The Misguided Debate Over Perpetual Futures and Systemic Risk

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 misplaced, as the risk is inherent to the venue's design, not the contract itself. The venue's choices, such as leverage caps, margin rules, and default management, 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, rather than the perpetual futures contracts. The real question is not whether perpetuals belong in regulated markets, but how a given venue is built to handle risk. Regulatory requirements, such as segregated funds and a registered clearing entity, are essential to securing the baseline. The way a venue handles defaults under stress is a separate choice, and it varies even within the regulated perimeter. A more significant objection to perpetuals is that institutions may not want them, as they are seen as speculative rather than a replacement for regulated futures. However, institutions are using perpetuals to hedge delta, not as a substitute for dated futures, but because they offer liquidity. The design of perpetuals draws in retail flow, which concentrates liquidity in these instruments, making them attractive to institutions. The key to using perpetuals safely is institutional-grade default management, which contains systemic risk. The debate around perpetuals is not about their inherent danger but about how a venue handles defaults under stress. Regulated clearing has established a standard for decades, which is also the standard that Bullish is building towards. By containing defaults at their source, rather than transmitting them to the market, venues can break the chain that turns a blown-out account into a market-wide cascade, thereby reducing systemic risk.