The concept of perpetual futures has become a staple in the world of cryptocurrency, but according to DRW CEO Don Wilson, there are many misconceptions surrounding this financial product. In a series of posts, Wilson explained that perpetual futures, or 'perps,' are essentially futures contracts without an expiration date. The high leverage, auto-deleveraging, and around-the-clock trading often associated with crypto perpetuals are not characteristics of the contracts themselves, but rather a result of how some crypto exchanges have chosen to implement them.
Wilson emphasized that most of what people think they know about 'perps' is actually unrelated to the contract itself. His comments come at a time when there is growing interest in bringing perpetual futures into regulated US markets. Several exchanges and market participants are exploring the launch of perpetual futures beyond cryptocurrency, but there are still questions about how these products should be regulated and whether they fit within existing frameworks.
Wilson argued that the design choices made by crypto exchanges, such as using digital collateral and calculating margin requirements in real-time, should not be confused with perpetual futures. He also expressed his dislike for auto-deleveraging, stating that it is not a necessary component of perpetual futures. Instead, Wilson believes that digital payment rails can improve risk management by allowing for real-time settlement and continuous margin recalculation. This can reduce 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 called for perpetual futures to be made available across a broader range of markets, including commodities, securities, and cryptocurrency, and to be viewed as a tool for price discovery and risk management rather than a crypto-specific innovation.