The concept of perpetual futures has become a cornerstone of crypto finance, but according to DRW CEO Don Wilson, common perceptions about these products are misguided. In a series of online 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 themselves but rather a result of how some crypto exchanges have chosen to implement them. Wilson emphasized that the features of perpetual futures are often misunderstood, stating that 'most of what people think they know about perps has nothing to do with the contract itself.' His comments come at a time when there is growing interest in introducing perpetual futures into regulated U.S. markets, with several exchanges exploring the launch of these products beyond the crypto space. However, questions remain regarding how these products should be regulated and whether they fit within existing frameworks for futures or swaps.
Wilson argued that the technological differences between traditional and crypto exchanges, such as continuous operation and real-time margin calculation, have enabled the creation of products with higher leverage and alternative liquidation mechanisms. Nevertheless, he believes these design choices should not be conflated with the inherent nature of perpetual futures. Instead, Wilson suggested that digital payment systems can enhance risk management by facilitating real-time settlement and continuous margin recalculation, thereby reducing the need for large initial margin buffers.
He advocated for regulators to focus on the economic substance of perpetual futures rather than their legal classification, asserting that 'there's no reason to treat perpetuals as swaps simply because they don't expire. Economically, they're futures.' Wilson concluded by advocating for the broader adoption 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 product unique to the crypto space.