The concept of perpetual futures has become a cornerstone of crypto finance, but DRW CEO Don Wilson asserts that common perceptions about this product are misguided. In a series of online posts, Wilson clarified that perpetual futures, or 'perps,' are essentially futures contracts without an expiration date. Characteristics such as high leverage, auto-deleveraging, and continuous trading are not inherent to perpetual futures 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 sphere. Unlike traditional futures markets, crypto exchanges operate around the clock, utilize digital collateral, and can calculate margin requirements in real time, allowing for higher leverage and alternative liquidation mechanisms. Wilson emphasized that these design choices should not be misconstrued as inherent features of perpetual futures. Instead, he suggested that digital payment systems can enhance risk management by enabling real-time settlement and continuous margin recalculation, thus reducing the need for large initial margin buffers.
Wilson advocated for regulators to focus on the economic substance of perpetual futures rather than their legal classification, arguing that they should be treated as futures contracts, not swaps, and made available across various markets for price discovery and risk management.