The concept of perpetual futures has become a cornerstone of crypto's financial landscape, yet according to DRW CEO Don Wilson, much of the general understanding surrounding this product is misguided. In a series of posts, Wilson clarified that perpetual futures, or 'perps,' are essentially futures contracts that lack an expiration date.
Characteristics commonly associated with crypto perpetuals, such as high leverage and auto-deleveraging, are not inherent to the contracts themselves but rather a result of how certain crypto exchanges have chosen to implement them. Wilson emphasized that the true nature of perpetual futures is often misunderstood, with many attributes being a function of the exchange's design choices rather than the product itself. As interest in integrating perpetual futures into regulated U.S.
markets grows, with several exchanges exploring their launch beyond the crypto sphere, Wilson's comments are particularly pertinent. He advocates for a distinction between the contract and its implementation, suggesting that technological advancements in digital payment rails can enhance risk management. Unlike traditional futures markets, which calculate margin once daily, digital platforms can offer real-time settlement, thereby reducing the need for large initial margin buffers and allowing for more efficient risk management. Wilson is not a proponent of auto-deleveraging, stating it is not a necessary component of perpetual futures.
Instead, he believes that the genuine innovation of perpetual futures lies in their ability to eliminate the need for frequent contract rollovers, thus reducing transaction costs and allowing positions to more accurately reflect market movements. Wilson urges regulators to focus on the economic substance of perpetual futures rather than their legal classification, arguing that they should be treated as futures, given their economic equivalence. Ultimately, he proposes that perpetual futures should be made available across a wider range of markets, including commodities, securities, and crypto, as they offer a valuable tool for price discovery and risk management.