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 misdirected, as the risk is inherent to the venue's design, not the contract. The venue's choices, such as leverage caps, margin rules, and default management, determine the level of risk. The recent crypto market deleveraging episodes, including the October 2025 cascade, were caused by a combination of factors, including macro shocks, stablecoin de-pegs, and exchange outages. The liquidation cascade, which is usually triggered by forced liquidations, can be mitigated by a well-designed venue. The key to minimizing risk is not to ban perpetuals, but to ensure that the trading venue is built with robust risk management mechanisms, including segregated funds, registered clearing entities, and regulatory oversight. Institutions may not want perpetuals as a replacement for regulated futures, but they can use them to hedge delta exposure. The liquidity of perpetuals, driven by retail flow, can be a valuable asset for institutions. The question is not whether perpetuals are dangerous, but 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, a well-designed venue can break the chain of risk that turns a blown-out account into a market-wide cascade.