The concept of perpetual futures has become a cornerstone of crypto's financial landscape, but according to DRW CEO Don Wilson, much of the common understanding surrounding these products is misguided. In a series of posts, Wilson clarified 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 not inherent to the contracts themselves, but rather a result of how some crypto exchanges have chosen to implement them. Wilson's comments come at a time when there is growing interest in introducing perpetual futures into regulated US markets.
Several exchanges and market participants are exploring the launch of perpetual futures beyond crypto, although questions remain about how these products should be regulated. Wilson emphasized that the design choices of crypto exchanges, such as continuous operation and digital collateral, should not be confused with the fundamental nature of perpetual futures. Instead, he argued that digital payment systems can improve risk management by enabling real-time settlement and reducing the need for large initial margin buffers. Wilson also stressed that perpetual futures eliminate the need for investors to repeatedly roll over expiring contracts, thereby reducing transaction costs and allowing positions to more closely track the front of the futures curve.
He urged regulators to focus on the economic substance of perpetual futures, rather than their legal labels, 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.