The concept of perpetual futures has become a cornerstone of crypto finance, but DRW CEO Don Wilson believes 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.
Features like 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. Several exchanges are exploring the launch of perpetual futures beyond crypto, but questions remain about how these products should be regulated. Wilson argues 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.
However, he emphasizes that these choices should not be confused with the fundamental nature of perpetual futures. Instead, Wilson believes that digital payment systems can improve risk management by allowing for real-time settlement and continuous margin recalculation. This can reduce the need for large initial margin buffers and minimize the risk of significant market movements. Wilson also stresses that the true innovation of perpetual futures lies in their ability to eliminate the need for repeated contract rollovers, thereby reducing transaction costs and allowing positions to track the front of the futures curve more closely.
He urges regulators to focus on the economic substance of perpetual futures rather than their legal labels, arguing that they should be treated as futures rather than swaps. Ultimately, Wilson advocates for the broader adoption of perpetual futures across various markets, including commodities, securities, and crypto, as a tool for price discovery and risk management.