Inside the CME and CFTC’s battle over onchain perpetual futures

It’s highly unusual for the largest derivatives exchange operator in the U.S., the CME Group, to be at war with its regulator, the Commodity Futures Trading Commission (CFTC) — but that's now happening in a situation brought about by the agency's decision to allow blockchain-based perpetual future products.

Last month, the CME sued the ​CFTC and its chairman, Mike Selig, challenging his decision to let ‌the prediction markets platform Kalshi and cryptocurrency exchange Coinbase (COIN) list crypto perps, decentralized derivative contracts that allow users to speculate on the price of an asset with leverage and no expiration date.

Now, both sides await federal court action that could have significant influence on how the U.S. approaches the rapidly growing arena, with non-U.S. perps volume reportedly growing to $60 trillion in volume last year.

CME claims the agency is mislabeling the products, and therefore misapplying the law. Futures need an end date, and the products known as perps are designed for traders to be able to take a financial position on an asset's future without any deadlines. The lawsuit argues these perps are harmful to its long-dated futures products and alleges that the CFTC's sudden embrace of them did not consider the ramifications.

Mounting tension between the two entities ramped up around the start of Iran conflict, which saw interest spike in perpetual contracts on oil prices traded 24/7 on off-shore decentralized finance (DeFi) exchanges like Hyperliquid, as well as blockchain prediction markets hosting trades tied to the oil markets.

Those on the side of the CFTC’s reforming agenda in this highly politicized schism are voicing frustration, if not outrage.

“It is unbelievably unusual to see the largest exchange in America attacking its own regulator, where the regulator is basically saying everybody who's registered, including the CME, can offer these types of products, and the CME says no one should be allowed to offer them,” said Jake Chervinsky, CEO of Hyperliquid Policy Center (HPC) in an interview.

HPC is a Washington, D.C.-based a Washington, D.C.-based nonprofit advocating for a lawful U.S. path to onchain markets. It is backed by a $28 million initiative from the Hyper Foundation.

Not long after CME filed suit, this disagreement took another turn, when the exchange made a bid to fast-track 24/7 trading for crude oil futures but was blocked by the CFTC. CME Group's attempted 24/7 West Texas Intermediate (WTI) crude oil contract is a traditional expiring futures product rather than a crypto-style perpetual swap. The CME had cited investors’ desire to manage their positions “whenever news breaks.”

Representatives of the CFTC declined to comment. At the time, CFTC Chair Mike Selig said on X that "CME's decision to disregard the Commission's effort to undertake a reasoned analysis of the critical issues at stake is wholly inappropriate."

CME, which played a significant role in getting bitcoin futures listed and was helpful in getting crypto accepted and adopted in the U.S., has a deep influence over commodities that the exchange has successfully wielded in Washington D.C. over the years, thanks in large part to its outspoken chairman, Terry Duffy.

"The definition of a swap is pretty clear," he said in an interview with CoinDesk. "When two parties exchange payments to each other, that is deemed a swap," he said. “When you're dealing in swaps contracts, that comes with obligations to maintain five-day margin and register with the CFTC as a participant in the swaps market.”