Wall Street firms are well on their way to applying cryptocurrency technology to traditional assets like stocks and bonds. But the future of a popular crypto-based futures product will depend on the courts.

In the coming weeks, a district court is set to determine whether the Chicago Mercantile Exchange, a subsidiary of CME Group, can proceed with its lawsuit against the Commodity Futures Trading Commission for approving the offering of "perpetual" futures trading in the U.S.

Perpetual futures, often called "perps," are a new kind of financial product that first gained popularity in crypto trading. Unlike traditional futures, perps don't have an expiration date -- and instead use a "funding fee" to keep their price close to that of the spot market. When the perp price is higher than the spot price, traders who are long pay the fee to those who are short, and vice versa when the perp price is lower than spot.

Perps caught on in the crypto sphere in part because the offshore trading platforms where they first existed offered huge leverage on crypto positions -- and sometimes reached as high as 50 times a trader's capital.

Perps are just one product that crypto proponents are using to challenge traditional finance firms in the U.S. In addition to entering the futures market, blockchain firms are increasingly looking to tokenize stocks, funds, and other real-world assets in a bid to integrate the technology powering Bitcoin with nearly all facets of the U.S. financial system. Their effort has gotten a big assist from President Donald Trump's administration, whose agencies have given approvals and exemptions letting firms bring some crypto-tied products to the U.S. for the first time.

In May, the CFTC said it would allow the prediction market Kalshi to list and trade U.S. Bitcoin perps. At the same time, it issued a no-action letter to Coinbase Global, which allowed it to offer perps the company already has on a foreign platform to U.S. investors. Shares of Coinbase and Robinhood Markets, which is also expected to become a major perps player in the U.S. market, soared on the news.

At a crypto-related White House event in August, Trump said the CFTC was also looking to let U.S. investors access Hyperliquid, an exchange that offers perpetual futures in oil, gold and other assets. CME Group shares fell after the remarks.

The CME sued the CFTC in June, alleging the agency ignored Congress when it approved perpetuals as a futures product. Designating perps as futures, rather than swaps, carries with it important tax implications. While gains from a futures contract can generally be split between short-term and long-term gains, lowering investors' tax obligations, gains on swaps are excluded from that treatment.

"To us, it's crystal clear they are swaps," said CME Group CEO Terry Duffy, who added that there are major tax implications for investors if authorities later contradict the CFTC's interpretation.

The CFTC did not respond to Barron's request for comment on Friday. In a statement to reporters after the lawsuit was filed, a CFTC spokesman said the CME was eschewing competition by undertaking "lawfare against the agency and the Trump Administration's pro-innovation agenda."

The CFTC in September filed a motion to dismiss the lawsuit, arguing that the CME didn't have standing to sue. The CME, the CFTC said, could always offer perps itself and hasn't suffered harm from the approvals. The Hyperliquid Policy Center also filed an amicus brief in support of the CFTC.

The CME filed its arguments opposing the motion to dismiss the lawsuit last week, and the agency has until Oct. 16th to reply. After mid-October, a judge in the U.S. District Court for the District of Columbia can rule on whether the case will proceed.

Duffy says most institutional investors don't find perpetual futures useful, in part because their lack of an expiration date makes financing costs uncertain and doesn't let them hedge specific dates and prices. Still, he said that he believes the courts and administration need to ensure that the new products are subject to the same rules that his firm faces.

"When you have a set of standards they've got to be a set of standards for all. They can't be a regulatory arbitrage. That's where it's going now," Duffy said.

Some analysts think the CME has a good shot of winning its case. Earlier this year, the judge rejected the CFTC's motion for discovery against the CME on the issue of standing, which could bode well for the judge's ultimate decision, said TD Cowen analyst Jaret Seiberg in a research note this week.

"We continue to believe the CME is likely to prevail as we believe it is right both on its standing to bring the lawsuit and on its argument that perpetual futures are swaps," Seiberg wrote.