The concept of perpetual futures has become a cornerstone of crypto's financial landscape, yet DRW CEO Don Wilson asserts that 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 US markets, with several exchanges exploring their launch beyond the crypto sphere.
However, questions persist about how these products should be regulated. Wilson emphasized that the technological advancements in crypto exchanges, such as continuous operation and real-time margin calculations, have enabled the offer of products with higher leverage and alternative liquidation mechanisms. Nonetheless, he cautioned against confusing these design choices with the nature of perpetual futures themselves. Wilson expressed his disapproval of auto-deleveraging, stating it is not a necessary component of perpetual futures.
Instead, he highlighted the potential of digital payment systems to enhance risk management by allowing for real-time settlement and continuous margin recalculation, thereby reducing the need for large initial margin buffers. The true innovation of perpetual futures, Wilson argued, lies in their ability to eliminate the need for repeated contract rollovers, thus reducing transaction costs and allowing positions to more accurately reflect the front of the futures curve.
He urged regulators to focus on the economic substance of perpetual futures rather than their legal classification, emphasizing that they should be treated as futures, not swaps, due to their economic nature. Wilson concluded by advocating for the broader availability of perpetual futures across various markets, including commodities, securities, and crypto, viewing them as a valuable tool for price discovery and risk management rather than a crypto-specific innovation.