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 online posts, Wilson clarified that perpetual futures, or 'perps,' are essentially futures contracts without an expiration date. Characteristics often linked to crypto perpetuals, such as high leverage and auto-deleveraging, are actually 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 the crypto space, but questions remain about how these products should be regulated. Wilson emphasized that the design choices of crypto exchanges, such as operating continuously and using digital collateral, have enabled the offering of products with higher leverage, but these should not be confused with the nature of perpetual futures.
Instead, Wilson argued that advancements in digital payment systems can enhance risk management by allowing for real-time settlement and continuous margin recalculation. This can reduce the need for large initial margin requirements while maintaining protection for traders.
Wilson noted that the true innovation of perpetual futures lies in their ability to eliminate the need for frequent contract rollovers, thereby reducing transaction costs and allowing for more accurate tracking of market prices. He urged regulators to focus on the economic substance of perpetual futures rather than their legal definitions, suggesting that they should be treated as futures rather than swaps.
Ultimately, Wilson advocated for the broader adoption of perpetual futures across various markets, including commodities, securities, and crypto, as a tool for price discovery and risk management.