The concept of perpetual futures has become a cornerstone of crypto's financial landscape, but according to DRW CEO Don Wilson, much of the existing knowledge about them is misguided. In a series of posts, Wilson clarified that perpetual futures, or 'perps,' are essentially futures contracts without an expiration date. Features often associated with crypto perpetuals, such as high leverage and auto-deleveraging, are characteristics of how some crypto exchanges have chosen to implement these products, rather than inherent properties of the contracts themselves. Wilson's comments come at a time when there is growing interest in introducing perpetual futures into regulated U.S.
markets, with several exchanges and market participants exploring their launch beyond the crypto space. However, questions remain about how these products should be regulated and whether they fit within existing frameworks.
Wilson emphasized that the design choices of crypto exchanges, such as continuous operation and digital collateral, have enabled the offer of products with higher leverage and alternative liquidation mechanisms. Nevertheless, he argued that these choices should not be confused with the nature of perpetual futures themselves. Instead, Wilson suggested that digital payment systems create opportunities to enhance risk management.
Unlike traditional clearinghouses, which calculate margin once a day, exchanges can recalculate margin in real-time and require traders to post collateral immediately, thereby reducing the need for large initial margin buffers. Wilson noted that the true innovation of perpetual futures lies in their ability to eliminate the need for repeated contract rolls, resulting in reduced transaction costs and market impact. He urged 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 advocated for the broader availability of perpetual futures across various markets, including commodities, securities, and crypto, viewing them as a valuable tool for price discovery and risk management.