I remember the summer of 2017, when I sat in a dimly lit room at UCL, auditing 15 ICO whitepapers. The language was always the same: “decentralized governance,” “trustless consensus,” “paradigm shift.” But beneath the surface, the code told a different story—tokenomics designed to enrich founders, smart contracts with hidden backdoors, and a collective blindness to the fact that technology without ethical guardrails is just a faster way to redistribute wealth upward. Today, reading Kalshi’s filing for stock index perpetuals, I feel that same chill. Not because Kalshi is a scam—it is a legitimate, CFTC-regulated exchange—but because the narrative of “regulated innovation” is once again masking the structural risks of centralization, third-party dependency, and the quiet erosion of the very principles that made this space meaningful.
From the chaos of 2017, we forged a compass. That compass points toward transparency, autonomy, and the conviction that financial infrastructure should be built on open, verifiable foundations—not on the goodwill of regulators or the durability of a single company’s server room. Kalshi’s story is a microcosm of the broader tension between crypto’s original promise and the gravitational pull of institutional adoption. It is a story that demands we ask, not whether a product is profitable, but whether it is true to the values we claim to defend.
Hook: The Filing That Shook the Incumbents
On August 18, 2025, Kalshi—a platform that started as a prediction market for election outcomes—filed an application with the Commodity Futures Trading Commission (CFTC) to list perpetual futures contracts tracking the MerQube US Large Cap Index (ticker US500). If approved, this would mark the first time a regulated exchange in the United States offers a 24/7, no-expiration derivatives product on a broad stock index. The reaction was immediate and predictable. CME Group, the colossus of traditional futures, responded by suing the CFTC, arguing that the approval of Kalshi’s crypto perpetuals in May 2025—and by extension, this new application—oversteps the regulator’s authority and encroaches on CME’s established market for index futures. Meanwhile, Cboe Global Markets issued a statement expressing “concern” about the product’s potential to destabilize existing market structures. Yet, on the day of the announcement, CME stock rose 1.26% and Cboe 0.12%. The market shrugged. But I did not.
This is the kind of event that reveals the fault lines of our industry: a clash between a nimble, crypto-native insurgent and the lumbering giants of traditional finance, fought not with code but with lawsuits and regulatory filings. It is a story about product innovation, yes, but also about the deeper question of what “trust” means in a decentralized world. Trust is not a metric; it is a memory we share. And the memory of 2017—the ICO boom, the crash, the regulatory backlash—should make us pause before we embrace Kalshi’s perpetuals as the next great leap forward.
Context: From Prediction Markets to Perpetual Futures
Kalshi was founded in 2018 by a team of ex-Google and ex-CFTC staffers, aiming to create a regulated platform for event-based trading. Users could bet on everything from election outcomes to hurricane landfalls, all under the watchful eye of the CFTC. The platform grew slowly but steadily, building a base of retail traders who appreciated the simplicity and compliance. Then, in May 2025, Kalshi received approval to list perpetual futures on cryptocurrencies—Bitcoin and Ethereum—and launched them in June. The product was an instant success: within the first week, nominal trading volume exceeded $1 billion. Emboldened, Kalshi quickly filed for perpetuals on gold, silver, copper, and now the US500 index.
Perpetual futures, or “perps,” are a derivative mechanism that originated in the crypto market. Unlike traditional futures, which have an expiration date, perps trade indefinitely. They maintain a price close to the underlying asset through a funding rate mechanism: long positions pay short positions (or vice versa) every few hours, depending on the deviation from the spot price. This design eliminates the need for rolling contracts and allows for continuous, 24/7 trading. Kalshi’s version is not a smart contract; it is a centralized order book operated by the exchange, with margin requirements, liquidation engines, and a clearinghouse—all under CFTC jurisdiction.
The core innovation here is not technological; it is regulatory. Kalshi has taken a mechanism proven in the unregulated crypto world and wrapped it in the legitimacy of a U.S. federal regulator. The product is a “perpetual future” in name, but in practice it functions like a contract for difference (CFD), which is generally prohibited in the United States for retail investors. By calling it a future, Kalshi navigates a legal loophole that allows the CFTC to approve it under its authority over commodity derivatives. This is legal engineering, not code engineering.
Core: The Technical Reality Behind the Headlines
Let me be clear: I am not dismissing Kalshi’s achievement. Building a regulated perpetual platform that processed $1 billion in a week is no small feat. It requires a robust matching engine, a real-time risk management system, and a reliable data feed. But as someone who has spent the last decade auditing blockchain protocols and designing cryptographic verification mechanisms, I see several technical vulnerabilities that the euphoria of the bull market is likely ignoring.
First, the reliance on a third-party index provider. The US500 contract tracks the MerQube US Large Cap Index. MerQube is a private company that provides bespoke indices for financial products. If MerQube’s data feed is disrupted—due to a technical failure, a cyberattack, or a contractual dispute—Kalshi’s perpetuals would have no reliable price reference. The funding rate mechanism, which depends on continuous price feeds, would break. In a decentralized protocol, we could fork the data or use a decentralized oracle network. Here, Kalshi would have to halt trading or revert to manual pricing, opening the door to manipulation and legal liability. This is not a hypothetical risk; it is a structural dependency that centralizes trust in a single private entity. Trust is not a metric; it is a memory we share. And MerQube’s track record is not a memory we should embed in our financial infrastructure.
