The Misguided Debate Over Perpetual Futures and Systemic Risk

As perpetual futures enter the realm of regulated markets, concerns about their potential to introduce systemic risk have grown. However, this criticism is misplaced, as the true source of systemic risk lies not in the contracts themselves, but in the design of the trading venues on which they are traded. Factors such as leverage caps, margin requirements, funding design, and default management all play a role in determining the level of risk. The recent episodes of sharp deleveraging in the crypto market, including the October 2025 cascade, were the result of a combination of factors, including macroeconomic shocks, stablecoin de-pegs, exchange outages, and oracle failures, rather than the inherent properties of perpetual futures. The key to preventing such events from escalating into systemic crises lies in the implementation of robust risk management mechanisms, including segregated funds, registered clearing entities, and regulatory oversight. The real question is not whether perpetual futures belong in regulated markets, but rather how a given venue is designed to handle potential risks. Institutional appetite for perpetual futures may be limited due to their speculative nature and lack of term structure, but they can still serve as a valuable tool for hedging delta exposure. The liquidity provided by perpetual futures, driven in part by retail investors, can be a significant advantage for institutions seeking to manage risk in real-time. By prioritizing institutional-grade default management and regulated clearing, it is possible to create a safe and stable environment for the trading of perpetual futures, allowing them to become a valuable infrastructure for institutions. Ultimately, the design of the trading venue, rather than the contracts themselves, is the key to mitigating systemic risk and ensuring the stability of the market.