Perpetual futures have become a cornerstone of cryptocurrency's financial landscape, but DRW CEO Don Wilson asserts that common perceptions about them are misguided. In a series of posts, Wilson explained that perpetual futures, or 'perps,' are essentially futures contracts without an expiration date.
Characteristics often linked to crypto perpetuals, such as high leverage and auto-deleveraging, are a result of how some 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 are exploring the launch of perpetual futures beyond cryptocurrency, although questions remain about how these products should be regulated. Unlike traditional futures markets, cryptocurrency exchanges operate continuously and utilize digital collateral, allowing for real-time margin calculations and alternative liquidation mechanisms. Wilson argues that these design choices should not be conflated with perpetual futures themselves, and that digital payment systems can enhance risk management by enabling continuous margin recalculation 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 repeated contract rolls, thereby reducing transaction costs and allowing positions to more closely track market movements. Wilson urges regulators to focus on the economic substance of perpetual futures rather than their legal classification, emphasizing that they should be treated as futures, not swaps, and made available across a broader range of markets for price discovery and risk management.