The concept of perpetual futures has become a cornerstone of the cryptocurrency market, but according to DRW CEO Don Wilson, many common perceptions about them are misguided. In a recent series of posts, Wilson clarified that perpetual futures, or 'perps,' are essentially futures contracts without an expiration date.
The characteristics often linked to crypto perpetuals, such as high leverage and auto-deleveraging, are a result of how certain 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 are exploring the launch of perpetual futures beyond the crypto space, but there are still questions about how these products should be regulated.
Wilson emphasized that the design choices made by exchanges, such as offering high leverage and alternative liquidation mechanisms, should not be confused with the nature of perpetual futures. Instead, he suggested that digital payment systems can improve risk management by enabling real-time settlement and reducing the need for large initial margin buffers.
Wilson argued that the true innovation of perpetual futures lies in their ability to eliminate the need for repeated contract rolls, thereby reducing transaction costs and allowing positions to track the front of the futures curve more closely. 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.