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 online 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 continuous trading, are not inherent to the contracts themselves but rather a result of how some crypto exchanges have chosen to implement them. Wilson emphasized that most of what people think they know about 'perps' is actually unrelated to the contract itself.
His comments come at a time when there is growing interest in introducing perpetual futures into regulated US markets, with several exchanges exploring the launch of these products beyond crypto. However, questions remain about how they should be regulated and whether they fit into existing frameworks.
Wilson argued that technological advancements, such as digital collateral and real-time margin calculations, have enabled exchanges to offer products with higher leverage and alternative liquidation mechanisms. Nevertheless, he believes these design choices should not be confused with the nature of 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 also pointed out that the true innovation of perpetual futures lies in their ability to eliminate the need for frequent contract rollovers, which reduces transaction costs and allows positions to more accurately track market movements. Wilson urged regulators to focus on the economic substance of perpetual futures rather than their legal classification, stating that they should be treated as futures, not swaps, regardless of their lack of expiration date. Ultimately, he advocated 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.