The concept of perpetual futures has become a cornerstone of crypto finance, but according to DRW CEO Don Wilson, common perceptions about 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 not inherent to the contracts themselves but rather a result of how some crypto exchanges have chosen to implement them. Wilson emphasized that the features of perpetual futures are often misunderstood, with many attributes being a function of the exchange's design rather than the product itself.
As interest in introducing perpetual futures to regulated U.S. markets grows, with several exchanges exploring their launch beyond crypto, Wilson's comments are particularly pertinent. He advocates for a distinction between the contract and its implementation, suggesting that technological advancements in digital payment rails can enhance risk management.
Unlike traditional futures markets, which calculate margin requirements daily, digital exchanges can do so in real-time, potentially reducing the need for large initial margin buffers. Wilson argues that the true innovation of perpetual futures lies in their ability to eliminate the need for frequent contract rolls, thereby reducing costs and allowing for more accurate tracking of market movements. He urges regulators to focus on the economic substance of perpetual futures rather than their legal classification, asserting that they should be treated as futures, not swaps, and made available across various markets for broader financial inclusion and efficiency.