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 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 come at a time when there is growing interest in introducing perpetual futures into regulated U.S. markets, with several exchanges exploring their launch beyond crypto. However, questions remain about how these products should be regulated.
Wilson emphasized that the design choices of crypto exchanges, such as operating continuously and using digital collateral, should not be confused with the nature of perpetual futures. Instead, he argued that digital payment systems can enhance risk management by allowing for real-time margin calculations and reducing the need for large initial margin buffers.
Wilson also noted that the true innovation of perpetual futures lies in their ability to eliminate the need for repeated contract rolls, thereby 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, stating that they should be treated as futures contracts rather than swaps. Ultimately, Wilson advocated for the broader adoption of perpetual futures across various markets, including commodities, securities, and crypto, as a tool for price discovery and risk management.