The concept of perpetual futures has become a cornerstone of the crypto industry, but according to DRW CEO Don Wilson, there are many misconceptions surrounding this product. In a series of posts, Wilson clarified that perpetual futures, or 'perps,' are essentially futures contracts without an expiration date. The high leverage, auto-deleveraging, and 24/7 trading often associated with crypto perpetuals are characteristics of how certain exchanges have chosen to implement these products, rather than inherent features of the contracts themselves.
Wilson's comments come at a time when there is growing interest in introducing perpetual futures into regulated US markets. Several exchanges are exploring the launch of perpetual futures beyond the crypto space, but questions remain about how these products should be regulated.
Wilson emphasized that the technological differences between traditional and crypto exchanges have enabled the latter to offer products with higher leverage and alternative liquidation mechanisms. However, he argued that these design choices should not be confused with the nature of perpetual futures themselves.
Instead, Wilson believes that digital payment systems can improve risk management by allowing for real-time settlement and continuous margin recalculation. This can reduce the need for large upfront margin requirements while maintaining the same level of protection.
Wilson also stressed that the true innovation of perpetual futures lies in their ability to eliminate the need for investors to repeatedly roll expiring contracts, thereby reducing transaction costs and market impact. He urged regulators to focus on the economic substance of perpetual futures rather than their legal labels, arguing that they should be treated as futures, not swaps. Ultimately, Wilson advocated for the broader adoption of perpetual futures across various markets, including commodities, securities, and crypto, as a tool for price discovery and risk management.