The concept of perpetual futures has become a cornerstone of crypto finance, but according to DRW CEO Don Wilson, prevailing views on the subject are misguided. Wilson recently expressed his thoughts on the matter in a series of posts, where he clarified that perpetual futures, or 'perps,' are essentially futures contracts without an expiration date. The high leverage, auto-deleveraging, and continuous trading often associated with crypto perpetuals are not inherent characteristics of the contracts themselves, but rather a result of how certain crypto exchanges have chosen to implement them. Wilson emphasized that most of what people think they know about 'perps' is actually unrelated to the contract itself.
His comments come at a time when there is growing interest in introducing perpetual futures into regulated US markets. Several exchanges and market participants are exploring the launch of perpetual futures beyond crypto, although questions remain regarding regulation and whether these products fit within existing frameworks.
Unlike traditional futures markets, crypto exchanges operate continuously, utilize digital collateral, and can calculate margin requirements in real time. These technological differences have enabled exchanges to offer products with higher leverage and alternative liquidation mechanisms. Wilson argued that these design choices should not be conflated with perpetual futures themselves, stating that he is not a proponent of auto-deleveraging and that it is not a necessary component of perps.
Instead, Wilson suggested that digital payment rails can enhance risk management. Traditional clearinghouses typically calculate margin on a daily basis, allowing market participants to post additional collateral by the following business day. However, with real-time settlement, exchanges can recalculate margin continuously and require traders to post collateral immediately, thereby reducing the need for large upfront margin requirements while maintaining the same level of protection. Wilson noted that whether exchanges choose to translate these efficiencies into higher leverage is a business decision, 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 investors to repeatedly roll expiring contracts, thus reducing transaction costs, market impact, and roll slippage while allowing positions to more closely track the front of the futures curve. Wilson urged regulators to focus on the economic substance of perpetual futures rather than their legal labels, emphasizing that they should be treated as futures, not swaps, due to their economic characteristics.
Ultimately, Wilson advocated for the broader availability of perpetual futures across various markets, including commodities, securities, and crypto, arguing that they should be viewed as a tool for price discovery and risk management rather than a crypto-specific innovation.