The concept of perpetual futures has become a cornerstone of crypto's financial landscape, yet DRW CEO Don Wilson asserts that common perceptions about them are misguided. In a series of posts, Wilson clarifies 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 not inherent to the contracts themselves but rather a result of how some crypto exchanges have chosen to implement them. Wilson's comments are particularly relevant as interest in introducing perpetual futures into regulated U.S. markets grows, with several exchanges exploring their launch beyond the crypto sphere.
Unlike traditional futures, crypto exchanges operate continuously and utilize digital collateral, enabling real-time margin requirement calculations and the offer of higher leverage products. However, Wilson distinguishes these technological advancements from the nature of perpetual futures themselves, suggesting that design choices such as auto-deleveraging should not define the product.
Instead, he highlights the potential of digital payment systems to enhance risk management by facilitating real-time settlement and reducing the need for large initial margin buffers. Wilson advocates for regulators to focus on the economic substance of perpetual futures rather than their legal classification, emphasizing that they are economically equivalent to futures and should not be treated as swaps merely due to their lack of expiration. He concludes by advocating for the broader availability of perpetual futures across commodities, securities, and crypto, viewing them as a valuable tool for price discovery and risk management.