Hyperliquid and trade[XYZ] seek SEC rules for pre-IPO perpetual contracts

Hyperliquid Policy Center and trade[XYZ] are asking the U.S. Securities and Exchange Commission to set rules for pre-IPO perpetual contracts, a derivative they call “IPOPs.”

• Aug. 18 filing: the groups asked the SEC for a framework, not a green light.
• What IPOPs do: cash-settled exposure to a company before it lists publicly.
• Five pillars: disclosures, listing rules, market integrity, access limits, and classification.
• Big upside, real risk: potential price discovery on one side, oracle and liquidity problems on the other.

The idea is simple on paper and messy in practice. Traders would be able to bet on a company’s expected value before its IPO without receiving shares, voting rights, or a claim on the issuer. They would get cash-settled exposure only, which keeps the instrument in derivative territory instead of turning it into a backdoor stock sale.

That distinction is why the proposal matters. A perpetual futures contract has no expiration date and uses funding payments to keep its price near a reference value. Crypto traders know the format well. Moving it to private-company valuation is a different beast, and one that lands squarely in the SEC-CFTC jurisdiction swamp.

Hyperliquid Policy Center and trade[XYZ] submitted their open letter on Aug. 18. The SEC publicly posted it, which means the agency received the filing and made it available for comment. It does not mean the commission approves the idea, endorses it, or even likes it very much.

The groups call the proposed instrument an IPOP. In plain English, that means a trader could gain price exposure to a company before it goes public, but would not own the company, vote on corporate matters, or receive an IPO allocation. It is a speculative contract, not equity dressed up in a fake mustache.

That may sound like a neat separation, but regulators will still care about how the product is classified. The letter asks the SEC and CFTC to determine whether equity-linked perpetuals fit as security futures or security-based swaps.

A security future is a futures-style contract on a security. A security-based swap is a swap tied to the value of one or more securities or a narrow-based securities index. Which box this product lands in determines the rulebook, the venue, the disclosures, the leverage limits, and whether retail users ever get near it.

The submission lays out five regulatory pillars:

• Product disclosures
• Listing eligibility
• Investor access
• Market integrity
• Product classification

Those sound like boilerplate until you look at what they actually mean. The disclosure section would need to spell out funding rates, leverage, liquidations, pricing methods, settlement, and how the contract converts if the company eventually lists. In other words: how traders can get paid, how they can get liquidated, and how the thing behaves when the IPO finally happens.

The listing rules would limit an IPOP to a defined period after a company files registration documents. That is a sensible attempt to keep the product tied to an actual listing process instead of letting it drift around forever like a ticker with too much caffeine and no adult supervision.

Oracle and settlement procedures would also have to be announced in advance, and any changes would need to be disclosed. That part is not window dressing. In derivatives, the oracle is the price input used to determine value and settlement. If the input is stale, manipulated, or simply wrong, the whole contract can go sideways fast.

That risk is especially serious here because there is no public stock price yet to anchor the market. A bad reference price can trigger bad liquidations, distort the mark price, and turn “price discovery” into garbage-in, garbage-out theater. Nobody needs that circus.

On market integrity, the proposal calls for audit trails, conflict controls, and restrictions on deployers or affiliates trading while holding material nonpublic information. MNPI is exactly what it sounds like: important private information not yet available to the market. If insiders can trade around it, the game is already crooked.

The letter also suggests a phased rollout. Before retail access expands, the venue could impose leverage and position limits. That is the sensible part of the plan, and also the part that tells you the authors know regulators will not hand out broad access on day one.

Trade[XYZ] says it has already completed five IPOP markets tied to Cerebras, Quantinuum, SpaceX, SK Hynix, and ChangXin Memory Technologies. According to the applicants’ data, those markets operated for between one and 25 days before the referenced listings, and each contract’s final price before trading began was within 0.44% to 7.23% of the relevant stock’s opening price.

