The concept of perpetual futures has become a cornerstone of the cryptocurrency market, but DRW CEO Don Wilson believes that many misconceptions surround this product. In a series of posts, Wilson explained that perpetual futures, or 'perps', are essentially futures contracts without an expiration date. The characteristics commonly 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 the cryptocurrency space, although there are still questions about how these products should be regulated. Wilson argued that the design choices made by crypto exchanges, such as operating continuously and using digital collateral, should not be confused with the concept of perpetual futures. Instead, he believes that digital payment systems can improve risk management by allowing for real-time settlement and reducing the need for large upfront margin requirements. Wilson also emphasized that perpetual futures eliminate the need for investors to repeatedly roll over expiring contracts, resulting in lower transaction costs and reduced market impact.
He urged regulators to focus on the economic substance of perpetual futures rather than their legal labels, and to consider making them available across a broader range of markets, including commodities, securities, and cryptocurrencies.