The concept of perpetual futures has become a cornerstone of the crypto financial landscape, but DRW CEO Don Wilson believes that common perceptions about them are misguided. In a series of posts, Wilson explained that perpetual futures, or 'perps,' are essentially futures contracts that lack an expiration date. Features such as high leverage, auto-deleveraging, and continuous trading are characteristics of how certain crypto exchanges have chosen to implement these products, rather than inherent properties 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 sphere, although questions remain regarding their regulation and whether they fit within existing frameworks. Unlike traditional futures markets, crypto exchanges operate continuously, utilize digital collateral, and calculate margin requirements in real-time, allowing for the offer of products with higher leverage and alternative liquidation mechanisms. Wilson emphasized that these design choices should not be conflated with perpetual futures themselves, stating that he is not a fan of auto-deleveraging and that it is not necessary for 'perps.' Instead, Wilson argued that digital payment systems create opportunities for improved risk management.
Traditional clearinghouses typically calculate margin once a day, requiring market participants to post additional collateral by the following business day. In contrast, real-time settlement enables exchanges to recalculate margin continuously, allowing traders to post collateral immediately and reducing the need for large upfront margin requirements while maintaining the same level of protection.
Wilson noted that the true innovation of perpetual futures lies in their ability to eliminate the need for investors to repeatedly roll expiring contracts, thereby reducing transaction costs, market impact, and roll slippage, while allowing positions to more closely track the front of the futures curve. He urged regulators to focus on economic substance rather than legal labels, emphasizing that perpetual futures should be treated as futures, rather than swaps, due to their economic characteristics.
Ultimately, Wilson advocated for the broader availability of perpetual futures across various markets, including commodities, securities, and crypto, arguing that they should be viewed as a tool for price discovery and risk management, rather than a crypto-specific innovation.