The concept of perpetual futures has become a cornerstone of the cryptocurrency market, but according to DRW CEO Don Wilson, many misconceptions surround this financial instrument. In a series of posts, Wilson clarifies that perpetual futures, or 'perps,' are essentially futures contracts without an expiration date. Characteristics commonly associated with crypto perpetuals, such as high leverage and auto-deleveraging, are not inherent to the contracts themselves but rather a result of how some crypto exchanges have chosen to implement them.
Wilson's insights come at a time when there is growing interest in introducing perpetual futures into regulated US markets, with several exchanges exploring their launch beyond the crypto space. He emphasizes that the technological advancements in crypto exchanges, including continuous operation and real-time margin calculations, have enabled the creation of products with higher leverage and alternative liquidation mechanisms.
However, Wilson argues that these design choices should not define perpetual futures and that regulators should focus on the economic substance rather than the legal labels. He believes that perpetual futures offer significant advantages, including the elimination of the need for frequent contract rollovers, thereby reducing transaction costs and allowing for more accurate tracking of the futures curve. Wilson advocates for regulators to embrace perpetual futures as a valuable tool for price discovery and risk management across various markets, including commodities, securities, and cryptocurrencies.