Key Highlights:
- Perpetual VIX contracts do not expire and use funding rates to track the spot index.
- Cboe’s potential VIX futures launch could expand volatility trading and hedging activity.
- Market makers still face funding costs, basis risk and challenges hedging an index that cannot be traded as a cash asset.
Perpetual VIX Contracts Aim to Track Volatility Without Expiry
Unlike traditional futures, perpetual swaps never expire. They use a funding-rate mechanism to keep the contract price anchored to the spot index, theoretically giving investors the closest possible proxy for trading the actual VIX spot price.
Martin Lee, market insights lead at DWF Labs, said perpetual contracts remove the need for traders to manage expiries and decay while allowing them to focus on the expected direction of the underlying market.
“Traders don’t have to worry about expiries and decay and just focus on the direction of where they think the underlying is heading. The VIX is one of many more indexes, assets and metrics that will be perpified. We expect to see a strong wave of perp-ification to occur in the coming months,” Martin Lee, market insights lead at DWF Labs, told CoinDesk.
Crypto Exchanges Already Offer Limited VIX Exposure
Some cryptocurrency exchanges, including Gate, already offer VIX/USDT perpetual contracts. However, the market remains highly illiquid, with little noticeable trading volume. Hyperliquid recently listed futures linked to bitcoin’s VIX, the implied-volatility index created by Volmex.
A potential launch of VIX futures by Cboe could attract more traders to volatility markets. Greater participation from buyers and sellers, combined with increased hedging by market makers across VIX futures and other S&P 500 derivatives, could help bring different VIX products into closer alignment.
Funding Costs and Hedging Risks Remain
Perpetual contracts would not eliminate trading costs. Traders would still be exposed to funding payments, while market makers would face a structural hedging challenge because the VIX is a mathematical calculation rather than a cash asset that can be directly bought and sold.
That distinction makes it more difficult for market makers to hedge their exposure than it is in bitcoin markets, where $BTC can be bought and sold directly. Analysts at Marex Solutions said the key issue is whether funding can effectively anchor an index that has no tradable cash equivalent.
“For us, the interesting question is how funding would anchor an index that cannot be bought as a cash asset. Removing expiry does not remove hedge costs or basis risk. Until contract terms exist, this is a potential new volatility market, not a cheaper substitute for options convexity,” analysts at Marex Solutions said in an email.
Why This Matters
Cboe’s plan highlights the accelerating convergence between traditional financial-market structures and crypto-market instruments. Perpetual contracts could broaden access to volatility trading and provide another way for traders and market makers to express views or manage risk, but liquidity, funding economics and hedging mechanics will remain important factors in determining whether VIX products can develop into a deeper market.
Frequently Asked Questions
What is a perpetual VIX contract?
A perpetual VIX contract is a derivative that does not have an expiration date. It uses funding payments to help keep its price aligned with the VIX spot index.
Are VIX perpetual contracts already available?
Gate offers VIX/USDT perpetual contracts, although the market is described as highly illiquid. Hyperliquid has also listed futures linked to Volmex’s bitcoin implied-volatility index.
What are the main risks for VIX market makers?
Market makers may face funding costs and basis risk. Because the VIX is a mathematical index rather than a cash asset, it cannot be directly bought or sold to hedge exposure in the same way as bitcoin.