Trading, Scott Shapiro, has suggested the current 10x leverage cap may eventually rise, as demand from professional traders for more aggressive options increases. This highlights the tension between responsible regulation and the competitive need to attract volume.
Structural Risks of Perpetuals
- Volatility amplification – Leveraged perps exaggerate small price moves into major swings.
- Funding rate drag – Long-term traders can lose profitability to funding payments.
- Liquidity gaps – In stressed conditions, liquidating large perp positions can cause outsized market impact.
- Benchmark risks – Many perpetuals use price indices; opaque or manipulable benchmarks pose systemic risk.
- Regulatory shifts – Rules from the CFTC or SEC could change market dynamics overnight.
- Cascading liquidations – Margin calls can trigger feedback loops of forced selling, deepening downturns.
The September 2025 liquidations served as a stark reminder of how fragile these markets can be when leverage builds up unchecked.
Looking Ahead: What Traders and Investors Should Watch
- Adoption trends: Perpetuals may soon expand into tokens beyond BTC and ETH, such as Solana or XRP.
- Regulatory clarity: New frameworks from the CFTC and SEC could reshape leverage limits and market structures.
- Institutional involvement: Hedge funds and proprietary desks are increasingly active in perps as hedging and yield instruments.
- Benchmark evolution: Tools like Cboe Kaiko Rates may become central to aligning U.S. perps with international benchmarks.
- Funding patterns: Tracking divergences between open interest and funding rates remains key to identifying systemic stress.
Conclusion
Perpetual contracts have become one of the defining features of crypto trading in 2025. Their popularity stems from the promise of capital efficiency and leveraged profits, but their dangers are equally pronounced. The recent $1.5 billion in liquidations and multi-hundred-billion-dollar market crashes illustrate just how destabilizing these instruments can be when trading sentiment shifts suddenly.
With Coinbase pioneering CFTC-compliant perpetuals and Cboe introducing continuous futures, the U.S. market is finally catching up to global trends. Meanwhile, platforms like Robinhood and Gemini show how profitable these products can be for exchanges. The question now is whether regulation and responsible design can tame the risks—or whether perpetual contracts will continue to fuel the very volatility that makes them so appealing.
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By: Montel Kamau
Serrari Financial Analyst
2nd October, 2025
