The concept of perpetual futures has become a cornerstone of crypto's financial landscape, 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. 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 most misconceptions about 'perps' stem from confusion between the contract and its implementation. His comments come at a time when there is growing interest in introducing perpetual futures into regulated U.S. markets. Several market participants are exploring the launch of perpetual futures beyond crypto, but questions remain about how these products should be regulated.
Unlike traditional futures markets, crypto exchanges operate continuously and utilize digital collateral, allowing for real-time margin requirement calculations. Wilson argued that these technological differences enabled exchanges to offer products with higher leverage but should not be conflated with the nature of perpetual futures themselves.
He expressed skepticism towards auto-deleveraging, stating it is not a necessary component of perpetual futures. Instead, Wilson suggested that digital payment systems can enhance risk management by facilitating real-time settlement and continuous margin recalculation, thereby reducing the need for large initial margin buffers. The true innovation of perpetual futures, according to Wilson, lies in their ability to eliminate the need for repeated contract rolls, thus reducing transaction costs and allowing positions to closely track the futures curve.
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, not swaps, due to their economic nature. Ultimately, Wilson advocated for the broader availability of perpetual futures across various markets, including commodities, securities, and crypto, viewing them as a valuable tool for price discovery and risk management.