The concept of perpetual futures has become a cornerstone of crypto's financial landscape, yet DRW's CEO, Don Wilson, believes that 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 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 are particularly relevant as there is a growing interest in introducing perpetual futures into regulated U.S.
markets. Several market participants are exploring the launch of perpetual futures beyond the crypto sphere, although regulatory questions persist.
Wilson emphasized that the technological capabilities of 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 cautioned against confusing these design choices with the nature of perpetual futures themselves.
Instead, Wilson highlighted the potential of digital payment systems to enhance risk management. Unlike traditional clearinghouses that calculate margins once a day, exchanges can recalculate margins continuously and require immediate collateral posting, thereby reducing the need for large initial margin buffers.
Wilson argued that the true innovation of perpetual futures lies in their ability to eliminate the need for frequent contract rollovers, thus reducing transaction costs and allowing positions to closely track the front of the futures curve. He urged regulators to focus on the economic substance of perpetual futures rather than their legal classification, emphasizing that they should be treated as futures, not swaps, due to their economic nature. Ultimately, Wilson advocated for the broader availability of perpetual futures across various markets, including commodities, securities, and crypto, viewing them as a valuable tool for price discovery and risk management.