The Misdirected Concern Over Perpetual Futures and Systemic Risk

The introduction of perpetual futures into regulated markets has sparked concerns about systemic risk due to their potential for high-leverage, retail-driven trading. However, the critique is misplaced, as the risk is inherent to the venue's design, not the contract. The venue's choices, such as leverage caps, margin requirements, and default management, dictate the level of risk. The contract itself is not inherently risky. Recent deleveraging episodes in crypto, including the October 2025 cascade, have been caused by a combination of factors, including macro shocks, stablecoin de-pegs, and exchange outages. The liquidation cascade, which transmits risk across venues, is often triggered by venue choices, such as manipulable indexes and auto-deleveraging. These features are not inherent to perpetual futures. The real question is how a venue is designed, and regulatory requirements are necessary to establish a baseline level of security, including segregated funds and oversight. The way a venue handles defaults under stress is a separate choice that varies even within regulated markets. A more valid concern is whether institutions truly want perpetual futures, as a recent JPMorgan note found limited appetite for them, viewing them as speculative rather than a replacement for regulated futures. However, institutions use perpetuals to hedge delta exposure, not as a substitute for dated futures, due to the liquidity they offer. The liquidity edge of perpetuals is structural, drawn in by retail flow, and this is the overlooked benefit of bringing perpetuals into regulated markets. The debate surrounding perpetual futures is not about their inherent risk but about how venues handle defaults. Regulated clearing has established a standard for decades, which Bullish is working towards, having filed to operate as a regulated contract market and clearinghouse. The clearing model absorbs losses through the defaulter's margin and fund contribution, followed by a pre-funded guaranty fund, breaking the chain that turns a default into a market-wide cascade. This design difference is what separates a venue that contains a failure from one that transmits it, and it is the transmission that poses systemic risk. Meeting this standard makes perpetuals infrastructure that institutions can use safely.