Perpetual Contracts = Gambling, the Absurd Logic of Unjust Judgments?

Perpetual Contracts = Gambling is obviously a wrong answer, but this very conclusion appeared in one of China’s most serious court rulings, and the individuals involved were even sentenced. What’s more surprising is that these first-instance rulings from county-level courts have attracted the attention of international media. On January 30, 2025, CoinTelegraph reported on the matter.

The court ruled that BKEX’s high-leverage contract trading constitutes “gambling” and convicted relevant employees and agents for the crime of “operating a casino.” Even technical and support roles, such as wallet engineers and KYC auditors, were considered “accomplices.”

The contracts in question are perpetual contracts, which represent a disruptive innovation in traditional financial derivatives. If this is your first time encountering perpetual contracts, here’s a basic guide I wrote — feel free to check it out when you have time.

It is a fact that China does not allow perpetual contract trading, but it has never prohibited traditional financial derivatives trading. From the perspective of how traditional financial derivatives work, such a conclusion is difficult to justify and seems absurd.

Why, in traditional futures exchanges, is leveraged trading based on the rise and fall of underlying assets considered a legitimate derivative, but in crypto exchanges, it is labeled illegal gambling?

In any case, calling a generally accepted financial innovation gambling is ridiculous and akin to calling a deer a horse. Such a qualification seems more like a conclusion first, with legal justification found afterward. Could there not be a more appropriate charge? Of course, there is — for example, the charge of illegal business operations. But why not use that? What’s the reasoning behind this seemingly forced logic? I will explore that further in the following sections.

But if the points above are not enough, let’s talk more about why perpetual contracts are a remarkable innovation. If the judgment declaring perpetual contracts as gambling hasn’t scared you off, you might be able to use perpetual contracts to achieve better risk management.

Let’s begin by understanding this case.

In this case, the People’s Court of Pingjiang County, Hunan Province, convicted employees of the BKEX exchange of the crime of “operating a casino.” The judgment elaborated on how BKEX allowed users to engage in high-leverage perpetual contract trading using USDT as margin, thus generating platform profits. The court accepted the prosecution’s argument that perpetual contract trading is essentially a gambling behavior, and therefore BKEX’s operation was equivalent to “operating a casino.”

Globally, perpetual contracts are considered an innovative breakthrough in futures markets and have even become the core tool of the crypto derivatives market. However, in this Chinese judgment, they were directly equated to the “odd or even” game at a casino, which is undoubtedly shocking.

Furthermore, the court not only sought criminal responsibility from the platform’s founder, Ji Jiaming (who is on the run), but even wallet engineers, KYC auditors, and marketing agents were considered “accomplices” and sentenced to prison terms ranging from 1 year and 6 months to 2 years and 1 month, with fines ranging from tens of thousands to hundreds of thousands of yuan.

So, where exactly is the absurdity in labeling perpetual contracts as gambling? What is the legal logic behind it?

Contract trading, especially perpetual contracts, is already commonplace in the traditional financial world. It is a tool for market hedging, risk management, and a battleground for traders to engage in daily speculation. Yet, in a Chinese courtroom, perpetual contracts are equated with a gambling game of “odd or even”: BKEX is viewed as a casino, traders are labeled gamblers, and even those providing technical support or risk control are deemed “co-conspirators.” What absurd logic lies behind this?

The court’s reasoning is quite simple: because perpetual contract trading involves predicting “rise and fall,” and traders use USDT as capital to speculate on larger returns through leverage, it equates the process to the “odd or even” betting game in a casino. BKEX was considered the “house” due to its fee-taking behavior.

However, if simply predicting the price movement in a market is considered gambling, then all futures trading, options trading, and even margin trading would fall under the suspicion of being a “casino.” Gold futures on the New York Mercantile Exchange, Nikkei 225 futures on the Tokyo Stock Exchange, and even margin trading in China’s A-share market all involve trading based on predictions of future prices. Are these also “bets” on the price of gold or indices? This obviously violates basic financial common sense.

The court considered BKEX’s contract trading to be a casino mainly because the platform charges fees, similar to how a casino “takes a cut.” On the surface, both do involve “fee-taking,” but a closer look reveals significant differences in the profit model and risk assumption between a casino and an exchange.

Casinos typically profit in two ways:

• House-backed betting games (e.g., baccarat, roulette): The house sets odds or rules in its favor, maintaining a long-term advantage in terms of mathematical expectation.
• Player-versus-player games (e.g., poker): The casino earns a share of the prize pool from each round of betting (the rake).

Regardless of whether the gambler wins or loses in the short term, the casino’s profit is secured by these mechanisms. While the game rules are set by the casino, they are typically regulated by gambling authorities in legal regions.

