The concept of perpetual futures has become a cornerstone of crypto finance, but according to DRW CEO Don Wilson, common perceptions about them are misguided. In a series of posts, Wilson clarified that perpetual futures, or 'perps,' are essentially futures contracts without an expiration date.
Characteristics often associated with crypto perpetuals, such as high leverage and auto-deleveraging, are not inherent to the contracts but rather a result of how some crypto exchanges have chosen to implement them. Wilson's comments come at a time when there is growing interest in introducing perpetual futures into regulated US markets, with several exchanges exploring their launch beyond crypto.
Unlike traditional futures markets, crypto exchanges operate continuously and utilize digital collateral, allowing for real-time margin calculations and higher leverage. Wilson emphasized that these design choices should not be confused with the fundamental nature of perpetual futures. Instead, he argued that digital payment systems can enhance risk management by enabling continuous margin recalculation and immediate collateral posting, thereby reducing the need for large initial margin buffers. The true innovation of perpetual futures, according to Wilson, lies in their ability to eliminate the need for frequent contract rollovers, thus reducing transaction costs and allowing positions to closely track the front of the futures curve.
Wilson urged regulators to focus on the economic substance of perpetual futures rather than their legal classification, stating that they should be treated as futures, not swaps, and made available across various markets, including commodities, securities, and crypto, as a tool for price discovery and risk management.