The concept of perpetual futures has become a cornerstone of crypto's financial landscape, yet DRW CEO Don Wilson believes that common misconceptions surround these products. In a series of posts, Wilson clarified that perpetual futures, or 'perps,' are essentially futures contracts without an expiration date. He attributed the high leverage, auto-deleveraging, and around-the-clock trading often associated with crypto perpetuals to the implementation choices of crypto exchanges, rather than the contracts themselves.
Wilson's comments come at a time when interest in introducing perpetual futures to regulated U.S. markets is growing, with several exchanges exploring their launch beyond crypto.
Unlike traditional futures markets, crypto exchanges operate continuously, utilizing digital collateral and real-time margin requirement calculations, which has enabled them to offer higher leverage products. However, Wilson cautioned against confusing these design choices with the inherent nature of perpetual futures.
He expressed his disapproval of auto-deleveraging, stating that it is not a necessary component of perpetual futures. Instead, Wilson highlighted the potential of digital payment systems to enhance risk management. Traditional clearinghouses typically calculate margin on a daily basis, requiring market participants to post additional collateral by the next business day.
This can lead to significant market movements during this window, prompting clearinghouses to demand sizable initial margin buffers. In contrast, real-time settlement allows exchanges to continuously recalculate margin and require immediate collateral posting, thereby reducing the need for large upfront margin requirements while maintaining the same level of protection.
Wilson emphasized that the true innovation of perpetual futures lies in their ability to eliminate the need for repeated contract rollovers, resulting in reduced transaction costs, market impact, and roll slippage. This enables positions to more closely track the front of 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.
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.