The concept of perpetual futures has become a staple in the world of cryptocurrency, but according to DRW CEO Don Wilson, much of the general understanding surrounding this financial product is misguided. In a series of posts, Wilson clarified that perpetual futures, or 'perps,' are essentially futures contracts without an expiration date. The characteristics often 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 emphasized that the features commonly linked to perpetual futures are a result of the technological differences and design choices of crypto exchanges, which operate continuously and utilize digital collateral, allowing for real-time margin requirement calculations. He argued that these differences should not be confused with the nature of perpetual futures. Instead, Wilson suggested that the true innovation of perpetual futures lies in their ability to eliminate the need for investors to repeatedly roll over expiring contracts, thereby reducing transaction costs and allowing positions to more accurately track the front of the futures curve.
Wilson urged regulators to focus on the economic substance of perpetual futures rather than their legal labels, stating that they should be treated as futures, not swaps, and made available across a broader range of markets for price discovery and risk management.