The concept of perpetual futures has become a cornerstone of the crypto 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.
The characteristics commonly associated with 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 often linked to perpetual futures are a function of the exchanges' design choices, not the contracts. His comments come at a time when there is growing interest in introducing perpetual futures into regulated U.S.
markets, with several exchanges exploring the launch of these products beyond the crypto space. However, questions remain regarding how these products should be regulated and whether they fit within existing frameworks. Wilson argued that the technological differences between traditional and crypto exchanges, such as continuous operation and real-time margin calculations, have enabled the offering of products with higher leverage and alternative liquidation mechanisms.
Nonetheless, he stressed that these design choices should not be confused with the nature of perpetual futures themselves. Instead, Wilson highlighted the potential of digital payment systems to enhance risk management, allowing for real-time settlement and the recalculation of margin requirements. This, he suggested, could reduce the need for large initial margin buffers and provide a more efficient way to manage risk.
Wilson also emphasized the innovation that perpetual futures bring by eliminating the need for repeated contract rolls, thus reducing transaction costs and market impact. He urged regulators to focus on the economic substance of perpetual futures rather than their legal classification, arguing that they should be treated as futures, not swaps, due to their economic nature. 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.