The Misguided Debate Over Perpetual Futures and Systemic Risk

The introduction of perpetual futures into regulated markets has sparked concerns about systemic risk, driven by high-leverage and retail-driven instruments. However, this critique is misplaced, as the risk is inherent to the venue's design, including leverage limits, margin rules, and default handling, rather than the contract itself. The real issue is how a venue is built, with regulatory requirements providing a baseline for security, and the handling of defaults under stress being a separate choice. Institutions may not want perpetuals as a replacement for regulated futures due to their speculative nature and basis risk, but they can be useful for hedging delta exposure, where liquidity is more important than term structure. The key to safe usage is institutional-grade default management, which contains systemic risk. The debate surrounding perpetuals is not about their inherent danger, but about how venues handle defaults during times of market stress, with regulated clearing providing a standard for decades. By meeting this standard, perpetuals can become a valuable tool for institutions, rather than a hazard.