The concept of perpetual futures has become a cornerstone of crypto finance, but according to DRW CEO Don Wilson, common perceptions about them are misguided. In a series of online posts, Wilson clarified that perpetual futures, or 'perps,' are essentially futures contracts without an expiration date. Characteristics often linked to crypto perpetuals, such as high leverage and continuous trading, are specific to how some crypto exchanges have chosen to implement these products, not inherent to the contracts themselves. Wilson's insights come at a time when there's growing interest in introducing perpetual futures into regulated US markets.
Several market players are exploring the launch of perpetual futures beyond crypto, although regulatory frameworks and whether these products fit into existing futures or swaps categories remain uncertain. Recently, Kalshi submitted a proposal to regulators to expand its offerings to include precious metals after seeing significant trading activity in perps.
Unlike traditional futures, which operate on a scheduled basis, crypto exchanges like Hyperliquid run continuously, utilize digital collateral, and can calculate margin requirements in real time. This technological difference has enabled exchanges to offer higher leverage products and alternative liquidation mechanisms. However, Wilson emphasizes that these design choices should not be conflated with the fundamental nature of perpetual futures. He expressed his dislike for auto-deleveraging (ADL), stating it's not a necessary component of perps.
Instead, Wilson highlights the potential of digital payment systems to enhance risk management. Traditional clearinghouses typically calculate margins daily, requiring market participants to post additional collateral by the next business day, which can lead to significant market movements and the need for larger initial margin buffers. In contrast, real-time settlement allows for continuous margin recalculation, enabling exchanges to require immediate collateral posting and reduce the need for large upfront margins while maintaining protection levels.
Whether exchanges choose to offer higher leverage based on these efficiencies is a business decision, not an inherent feature of perpetual futures. Wilson argues that the true innovation of perpetual futures lies in their ability to eliminate the need for repeated contract rollovers, thereby reducing transaction costs, market impact, and roll slippage, while allowing positions to more accurately track the front of the futures curve. He urges regulators to focus on the economic substance of perpetual futures rather than their legal classification, emphasizing that they are economically equivalent to futures and should not be treated as swaps merely because they lack an expiration date.
Wilson concludes by advocating for the broader availability of perpetual futures across commodities, securities, and crypto markets, viewing them as a valuable tool for price discovery and risk management rather than a crypto-specific innovation.