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, 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 rules, 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 venue choices, is the primary mechanism for risk transmission. To mitigate this risk, regulatory requirements, such as segregated funds, registered clearing entities, and supervisory oversight, are essential. The real question is not whether perpetuals belong in regulated markets but how a given venue is designed. Institutions may not want perpetuals as a replacement for regulated futures due to their speculative nature and basis risk. However, perpetuals can be used to hedge delta, and their liquidity edge is structural, drawn in by retail flow. The design that concentrates liquidity in perpetuals is the overlooked prize in bringing them onshore. The debate surrounding perpetuals is not about their inherent 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 toward. By containing defaults at their source, rather than transmitting them to the market, the risk of a market-wide cascade can be broken. 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 viable infrastructure for institutions to use.