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 pose a threat to the stability of the market. However, this critique is misplaced, as the risk is not inherent to the contracts themselves, but rather a result of the venue on which they are traded. The design of the venue, including factors such as leverage caps, margin rules, and default management, plays a crucial role in determining the level of risk. 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 ensued was exacerbated by venue choices, such as manipulable indexes and auto-deleveraging, which are not inherent to perpetual futures. The real question is not whether perpetuals belong in regulated markets, but rather how a given venue is designed and built. Regulatory requirements, such as segregated funds, registered clearing entities, and supervisory oversight, are necessary to establish a baseline level of security. However, the way a venue handles defaults under stress is a separate choice that can vary even within regulated markets. A more significant objection to perpetuals is that institutions may not want them at all, as they are often seen as speculative rather than a replacement for regulated futures. A recent JPMorgan note found limited institutional appetite for perpetuals, citing their lack of term structure and basis risk. However, this critique overlooks the fact that institutions are not using perpetuals as a replacement for dated futures, but rather as a tool for hedging delta. Many institutions trading options on venues like Bullish use perpetuals to hedge their directional exposure to the underlying price, taking advantage of the liquidity that these instruments provide. The design of perpetuals, which allows for continuous trading without expiry or roll, draws in retail flow and concentrates liquidity. This liquidity edge is structural and provides a deep, durable pool of liquidity that institutions can use safely, provided that the venue has institutional-grade default management in place. The question is not whether perpetuals are dangerous, but rather how a venue handles defaults when the market is under stress. Regulated clearing has established a standard for decades, which is also the standard that Bullish is building towards. By having a pre-funded guaranty fund and a clearing model that starts with the defaulter's own margin and fund contribution, the risk of a default can be contained, breaking the chain that turns one blown-out account into a market-wide cascade. This design difference is what distinguishes a venue that contains a failure from one that transmits it, and it is the transmission that poses the systemic risk that critics fear. By meeting this standard, perpetuals can become infrastructure that institutions can use, rather than a hazard that critics describe.