The concept of perpetual futures has become a cornerstone of the crypto financial landscape, but according to DRW CEO Don Wilson, common misconceptions surround these products. In a series of posts, Wilson clarifies that perpetual futures, or 'perps,' are essentially futures contracts without an expiration date. Features like high leverage, auto-deleveraging, and continuous trading are not inherent to perpetual futures themselves but rather characteristics of how some crypto exchanges have chosen to implement them. Wilson emphasizes that the true nature of perpetual futures is often misunderstood, with many attributes associated with them being a result of exchange-specific design choices rather than the contracts themselves.
As interest grows in introducing perpetual futures into regulated U.S. markets, Wilson's comments shed light on the need for a nuanced understanding of these products. Unlike traditional futures, crypto exchanges operate around the clock, utilizing digital collateral and real-time margin calculations, which has enabled them to offer higher leverage and alternative liquidation mechanisms. However, Wilson cautions against confusing these operational aspects with the fundamental nature of perpetual futures.
He expresses skepticism towards auto-deleveraging, suggesting it is not an essential component of perpetual futures and that digital payment systems can enhance risk management by facilitating real-time settlement and continuous margin recalculation. This approach can reduce the need for large initial margin buffers, as required by traditional clearinghouses, which typically calculate margin once a day. Wilson sees the true innovation of perpetual futures in their ability to eliminate the need for frequent contract rollovers, thereby reducing transaction costs and allowing for more precise tracking of the futures curve.
He advocates for regulators to focus on the economic substance of perpetual futures rather than their legal classification, arguing that they should be treated as futures, not swaps, due to their economic nature. Ultimately, Wilson believes perpetual futures should be made available across a broader range of markets, including commodities, securities, and crypto, as they offer a valuable tool for price discovery and risk management.