The concept of perpetual futures has become a cornerstone of the cryptocurrency financial landscape, but according to DRW CEO Don Wilson, many prevailing notions about these products are misguided. In a series of posts, Wilson emphasized that perpetual futures, or 'perps,' are essentially futures contracts without an expiration date. The characteristics commonly associated with crypto perpetuals, such as high leverage and auto-deleveraging, are not inherent to the contracts themselves but rather a result of how certain 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, with several exchanges and market participants exploring the launch of these products beyond the crypto space. Wilson argues that the technological advancements in crypto exchanges, such as continuous operation and real-time margin calculations, have enabled the creation of products with higher leverage and alternative liquidation mechanisms. However, he stresses that these design choices should not be conflated with the fundamental nature of perpetual futures. Instead, Wilson believes that the true innovation of perpetual futures lies in their ability to eliminate the need for repeated contract rolls, thereby reducing transaction costs and allowing positions to more closely track the front of the futures curve.
He also urges regulators to focus on the economic substance of perpetual futures rather than their legal classification, arguing that they should be treated as futures contracts rather than swaps. Ultimately, Wilson advocates for the broader adoption of perpetual futures across various markets, including commodities, securities, and crypto, as a tool for price discovery and risk management.