The concept of perpetual futures has become a cornerstone of crypto finance, 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 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's insights come at a time when there's growing interest in introducing perpetual futures into regulated U.S.
markets, with several exchanges exploring their launch beyond crypto. However, questions persist about how these products should be regulated.
Wilson argued that the technological advancements in crypto exchanges, such as continuous operation and real-time margin calculations, have enabled the offering of products with higher leverage but should not be confused with the inherent nature of perpetual futures. Instead, he believes these advancements can improve risk management. The real innovation of perpetual futures, Wilson noted, lies in their ability to eliminate the need for frequent contract rollovers, thereby reducing costs and allowing for more accurate tracking of market trends.
He urged regulators to focus on the economic substance of perpetual futures rather than their legal classification, emphasizing that they should be treated as futures, not swaps, and made available across various markets for enhanced price discovery and risk management.