The concept of perpetual futures has become a cornerstone of the crypto financial landscape, 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 linked to 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 most of what people believe about 'perps' is unrelated to the fundamental nature of the contract.
His comments come at a time when there is growing interest in introducing perpetual futures into regulated U.S. markets, with several exchanges exploring their launch beyond the crypto sphere. However, questions about regulation and whether they fit within existing frameworks remain.
Wilson distinguishes between the design choices of crypto exchanges, such as continuous operation and real-time margin calculation, and the perpetual futures contracts themselves. He expressed his disapproval of auto-deleveraging, stating it is not a necessary component of perpetual futures.
Instead, Wilson highlighted the potential of digital payment systems to enhance risk management by allowing for real-time settlement and continuous margin recalculation, thereby reducing the need for large initial margin buffers. He argued that the true innovation of perpetual futures lies in their ability to eliminate the need for frequent contract rolls, thus reducing transaction costs and allowing for more accurate tracking of the futures curve. Wilson urged regulators to focus on the economic substance of perpetual futures rather than their legal classification, emphasizing that they are economically equivalent to futures and should not be treated as swaps solely due to their lack of expiration.
He concluded by advocating 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.