Pre-IPO perpetual futures: the crypto innovation that opens private markets

When crypto exchanges are the ones innovating financial markets

Perpetual futures represent the most significant financial innovation to have emerged from the crypto sector in the last decade. Their most recent evolution, pre-IPO contracts, makes it possible for the first time to obtain economic exposure to unlisted private companies without having to access the circuits reserved for institutional investors. Building this new market, whose volumes grew from 200 million to 12 billion dollars in just three months, were not traditional financial institutions but crypto exchanges.

The invention of perpetual futures

Unlike traditional futures, perpetual futures do not have an expiry date and can remain open indefinitely. Their functioning is based on the funding rate, an economic incentive mechanism that tends to align the price of the contract with that of the underlying asset without making the periodic rolling over of positions necessary. For the crypto market, this structure has proved particularly effective: it allows leverage, continuous trading, automatic margin management and price formation that does not depend on the expiry cycles typical of traditional derivatives.

In 1992, the American economist Robert Shiller described a similar theoretical model, imagining financial instruments capable of replicating the performance of an asset without a predetermined expiry. For more than twenty years, however, that concept remained closer to theory than to market practice. Transforming it into a product traded on a large scale was the exchange BitMEX, which in 2016 launched the first perpetual futures on Bitcoin.

The fact that the innovation came from a crypto exchange is not accidental. Traditional finance did not have the same incentives, nor the same operational freedom, to experiment with an instrument of this type. Banks, brokers and regulated exchanges operate within prudential constraints, transparency obligations, suitability requirements and reputational responsibilities that are much stricter. For a traditional intermediary, creating a global retail market, open twenty-four hours a day, with leverage, funding rate and automatic liquidations would have involved regulatory and operational complexities difficult to justify.

Within a few years, perpetual futures became the main instrument through which operators express expectations, hedge risk and take speculative positions on crypto-assets. On many pairs, the volumes of perpetuals frequently exceed those of the spot market, making these instruments central in the price formation process of the entire crypto ecosystem.

From crypto markets to private markets

Applying the structure of perpetual futures to private companies means moving an innovation born in digital markets toward one of the most closed segments of finance. Pre-IPO contracts make it possible to trade a synthetic valuation of companies not yet listed, offering economic exposure to the expected performance of their value without transferring any ownership right over the company’s capital.

Large private companies have become an increasingly important part of the investable universe, but direct access to their shares remains limited, fragmented and often reserved for qualified or institutional investors. Pre-IPO perpetuals do not eliminate this asymmetry, because they do not attribute patrimonial, governance, informational or liquidation rights. They do, however, separate, at least in part, economic exposure from ownership of the asset.

Traditional finance has historically treated access to private markets as access to ownership: buying stakes, participating in rounds, entering dedicated funds, trading on regulated or semi-regulated secondary markets. Crypto exchanges have built a market in which the object traded is not the private share, but a synthetic representation of its valuation. It is a less complete solution from the point of view of investor rights, but much simpler to distribute, standardize and make liquid.

The demand that comes from SpaceX, OpenAI and Anthropic

The growth of pre-IPO perpetual futures responds to a broader transformation of financial markets. In recent years, some of the most innovative companies most sought after by investors have chosen to remain private for longer, postponing their listing on the stock exchange and concentrating a growing share of value creation in the phases preceding the IPO. The result is that a significant part of the potential appreciation linked to technological innovation takes place before the public investor can access it.

Companies such as SpaceX, OpenAI and Anthropic represent emblematic cases of this dynamic. They are enterprises that influence central sectors of the global economy, from artificial intelligence to space, but that remain outside public markets for prolonged periods. Investor demand therefore does not arise only from the search for returns, but also from the growing difficulty of obtaining exposure to companies that, although not listed, already have systemic relevance in their respective markets.

Traditional channels satisfy this demand only in part. The secondary market for private shares exists, but it is fragmented, not very transparent, subject to contractual restrictions and often accessible only to qualified counterparties. Venture capital funds offer indirect exposure, but with long horizons, limited liquidity and high access thresholds. Perpetuals instead offer a form of immediate, fractional, continuously tradable exposure accessible to a global audience.

The exposure remains purely contractual: the investor does not buy the company’s share, does not participate in its actual economic rights and cannot count on an automatic conversion mechanism in the event of an IPO. The value of the contract depends on the exchange’s methodology, the liquidity of the market, the funding rate and the expectations of the other participants. It is economic exposure, not corporate participation.

Price discovery as opportunity and risk

The possibility of creating a form of continuous price discovery on private companies is perhaps the most relevant aspect of pre-IPO perpetual futures. Until today, the valuation of an unlisted company emerged mainly through financing rounds, secondary transactions and estimates developed by professional investors: useful mechanisms, but discontinuous, not very transparent and often influenced by contractual conditions difficult to observe from the outside.

In perpetuals, a plurality of operators can continuously express expectations on the value of a private company, creating an observable price updated in real time. Even if synthetic, this price can become a new informational signal for investors, analysts, employees with stock options, funds exposed to the secondary market and, potentially, for the companies concerned themselves. In a private market characterized by opacity and scarcity of data, even an imperfect signal can have value.

That signal, however, must not be confused with the fair value of the underlying equity. The price of a pre-IPO perpetual can reflect speculative demand, leverage, reduced liquidity, temporary imbalances between long and short positions, the structure of the funding rate and the methodology adopted by the exchange to define the contract’s reference. Unlike a listed share, there is not necessarily a direct and immediate arbitrage between the derivative and the underlying, because the private share is not freely tradable and cannot be delivered at settlement.

Price discovery is therefore useful insofar as it introduces a price where before there existed only episodic and little accessible valuations; it becomes risky when that price assumes an appearance of precision greater than the actual quality of the information it incorporates. The risk is not only that retail investors confuse synthetic exposure and real ownership, but also that the market attributes excessive importance to prices formed in environments with limited depth, high leverage and informational standards lower than those of regulated markets.

In public markets, the price arises from the interaction between widespread information, regulatory obligations, liquidity, arbitrage and institutional participation. In pre-IPO perpetuals, many of these elements are absent or attenuated. The price can be informative, but not necessarily robust; it can anticipate market demand, but also amplify speculative trends; it can make an implicit valuation more visible, but also create the illusion of liquidity and transparency that the underlying does not possess.

For this reason, the democratization of access must be distinguished from the democratization of ownership and from that of information. Pre-IPO perpetual futures make tradable an exposure that before was substantially inaccessible, but they do not transform a private company into a public company. They do not eliminate the opacity of the underlying: they transform it into a price.

Conclusions

It is still early to establish whether pre-IPO perpetual futures will become a stable component of financial markets. Regulatory issues remain open, especially in relation to distribution to the retail public, the transparency of pricing methodologies, the management of leverage and investor protection.

The fundamental fact remains, however: for the second time in less than ten years, the crypto sector has not limited itself to replicating existing instruments, but has built a market structure that traditional finance had not developed. First with perpetual futures on crypto-assets, today with their extension to private companies.

The relevant question, therefore, is not only whether these markets will continue to grow. It is whether banks, brokers and traditional exchanges will choose to develop similar instruments, with higher regulatory and informational standards, or whether they will leave to crypto exchanges the role of innovators in synthetic access to private markets.

The real challenge will not be to replicate the perpetual itself, but to build around this type of instrument a credible microstructure: capable of offering new forms of exposure to private assets without transforming the demand for access into an opaque market of leverage and speculation.