The Misguided Debate Over Perpetual Futures and Systemic Risk

The introduction of perpetual futures into regulated markets has sparked concerns about systemic risk, driven by high-leverage retail trading. However, this criticism is misplaced, as the risk is inherent to the trading venue, not the contract itself. The venue's design, including leverage caps, margin rules, and default management, is the primary factor in determining systemic risk. The recent crypto market downturns, such as the October 2025 cascade, were caused by a combination of factors, including macro shocks, stablecoin de-pegs, and exchange outages, which led to a liquidation cascade. This cascade was exacerbated by venue choices, such as manipulable indexes and auto-deleveraging, rather than the perpetual futures contracts themselves. The key to mitigating systemic risk lies in the design of the trading venue, including the implementation of regulatory requirements, such as segregated funds, registered clearing entities, and supervisory oversight. The real question is not whether perpetual futures belong in regulated markets, but how the venue is built to handle defaults and liquidations under stress. A recent JPMorgan note found that institutions have limited appetite for perpetual futures, viewing them as speculative rather than a replacement for regulated futures. However, this perspective overlooks the fact that institutions use perpetual futures to hedge delta, taking advantage of the liquidity they provide. The liquidity edge of perpetual futures is structural, driven by retail demand for no-expiry, continuously tradable contracts. This liquidity is a valuable asset for institutions, which can use it safely with the implementation of institutional-grade default management. The debate surrounding perpetual futures is not about their inherent risk, but about how venues handle defaults and liquidations under stress. Regulated clearing has established a standard for managing defaults, which is also the standard that Bullish is working towards. By containing defaults at their source, rather than transmitting them to the broader market, venues can break the chain of liquidation cascades and mitigate systemic risk. Ultimately, perpetual futures can become a valuable infrastructure for institutions if venues are designed to handle defaults and liquidations safely.