The concept of perpetual futures has become a cornerstone of crypto's financial landscape, but according to DRW CEO Don Wilson, common perceptions about them are misguided. In a series of posts, Wilson explained 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 often confused with the contracts themselves, stating that 'most of what people think they know about perps has nothing to do with the contract.' His comments 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 space. However, questions remain about how these products should be regulated and whether they fit within existing frameworks. Wilson argued that the technological differences between traditional and crypto exchanges, such as continuous operation and real-time margin calculation, have enabled the offering of products with higher leverage and alternative liquidation mechanisms.
He clarified that these design choices should not be mistaken for inherent properties of perpetual futures. Instead, Wilson suggested that digital payment systems can enhance risk management by allowing for real-time settlement and continuous margin recalculation, thereby reducing the need for large initial margin buffers. He noted that whether exchanges choose to offer higher leverage is a business decision and not a defining feature of perpetual futures. The true innovation of perpetual futures, according to Wilson, lies in their ability to eliminate the need for repeated contract rollovers, thus reducing transaction costs and allowing positions to more accurately track market movements.
Wilson 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, regardless of their lack of expiration date. He concluded by advocating for the broader availability of perpetual futures across various markets, including commodities, securities, and crypto, and viewing them as a tool for price discovery and risk management rather than a crypto-specific innovation.