Over the past year, we've spent considerable time covering perpetual futures trading platforms. Their rapid rise is undeniable. Perpetual futures allow participants to price events shortly after they occur, offering high leverage and ample liquidity around the clock. This service was never offered by existing exchanges due to time and day limitations. An 11-member team has built Hyperliquid into the fastest-growing cryptocurrency exchange with nearly $1 billion in annual revenue thanks to this 24/7 trading concept. Perpetual futures trading volume averaged seven times that of spot trading throughout 2025. This seemed like a reliable path to building a sustainable business. Inevitably, others followed suit. Last week, two major prediction markets, Polymarket and Kalshi, announced the launch of perpetual futures and cryptocurrency trading within hours of each other. Just months earlier, Hyperliquid announced the launch of event contracts. The convergence of perpetual futures and prediction market platforms seems logical. Everyone wants to be an all-encompassing exchange, offering a one-stop shop for attention, capital, and leverage. Three weeks ago, Saurabh wrote in a report on X that Hyperliquid's foray into prediction markets would help the exchange dominate the financial arena. But does the reverse hold true? Will Polymarket and Kalshi's moves yield similar returns? Today, I'll tell you all about it. Prediction markets suffer from stickiness. They are typically cyclical, with trading volumes reaching all-time highs when there are major events to bet on—as we've seen during US presidential elections, the Super Bowl season, or Federal Open Market Committee meetings. Polymarket's monthly active users peaked at 321,500 during the November 2024 US presidential election. Three weeks later, that number dropped 25% to 245,000. However, monthly user numbers fluctuate due to seasonality. Polymarket's user base peaked at 500,000 in January 2025, before falling below 200,000 in September. This reflects Polymarket's user retention rate. Dune's user base data shows that since 2024, only 8% to 11% of its monthly user base have remained active in trading a year after joining. Approximately 75% of users churn within 90 days. Users may return to participate in events, but they don't necessarily feel a strong connection to the platform. However, this is only part of the problem. Prediction markets also freeze funds until the issue is resolved. Perpetual contracts, on the other hand, update event prices every second, thus attracting attention for extended periods and building sustained user engagement.This is also more advantageous for prediction markets, as traders have larger trading volumes and higher fee revenues. This expansion into adjacent sectors by prediction markets (PMs) becomes a natural evolution. Platforms that cater to certain speculative needs often expand their business into other areas. We have witnessed this many times: Robinhood expanded from the stock market to the options market, the cryptocurrency market, and eventually into prediction markets (PMs); Coinbase acquired Deribit for a record $2.9 billion, entering the derivatives trading space; Binance also expanded from offering spot trading to futures trading, eventually creating its own native blockchain. We often see this in traditional sectors as well. A company expands its services, hoping to cross-sell new products to the same group of customers. This serves two purposes: first, to increase average revenue per user (ARPU), and second, to diversify reliance on multiple revenue streams, thereby enhancing the company's resilience to market cycle fluctuations. However, there is a huge gap between wanting to operate a perpetual contract trading platform and actually having the ability to implement it. Operating a perpetual trading platform involves too many aspects. Let's start with liquidity. The Hyperliquid platform processes over 200,000 orders per second through a fully on-chain order book. This exchange settles over $6-7 billion in daily trading volume using a two-sided market-making model. Next is the risk engine—the core of any derivatives platform. It tracks every trade and checks the margin requirements for each order. Additionally, there's a funding rate mechanism that links traders' prices to the spot price of the underlying asset. Building the entire technology stack isn't the main issue; I believe prediction markets can do that. The bigger issue is stress-testing this stack. Hyperliquid built all these systems and stress-tested them in real-world scenarios, such as a 10/10 cryptocurrency liquidation event and the Iraq War. Afterward, once the entire system was ready, it launched event contracts via HIP-4. Kalshi and Polymarket, on the other hand, are trying to do the opposite. They operate successful prediction markets that don't require any of the above systems. Today, they not only have to compete with the highly successful Hyperliquid, but also with a system that hasn't been stress-tested and can't handle the high-frequency activity of perpetual trading, all in an effort to gain market share. On the Hyperliquid platform, the risk engine monitors all your positions across all trading instruments, spot, and upcoming event contracts. It looks at all your positions indiscriminately.Ultimately, the leverage you use and the margin you hold as cross-collateral determine when you will be forced to liquidate. The portfolio of your positions in spot, futures, prediction markets, or any other market determines how much margin you need to hold. This universal risk engine solves a core funding problem by optimizing the same funds across multiple trades a trader makes on a trading venue. This is why prediction market platforms or hedging venues cannot simply be add-ons. Currently, collateral on Polymarket and Kalshi platforms is locked until the event is resolved. Therefore, unless they offer a unified risk engine across their real-money trading and prediction market trading venues, they will lose a key factor that keeps traders on the platform. Neither platform has announced a cross-margining scheme between their prediction market and real-money trading venues. If Kalshi and Polymarket announce cross-margining, I believe there is one scenario where these bets would work: their institutional partnerships with major brokers and clearing houses could facilitate high-value, high-frequency trading activity in event contracts and perpetual futures. Kalshi's partnerships with FIS and Tradeweb data, and Polymarket's trading with the Intercontinental Exchange (ICE), could help retain institutional clients who prioritize using perpetual contracts to hedge their prediction market positions on the same platform. This remains a distant goal, requiring numerous factors in the prediction market to move in a favorable direction. They need to build stress-tested infrastructure, forge partnerships, and demonstrate to clients that their platforms can help optimize capital allocation. [Block unicorn]
Prediction Markets vs. Perpetual Platforms: Will the Convergence Create Value or Chaos?
