The introduction of perpetual futures to regulated markets has sparked concerns about systemic risk, with critics warning that these high-leverage instruments could destabilize the market. However, this criticism is misguided, as the risk is not inherent to the contract itself, but rather a result of the venue's design. The true risk lies in the venue's choices, such as leverage caps, margin requirements, funding design, and default management.
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, exchange outages, oracle failures, over-leverage, and thin liquidity. The liquidation cascade that ensued was exacerbated by venue choices, such as manipulable indices and auto-deleveraging, which are not inherent to perpetual futures.
The real question is not whether perpetuals belong in regulated markets, but how a given venue is built. Regulatory requirements, such as segregated funds, registered clearing entities, and supervisor oversight, are necessary to establish a baseline. However, how a venue handles a default under stress is a separate choice that varies even within regulated markets.
A more valid concern is that institutions may not want perpetuals at all, as they may not be suitable as a replacement for regulated futures due to their variable funding and basis risk. 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 flow, and is the overlooked prize in bringing perpetuals onshore.
The debate surrounding perpetuals is not about whether they are dangerous, but about how a venue handles a default 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 containing the systemic risk through institutional-grade default management, perpetuals can become a safe and reliable tool for institutions.
The key is to break the chain that turns a single default into a market-wide cascade, by absorbing the loss at its source, rather than transmitting it to the rest of the market. This is the difference between a venue that contains a failure and one that transmits it, and it is the transmission that critics fear. By meeting this standard, perpetuals can become infrastructure that institutions can use, rather than a hazard that critics describe.