The concept of perpetual futures has become a cornerstone of the cryptocurrency market, but according to DRW CEO Don Wilson, there are many misconceptions surrounding this product. In a series of posts, Wilson clarified that perpetual futures, or 'perps,' are essentially futures contracts without an expiration date.
The high leverage, auto-deleveraging, and round-the-clock trading often associated with crypto perpetuals are characteristics 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 and market participants are exploring the launch of perpetual futures beyond the crypto space, although questions remain about how these products should be regulated. Wilson emphasized that the design choices made by crypto exchanges, such as high leverage and alternative liquidation mechanisms, should not be confused with the perpetual futures themselves.
Instead, he 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, exchanges with real-time settlement can recalculate margin continuously, reducing the need for large upfront margin requirements while maintaining the same level of protection. Wilson believes 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 and allowing positions to more closely track the front of the futures curve.
He urged 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. Ultimately, Wilson advocates for the broader availability of perpetual futures across various markets, including commodities, securities, and cryptocurrencies, viewing them as a valuable tool for price discovery and risk management.