The concept of perpetual futures has become a cornerstone of crypto finance, but according to DRW CEO Don Wilson, common perceptions about them are misguided. In a series of posts, Wilson explained that perpetual futures, or 'perps,' are essentially futures contracts without an expiration date. Characteristics often linked to 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 emphasized that the features associated with perpetual futures in crypto are not a defining aspect of the product. His comments come at a time when there is growing interest in introducing perpetual futures into regulated US markets, with several exchanges exploring their launch beyond the crypto space.
However, questions remain about how these products should be regulated. Wilson argued that the technological advancements in crypto exchanges, such as continuous operation and real-time margin calculation, have enabled the offering of products with higher leverage but that these should not be confused with the inherent nature of perpetual futures. Instead, he suggested that digital payment systems can enhance risk management by allowing for real-time settlement and continuous margin recalculation, thereby reducing the need for large initial margin buffers.
Wilson sees the true innovation of perpetual futures as their ability to eliminate the need for repeated contract rolls, thus reducing transaction costs and allowing positions to more accurately track market movements. He urged 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, and made available across a broader range of markets for price discovery and risk management.