The concept of perpetual futures has become a cornerstone of the crypto financial landscape, but according to DRW CEO Don Wilson, many common perceptions surrounding this product 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 a result of how some 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 market participants are exploring the launch of perpetual futures beyond the crypto space, but questions remain about how these products should be regulated. Unlike traditional futures markets, crypto exchanges operate continuously and utilize digital collateral, allowing for real-time margin requirement calculations. Wilson emphasized that the design choices of crypto exchanges should not be confused with the fundamental nature of perpetual futures. Instead, he argued that digital payment systems can enhance risk management by enabling real-time settlement and continuous margin recalculation.
This can reduce the need for large initial margin buffers, as traders can be required to post collateral immediately. Wilson also noted 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 more closely track market prices. He urged regulators to focus on the economic substance of perpetual futures, rather than their legal classification, and to recognize them as a tool for price discovery and risk management that can be applied across various markets, including commodities, securities, and crypto.