The concept of perpetual futures has been widely misunderstood, according to Don Wilson, CEO of DRW. In a series of posts, Wilson clarified that perpetual futures, also known as 'perps', are essentially futures contracts without an expiration date. The characteristics often associated with crypto perpetuals, such as high leverage and auto-deleveraging, are a result of how some crypto exchanges have chosen to implement these products, rather than a fundamental aspect of the contracts themselves.
Wilson's comments come at a time when there is growing interest in introducing perpetual futures into regulated US markets. He emphasized that the design choices made by crypto exchanges should not be confused with the nature of perpetual futures. Instead, Wilson argued that digital payment systems can enhance risk management by enabling real-time settlement and continuous margin recalculation.
This can reduce the need for large upfront margin requirements while maintaining the same level of protection. Wilson also pointed out that the true innovation of perpetual futures lies in their ability to eliminate the need for investors to repeatedly roll over expiring contracts, thereby reducing transaction costs and 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, and to make them available across a broader range of markets, including commodities, securities, and crypto.