Ondo Appeals to US Regulators for Approval of Stock Perpetuals

Ondo Finance has requested US regulators to allow perpetual futures connected to individual stocks to operate domestically, following its offshore platform’s impressive $8 billion in cumulative trading volume in just about six weeks.

In three comment letters submitted on August 24 to the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), Ondo Finance stated that the existing security futures framework could be leveraged to include stock perpetual futures.

The proposal outlines product classification, margin requirements, and the utilization of on-chain market data. Instead of seeking a new regulatory category from Congress or federal agencies, Ondo advocates for the SEC and CFTC to apply existing rules intended for futures linked to individual securities.

As outlined in its product-classification letter, Ondo emphasizes that the absence of a fixed expiration date does not disqualify a perpetual contract from being categorized as a security futures product.

“There is nothing in the statutory definition of a security futures product that necessitates a fixed expiration date,” Ondo affirmed.

Ondo claims funding payments can substitute for expiration

Traditional futures have a predetermined expiry date, where the contract settles based on the underlying asset’s value. In contrast, perpetual futures do not have a fixed expiry and utilize recurring funding payments to align their market prices with the assets they track.

When a perpetual future trades above its reference price, those holding long positions typically pay those holding short positions. Conversely, payments reverse when the contract trades below the reference price, encouraging price convergence.

Ondo informed regulators that the funding mechanism serves a role akin to expiration in traditional futures contracts. According to Ondo’s interpretation, the economic structure of the product is more critical than the contract’s predetermined ending date.

The submission also discusses updated margin requirements and blockchain-based pricing data. Ondo contends that regulators could integrate these features within the current legal framework, though the SEC and CFTC would still need to determine how specific products meet requirements related to listing, trading, and customer protection.

A similar request was submitted to both agencies on August 24, where the Hyperliquid Policy Center proposed recognizing equity perpetuals with futures-like characteristics as security futures. The group claimed Hyperliquid’s HIP-3 markets processed over $480 billion in cumulative notional volume in their initial 10 months.

In that proposal, regulators would first assess the structure and trading methods of the contract before analyzing the asset it tracks. A futures-style contract linked to an individual stock would then be classified under the security futures framework jointly overseen by the SEC and CFTC.

Security futures merge characteristics of both securities and futures law. A designated contract market regulated by the CFTC may list them after providing notice to the SEC, while national securities exchanges can follow a similar registration process with the CFTC.

Offshore stock perpetuals have achieved $8B

Through its Panama-based affiliate, Ondo currently offers stablecoin-settled perpetual futures based on individual US-listed stocks to eligible traders outside of the United States.

By August 14, the platform had recorded $8 billion in cumulative trading volume, according to the company’s submission to the SEC, achieved around six weeks after the product’s launch.

Many of the referenced shares mainly trade on US exchanges, though American users are not permitted to access these offshore contracts. This setup allows eligible non-US traders to gain price exposure to individual stocks while liquidating their positions with stablecoins, foregoing the need for a traditional brokerage account.

“Facilitating that activity within the U.S. should not be a debatable point; it’s a matter both agencies should actively pursue,” the company asserted.

Ondo’s request would not automatically permit every stock perpetual. Exchanges, brokers, and clearing organizations would still need to adhere to the registration, listing, margin, and customer-protection requirements pertinent to security futures.

Nonetheless, this proposal could provide US investors a regulated pathway to products already accessible through offshore markets. American access would hinge on the agencies’ acceptance of Ondo’s classification and their determination of how current security futures standards apply to perpetual contracts.

Former SEC counsel Ashley Ebersole recently informed crypto.news that establishing a US regulatory pathway for on-chain perpetuals might require 10 to 12 months if the agencies engage in rulemaking, public comment, and implementation phases. Ebersole noted that the timeframe could be expedited if regulators leverage existing authorities or exemptions.

Ondo broadens its tokenized securities operations

In addition to its derivatives proposal, Ondo maintains one of the largest tokenized real-world asset businesses. According to RWA.xyz, the company is ranked fourth among RWA managers, boasting approximately $2.6 billion in distributed asset value as of Wednesday.

As of August 13, Ondo Stocks had over 440 tokenized stocks and exchange-traded funds listed across Ethereum, BNB Chain, and Solana, reporting around $1.02 billion in asset value at that time, as per earlier Ondo reports.

Each tokenized security is supposedly backed by the related stock, ETF, or cash held with US-registered broker-dealers. An independent verification agent assesses the asset backing, while a security agent maintains an interest in the collateral.

Ondo states that buyers gain economic exposure to price fluctuations and reinvested dividends, subject to applicable tax withholdings. However, holders do not directly own the referenced stock or ETF and do not possess the same rights as registered shareholders.

In late July, Ondo secured FINRA authorization concerning its US tokenized-equity activities. At that time, the company revealed that its tokenized products had surpassed $2.5 billion in total value locked, and Ondo Stocks had processed over $7 billion in cumulative volume.

These tokenized offerings differ from the perpetual futures addressed in the most recent letters. Stock tokens provide an indirect economic interest supported by securities or cash, whereas perpetuals are derivative contracts intended to follow the price of a referenced share without transferring ownership.

SEC and CFTC cooperation could influence access

Ondo submitted its letters while federal authorities were reevaluating how securities and derivatives rules should pertain to blockchain-based markets.

In March, the SEC and CFTC formalized a memorandum of understanding to synchronize efforts in areas where their jurisdictions intersect. This agreement established a formal process to share information, develop policy, and resolve uncertainties regarding products that may fall under both securities and commodities law.

Effective coordination is vital for security futures, given that the SEC regulates securities markets while the CFTC supervises US futures and derivatives venues. Consequently, a perpetual tied to a specific stock could necessitate approval or oversight from both agencies.

Political discourse has increasingly focused on the potential to incorporate offshore perpetual markets domestically. In August, President Donald Trump mentioned that CFTC Chair Michael Selig was working on strategies to introduce Hyperliquid to the United States in a “fully compliant and legal manner.”

Neither the CFTC nor Hyperliquid has publicly clarified how such access would be structured. Hyperliquid is notably recognized for on-chain perpetual futures, with its HYPE token rising over 20% following Trump’s remarks and increasing nearly 49% in the subsequent month, trading at around $81 on Wednesday, according to CoinGecko.

Regulators are also investigating the necessary infrastructure to support tokenized securities. Recently, the SEC proposed updates to transfer-agent rules related to registration, recordkeeping, transfer processing, cybersecurity, and the safeguarding of securities and customer funds.

Much of the existing transfer-agent framework originates from the late 1970s and early 1980s, when manual ownership records and paper certificates were the norm. The proposed rules would require on-chain transfer agents to implement safeguards to protect digital records from unauthorized alterations, deletions, and operational failures.

The SEC has indicated that these amendments will be technology-neutral and will not mandate companies to utilize blockchain systems. Public commentary will remain open for 60 days after the proposal is published in the Federal Register, after which SEC staff may amend the text before presenting a final rule to commissioners.