The Misguided Debate Over Perpetual Futures and Systemic Risk

The introduction of perpetual futures into regulated markets has sparked concerns about systemic risk, with critics warning that these high-leverage instruments will import instability. However, this critique is misdirected, as the risk is not inherent to the contract, but rather a result of the venue's design. The true risk lies in the choices made by the venue, such as leverage caps, margin requirements, and default management. The recent deleveraging episodes in the crypto market, including the October 2025 cascade, were caused by a combination of factors, including macro shocks, stablecoin de-pegs, and exchange outages. The liquidation cascade that followed was exacerbated by venue choices, such as manipulable indexes and auto-deleveraging. These issues are not inherent to perpetual futures, but rather a result of poor venue design. The real question is not whether perpetuals belong in regulated markets, but rather how a given venue is built. Regulatory requirements, such as segregated funds and registered clearing entities, are necessary to secure the baseline. However, the way a venue handles defaults under stress is a separate choice, and it varies even within regulated markets. 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, citing their speculative nature and imperfections as a replacement for regulated futures. However, this objection is based on a misunderstanding of how institutions use perpetuals. Many institutions use perpetuals to hedge delta, not as a replacement for dated futures, but because they offer liquidity. The liquidity edge of perpetuals is structural, drawn in by retail flow, and concentrated in perpetuals. This liquidity is the overlooked prize in bringing perpetuals onshore, providing a deep and durable pool of liquidity for hedging desks. The debate over perpetuals is not about their inherent risk, but about how venues handle defaults. Regulated clearing has established a standard for decades, which is also the standard that Bullish is building towards. By containing defaults at their source, rather than force-feeding them into a falling market, venues can break the chain that turns a blown-out account into a market-wide cascade. This is the difference between a venue that contains a failure and one that transmits it, and it is the transmission that poses systemic risk. By meeting this standard, perpetuals can become infrastructure that institutions can use safely.