The concept of perpetual futures has become a cornerstone of the cryptocurrency market, but according to Don Wilson, CEO of DRW, there are many misconceptions surrounding this product. In a series of posts, Wilson clarified that perpetual futures, also known as '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 unique features of crypto exchanges, such as continuous operation, digital collateral, and real-time margin calculation, 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 argued that digital payment systems can improve risk management by allowing for real-time settlement and continuous margin recalculation, reducing the need for large upfront margin buffers.
He believes that the true innovation of perpetual futures lies in their ability to eliminate the need for repeated contract rollovers, resulting in lower transaction costs and reduced market impact. Wilson urged regulators to focus on the economic substance of perpetual futures rather than their legal labels, and to consider making them available across a broader range of markets, including commodities, securities, and cryptocurrencies.