The introduction of perpetual futures to regulated markets has sparked concerns about systemic risk due to their potential for high-leverage trading. However, the criticism is misplaced, as the risk is not inherent to the contract itself, but rather a result of the venue's design.
The venue's choices, such as leverage caps, margin rules, and default management, are the primary factors that contribute to systemic risk. The recent deleveraging episodes in the crypto market, including the 2025 cascade, were caused by a combination of macro shocks, stablecoin de-pegs, exchange outages, oracle failures, over-leverage, and thin liquidity. The liquidation cascade, which is often triggered by forced liquidations, can lead to a systemic event. However, this is not a feature of perpetual futures, but rather a result of the venue's design.
The real question is not whether perpetuals belong in regulated markets, but how a given venue is built and how it handles defaults under stress. Regulatory requirements, such as segregated funds, registered clearing entities, and supervisory oversight, are necessary to secure the baseline.
Nevertheless, the way a venue handles a default under stress is a separate choice that varies even within the regulated perimeter. A more significant objection to perpetuals is that institutions may not want them at all.
A recent JPMorgan note found limited institutional appetite for perpetuals, treating them as speculative rather than a replacement for regulated futures. This is correct in terms of mechanics, as perpetuals fall short as a substitute for dated futures due to their variable funding and basis risk. However, institutions are not looking to replace dated futures with perpetuals. Instead, they use perpetuals to hedge delta, as they offer the deepest and most continuously tradable delta-one instruments available.
The liquidity edge of perpetuals is structural, drawn in by retail flow, and is the overlooked prize in bringing perpetuals onshore. The debate surrounding perpetuals is not about their danger, but about how a venue handles defaults under stress.
Regulated clearing has established a standard for decades, which is also the standard that Bullish is building towards. When a liquidation's shortfall outruns the insurance fund, the backstop is to socialize losses through auto-deleveraging.
In contrast, the clearing model starts with the defaulter, whose own margin and fund contribution absorb the first loss, and the position is worked off through the order book or auctioned to other clearing members. This approach breaks the chain that turns one blown-out account into a market-wide cascade, containing the risk at its source rather than transmitting it to the market. By meeting this standard, perpetuals can become infrastructure that institutions can use safely.