The concept of perpetual futures has become a staple in the crypto financial landscape, but according to DRW CEO Don Wilson, many misconceptions surround this product. In a series of posts, Wilson clarified that perpetual futures, or 'perps', are essentially futures contracts without an expiration date.
The high leverage, auto-deleveraging, and around-the-clock trading often associated with crypto perpetuals are characteristics of how some exchanges have chosen to implement these products, rather than inherent features of the contracts themselves. Wilson emphasized that the distinction between the contract and its implementation is crucial. As interest in introducing perpetual futures to regulated US markets grows, Wilson's comments are particularly relevant. Several exchanges are exploring the launch of perpetual futures beyond crypto, but regulatory questions remain.
Wilson argued that the technological differences between traditional and crypto exchanges, such as continuous operation and digital collateral, have enabled the creation of products with higher leverage and alternative liquidation mechanisms. However, he stressed that these design choices should not be confused with the perpetual futures themselves.
Instead, Wilson believes that digital payment rails can enhance risk management by allowing for real-time settlement and continuous margin recalculation. This can reduce the need for large upfront margin requirements while maintaining the same level of protection. Wilson also highlighted the innovation of perpetual futures in eliminating the need for investors to repeatedly roll expiring contracts, thereby reducing transaction costs and market impact.
He urged regulators to focus on the economic substance of perpetual futures rather than their legal labels, arguing that they should be treated as futures, not swaps. Ultimately, Wilson advocated for the broader availability of perpetual futures across various markets, including commodities, securities, and crypto, as a tool for price discovery and risk management.