The crypto derivatives landscape is experiencing a fascinating convergence as prediction markets and perpetual futures platforms expand into each other’s domains. This strategic pivot, exemplified by Polymarket and Kalshi launching perpetual contracts while Hyperliquid enters prediction markets, represents a fundamental reshaping of competitive dynamics in the financial arena. For sophisticated investors, understanding the implications of this convergence is critical to positioning for opportunities and mitigating risks in this evolving market.
The Strategic Imperative of Convergence
The race to become all-encompassing financial platforms is heating up as both prediction markets and perpetual futures platforms recognize the limitations of their current models. Perpetual futures platforms like Hyperliquid have demonstrated the commercial viability of this approach, with over $1 billion in annual revenue and trading volumes averaging seven times that of spot trading. Meanwhile, prediction markets face inherent stickiness issues, with Polymarket experiencing 75% user churn within 90 days and only 8-11% of users remaining active a year after joining.
This convergence strategy follows a well-trodden path in financial services. As Robinhood expanded from stocks to options to crypto, and Coinbase acquired Deribit to enter derivatives, we’re witnessing similar expansion in the crypto space. The rationale is clear: increase average revenue per user (ARPU) while diversifying revenue streams to enhance resilience against market cycles.
The Technical Chasm: Prediction Markets’ Uphill Battle
While the strategic rationale for expansion is sound, the execution presents monumental challenges for prediction market platforms. Operating a perpetual futures platform requires a sophisticated technical stack that prediction markets simply haven’t needed to develop:
-
Liquidity Infrastructure: Hyperliquid processes over 200,000 orders per second with a fully on-chain order book. Building and maintaining this level of throughput is non-trivial.
-
Risk Management: A robust risk engine that monitors positions across all instruments, calculates margin requirements in real-time, and manages liquidations is the core of any derivatives platform. This requires extensive stress-testing in real-world scenarios.
-
Funding Rate Mechanisms: The perpetual contract model relies on sophisticated funding rate mechanisms that align prices with spot markets—a component foreign to traditional prediction markets.
Most critically, prediction market platforms face the existential challenge of capital efficiency. On established platforms like Hyperliquid, traders can utilize cross-collateralization across spot, futures, and prediction markets. This universal risk engine optimizes capital allocation across multiple positions—a feature prediction markets currently lack since collateral remains locked until event resolution.
Competitive Advantages: Hyperliquid’s Moat
Hyperliquid’s entry into prediction markets via HIP-4 presents a far more viable path forward than the reverse. The platform already possesses the necessary technical infrastructure, liquidity provision mechanisms, and risk management systems required to support prediction markets as an additional product line.
The competitive advantages are stark:
-
Established Infrastructure: Hyperliquid’s battle-tested systems can handle high-frequency trading and complex risk calculations.
-
Capital Efficiency: Cross-collateralization allows traders to optimize their margin usage across multiple instruments.
-
User Experience: A unified trading interface reduces friction for users transitioning between different products.
-
Network Effects: The platform’s existing user base and liquidity provide a natural distribution channel for new products.
For prediction markets to compete, they would need to rebuild their entire technology stack from the ground up—a costly and time-consuming process that would place them at a significant disadvantage.
Institutional Partnerships: The Potential Wildcard
The most viable path forward for prediction market platforms lies in leveraging their institutional partnerships. Kalshi’s connections with FIS and Tradeweb data, and Polymarket’s relationship with the Intercontinental Exchange (ICE), could potentially facilitate high-value, high-frequency trading activity.
If these platforms can demonstrate value to institutional clients seeking to hedge prediction market positions, they might carve out a niche. However, this remains a distant goal that requires:
- Development of stress-tested infrastructure
- Strategic partnerships with clearing houses
- Demonstrated capital optimization capabilities
The institutional focus could potentially create a bifurcated market where prediction markets serve distinct purposes for different user segments—retail for event-based speculation and institutional for hedging and sophisticated trading strategies.
Token Implications and Investment Considerations
For investors, this convergence has nuanced implications:
-
Prediction Market Tokens: Polymarket and Kalshi tokens face significant execution risk as these platforms attempt to build complex derivatives infrastructure. The high churn rates and user stickiness issues present fundamental challenges to token valuation models.
-
Perpetual Platform Tokens: Platforms like Hyperliquid that successfully expand into adjacent markets are likely to capture greater market share and generate enhanced fee revenue, potentially benefiting their native tokens.
-
Infrastructure Providers: Projects providing liquidity provision services, risk management solutions, or oracle infrastructure for both market types may see increased demand.
The most prudent investment approach would focus on platforms with demonstrated technical capabilities and user retention, rather than those making ambitious expansion announcements without the necessary infrastructure.
Conclusion: Different Paths, Different Outcomes
While the convergence of prediction markets and perpetual futures platforms represents a logical evolution in financial services, the execution risks are asymmetrically distributed. Hyperliquid’s entry into prediction markets leverages existing infrastructure and presents a clear path to enhanced revenue and user engagement. Conversely, prediction markets’ foray into perpetual futures requires building entirely new technical capabilities while competing with established players.
For investors, the key takeaway is that not all convergences are created equal. The competitive advantages lie with platforms that can leverage existing infrastructure and provide integrated user experiences, rather than those attempting to rebuild complex systems on the fly. In this race, the tortoise (established platforms with robust infrastructure) may well defeat the hare (prediction markets making ambitious expansion plays).
The prediction markets that will ultimately succeed in the perpetual contract race are those that can effectively leverage their unique strengths—event-based pricing and institutional relationships—while addressing their technical shortcomings through strategic partnerships rather than attempting to build everything themselves.