The concept of perpetual futures has become a cornerstone of the crypto financial landscape, but according to DRW CEO Don Wilson, many prevailing notions about this product are misguided. In a series of posts, Wilson clarified that perpetual futures, or 'perps,' are essentially futures contracts that lack an expiration date.
Characteristics commonly associated with crypto perpetuals, such as high leverage and auto-deleveraging, are not inherent to the contracts themselves but rather a result of how certain crypto exchanges have chosen to implement them. Wilson emphasized that the distinction between the contract and its implementation is crucial, stating, 'Most of what people think they know about 'perps' ... has nothing to do with the contract itself.' As interest in introducing perpetual futures to regulated U.S.
markets grows, with several exchanges exploring their launch beyond the crypto sphere, Wilson's comments are particularly pertinent. He suggests that the technological capabilities of crypto exchanges, such as continuous operation and real-time margin calculation, have enabled the creation of products with higher leverage and alternative liquidation mechanisms.
However, Wilson argues that these design choices should not be conflated with the fundamental nature of perpetual futures. Instead, he believes that digital payment systems can enhance risk management by facilitating real-time settlement and continuous margin recalculation, thereby reducing the need for large initial margin buffers.
Wilson also highlighted the innovation that perpetual futures bring by eliminating the need for investors to repeatedly roll over expiring contracts, which in turn reduces transaction costs and allows positions to more closely track market movements. He urged regulators to focus on the economic substance of perpetual futures rather than their legal classification, asserting, 'Economically, they're futures.' Ultimately, Wilson advocates for the broader adoption 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 product exclusive to the crypto domain.