The concept of perpetual futures has become a cornerstone of crypto's financial landscape, 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 characteristics often associated with crypto perpetuals, such as high leverage and auto-deleveraging, are a result of how some crypto 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 crypto, although questions remain about how these products should be regulated. Wilson emphasized that the design choices made by crypto exchanges, such as operating continuously and using digital collateral, have enabled them to offer products with higher leverage and alternative liquidation mechanisms.
However, he argued that these design choices should not be confused with the perpetual futures themselves. Instead, Wilson believes that digital payment rails create opportunities to improve risk management.
Traditional clearinghouses typically calculate margin once a day, which can lead to significant market movements and require large initial margin buffers. 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 also highlighted the innovation of perpetual futures, which eliminates the need for investors to repeatedly roll expiring contracts, reducing transaction costs and market impact. 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, not swaps. Ultimately, Wilson advocated for perpetual futures to be available across a broader range of markets, including commodities, securities, and crypto, as a tool for price discovery and risk management.