The concept of perpetual futures has become a cornerstone of crypto finance, but according to DRW CEO Don Wilson, common perceptions about these instruments 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 the features of perpetual futures are distinct from the contracts, stating, 'Most of what people think they know about 'perps' ... has nothing to do with the contract itself.' As interest in introducing perpetual futures to regulated U.S. markets grows, with several exchanges exploring their launch beyond crypto, Wilson's comments are particularly relevant. He noted that technological advancements in digital collateral and real-time margin calculations have enabled crypto exchanges to offer products with higher leverage and alternative liquidation mechanisms.
However, Wilson cautioned against confusing these design choices with the nature of perpetual futures, expressing his dislike for auto-deleveraging and suggesting that it is not a necessary component of these contracts. Instead, he highlighted the potential of digital payment systems to enhance risk management, allowing for real-time settlement and the recalculation of margin, which could reduce the need for large initial margin buffers. Wilson argued that the true innovation of perpetual futures lies in their ability to eliminate the need for repeated contract rollovers, thereby reducing transaction costs and allowing positions to more closely track market movements. He urged regulators to focus on the economic substance of perpetual futures rather than their legal classification, stating, 'Economically, they're futures.' Ultimately, Wilson advocated for the broader adoption of perpetual futures across various markets, including commodities, securities, and crypto, viewing them as a valuable tool for price discovery and risk management rather than a crypto-specific innovation.