The concept of perpetual futures has become a cornerstone of crypto finance, but according to DRW CEO Don Wilson, many common perceptions about them are misguided. In a series of posts, Wilson clarified that perpetual futures, or 'perps,' are essentially futures contracts without an expiration date.
He emphasized that 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's comments 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.
Unlike traditional futures markets, crypto exchanges operate continuously and utilize digital collateral, allowing for real-time margin requirement calculations and potentially higher leverage. Wilson, however, stressed that these design choices should not be conflated with the nature of perpetual futures. Instead, he suggested that digital payment systems can enhance risk management by enabling continuous margin recalculation and immediate collateral posting, thus reducing the need for large initial margin buffers. Wilson argued that the true innovation of perpetual futures lies in their ability to eliminate the need for frequent contract rollovers, thereby reducing transaction costs and allowing positions to more accurately track market movements.
He urged regulators to focus on the economic substance of perpetual futures rather than their legal classification, emphasizing that they should be treated as futures, not swaps, and made available across a broader range of markets for price discovery and risk management.