In contrast, exchanges earn revenue primarily from “matchmaking fees,” meaning they charge a fixed percentage of the transaction amount after matching buy and sell orders.

• No role as the house: Exchanges do not directly bet against traders; they simply provide a matching platform.
• No need to manipulate outcomes: Exchanges do not care about traders’ profits or losses, as it does not affect the matchmaking fees.
• Dependence on market activity: Exchanges earn money based on overall market activity and trading volume, not on individual bets.

Regarding how prices are influenced:

• In a casino, the outcome of a bet does not change based on the amount wagered. The house wins through probability or rule advantages.
• In a trading market, every buy or sell order affects the supply and demand balance of assets, driving price fluctuations. The exchange merely provides the matching channel, with the market’s price determined by the interplay between buyers and sellers.

Gambling is a probability-based game, whereas perpetual contracts are market-based, and traders can make decisions based on fundamental analysis, technical analysis, or other strategies — not purely relying on luck.

Given the stark difference in profit models and risk structures, comparing the two as the same “gambling” behavior clearly ignores the operational mechanics of the financial derivatives market and basic economics and finance principles.

Many might wonder: clearly, according to China’s criminal law system, the charge of “illegal business operations” could also cover operating financial businesses without a license, including unauthorized futures trading — so why not use that charge? If the goal is to “punish” them, wouldn’t using the “illegal business operations” charge make more sense? After all, operating financial derivatives without a license has long been a common application of the “illegal business operations” charge.

The essence of “illegal business operations” lies in “operating goods or services restricted by the state without permission.” To classify crypto derivatives trading under “illegal business operations” would partially recognize such trading as a legitimate financial product, but without the proper licenses or permits. In other words, it would acknowledge that these products have “business value,” but lack legal authorization.

However, once the judicial system acknowledges crypto derivatives (such as perpetual contracts) as “financial derivatives,” it could contradict the previous stance of regulatory bodies, which have emphasized that “virtual currency trading does not have legal standing.”

• In September 2021, the People’s Bank of China and other departments issued a statement reiterating that activities related to virtual currencies are illegal financial activities.
• Financial regulators also stressed that any unapproved token financing, trading, etc., are not protected by law.

Thus, if the court recognizes exchanges like BKEX as “illegally operating financial businesses,” it would inadvertently acknowledge that their activities fall within the “financial” category, rather than simply being “illegal.”

Therefore, from the perspective of regulatory and policy consistency, prosecutors and judges face tremendous pressure. Applying “illegal business operations” would force a direct response to whether crypto derivatives can be considered financial services, which could be a significant challenge in the current environment, where virtual currency trading is explicitly banned.

Another reason might be that “illegal business operations” often involve pre-existing administrative regulations clarifying what constitutes “illegal business.” Currently, there is no clear regulatory framework for crypto derivatives, making the application of this charge difficult.

Sure, here’s a faithful translation of the text:

In contrast, the logic of the “operating a gambling house” offense is more brutal and simpler: you’re essentially “betting on price movements,” and the platform takes a fee, just like a casino takes a rake. Since China’s criminal law has always taken a high-pressure stance toward gambling, this classification can strike at the operators without needing to argue over the sensitive issue of whether “cryptocurrency is a financial asset.”

Low Enforcement Cost: To establish the “operating a gambling house” offense, one only needs to prove that the platform provides conditions similar to a “gambling game,” sets up chips, and takes a cut — much easier than proving “operating a financial business.”

Simpler Social Perception: When people hear “operating a gambling house,” they understand it’s illegal. However, the term “illegal operation of financial derivatives” often involves many professional concepts, which the general public finds difficult to understand and leads to more public debate.

Closer Alignment with Regulatory Policies: Since the top-level stance is to decisively eliminate virtual currency transactions and tightly control crypto exchanges, labeling such transactions as “gambling” is a one-time solution. This completely avoids any discussion about their financial nature, leaving no gap for arguments over their financial status.

From the court’s perspective, although this “one-size-fits-all” approach seems to conflict with financial common sense, it is simple, direct, and efficient. By handling it this way, they maximally avoid the “dispute over virtual currencies’ financial attributes,” embodying a typical “better to wrongly convict than let go” approach.

In terms of “difficulty of investigation” and “cost of determination,” for the judicial authorities, this approach may be a rational choice of “taking the lesser harm”: if they used the “illegal business operation” charge, they would face more legal challenges and a longer chain of evidence, potentially leaving more room for the defendant to refute or delay the litigation process. On the other hand, “operating a gambling house” simply requires comparing “betting on price movements” to “betting on high or low,” making conviction relatively smoother.

Of course, professionals find the “operating a gambling house” offense quite absurd. After all, perpetual contracts are already an important tool for hedging risk and arbitrage by traders and institutions internationally, yet domestically they are “transformed” into a “casino.”

