The Misguided Debate Over Perpetual Futures and Systemic Risk

The introduction of perpetual futures into regulated markets has sparked concerns about systemic risk. However, the criticism is misplaced, as the risk is inherent to the venue's design, not the contract. The venue's choices, such as leverage caps, margin, funding design, and default management, determine the level of risk. The recent deleveraging episodes in crypto, including the October 2025 cascade, were caused by a combination of factors, including macro shocks, stablecoin de-pegs, and exchange outages. The liquidation cascade, which is often triggered by forced liquidations, can lead to a systemic event. Nevertheless, this is not a feature of perpetuals, but rather a result of venue design. The real question is how a given venue is built, with regulatory requirements providing a baseline for security. The way a venue handles defaults under stress is a separate choice, varying even within regulated markets. A more valid concern is whether institutions want perpetuals at all, with some arguing that they are speculative and not a replacement for regulated futures. However, institutions are using perpetuals to hedge delta, not as a substitute for dated futures, but because they offer liquidity. The liquidity edge of perpetuals is structural, drawn in by retail, and can be safely utilized by institutions with proper default management. The debate surrounding perpetuals is not about their inherent danger, but about how venues handle defaults under stress. Regulated clearing has established a standard for containing systemic risk, which is also the standard that Bullish is working towards. By containing defaults at their source, rather than transmitting them to the 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 critics fear. Meeting this standard can make perpetuals a useful infrastructure for institutions, while missing it can lead to the hazards that critics describe.