The concept of perpetual futures has become a cornerstone of the crypto financial landscape, but according to DRW CEO Don Wilson, many prevailing notions 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 commonly associated with crypto perpetuals, such as high leverage and auto-deleveraging, 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 linked to perpetual futures are a result of the technological capabilities of crypto exchanges, which operate continuously and utilize digital collateral, allowing for real-time calculation of margin requirements.
Unlike traditional futures markets, this setup enables the offering of products with higher leverage and alternative liquidation mechanisms. Wilson argued that these design choices should not be misconstrued as fundamental aspects of perpetual futures. Instead, he suggested that the true innovation of perpetual futures lies in their ability to eliminate the need for repeated contract rollovers, thereby reducing transaction costs and allowing for more accurate tracking of the futures curve.
Wilson also advocated for regulators to focus on the economic substance of perpetual futures rather than their legal classification, stating that they should be viewed as a tool for price discovery and risk management across various markets, including commodities, securities, and crypto.