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 criticism is misdirected, as the risk is not inherent to the contract itself, but rather a result of the venue's design. The actual risk lies in the choices made by the venue, such as leverage caps, margin rules, 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, and exchange outages. The risk transmission mechanism, which is usually a liquidation cascade, is what turns a sell-off into a systemic event. This cascade is often triggered by venue choices, such as a manipulable index that liquidates on false prices and auto-deleveraging that claws back profitable trades to cover a shortfall.
These features 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, a registered clearing entity, and a supervisor's oversight, are necessary to secure the baseline. However, how a venue handles a default under stress is a separate choice, and it varies even within the regulated perimeter.
Another objection worth considering is that institutions may not want perpetuals at all. A recent JPMorgan note found limited institutional appetite for perpetuals, treating them as speculative rather than a replacement for regulated futures.
This is correct in terms of the mechanics, as perpetuals fall short as a substitute for dated futures due to their variable funding and basis risk. However, institutions are not using perpetuals as a replacement for dated futures, but rather to hedge delta, as they offer the deepest and most continuously tradable delta-one instruments available. The liquidity edge of perpetuals is structural, drawn in by retail flow, and is the overlooked prize in bringing perpetuals onshore. The two halves of the debate are one: the liquidity institutions want already exists, drawn in large part by retail, and what lets them use it safely is institutional-grade default management.
The question was never whether perpetuals are dangerous, but how a venue handles a default when the market is under stress. Regulated clearing has established the standard for decades, which is also the standard Bullish is building toward.
When a liquidation's shortfall outruns the insurance fund, the backstop is to socialize losses, but the clearing model works differently. It starts with the defaulter, whose own margin and fund contribution absorb the first loss, and the position is worked off through the order book or auctioned to other clearing members.
Behind that sits a pre-funded guaranty fund sized to regulated clearinghouse standards, with broad loss-sharing only beyond that, and rarely. This design breaks the chain that turns one blown-out account into a market-wide cascade, containing the failure at its source rather than transmitting it. By meeting this standard, perpetuals can become infrastructure institutions can use, but missing it would pose the hazard critics describe, regulated or not. Perpetuals were never the whole story; the design is.