The concept of perpetual futures has become a cornerstone of the cryptocurrency financial landscape, but according to DRW CEO Don Wilson, much of the common knowledge surrounding these products is misguided. In a series of posts, Wilson clarified 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 not inherent to the contracts themselves but rather a result of how some crypto exchanges have chosen to implement them. Wilson emphasized that the features commonly linked to perpetual futures are 'not about the contract itself,' but rather about the design choices made by exchanges.
His comments come at a time when there is growing interest in introducing perpetual futures into regulated US markets, with several exchanges exploring their launch beyond the crypto sphere. However, questions remain regarding how these products should be regulated and whether they fit within existing frameworks.
Wilson argued that the technological differences allowing for continuous operation, digital collateral, and real-time margin calculations should not be confused with the inherent nature of perpetual futures. Instead, he suggested that digital payment systems offer opportunities for improved risk management, such as real-time settlement and continuous margin recalculation, which can reduce the need for large initial margin buffers. Wilson also noted that the true innovation of perpetual futures lies in their ability to eliminate the need for repeated contract rolls, thereby reducing transaction costs and allowing positions to more closely track market movements.
He urged regulators to focus on the economic substance of perpetual futures rather than their legal classification, stating that 'economically, they're futures.' Ultimately, Wilson advocated for the broader availability of perpetual futures across various markets, including commodities, securities, and crypto, viewing them as a valuable tool for price discovery and risk management rather than a crypto-specific innovation.