The concept of perpetual futures has become a cornerstone of the crypto financial landscape, 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.
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.
Several exchanges are exploring the launch of perpetual futures beyond the crypto sphere, but questions remain regarding their regulation and whether they fit within existing frameworks. Unlike traditional futures markets, crypto exchanges operate continuously, utilize digital collateral, and calculate margin requirements in real time, allowing for higher leverage and alternative liquidation mechanisms. Wilson emphasized that these design choices should not be conflated with perpetual futures themselves, stating that he is not a proponent of auto-deleveraging and sees no reason for its use in perps. Instead, Wilson argued that digital payment systems create opportunities for enhanced risk management.
Traditional clearinghouses typically calculate margin once daily, requiring market participants to post additional collateral by the following business day. However, with real-time settlement, exchanges can recalculate margin continuously, requiring traders to post collateral immediately and reducing the need for large upfront margin buffers. Wilson noted that the real innovation of perpetual futures lies in their ability to eliminate the need for repeated contract rolls, thereby reducing transaction costs, market impact, and roll slippage, while allowing positions to more closely track the front of the futures curve. He urged regulators to focus on the economic substance of perpetual futures rather than their legal labels, stating that they should be treated as futures, not swaps, and made available across a broader range of markets, including commodities, securities, and crypto.