Second, the centralization of the trading engine. Kalshi’s order book and matching engine are proprietary, closed-source software running on company-controlled servers. There is no public audit of the code, no transparency into the liquidation logic, no way for users to verify that their trades are executed fairly. In a crypto market dominated by decentralized exchanges like Uniswap and dYdX, this feels like a regression. The CFTC does require some level of system integrity testing, but it is not the same as an open-source, verifiable smart contract. When I audited those 15 ICOs in 2017, I found that the worst projects were those that promised transparency but delivered opacity. Kalshi is not an ICO—it is a regulated company—but the principle holds: closed systems are inherently fragile because they cannot be independently verified.
Third, the funding rate mechanism itself. In crypto perps, the funding rate is determined by the imbalance between longs and shorts on the exchange. On a decentralized exchange, this rate is algorithmically determined and publicly visible. On Kalshi, the rate is set by the exchange’s own formula, which is not disclosed. This creates an information asymmetry that could be exploited by the exchange or by sophisticated market makers. Moreover, the funding rate is a zero-sum game between traders; it does not generate value for the platform itself. Kalshi’s revenue comes from trading fees, not from the funding flow. This means the platform’s economic sustainability depends entirely on transaction volume, which in turn depends on liquidity and volatility. The $1 billion first-week volume is impressive, but it is not a sign of long-term viability. It is a flash in the pan, likely driven by novelty and speculation.
Fourth, the product’s impact on market structure. Traditional index futures, like the CME’s E-mini S&P 500, have a fixed expiration and a centralized clearing process. They are used by institutions for hedging and by speculators for directional bets. A perpetual version of the same index would attract a different set of users: retail traders who want to hold positions overnight without rolling, and algorithmic traders who can exploit the funding rate differential. This could fragment liquidity between the two products, making each less efficient. In the crypto world, we have seen this happen with multiple perpetuals on the same asset—liquidity is spread thin, spreads widen, and the overall market becomes more fragile. Kalshi’s product, if successful, could create a parallel market for the US500 that is more volatile and less predictable than the traditional futures market. This is not innovation; it is fragmentation dressed up as choice.
Contrarian: The Real Story Is Not Kalshi vs. CME
Much of the coverage around this news focuses on the battle between Kalshi and the incumbent exchanges. CME’s lawsuit is framed as a defensive move to protect its monopoly. Cboe’s concern is interpreted as fear of disruption. But I believe the real story is more subtle and more troubling. The real story is about the co-opting of crypto’s most powerful tool—the perpetual contract—by the very forces of centralization that crypto was supposed to dismantle.
Consider the irony: perpetual futures were invented by crypto exchanges to solve the problem of expiring contracts in a 24/7 market. They were a workaround for the lack of a traditional clearinghouse. They relied on smart contracts and on-chain data to ensure transparency. Now, we have a regulated, centralized version that offers none of that transparency. It is as if we took the most innovative aspect of decentralized finance and wrapped it in a blanket of regulatory approval, only to suffocate the very qualities that made it valuable.
From the chaos of 2017, we forged a compass. That compass told us to trust code over promises, to verify rather than trust, to build for resilience rather than growth. Kalshi’s perpetuals are a product of the 2025 bull market, where the frenzy of institutional adoption has dulled our critical instincts. We see “CFTC-approved” and we think “safe.” We see “perpetual futures” and we think “crypto-native.” But the two are not the same. A regulated perpetual is not a decentralized perpetual; it is a traditional futures contract with a different expiration date—namely, never. And that never comes with a price: the price of handing over control to a single company, a single regulator, and a single data provider.
The contrarian angle here is that Kalshi’s success is not a win for crypto. It is a win for the financial establishment, which has learned to adopt the language of innovation while preserving the substance of control. The real threat to CME is not Kalshi; it is the possibility that decentralized protocols will one day offer the same product with better transparency, lower fees, and no single point of failure. But that day is not today. Today, Kalshi is the new kid on the block, but it is playing the same old game.
Takeaway: The Future of Trust
As I write this, I am reminded of a conversation I had in 2024 with a senior executive at a London-based fintech. We were discussing the Bitcoin ETF approval, and I argued that true ownership—the ability to hold your assets without a custodian—is non-negotiable. He smiled and said, “The market disagrees. People want convenience, not ownership.” He was right, of course. The ETF was a massive success. But convenience without ownership is not freedom; it is a comfortable cage.
Kalshi’s stock index perpetuals are the same trade-off: convenience for control, speed for dependence, novelty for transparency. The $1 billion in first-week volume is a testament to the market’s appetite for such products. But it is also a warning. When the bull market ends—and it will end—the structural flaws will be exposed. The funding rate will become a weapon for market makers. The index feed will be a point of failure. The closed system will be a black box. And the users who trusted Kalshi because it was “regulated” will find that regulation is not a substitute for resilience.
Trust is not a metric; it is a memory we share. The memory of 2017, of 2022, of every crash that followed a wave of enthusiasm—these memories should guide us. We should not dismiss Kalshi’s product as a threat or a savior. We should examine it with the same rigor we apply to any new protocol: asking not just “can it work?” but “who does it serve?” And if the answer is “the same people who have always been in control,” then we must ask ourselves whether we are building a new world or just painting the old one in brighter colors.
The market brief conclusion is this: Kalshi’s perpetuals are a product of the bull market, not a revolution. They will face regulatory hurdles, legal challenges, and technical risks. The contrarian view—that this is a net positive for crypto—is misguided. The real value of this story lies in the questions it raises about trust, centralization, and the future of financial infrastructure. And the answer will not be found in a CFTC filing, but in the code we write and the communities we build.
From the chaos of 2017, we forged a compass. Let us use it wisely.