The concept of perpetual futures has become a cornerstone of the crypto financial landscape, but according to Don Wilson, CEO of DRW, common perceptions about them are misguided. In a series of posts, Wilson clarifies that perpetual futures, or 'perps,' are essentially futures contracts that lack an expiration date. Characteristics often linked to 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 insights come at a time when there is growing interest in introducing perpetual futures into regulated U.S.
markets, with several exchanges exploring their launch beyond the crypto sphere. However, questions persist regarding their regulatory framework and whether they align with existing futures or swaps structures.
Wilson emphasizes that the technological capabilities of digital exchanges, such as real-time margin calculation and continuous operation, have enabled the creation of products with higher leverage and alternative liquidation mechanisms. Nevertheless, he cautions against conflating these design choices with the fundamental nature of perpetual futures.
Instead, Wilson advocates for leveraging digital payment systems to enhance risk management, suggesting that real-time settlement can reduce the need for substantial initial margin buffers by allowing for continuous margin recalculation and immediate collateral posting. He views the true innovation of perpetual futures as their ability to eliminate the necessity for frequent contract rollovers, thereby reducing transaction costs and allowing for more precise tracking of the futures curve. Wilson urges regulators to focus on the economic essence of perpetual futures rather than their legal classifications, arguing that they should be treated as futures rather than swaps due to their economic characteristics.
Ultimately, he advocates for the broader availability of perpetual futures across various markets, including commodities, securities, and crypto, seeing them as a valuable tool for price discovery and risk management rather than a product unique to the crypto space.