Perpetual Event Contracts

The problem with fixed expiry

Traditional event contracts expire on a predetermined date. If the event you are hedging against — a regulatory change, a leadership transition, a sustained macro condition — does not resolve by expiry, you must roll the position: close the expiring contract and open a new one. Each roll generates transaction costs and basis risk (the new contract may be priced differently from where the old one closed).

For risks that persist over months or years, rolling is operationally burdensome and economically costly. A key-person hedge on an executive who remains in role for three years requires twelve quarterly rolls under a fixed-expiry structure — twelve bites of transaction cost, twelve potential basis gaps.

What makes a contract perpetual

A perpetual event contract has no scheduled expiry. Instead, it uses a funding rate — a periodic payment exchanged between the long and short side — to anchor the contract price near the market's implied probability of the event occurring.

When the contract trades above fair value (the market thinks the event is more likely than the funding rate implies), longs pay shorts. When it trades below fair value, shorts pay longs. This continuous adjustment keeps the contract from drifting far from the underlying probability estimate without requiring expiry and resettlement.

The result: a hedger can hold a position for as long as the risk exists — a year, five years, indefinitely — and receive continuous mark-to-market without administrative overhead.

How funding rates are set

Tomorrow's funding rate for perpetual event contracts is derived from the difference between the contract's current market price and its actuarially-calibrated fair value. The rate is computed continuously and settled at defined intervals (typically every 8 hours). Components include:

• Base probability. Actuarial base rate adjusted for entity-specific risk factors (age, health markers, organizational stability).
• Market premium. Demand for protection on high-profile entities drives the contract price above actuarial fair value, generating positive funding for shorts.
• Liquidity adjustment. Thin markets for rare event types carry a wider bid-ask spread embedded in the funding computation.

Key-person continuity: the canonical use case

The most common institutional use of perpetual event contracts is key-person continuity coverage. A company whose value depends heavily on a specific executive — a founder-led tech company, an asset manager known for one portfolio manager's alpha — faces meaningful downside if that person leaves, is incapacitated, or dies.

A perpetual key-person continuity swap pays a notional amount if the covered person's role terminates for any covered reason. The buyer pays a funding rate (analogous to an insurance premium) for as long as the coverage is desired. Unlike life insurance, the contract can be sized to cover equity value impairment rather than a fixed death benefit, and it can be unwound in the secondary market if the risk dissipates.

Perpetual contracts vs. insurance

Regulatory treatment

Perpetual event contracts structured as bilateral OTC swaps between eligible contract participants (ECPs) are regulated under Title VII of the Dodd-Frank Act. They are not subject to exchange execution requirements if neither party is a swap dealer and the notional amount does not trigger mandatory clearing thresholds. Tomorrow structures all contracts to remain within these parameters by default.