The same materials say four U.S. offerings priced between 10.8% and 38.4% below the IPOP level recorded one day earlier. Those numbers are being used to support the pitch that pre-IPO perpetuals can help with price discovery and give issuers and underwriters an independent measure of demand.

That is the bull case. It is not crazy. Open, continuous trading can reveal appetite before an IPO instead of leaving everything to a small circle of bankers and institutions. Markets do get better information when more people can express a view.

But five markets are not proof of a durable model. They are a small sample, and the performance claims are self-reported by the applicants. Maybe the signal is real. Maybe it was a useful pilot. Maybe it was a lucky stretch in a controlled setup. Five examples do not settle that debate.

There is also a darker side, and it is not subtle. Thin liquidity, poor oracle design, and leverage can turn a supposedly smarter pricing mechanism into a new venue for speculative nonsense. If the market is shallow and the reference price is weak, the contract may not discover value so much as manufacture it.

The regulatory backdrop matters just as much as the market structure. The CFTC’s policy text said equity-based perpetuals would benefit from coordinated SEC and CFTC review. That is Washington’s way of admitting the line between securities and derivatives is messy, contested, and very much still a live fight.

For now, the products remain offshore and exclude U.S. persons, according to the materials provided. That is usually what happens when a product is too legally awkward for the domestic market: it goes offshore first, then shows up later as a regulatory headache with a better logo.

There is a real argument that markets like this could become useful. A company heading toward public listing could, in theory, benefit from an independent price signal that is continuous rather than one-shot. Traders could express views earlier. Underwriters could read demand with fewer blind spots.

There is also a real argument that this is just leverage wearing a cleaner suit. If regulators are sloppy, these products could become a lightly supervised casino attached to private-company valuations. That is not innovation. That is a loophole with branding.

The key question now is whether the SEC and CFTC can build a framework that preserves the useful part, price discovery, without letting the bad parts run the table. If they cannot, IPOPs will likely stay in the gray zone, where the trading is easier, the rules are looser, and the risk is somebody else’s problem.

Key questions and takeaways

What is an IPOP?
An IPOP is a proposed pre-IPO perpetual contract that gives traders cash-settled exposure to a company before it lists publicly. It does not give ownership, voting rights, IPO allocation, or a claim against the issuer.

Why are Hyperliquid Policy Center and trade[XYZ] pushing this?
They want a regulatory framework for a product they say could improve price discovery and give issuers and underwriters a clearer read on demand before a listing.

Why do the SEC and CFTC matter here?
Because the classification could determine whether the product is treated as a security future, a security-based swap, or something else entirely. That decision controls who regulates it and what rules apply.

What is the biggest technical risk?
The oracle. If the price reference is stale, manipulated, or badly designed, liquidations and settlement can be wrong, which turns the whole market into a mess.

Do the five completed markets prove the idea works?
No. They are interesting, but the sample is too small and the data are self-reported, so they do not prove the model will work consistently across listings or market conditions.

Could U.S. retail traders use these contracts soon?
Not without a clear SEC/CFTC framework. Any broader access would likely come with limits on leverage, position size, disclosures, and eligibility.

Is this legitimate market innovation or just speculative leverage?
Potentially both. The best version improves pre-IPO price discovery; the worst version is a thinly traded derivatives side show built on shaky inputs and regulatory arbitrage.

Further reading

A few useful pieces if you want to track the regulatory and market-structure side of pre-IPO perps without the usual crypto fog machine.

• Hyperliquid proposes 5 rule pillars for pre IPO perps
• How Pre-IPO Perpetual Contracts Enhance Capital Formation
• Pre-IPO Market Analysis for Unitree, CXMT, SKHY, SpaceX
• CFTC and SEC Seek Comment on Drawing Clearer Lines
• Hyperliquid proposes 5 rule pillars for pre IPO perps
• Hyperliquid’s HyperDrive DeFi Hit by $773K Exploit
• Top Crypto Picks for April: Litecoin Stability, Hyperliquid
• Valantis Buys StakedHYPE: Boosting DEX and Staking Power on