The Misguided Debate Over Perpetual Futures and Systemic Risk

The introduction of perpetual futures into regulated markets has sparked concerns about systemic risk, driven by high-leverage retail trading. However, this criticism is misplaced, as the risk is inherent to the trading venue, not the contract. Venue choices such as leverage caps, margin rules, and default management are the primary factors that contribute to systemic risk. The recent crypto market downturns, including the October 2025 cascade, were caused by a combination of macro shocks, stablecoin de-pegs, exchange outages, and oracle failures, which led to a liquidation cascade. This cascade was exacerbated by venue choices, including manipulable indexes and auto-deleveraging, rather than the perpetual futures contracts themselves. The key to mitigating systemic risk lies in the design of the trading venue, including regulatory requirements such as segregated funds, registered clearing entities, and supervisory oversight. The real question is not whether perpetual futures belong in regulated markets, but how the venue is built to handle defaults and liquidations. Institutional appetite for perpetuals may be limited due to their speculative nature and basis risk, but they can still be useful for hedging delta exposure. Many institutions use perpetuals to hedge delta because they offer the deepest and most continuously tradable delta-one instruments available, despite their limitations as a replacement for dated futures. The liquidity edge of perpetuals is structural, drawn in by retail traders, and can be safely utilized by institutions with proper default management. The debate surrounding perpetuals is not about their inherent danger, but about how venues handle defaults and liquidations. Regulated clearing has established a standard for managing defaults, which is also the standard that Bullish is building towards. By containing defaults at their source and preventing liquidation cascades, venues can break the chain of systemic risk and provide a safe infrastructure for institutions to use perpetuals.