The concept of perpetual futures has become a cornerstone of the crypto financial landscape, but according to DRW CEO Don Wilson, many misconceptions surround this product. In a series of posts, Wilson clarified that perpetual futures, or 'perps,' are essentially futures contracts without an expiration date. The features 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 emphasized that the true nature of perpetual futures has been misunderstood, with many characteristics attributed to them being a result of exchange-specific design choices rather than the contracts themselves. As interest in introducing perpetual futures to regulated U.S. markets grows, Wilson's comments are particularly relevant. He argues that the technological advancements in crypto exchanges, such as continuous operation and real-time margin calculations, have enabled the creation of products with higher leverage but notes that these should not be confused with the fundamental nature of perpetual futures.
Wilson expressed his dislike for auto-deleveraging, stating it is not a necessary component of perpetual futures. Instead, he highlighted the potential of digital payment systems to enhance risk management by allowing for real-time settlement and continuous margin recalculation, thereby reducing the need for large initial margin buffers. The true innovation of perpetual futures, Wilson explained, lies in their ability to eliminate the need for frequent contract rollovers, thereby reducing transaction costs and market impact.
He urged regulators to focus on the economic substance of perpetual futures rather than their legal classification, arguing that they should be treated as futures contracts rather than swaps. Ultimately, Wilson advocated for the broader adoption of perpetual futures across various markets, including commodities, securities, and crypto, viewing them as a valuable tool for price discovery and risk management.