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Cryptocurrency exchanges are offering investors exposure to Chinese AI stocks, circumventing Beijing’s controls on foreign access to the country’s equity market.
Trading platforms including tradeXYZ and Gate.com have launched perpetual futures, or “perps”, tracking shares of CXMT, the Chinese chipmaking champion that listed on the Shanghai Stock Exchange on Monday.
The perps provide investors with exposure to price movements of mainland Chinese stocks that have become popular bets on China’s AI capabilities among domestic traders but are difficult to access for foreigners.
About $19mn worth of CXMT perps traded in a 24-hour period ahead of the IPO, according to CoinGlass, which tracks cryptocurrency derivatives. The chipmaker is seeking to raise nearly $10bn in mainland China’s biggest initial public offering since 2010.
The proliferation of perps, especially those tied to equities, is increasingly blurring the line between the Wild West of crypto markets and the world of regulated finance.
“We’ve gone from ‘you can tokenise a treasury bill’ to live, increasingly deep markets in the things people actually struggle to access globally, including foreign equities and pre-IPO names,” said Matthew Fisher, chief executive of Katana, a decentralised finance platform.
Last week, tradeXYZ also announced a perp for GigaDevice Semiconductor, a Shanghai-listed chipmaker, with up to 10 times leverage.
Perps originated in crypto markets as a way to place bets on price movements of digital assets such as bitcoin without conferring a claim on the underlying asset and without expiry dates.
That flexibility has made them popular for bets on prices of stocks and other traditional assets. Perps, which are typically listed on crypto exchanges and bought using stablecoins, have been used to gain pre-IPO exposure to SpaceX and OpenAI.
In the case of CXMT, perps allow investors to sidestep an intricate system of channels Beijing has built to control foreign access to China’s capital markets.
Foreign investors can only access equities in Shanghai and Shenzhen through Hong Kong’s Stock Connect programme or the Qualified Foreign Institutional Investor scheme. Both are subject to quotas, while Stock Connect limits the range of companies available to investors.
Shanghai’s Star Market, where CXMT is listed, also requires individual investors to hold at least Rmb500,000 ($74,000) in assets and have two years of trading experience.
A pre-IPO perp’s price is based on expectations of the value of a company when it goes public. If the stock lists above a perp’s price, the owner of the derivative will make a profit.
The expectation is that a perp’s price will converge with that of the underlying asset, said Iggy Ioppe, chief investment officer at Theo, a company that tokenises real-world assets. This happens through a data feed that matches the perp’s price with that of the underlying asset after it begins trading on public markets.
The price match and the lack of an expiry date mean an investor can use a perp even after a stock’s listing to track its price movements. Chinese retail traders have used the instruments to gain exposure to SpaceX and bypass capital controls meant to stem outflows.
Pre-IPO perps can also allow insiders to hedge their holdings ahead of a listing, as they did in the case of SpaceX, said Le Shi, head of trading at digital asset market maker Auros.
“The reason [perps] are getting so much attention is they represent a financial innovation,” he said. “We’re now talking about a new asset class that has real demand, real use cases, that doesn’t exist” in traditional finance.
Perps present a challenge to regulators trying to define their status as financial instruments.
Andy Liu, chief analyst at HTX Research, said the biggest question was whether a perp represented the underlying security, a custodial beneficial interest or a synthetic derivative.
“They are closer to leveraged prediction markets than to genuine equity ownership,” he said.
Last month, the Monetary Authority of Singapore added Hyperliquid, the primary trading venue for CXMT perps, to its investor alert list, which highlights entities that may be “wrongly perceived as being licensed or in any other way authorised or regulated by MAS”.
Shi of Auros said it would be difficult for regulators to rein in instruments that are outside their jurisdictions.
“Can individual governments stop this? I think that’s very much an open question,” he said.
When reached for comment, Gate.com referred the FT to relevant authorities. Hyperliquid did not respond to a request for comment. TradeXYZ, a decentralised “trading protocol” founded anonymously, could not be reached for comment.
Shi said he saw perps as part of a long-term trend of deepening connections between traditional finance and crypto.
“I wouldn’t be surprised if within five years’ time every single US equity, Hong Kong equity, Japanese equity was tradeable in crypto.”
