The concept of perpetual futures has become a cornerstone of crypto finance, but according to DRW CEO Don Wilson, many misconceptions surround this product. In a series of posts, Wilson clarifies that perpetual futures, or 'perps,' are simply futures contracts without an expiration date, and the features often associated with them, such as high leverage and auto-deleveraging, are a result of how crypto exchanges have chosen to implement these products, not inherent characteristics. Wilson's 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 crypto.
However, questions remain about how these products should be regulated. Unlike traditional futures markets, crypto exchanges operate continuously and use digital collateral, allowing for real-time margin requirements and higher leverage. Wilson emphasizes that these design choices should not be confused with the nature of perpetual futures themselves. He expresses disapproval of auto-deleveraging, stating it is not a necessary component of perpetual futures.
Instead, Wilson believes that digital payment systems can enhance risk management by enabling real-time settlement and continuous margin recalculation, thus reducing the need for large initial margin buffers. The true innovation of perpetual futures, according to Wilson, lies in their ability to eliminate the need for frequent contract rolls, thereby reducing transaction costs and allowing positions to track the front of the futures curve more closely. Wilson concludes by urging 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, and made available across various markets for improved price discovery and risk management.