The concept of perpetual futures has been widely misunderstood, claims DRW CEO Don Wilson. In a series of online posts, Wilson emphasized that perpetual futures, or 'perps,' are essentially futures contracts without an expiration date. The high-leverage and auto-deleveraging features often associated with crypto perpetuals are a result of how some exchanges have chosen to implement these products, rather than inherent characteristics 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 about how these products should be regulated.
Wilson argues that the technological differences between traditional futures markets and crypto exchanges have enabled the latter to offer products with higher leverage and alternative liquidation mechanisms. However, he believes that these design choices should not be confused with the fundamental nature of perpetual futures.
Instead, Wilson suggests that digital payment systems can improve risk management by allowing for real-time settlement and margin recalculation. This can reduce the need for large upfront margin requirements while maintaining the same level of protection. Wilson also highlights the innovation of perpetual futures in eliminating the need for investors to repeatedly roll expiring contracts, which reduces transaction costs and allows positions to more closely track the front of the futures curve.
He urges regulators to focus on the economic substance of perpetual futures rather than their legal labels, arguing that they should be treated as futures, not swaps. Ultimately, Wilson advocates for the broader adoption of perpetual futures across various markets, including commodities, securities, and crypto, as a tool for price discovery and risk management.