However, the reason things have come to this point is less about a “spur-of-the-moment” decision by a county-level court and more about the difficulty of balancing current regulatory demands and judicial practice. After all, higher-level policies have already directed that virtual currency transactions and their surrounding businesses should be thoroughly “eliminated,” so local judicial bodies can only execute with the approach of “harshest crackdown, simplest conviction.”

But you should believe that a judicial ruling has changed the nature of perpetual contracts. So, what exactly are perpetual contracts, and what can you do with them?

Perpetual contracts are one of the most innovative tools in the financial derivatives market. Their core value lies not in “betting on high or low” but in risk management, liquidity optimization, arbitrage mechanisms, and more efficient market pricing. If you only see people speculating and blowing up their positions in perpetual contracts, and you call it a casino, it’s no different from seeing people lose money in the stock market and calling the stock market a casino.

In traditional markets, one of the primary functions of futures and options is risk hedging, for example:

• Farmers use commodity futures to hedge against the risk of price drops and lock in profits in advance;
• Airlines use oil futures to manage oil price fluctuations and ensure stable operating costs;
• Fund managers use stock index futures to hedge against market downturns and reduce net value drawdowns.

Perpetual contracts inherit these hedging features but go a step further than traditional futures. They eliminate the issue of futures’ expiration date, allowing traders to manage risks more freely and adjust positions at any time. This is why perpetual contracts are favored in the market, not the “speculative gambling” as claimed by the court.

Arbitrage traders are not gamblers but the balance keepers of the market. In the perpetual contract market, traders can use the spot + perpetual contract arbitrage strategy to conduct risk-free hedging and earn funding rate differences. For example:

• When the perpetual contract price is higher than the spot, the arbitrageur can short the contract and buy the spot, profiting once the price converges;
• When the perpetual contract price is lower than the spot, the arbitrageur can go long on the contract and sell the spot to achieve a hedging profit.

These mechanisms ensure market price stability, keeping the perpetual contract price closely tied to the spot market. Such strategies have long been used in top financial institutions like the Chicago Board Options Exchange (CBOE) and Chicago Mercantile Exchange (CME). Are these world-leading financial institutions also “operating a gambling house”?

Most people hear “perpetual contracts” and immediately think of high-leverage speculation. But smart traders don’t speculate; they use them to optimize returns, reduce risks, and align themselves with the market. For example, the most feasible and low-risk strategy is holding JLP (Jupiter Liquidity Pool tokens), standing on the market’s side, and earning stable profits. For this, I recommend you check out this basic guide to perpetual contracts, below is just a brief introduction.

JLP is the liquidity pool token of the Jupiter Exchange. Holding JLP means becoming a part of the market, with earnings coming from:

• Funding Rates: When traders go long or short in large volumes, the JLP pool acts as the counterparty, earning the funding rates.
• Transaction Fees: Regardless of price movements, each trade generates a fee, part of which goes to JLP holders.
• Portfolio Stability: JLP is made up of BTC, ETH, SOL, and stablecoins, providing natural hedging capabilities.

JLP’s annualized return (APY) can reach 20%-30%. This is not speculation but standing with the market, earning stable long-term returns. Rather than being a gambler, you can become a provider of liquidity. Of course, in addition to JLP, other options like HLP and GLP are also excellent choices.

Using the moral weapon of “anti-gambling” to strike financial innovation sets a dangerous precedent. If perpetual contracts are gambling, then what about stock options, margin trading, and foreign exchange margin trading? This logic of judgment is not regulation; it is stifling, pushing the financial market back to its primitive state and labeling innovators as criminals.

The essence of modern finance lies in risk hedging, market liquidity, and price discovery, not simple betting on wins and losses. Deconstructing financial instruments using casino logic is a misreading of market economy and an abuse of legal weaponization. When the judiciary equates market competition with “betting on high or low,” it not only distorts facts but also plants the seeds for authoritarian regulation within the judicial system.

Prevention is better than cure, and regulation is better than prohibition. The market needs rules, not judgments; finance needs regulation, not witch hunts. If China continues to respond to technological revolutions with criminal law, real financial vitality will only flee to more inclusive legal jurisdictions, ultimately leaving the country behind in global financial competition. Today’s perpetual contracts are judged as gambling; how will tomorrow’s financial innovations be judged?

However, that said, for a society where stability trumps all else, sacrificing a single perpetual contract is really not a big deal.

Airdrop Reference is an innovative blockchain education and promotion platform aimed at spreading basic blockchain knowledge and helping ordinary users understand and participate in the development of blockchain technology. The mission of this project is to lower the entry barriers to blockchain, promote high-quality blockchain projects, and allow more people to enjoy the benefits of the Web3.0 era.

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