The significance of tokenization lies more in the series of actions taken by traders after going on-chain: betting, hedging, and leveraging.

Written by: Nina Bambysheva, Forbes

Translated by: Saoirse, Foresight News

Today, let's talk about a seemingly niche yet intriguing area in the crypto space: perpetual futures for tokenized real-world assets (RWAs). Sounds complicated? However, many in the industry believe that what could truly ignite the RWA craze may not be the currently popular tokenized stocks, but rather the derivatives hidden behind them. Let's delve into the intricacies of this topic.

Quick Overview of "Perpetual Contracts"

Perpetual futures (or "perpetual contracts") are a type of cryptocurrency derivative that allows traders to bet on the future price of an asset, with contracts that never expire. For example, if you are bullish on Bitcoin, you can buy a Bitcoin perpetual contract and hold it for as long as you want.

This type of trading does not require the full amount to be paid upfront; only a margin is needed — a small portion of the trading amount, with the rest covered by leverage. This means that small amounts of capital can control large positions, which is one reason why perpetual contracts are favored by traders.

Of course, one might ask: since there is no expiration date, how is the contract price kept in line with the actual market? The answer lies in the "funding rate" mechanism. Every few hours, the two opposing sides in the market settle fees: if the demand for long positions is stronger, the longs pay the shorts; if the market turns bearish, the shorts pay the longs. During the holding period, this fee is automatically deducted or credited from the account. For example, if you hold a $10,000 Bitcoin long contract and the funding rate during a certain period is 0.01%, then at settlement, you would need to pay the shorts $1; if you were in a short position, you would receive $1.

It sounds complex, but traders are quite fond of it. According to CoinGecko data, the trading volume of perpetual contracts on centralized exchanges reached $58.5 trillion in 2024, more than three times that of the spot market; decentralized exchanges also saw a trading volume of $1.5 trillion.

The Collision of Tokenization and Perpetual Contracts

Now, let's discuss another hot topic in the cryptocurrency field: tokenization. Industry executives often say "the market is going on-chain," with visions painted by figures like Larry Fink from BlackRock and Vlad Tenev from Robinhood, suggesting that in the future, Tesla stocks, Apple stocks, bonds, and even grandma's antique collection could be traded on the blockchain. The market would never close, settlement times would shrink from two days to mere seconds, and funds tied up in the settlement process could be reactivated.

Although platforms like Robinhood and Kraken have launched tokenized stocks, more trading activity occurs in the perpetual contracts of these assets. The reason is simple: traders are not just interested in holding tokenized Apple stocks; they want to profit from betting on its price fluctuations.

For instance, xStocks, launched in late June, is a tokenized product for stocks and ETFs that can be traded on centralized exchanges like Kraken and Bybit, as well as decentralized exchanges like Raydium and Jupiter on the Solana chain, with a current trading volume of $558 million.

Additionally, iAssets, launched by Injective Labs on the Injective blockchain, trades through the Helix decentralized exchange, with a cumulative trading volume exceeding $1.7 billion. iAssets do not directly represent stocks but are linked to perpetual futures associated with "the seven tech giants," Circle, and even SharpLink Gaming, which is centered around Ethereum. Like most cryptocurrency perpetual contracts, iAssets support leveraged trading, typically up to 25 times.

"Last week alone, the trading volume was $107 million, and the week before it reached $291 million," said Eric Chen, co-founder and CEO of Injective. Trading fees are usually around 0.05%, and Injective does not actually hold stocks of Circle or Nvidia; instead, it obtains real-time stock prices from traditional markets through "oracles," allowing iAssets to track these prices and enabling traders to speculate on the underlying stocks.

John Wang, the newly appointed head of cryptocurrency at Kalshi, summarized the appeal of RWA perpetual contracts: "Want to trade $1 billion worth of Apple-related assets? You don't need to actually raise $1 billion in stocks; just take corresponding long and short positions." In simple terms, no one is actually buying Apple stocks; traders are merely betting on price movements, and these bets collectively form a trading volume of $1 billion. Coupled with leverage — with 25 times leverage, $40 million can control a $1 billion position.

"Most RWAs are not assets that people want to hold long-term. Traders don't care about dividends, transfer rights, or voting at shareholder meetings; they just want to trade: going long on the S&P 500 10 times, shorting Tesla, swinging oil based on CPI data, betting on interest rate trends…"

This statement holds some truth. Some joke that the core product in the cryptocurrency space is "tokens," and if that is the case, then new speculative methods might be the "real innovation" in this industry. This is also part of the reason for the success of platforms like Polymarket, Pump.fun, and the perpetual contract giant Hyperliquid, which holds 80% of the market share.

So, the question arises: before tokenized RWAs establish a foothold, will perpetual contracts render their spot trading irrelevant? Chen from Injective believes not. He stated that without tokenized Tesla stocks as a market anchor, synthetic derivatives like iAssets would struggle due to pricing chaos and insufficient liquidity.

In traditional finance, market makers providing liquidity for derivatives (options or futures) of assets like Tesla often hedge risks by trading the underlying stocks, and the same applies in the cryptocurrency space. Tokenized spot assets provide traders with risk hedging tools — even if perpetual contract trading dominates, spot RWAs remain foundational.

Upon reflection, traders are essentially betting on the "derivatives of derivatives" of companies like Tesla and Nvidia, which sounds somewhat absurd, as if cryptocurrency has complicated matters further. So why not trade options or futures directly through a traditional broker?

Because for cryptocurrency players, these products are more "user-friendly"!

"Compared to options, perpetual contracts are much simpler," said TK Kwon, co-founder of the tokenization startup Theo. "The pricing and funding rate mechanisms are basic, and anyone can understand them (though I have my doubts), and they are highly capital efficient." In practice, this means traders only need to prepay a small portion of funds to control large positions through leverage, and they can renew indefinitely without worrying about expiration dates or the complex algorithms behind option pricing.

In contrast, trading stock options or futures in the U.S. has a much higher barrier to entry — typically requiring "qualified investor" status or operating through brokers that can access platforms like the Chicago Mercantile Exchange (CME).

TK Kwon hopes that Theo will eventually operate both spot and perpetual contract markets, allowing users to buy tokenized gold (spot) and bet on future gold prices (gold perpetual contracts) on the same platform. This model could give rise to strategies like "arbitrage trading," where traders can profit from small price discrepancies between the two. For professionals, this is standard practice; for the entire market, it enhances liquidity.

And this day may come soon: perpetual contract giant Hyperliquid is planning to upgrade its system to allow anyone to create new perpetual contract markets for almost any asset.

Ultimately, the significance of tokenization goes beyond "putting Apple stocks on-chain"; it lies in the series of actions taken by traders after going on-chain: betting, hedging, and leveraging. The creativity of cryptocurrency developers should not be underestimated, especially when designing new trading (speculative) methods for the digital assets they create. This creativity is both a blessing and could potentially lead to trouble.

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