The Misguided Debate Over Perpetual Futures and Systemic Risk

As perpetual futures enter regulated markets, concerns about systemic risk have emerged, with many arguing that these high-leverage instruments will pose a threat to the stability of the financial system. However, this criticism is misplaced, as the true source of systemic risk lies not in the contracts themselves, but in the design of the venues on which they are traded. The risk is determined by factors such as leverage limits, margin rules, index construction, and default handling, which are inherent to the venue, not the contract. The recent episodes of deleveraging in the crypto market, including the October 2025 cascade, were caused by a combination of macro shocks, stablecoin de-pegs, exchange outages, oracle failures, over-leverage, and thin liquidity. What turned these sell-offs into systemic events was the risk transmission mechanism, specifically the liquidation cascade, which is usually triggered by venue choices such as manipulable indexes and auto-deleveraging. These features are not inherent to perpetual futures. The real question is not whether perpetual futures belong in regulated markets, but how a given venue is designed. Regulatory requirements are necessary to establish a baseline, including segregated funds, a registered clearing entity, and oversight. However, the way a venue handles defaults under stress is a separate choice, and it varies even within regulated markets. A more valid concern is that institutions may not want perpetual futures at all, as they are not a replacement for regulated futures due to their variable funding and basis risk. Nevertheless, institutions are using perpetual futures to hedge delta, not as a substitute for dated futures, but because of the liquidity they offer. The liquidity edge of perpetual futures is structural, drawn in by retail flow, and concentrated by design. This liquidity is the overlooked prize in bringing perpetual futures onshore, providing a deep and durable pool of liquidity for hedging desks. The debate surrounding perpetual futures is not about their inherent risk, but about how venues handle defaults under stress. 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 transmitting them to the market, venues can break the chain that turns a blown-out account into a market-wide cascade, thereby eliminating the systemic risk that critics fear.