Perpetual futures have become a defining financial product in the crypto space, but DRW CEO Don Wilson asserts that many common perceptions about them are inaccurate. In a series of posts, Wilson explained that perpetual futures, or 'perps,' are essentially futures contracts without an expiration date.
The characteristics often associated with crypto perpetuals, such as high leverage and auto-deleveraging, are a result of how some crypto exchanges have chosen to implement these products, rather than inherent features of the contracts themselves. Wilson's comments come as there is growing interest in introducing perpetual futures into regulated US markets. Several exchanges and market participants have explored launching perpetual futures beyond crypto, although there are still questions about how these products should be regulated. Unlike traditional futures markets, crypto exchanges operate continuously and use digital collateral, allowing for real-time calculation of margin requirements.
Wilson argues that these design choices should not be confused with the concept of perpetual futures. Instead, he believes that digital payment systems can improve risk management by enabling real-time settlement and reducing the need for large upfront margin requirements. The true innovation of perpetual futures, according to Wilson, lies in their ability to eliminate the need for investors to repeatedly roll over expiring contracts, thereby reducing transaction costs and allowing positions to more closely track the market.
Wilson urges regulators to focus on the economic substance of perpetual futures rather than their legal labels, arguing that they should be treated as futures contracts rather than swaps. He concludes by advocating for the broader adoption of perpetual futures across various markets, including commodities, securities, and crypto, as a tool for price discovery and risk management.