The concept of perpetual futures has become a cornerstone of the crypto industry, but according to DRW CEO Don Wilson, many prevailing notions about them are misguided. In a series of posts, Wilson clarified that perpetual futures, or 'perps,' are essentially futures contracts without an expiration date. The characteristics often linked to crypto perpetuals, such as 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 emphasized that the features associated with perpetual futures in the crypto space are not a reflection of the product's fundamental nature. His 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 space, but regulatory questions remain. Wilson argued that the technological advancements in crypto exchanges, such as continuous operation and real-time margin calculations, have enabled the creation of products with higher leverage and alternative liquidation mechanisms.
However, he stressed that these design choices should not be conflated with the inherent characteristics of perpetual futures. Instead, Wilson suggested that digital payment systems can enhance risk management by facilitating real-time settlement and reducing the need for large initial margin buffers. He also noted that the true innovation of perpetual futures lies in their ability to eliminate the need for frequent contract rollovers, thereby reducing transaction costs and allowing positions to more accurately track the front of the futures curve. Wilson urged regulators to focus on the economic substance of perpetual futures rather than their legal classification, arguing that they should be treated as futures contracts rather than swaps.
Ultimately, he advocated for the broader adoption of perpetual futures across various markets, including commodities, securities, and crypto, as a tool for price discovery and risk management.