The concept of perpetual futures has become a cornerstone of cryptocurrency finance, but according to DRW CEO Don Wilson, common perceptions about them are misguided. In a series of online posts, Wilson explained 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 characteristics of how certain exchanges have chosen to implement these products, rather than inherent features 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 cryptocurrency, although questions remain about how these products should be regulated and whether they fit within existing frameworks. Wilson emphasized that the design choices made by crypto exchanges, such as operating continuously and using digital collateral, have allowed for the offering of products with higher leverage and alternative liquidation mechanisms.

However, he argued that these choices should not be confused with the nature of perpetual futures themselves. Instead, Wilson believes that digital payment systems create opportunities for improved risk management. Traditional clearinghouses typically calculate margin requirements once a day, with market participants having until the next business day to post additional collateral.

In contrast, exchanges with real-time settlement can recalculate margin continuously and require traders to post collateral immediately, reducing the need for large upfront margin requirements while maintaining the same level of protection. Wilson argued that the true innovation of perpetual futures lies in their ability to eliminate the need for investors to repeatedly roll over expiring contracts, thereby reducing transaction costs, market impact, and roll slippage. He 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 nature. Ultimately, Wilson called for perpetual futures to be made available across a broader range of markets, including commodities, securities, and cryptocurrency, arguing that they should be viewed as a tool for price discovery and risk management rather than a crypto-specific innovation.