Wall Street veteran Don Wilson says regulators are getting crypto's biggest trading innovation all wrong
DRW CEO Don Wilson argues that regulators are misunderstanding perpetual futures, a key financial product in the crypto market. He says the features often associated with crypto perpetuals are not inherent to the contracts themselves but rather a result of how some exchan…
Intelligence analysis by Llama
DRW CEO Don Wilson says regulators are getting perpetual futures wrong, arguing that the features often associated with crypto perpetuals are not inherent to the contracts themselves but rather a result of how some exchanges chose to implement them.
Imagine you have a contract to buy a house, but instead of having to buy the house every year, you can just keep the contract and make payments on it. That's basically what perpetual futures are in the crypto market. They're a way for people to invest in the future price of something without having to buy and sell it every year. But some people think that perpetual futures are too risky, and that's not true. They're just a tool for people to invest in the future, and they can be used for all sorts of things, not just crypto.
Analysis
A Misunderstood Innovation
Perpetual futures have become a defining feature of the crypto market, but DRW CEO Don Wilson says much of what people think they know about them is wrong. In a series of posts on X, Wilson argued that perpetual futures are simply futures contracts without an expiration date. The features often associated with crypto perpetuals, such as high leverage, auto-deleveraging (ADL), and around-the-clock trading, are characteristics of how some crypto exchanges chose to implement the products, not the contracts themselves.
Wilson's comments come as interest in bringing perpetual futures into regulated U.S. markets continues to grow. Several exchanges and market participants have explored launching perpetual futures beyond crypto, though questions remain over how the products should be regulated and whether they fit within existing futures or swaps frameworks. Kalshi, which saw perps trading explode shortly after launching, recently submitted a proposal with regulators to expand its offerings to precious metals.
The Real Innovation
Unlike traditional futures markets, crypto exchanges like Hyperliquid operate continuously, use digital collateral, and can calculate margin requirements in real time. Those technological differences allowed exchanges to offer products with higher leverage and alternative liquidation mechanisms, including ADL, which automatically reduces winning positions when losing traders cannot cover their losses. Wilson said those design choices should not be confused with perpetual futures themselves.
A Call to Action
Wilson said the real innovation of perpetual futures is that they eliminate the need for investors to repeatedly roll expiring contracts, reducing transaction costs, market impact, and roll slippage while allowing positions to more closely track the front of the futures curve. He also urged regulators to focus on economic substance rather than legal labels. "There's no reason to treat perpetuals as swaps simply because they don't expire," Wilson wrote. "Economically, they're futures."
Key points
- Perpetual futures are simply futures contracts without an expiration date.
- The features often associated with crypto perpetuals are characteristics of how some exchanges chose to implement the products, not the contracts themselves.
- DRW CEO Don Wilson argues that regulators should focus on economic substance rather than legal labels.
- Perpetual futures eliminate the need for investors to repeatedly roll expiring contracts, reducing transaction costs and market impact.
If regulators can understand the true nature of perpetual futures, they may be able to create a more favorable environment for their adoption in traditional markets. This could lead to increased price discovery and risk management opportunities for investors.
If regulators continue to misunderstand perpetual futures, they may impose overly restrictive regulations that could stifle innovation and limit the potential of these financial products.
