The concept of perpetual futures has become a cornerstone of the crypto financial landscape, but according to DRW CEO Don Wilson, much of the existing knowledge about them is misguided. In a series of posts, Wilson clarified that perpetual futures, or 'perps,' are essentially futures contracts without an expiration date. The features commonly associated with crypto perpetuals, such as high leverage and auto-deleveraging, are a result of how certain crypto exchanges have chosen to implement these products, rather than inherent characteristics of the contracts themselves. Wilson's 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 the crypto space, although questions remain about how these products should be regulated. Wilson emphasized that the design choices of crypto exchanges, such as continuous operation and digital collateral, have enabled the offering of products with higher leverage and alternative liquidation mechanisms. However, he argued that these design choices should not be confused with the inherent nature of perpetual futures.
Instead, Wilson suggested that digital payment systems can improve risk management by allowing for real-time settlement and margin recalculation. This can reduce the need for large upfront margin requirements while maintaining the same level of protection. Wilson also highlighted the innovation of perpetual futures in eliminating the need for investors to repeatedly roll expiring contracts, thereby reducing transaction costs and market impact.
He urged regulators to focus on the economic substance of perpetual futures rather than their legal labels, arguing that they should be treated as futures rather than swaps. Ultimately, Wilson advocated for the availability of perpetual futures across a broader range of markets, including commodities, securities, and crypto, as a tool for price discovery and risk management.