The concept of perpetual futures has become a cornerstone of crypto's financial landscape, but according to DRW CEO Don Wilson, common perceptions about them are often misguided. In a series of posts, Wilson clarified that perpetual futures, or 'perps,' are essentially futures contracts without an expiration date. Characteristics such as high leverage, auto-deleveraging, and continuous trading are not inherent to the contracts themselves but rather a result of how some crypto exchanges have chosen to implement them. Wilson emphasized that the features often associated with crypto perpetuals are 'not the contract itself,' but rather a byproduct of the exchanges' design choices.
As interest grows in introducing perpetual futures into regulated U.S. markets, Wilson's comments shed light on the need for regulators to understand the true nature of these financial products. Unlike traditional futures, crypto exchanges operate around the clock, utilizing digital collateral and real-time margin calculations, which has allowed for the creation of products with higher leverage and alternative liquidation mechanisms.
However, Wilson cautioned against confusing these design choices with the inherent qualities of perpetual futures. He expressed his disapproval of auto-deleveraging, stating that it is not a necessary component of perpetual futures. Instead, Wilson highlighted the potential of digital payment systems to enhance risk management. Traditional clearinghouses typically calculate margins once daily, requiring market participants to post additional collateral by the next business day.
In contrast, real-time settlement enables exchanges to continuously recalculate margins and require immediate collateral posting, thereby reducing the need for large initial margin buffers while maintaining protection. Wilson argued that the true innovation of perpetual futures lies in their ability to eliminate the need for repeated contract rollovers, resulting in lower transaction costs, reduced market impact, and minimized roll slippage. This allows 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 classification, emphasizing that 'economically, they're futures.' Ultimately, Wilson advocated for the broader availability of perpetual futures across various markets, including commodities, securities, and crypto, viewing them as a valuable tool for price discovery and risk management rather than a crypto-specific innovation.