The Real Risk in Perpetual Futures: Venue Design, Not the Contract Itself

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 perpetual futures contract itself, but rather a result of the venue's design. The venue's choices, such as leverage caps, margin rules, and default management, are what determine the level of risk. The recent episodes of deleveraging 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 liquidation cascade that ensued was not a result of the perpetual futures contract, but rather the risk transmission mechanism, which is typically triggered by forced liquidations and shared reference pricing. The real question is not whether perpetuals belong in regulated markets, but how a given venue is built. Regulatory requirements, such as segregated funds and a registered clearing entity, are necessary to secure the baseline. However, the way a venue handles defaults under stress is a separate choice, and it varies even within the regulated perimeter. A more valid concern is that institutions may not want perpetuals at all, as they are not a replacement for regulated futures. A recent JPMorgan note found limited institutional appetite for perpetuals, treating them as speculative rather than a replacement for regulated futures. This is correct when it comes to the mechanics, as perpetuals fall short as a substitute for dated futures. However, institutions are not using perpetuals as a replacement for dated futures, but rather to hedge delta, and the liquidity of perpetuals is what makes them attractive. The design of perpetuals draws in retail flow, which concentrates liquidity in these instruments. This liquidity edge is structural, and it 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. 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. None of this completely eliminates risk, but it breaks the chain that turns one blown-out account into a market-wide cascade. That is the difference between a venue that contains a failure and one that transmits it, and the transmission is the systemic risk the critics fear. Meet that standard and perpetuals become infrastructure institutions can use; miss it and we have the hazard critics describe, regulated or not.