The concept of perpetual futures has become a cornerstone of the crypto financial landscape, 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 a result of how certain crypto exchanges have chosen to implement these products, rather than inherent features of the contracts themselves.
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 space. However, questions remain regarding how these products should be regulated and whether they fit within existing frameworks. Wilson emphasized that the design choices of crypto exchanges, such as continuous operation and digital collateral, have enabled the offering of products with higher leverage and alternative liquidation mechanisms.
He argued that these choices should not be confused with the nature of perpetual futures themselves, stating that he is not in favor of auto-deleveraging and that there is no inherent need for its use in perpetual futures. Instead, Wilson 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. He noted that whether exchanges choose to translate these efficiencies into higher leverage is a business decision, not a defining feature of perpetual futures.
The true innovation of perpetual futures, according to Wilson, lies in their ability to eliminate the need for repeated contract rolls, thereby reducing transaction costs and allowing positions to more closely track the front of the futures curve. Wilson 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, including commodities, securities, and crypto, as a tool for price discovery and risk management.