The concept of perpetual futures has become a cornerstone of crypto finance, but according to Don Wilson, CEO of DRW, there are many misconceptions surrounding this product. In a series of posts, Wilson explained that perpetual futures, or 'perps,' are essentially futures contracts without an expiration date. The characteristics often associated with crypto perpetuals, such as high leverage and auto-deleveraging, are a result of how some 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 exchanges are exploring the launch of perpetual futures beyond crypto, but there are still questions about how these products should be regulated. Unlike traditional futures markets, crypto exchanges operate continuously and use digital collateral, allowing for real-time margin calculations and higher leverage.
Wilson argued that these design choices should not be confused with the nature of perpetual futures. Instead, he believes that digital payment systems can improve risk management by enabling real-time settlement and reducing the need for large upfront margin requirements.
The true innovation of perpetual futures, according to Wilson, lies in their ability to eliminate the need for investors to repeatedly roll over expiring contracts, thereby reducing transaction costs and market impact. He urged regulators to focus on the economic substance of perpetual futures rather than their legal labels, and to make them available across a broader range of markets, including commodities, securities, and crypto.