Don Wilson Wants to Bring Perpetual Futures to Wall Street

Key Takeaways

• DRW founder Don Wilson argues regulators misclassify perpetual futures as risky swaps rather than legitimate futures contracts.
• Commodity ETFs tracking assets like Brent crude lose performance to calendar roll slippage, which perpetual contracts would eliminate.
• Equity perpetuals would force hedge funds paying 100% annualized borrow rates on hard-to-borrow stocks to pay retail longs directly via funding rates.
• Wilson contends that perpetual contracts do not require crypto features like auto-deleveraging or 100x leverage to function efficiently in listed markets.

Commodity ETFs Lose Millions to Calendar Rolls

Traditional futures contracts expire. That simple fact creates a massive tax on commodity investors. When an ETF tracks oil, it buys the front-month contract. As expiration nears, the fund must sell that front contract and buy the next month out. When the market is in contango, the outer month costs more than the expiring one. The ETF sells low and buys high, month after month, bleeding value even if spot oil prices stay flat.

Wilson points to perpetual contracts as the obvious cure. “Now imagine a perp that is tied to, let's say, the Brent index, okay? And an ETF that just buys that that perp, I mean, I think that that would be a much more efficient experience for the ETF.”▶ 27:25 Instead of constant manual rolling, the contract uses an automatic periodic funding rate to anchor its price to the Brent cash index. The fund buys once, holds its exposure, and never eats roll slippage again.

Retail Longs Get Cut Out of 100 Percent Borrow Fees

In equity markets, when hedge funds aggressively short a stock, borrow rates explode. Yet the retail investors holding those shares rarely see the upside.

“Suppose you are a retail investor, and you own a hard-to-borrow stock, and you know, that all the hedge funds want to short, they're paying 100% annualized to short this stock,”▶ 28:00 Wilson noted. In the traditional financial system, prime brokers and custodians capture those lending fees. The retail shareholder taking the long risk receives virtually none of it.

A perpetual contract flips the incentive structure. “Now if instead you own the perp, then mechanically it's going to pass through,”▶ 28:38 Wilson explained. In a perpetual market, when short demand spikes, the funding rate drops into negative territory. Short holders must pay that rate directly to long holders every funding period. The retail long receives the cash yield directly, without an intermediary slicing off the profit.

Stripping the Crypto Chaos Out of Market Design

Regulators have historically treated perpetual futures with extreme suspicion, associating them with offshore crypto exchanges, 100x leverage, and sudden liquidations. Wilson argues this conflates the contract design with its early implementation.

“You could list a perp with reasonable leverage and no auto-deleveraging, and it would be a very useful economic instrument,”▶ 32:02 Wilson said. Clearinghouses already manage standard margin calls and default funds for traditional futures without seizing profitable trader positions. Bringing perps into traditional clearing frameworks offers the capital efficiency of an unexpiring position without crypto liquidation cascades.

What to Do With This

If you trade synthetic exposures or track commodities via ETFs, audit your holding costs this week. Calculate the difference between spot asset performance and your fund's net return over the past 12 months to measure roll drag. When building fintech or trading products, design funding-rate mechanics into synthetic contracts rather than forcing users to roll quarterly positions.