In a new article, we show that jurisdictions treat crypto-derivatives inconsistently, resulting in a regulatory landscape that raises prudential and investor-protection concerns. This divergence is particularly striking given that crypto-derivatives overwhelmingly replicate traditional derivatives in their contractual structure, payoff profiles, and economic functions (as demonstrated in Crypto-Derivatives).
We adopt a comparative approach, selecting the jurisdictions relevant for this analysis on the basis of five key criteria: their prominence as traditional financial hubs; their significance in digital asset markets; the nature of their regulatory stance on digital assets, including the presence of dedicated frameworks; their capacity to attract crypto-derivatives trading firms; and prevailing enforcement trends. The analysis covers the United States, Canada, the European Union (with particular attention to developments in France and its regulatory approach), Singapore, Hong Kong, the British Virgin Islands, Switzerland, Seychelles, the United Arab Emirates (specifically the Abu Dhabi Global Market and Dubai), and the United Kingdom.
From a taxonomy perspective, no jurisdiction examined has created a standalone legal category for “crypto-derivatives.” Instead, regulators have attempted to fit these products within existing derivatives regimes, with results that diverge sharply across jurisdictions despite the underlying economic similarity of the instruments. Crypto-derivatives regulation remains structurally fragmented in ways that undermine investor protection, foster regulatory arbitrage, and recreate pre-2008 blind spots in derivatives oversight. This fragmentation is not driven by technological novelty, but by policy choices that rely excessively on formal classifications, such as settlement method, listing status, or the legal nature of the underlying, rather than on economic function and risk.
The Major Causes of Fragmentation
Three structural fault lines account for much of this divergence.
First, settlement mechanics play an outsized role. Cash-settled crypto-derivatives are generally more likely to fall within the scope of regulation, whereas derivatives settled with crypto-assets, particularly when unlisted, are often excluded. This distinction is largely formalistic rather than risk-based. Settlement in crypto-assets can replicate the economic exposure of cash settlement, yet it frequently triggers regulatory exemptions in major jurisdictions, including the EU, the UK, Switzerland, and Hong Kong. As a result, products with comparable leverage and volatility are subject to materially different regulation.
Second, the definition of eligible underlying assets varies significantly across jurisdictions. Some regulators classify crypto-assets as commodities for derivatives purposes, while others adopt narrower approaches that exclude certain crypto references altogether. In the absence of a harmonized taxonomy, functionally identical derivatives may be regulated – or left unregulated – based solely on how the underlying asset is legally characterized. This divergence creates incentives for product engineering and jurisdictional arbitrage, rather than for meaningful risk reduction.
Third, marketability and listing status remain decisive. In several jurisdictions, unlisted or over-the-counter crypto-derivatives fall largely outside the regulation. This approach mirrors the pre-2008 treatment of OTC derivatives, where opacity and bilateral trading structures constrained supervisory oversight. In the crypto context, these risks are amplified by global trading venues, continuous market access, and the relative ease with which platforms can relocate across borders.
Diverging Supervisory Philosophies Across Jurisdictions
Enforcement-oriented jurisdictions – most notably the United States and Canada – stand out in this regard. Rather than relying on narrow product definitions, regulators in these systems have asserted jurisdiction through broad statutory mandates and enforcement, particularly where retail investors are exposed. Elsewhere, regulatory responses have tended to remain limited to warnings, guidance, or partial exclusions, with little enforcement follow-through. The result is not convergence, but a fragmented regulatory landscape that firms can strategically navigate.
Regulatory Fragmentation Threatens Crypto-Derivatives Markets
The consequences are already visible. Liquidity and trading have gravitated toward offshore hubs offering wide exemptions, while retail investors continue to access highly leveraged and complex instruments in lightly regulated environments. At the same time, regulators lack reliable information on market structure, counterparty exposures, and aggregate risk, especially in OTC segments of the crypto-derivatives market due to the lack of standardized reporting requirements.
Critically, none of these outcomes is technologically inevitable. The comparative analysis shows that crypto-derivatives do not introduce fundamentally new financial functions. They reproduce familiar derivatives architectures, raising familiar concerns about leverage, liquidity, and systemic risk. The persistence of fragmentation therefore reflects regulatory design choices (or lack thereof), rather than a product-driven necessity.
The Policy Dimension
We argue that regulators should converge on a functional, technology-neutral definition of crypto-derivatives, supported by robust reporting and prudential standards, and meaningful restrictions on retail access to high-risk instruments. Such convergence should occur under the regulatory governance of supranational bodies, reflecting the cross-border nature of crypto-derivatives markets. Absent this coordination, crypto-derivatives risk continuing to migrate offshore, remaining opaque, and replicating the regulatory failures of earlier derivatives cycles – this time in markets that are faster, more global, and significantly less transparent – while exposing retail investors to highly leveraged products without safeguards.
Marco Dell’Erba is a professor of corporate and financial law at the University of Zurich, a research fellow at the Institute for Corporate Governance & Finance at NYU Law School, and a global fellow at the Wilson Center. Andrea Vianelli is chief operating officer, asset management & structuring advisory, at Laser Digital (Nomura Group). This post is based on their recent article, “Crypto-Derivatives Regulation(s),” available here.