The Misguided Debate Over Perpetual Futures and Systemic Risk

The introduction of perpetual futures to regulated markets has sparked concerns about systemic risk, with critics warning that these high-leverage instruments could destabilize the market. However, this critique is misdirected, as the risk is not inherent to the contract itself, but rather a result of the venue's design. The real issue lies in the choices made by the venue, such as leverage caps, margin rules, and default management. The risk of systemic events is not unique to perpetual futures, but rather a result of the liquidation cascade that can occur when a sell-off is triggered by a combination of factors, including macro shocks, stablecoin de-pegs, and exchange outages. The key to mitigating this risk is not to ban perpetual futures, but rather to ensure that the venue is designed with robust risk management measures in place, including segregated funds, a registered clearing entity, and a supervisor's oversight. The question is not whether perpetuals belong in regulated markets, but rather how a given venue is built to handle defaults and liquidations. Regulatory requirements are necessary to secure the baseline, but the real challenge lies in designing a venue that can contain a failure, rather than transmit it. The debate over perpetual futures is not about the contract itself, but about the design of the venue and the risk management measures in place. Institutions are not looking to use perpetuals as a replacement for regulated futures, but rather as a tool to hedge delta exposure, and the liquidity edge provided by perpetuals is a structural advantage that can be safely utilized with institutional-grade default management. The key to unlocking this potential is to design a venue that can handle defaults and liquidations in a way that contains the risk, rather than transmitting it to the broader market. The question was never whether perpetuals are dangerous, but rather how a venue handles a default when the market is under stress. Regulated clearing has established the standard for decades, and it is the standard that Bullish is building toward, having filed with the CFTC to operate as a regulated contract market and clearinghouse. By designing a venue that can contain a failure, rather than transmit it, perpetuals can become a valuable tool for institutions, providing a deep and durable pool of liquidity that can be safely utilized.