The Misguided Debate Over Perpetual Futures and Systemic Risk

The introduction of perpetual futures into regulated markets has sparked concerns about systemic risk, but this criticism is misplaced. The true source of risk lies in the design of the trading venue, including leverage limits, margin rules, and default handling, rather than the perpetual futures contract itself. The risk of systemic events is not inherent to perpetual futures, but rather a result of the venue's design choices. The real question is not whether perpetual futures belong in regulated markets, but how the venue is designed to handle stress and potential defaults. Regulatory requirements are essential to establishing a baseline level of security, but the way a venue handles defaults under stress is a separate consideration. Institutions may not want perpetual futures as a replacement for regulated futures, but they can be useful for hedging delta exposure. The liquidity of perpetual futures is a significant advantage, drawing in both retail and institutional traders. By providing a deep and durable pool of liquidity, perpetual futures can be a valuable tool for institutions, but only if the venue is designed to handle defaults safely. The key to containing systemic risk is not the elimination of perpetual futures, but rather the implementation of robust default management and clearing practices. Regulated clearing has established a standard for decades, and it is this standard that Bullish is working towards, having filed with the CFTC to operate as a regulated contract market and clearinghouse. By meeting this standard, perpetual futures can become a valuable infrastructure for institutions, rather than a source of systemic risk.