The introduction of perpetual futures into regulated markets has sparked concerns about systemic risk, with critics warning that these high-leverage instruments could destabilize 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 key factors that contribute to systemic risk are leverage caps, margin rules, index construction, and default management, which are all choices made by the venue.
The real question is not whether perpetuals belong in regulated markets, but how a given venue is built to mitigate these risks. Regulatory requirements, such as segregated funds and a registered clearing entity, are essential to securing the baseline, but it is the venue's handling of defaults under stress that varies and can have a significant impact.
A more valid concern is whether institutions want perpetuals at all, as they may not be a suitable replacement for regulated futures due to their mechanics. 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 what allows institutions to use it safely is institutional-grade default management. The debate surrounding perpetuals is not about their inherent danger, but about 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 toward. By containing defaults at their source, rather than transmitting them to the market, perpetuals can become a safe and useful tool for institutions.